Were separately bid engineering, setup, movement, and placement services for production sets and trade-show booths taxable?

Plain-English summary

Florida ruled that charges for engineering, setup, movement, placement, and striking of production sets and trade-show booths were not part of the taxable sales price on these facts.

The taxpayer separately bid the labor, separately itemized it on invoices, and allowed the customer to accept or reject individual labor items. Customers could pick up the fabricated set using their own labor, buy the set without services, or buy labor independently. The services were also performed at the purchaser's direction and control.

Because the customer alone could avoid the services and the labor was completely independent of the set's production, the charges were optional services rather than part of the taxable tangible-personal-property sale.

What this means for you

Fabricators and production vendors

Optionality must be real and documented. Use separate bids and invoice lines, and allow customers to buy the product without purchasing your setup or engineering services.

Accountants and tax professionals

The TAA applied the distinction between vendor-imposed incidental charges, which enter sales price, and separately stated services that the buyer alone can decline.

Common questions

Why was the labor not taxable? The customer could independently reject or avoid it, and it was separately bid and itemized.

Could the customer buy only the fabricated set? Yes. The ruling says customers could use their own labor to pick up and handle the set or booth.

Would mandatory setup charges receive the same result? This TAA did not decide that situation. Its determination depended on the services being entirely optional.

Citations and references

• Fla. Stat. § 212.02(16)
• Fla. Stat. § 212.05
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-027

Original ruling text

SUMMARY

QUESTION: Are charges on an invoice for engineering, set
up, and placement at the option of the purchaser of film or
video sets taxable?

ANSWER - Based on Facts Below: Charges made by Taxpayer for
engineering, set up, and placement of film and video
production sets was not part of "sales price" when: the
purchaser required separate bids for labor charges; labor
was completely independent of set production; bids could be
rejected for any part; labor charges were separately
itemized on invoices; and the purchaser could opt for
material or labor only.

Jun 04, 1999

Re: Technical Assistance Advisement TAA 99A-027
Optional Service Charges
Sales and Use Tax
Section 212.05, F.S., Section 212.02(16), F.S.

Dear :

This is in response to your letter dated XX, requesting a
technical assistance advisement regarding optional service
charges for trade show and movie and television industry sets.

ISSUE

Whether optional charges for engineering and other services to
set up, move, and remove booths and sets are subject to tax.

FACTS

Taxpayer designs and fabricates booths for trade shows and sets
for television, movie, and theme parks. Taxpayer also provides
various services to the movie and television industry.

Taxpayer's customers have the option of picking up the sets or
booths manufactured by Taxpayer at the various Taxpayer
locations using the customer's own labor or acquiring labor
services from Taxpayer, separate and apart from the cost of the
set. The charge to the customer for the set made available to
the customer at Taxpayer's location includes the manufacture of
the item of tangible personal property. Taxpayer collects sales
tax on the price of the set manufactured.

At the customer's option, Taxpayer may be asked to bid on sales
of tangible personal property or bid on labor services. Often
Taxpayer is asked to provide labor only, such as engineering,
grip, or supervisory labor. In a bid on a job, Taxpayer sets
forth separate line items for the construction of the set, the
set up and strike labor, the shoot labor, engineering
supervision, if requested, as well as special effects and
special effects labor. The purchaser has the opportunity to, and
at its option can, pick and choose among items of service and/or
construction that it would have Taxpayer provide.

Set up and strike of production sets include the unloading,
sweeping, putting up of sets, taking down sets, moving sets, and
other tasks at the direction of a director. Taxpayer performs
an assortment of tasks on the set, including the transport and
set up equipment, props, and scenery; laying dolly tracks; and
pushing the dolly during shooting. This labor is separate and
apart from the cost of production of the set.

Customers purchase Taxpayer's services for reasons independent
of purchasing a set. Customers may be under cost constraints
such that they require skilled laborers who can perform quickly
and in a totally reliable fashion. Due to a shortage of such
laborers, customers may purchase Taxpayer's services to perform
specific highly skilled tasks unrelated to the production of the
sets. Since sets must be placed in a precise manner and there
are substantial fixed daily costs, familiarity with the use of
sets is necessary. Once the decision is made to purchase
Taxpayer's services, they are usually under the complete
direction and control of the purchaser's director.

TAXPAYER POSITION

Taxpayer's position is that sales tax must be collected by
Taxpayer on Taxpayer's charge to its customers for the
production of the sets. It is Taxpayer's position that charges
for labor, in addition to the cost of the set, including
separate delivery charges and other charges for labor unrelated
to the manufacture of the set, are not subject to sales or use
tax. The taxpayer relies on Department of Revenue v. B&L
Concepts, Inc., 612 So.2d 720 (Fla.5th DCA 1993), and Florida
Hi-Lift v. Department of Revenue, 571 So.2d 1364 (Fla.1st DCA
1990). Taxpayer maintains that these cases hold that the fact
that a taxpayer may have charged a customer both a rental and
other fees on the same invoice is not a determinate test as to
which items are taxable. See Florida Hi-Lift at 1367.
Taxpayer's charges are made for two items: (1) The production of
a set made ready for pick-up by the customer and/or (2) elective
services, including delivery charges, which are made at the
option of the purchaser. Consistent with the conclusions
reached in B&L Concepts and Florida Hi-Lift, charges that are
incidental to the sale of tangible property that are imposed at
the option of the vendee or can be avoided by the decision or
action of the vendee are not subject to sales tax. The optional
services are not part of the sales price of the set, and
consequently these incidental items of labor are not subject to
tax.

RELEVANT STATUTORY AND CASE AUTHORITY

Unless specifically exempted, all transactions that involve the
sale or use of tangible personal property for a consideration
are subject to sales tax, which is computed on the sales price
of the transaction. Section 212.05, F.S., provides for the
taxation of the sale of tangible personal property, by a person,
based upon the sales price of that property.

That section provides, in part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state....

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(a)1.a. At the rate of 6 percent of the sales price of each
item or article of tangible personal property when sold at
retail in this state, computed on each taxable sale for the
purpose of remitting the amount of tax due the state, and
including each and every retail sale.

The terms "Sale" and "Sales price" are defined in section
212.02(15) and (16), F.S., as:

(15) "Sale" means and includes:
(a) Any transfer of title or possession, or both, exchange,
barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration_.

(16) "Sales price" means the total amount paid for tangible
personal property, including any services that are a part
of the sale, valued in money, whether paid in money or
otherwise, and includes any amount for which credit is
given to the purchaser by the seller, without any deduction
therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest
charged, losses, or any other expense whatsoever. "Sales
price" also includes the consideration for a transaction
which requires both labor and material to alter, remodel,
maintain, adjust, or repair tangible personal property....

The question of whether services are included in the "Sales
price" of the sale of tangible personal property was addressed
in Department of Revenue v. B&L Concepts, Inc., 612 So. 2d 720,
(Fla.5th DCA 1993), where the court held:

We hold that in the context of this problem, the proper
line of demarcation is that if service charges or fees
incidental to the sale or lease are imposed at the option
of the vendor or lessor, those service charges or fees are

a part of the "sales price" and are subject to the sales
tax, but if such service charges or fees are separately
itemized and applied at the sole option or election of the
vendee or lessee, or can be avoided by decision or action
on the part of the vendee or lessee alone, then those
charges and fees are only incidental to the sale, are not
part of the "sales price" and are not subject to sales tax.

DETERMINATION

In the instant case, the charges subject to bid by Taxpayer for
engineering and the set up, movement, and striking of production
sets or trade show booths are not included in the "Sales price"
as defined by section 212.02(16), F.S. The services are
completely independent from the production of such sets, the
purchaser reviews bids separately for all labor charges, and the
purchaser may pick and choose which bid items they can purchase.
As in B&L Concepts, such services are at the purchaser's sole
option. Furthermore, performance by Taxpayer is at the
direction and control of the purchaser for such services.
Therefore, these charges for labor are not subject to tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advise as specified in Section 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes, or judicial interpretations of the
statutes or rules, upon which this advise is based, may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses

and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Charles Wallace
Senior Tax Specialist
Technical Assistance and Dispute Resolution
(850) 922-4734

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