Which charges under three computer-outsourcing agreements were subject to Florida sales tax?

Plain-English summary

Florida taxed the outsourced computer hardware, noncustom software, services that formed part of acquiring those items, and service warranties covering their maintenance or repair. Hardware was tangible personal property, and noncustom software was taxable under the rules then applied.

The ruling distinguished those items from separately analyzed professional or personal services and customized software. Customized software could still become taxable when included as part of a hardware transaction unless the tangible property was inconsequential. Maintenance also depended on whether it was a warranty, an on-request repair, or part of a taxable property transaction.

What this means for you

Computer-outsourcing tax treatment turns on the contract's components, not its overall label. Hardware, software customization, warranties, support, and other services should be separately described and sourced because bundling a service with taxable property can change the result.

Common questions

Q: Was computer hardware taxable? Yes, when sold or leased in Florida.

Q: Was noncustom software taxable? Yes, under the ruling's cited law.

Q: Were hardware maintenance warranties taxable? Yes. A warranty covering taxable hardware or noncustom software was taxable even if it covered labor only.

Q: Did the ruling tax every outsourcing service? No. It separately analyzed many fees and limited its conclusions to the three agreements and transactions described.

Citations and references

• Fla. Stat. §§ 212.05(1), 212.02(15)(a), (16) — taxable property and sales price
• Fla. Stat. § 212.08(7)(v)1. — service transactions
• Fla. Stat. § 212.0506 — service warranties
• Fla. Admin. Code rr. 12A-1.032, 12A-1.105 — computers, software, and warranties
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-039

Original ruling text

SUMMARY

QUESTION: Are certain computer hardware, software, and
specified data processing services contracted for by a
taxpayer subject to tax?

ANSWER - Based on Facts Below: The acquisition of computer
hardware and non-customized software, as well as services
considered to be a part of the acquisition of the hardware
and non-customized software, are subject to tax. Also
subject to tax were service warranties covering the
maintenance or repair of the hardware and non-customized
software.

Aug 17, 1999

Re: Technical Assistance Advisement TAA 99A-039
Sales and Use Tax - Computer Service Outsourcing
Sections 212.05(1), 212.02(16), 212.08(7)(v), 212.0506,
F.S.
Rules 12A-1.032 and 12A-1.105, F.A.C.
Petitioning Party: XXX ("Taxpayer")
Provider of Computer Service Outsourcing: XXX
XXX ("Provider")
Providers of Certain Computer Hardware or Software:
XXX ("Supplier No. 1")
XXX ("Supplier No. 2")
XXX ("Management Agreement 1")
XXX ("Management Agreement 2")
XXX ("Management Agreement 3")

Dear :

This letter is a response to your request dated XX, for the
Department's issuance of a Technical Assistance Advisement
("TAA") concerning the above referenced parties and matter. In
response to the Department's written request of XX, you provided
certain additional information in a letter dated XX. Your

request has been carefully examined and the Department finds it
to be in compliance with the requisite criteria set forth in
Chapter 12-11, F.A.C. This response to your request constitutes
a TAA and is issued to you under the authority of section
213.22, F.S.

I. FACTS PRESENTED

Taxpayer, an out-of-state corporation domiciled in Florida, does
business throughout the United States. Taxpayer is "the parent
corporation of numerous multi-state building and construction
materials suppliers." Currently, Taxpayer "outsources the
majority of its computer hardware and software." There are
"three separate and distinct contracts covering these outsourced
products and services," hereinafter referred to as Management
Agreements 1, 2 or 3. Unexecuted copies of these agreements
have been provided to the Department.

You have stated that the "main intent of [Management Agreement
1] is to manage and support" a data center located in the State
of Florida. In your letter of May 29, 1998, you indicate that
"all benefits of [Management Agreement 1] are realized in
Florida."

In describing Management Agreement 2, you state that the "main
intent" of this agreement is "to provide server and network
support services." You continue by explaining that "the
contract provides for network management of all [Taxpayer]
locations, PC support and leasing of PC's, Local Area Network
(LAN) support, lease of the LAN, and a help desk." You further
indicate that "benefits of [Management Agreement 2] are derived
both within and without Florida." Schedule 2.2 attached to this
agreement contains a listing of two hundred and fifty (250)
Taxpayer locations affected, of which one hundred and twenty-one
(121) are within the State of Florida.

Management Agreement 3 involves the provision of "application
support for [certain specified applications software], houses
the computer equipment to run such applications in the
[Provider] Detroit Data Center, provides technical and
operational support to those systems, and provides disaster

recovery services for such applications." You indicate that
"benefits of [Management Agreement 3] are derived both within
and without Florida."

A significant amount of additional detailed information
regarding these three agreements is contained in the unexecuted
copies of such agreements and in your letters dated May 29, 1998
and June 4, 1999. Relevant portions of such additional
information will be referred to hereinafter as deemed necessary.

II. REQUESTED ADVISEMENT

You have asked a series of questions regarding the taxability of
various fees and charges imposed upon Taxpayer under the terms
of these agreements. Each question will be reproduced in detail
below as it is being specifically addressed.

III. APPLICABLE LAW

Section 212.05, F.S., provides, in part, as follows:

... every person is exercising a taxable privilege who
engages in the business of selling tangible personal
property at retail in this state,..., or who rents or
furnishes any of the things or services taxable under this
chapter,....

(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,....

Section 212.02(15)(a), F.S., defines "sale" as follows:

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. (emphasis

supplied)

Section 212.02(16), F.S., defines "sales price," in part,
as follows:

"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, .... (emphasis supplied)

Section 212.08(7)(v)1., F.S., provides as follows:

Also exempted are professional, insurance, or personal
service transactions that involve sales as inconsequential
elements for which no separate charges are made.

Section 212.0506, F.S., addressing the taxability of
service warranties, provides, in part, as follows:

(1) ... every person is exercising a taxable privilege who
engages in this state in the business of soliciting,
offering, providing, entering into, issuing, or delivering
any service warranty.

(2) For exercising such privilege, a tax is levied on each
taxable transaction or incident, which tax is due and
payable at the rate of 6 percent on the total consideration
received or to be received by any person for issuing and
delivering any service warranty.

(3) ... "service warranty" means any contract or agreement
which indemnifies the holder of the contract or agreement
for the cost of maintaining, repairing, or replacing
tangible personal property. The term "service warranty"
does not include contracts or agreements to repair,
maintain, or replace tangible personal property if such
property when sold at retail in this state would not be
subject to the tax imposed by this chapter,....

(9) Any claim which arises under a service warranty taxable
under this section, which claim is paid directly by the

person issuing such warranty, is not subject to any tax
imposed under this chapter.

Rule 12A-1.032, F.A.C., addressing the taxability of the
sale or lease of computers and related systems, provides, in
part, as follows:

(2) The sale to a consumer of a computer and its related
components is taxable when delivered to a customer in this
state. The rental of a computer and its related
components, including terminal equipment (hardware) which
is physically located in this state, is taxable....

(4) The charge which a computer technician makes for a
customized software package which includes such items as
instructional material, pre-punched cards or programmed
tapes is construed to be a service charge and exempt.
Retail sales of pre-packaged programs for use with
audio/visual equipment or other computer equipment, where
the programs are fully useable by the customer without
modifications and the vendor does not perform a detailed
analysis of the customer's requirements in selecting or
preparing the programs, are taxable as sales of tangible
personal property. However, where the vendor, at the
customer's request, modifies or alters a pre-packaged
program to the customer's specification and charges the
customer for a single transaction, the charge is for a
customized software package and is exempt as a service
transaction.

(5) When a computer technician surveys a customer's needs
and as a result makes recommendations which may include
instructional material, diagrams and layouts, a software
package, including pre-punched cards or programmed tapes,
the charge made is construed to be for professional
services and is exempt.

Rule 12A-1.105(1)(b), F.A.C., defining "service warranty,"
provides as follows:

1. The term "service warranty" means any contract or

agreement which indemnifies the holder of the contract or
agreement for the cost of maintaining, repairing, or
replacing tangible personal property, whether or not the
contract provides for the furnishing of parts.
...
d. Example: A maintenance contract covering the cost of
labor only to repair or maintain computer hardware is a
service warranty. (emphasis supplied)

Rule 12A-1.006(1)(a), F.A.C., addressing the taxability of
repairs made to tangible personal property, provides as follows:

Where parts are furnished by the repairer, the entire
charge the repairer makes to a customer for adjusting,
applying, installing, maintaining, remodeling, or repairing
tangible personal property is taxable....

IV. APPLICATION OF LAW TO FACTS
RELATED CONCLUSIONS

Discussion of Law Generally Applicable

Although each of the three management agreements at issue
here are separate and distinct contracts, covering the provision
of a variety of products and services, the same general statutes
and rules apply to each agreement. Therefore, review of these
statutes and rules is indicated.

The agreements provide for the sale or lease of computer
hardware and software, the maintenance of computer hardware and
software, and the provision of certain professional or personal
services. The sale or lease of computer hardware in Florida is
taxable, since computer hardware is tangible personal property.
Sections 212.05(1), F.S. and 212.02(15)(a), F.S.

A sale, lease or license of "customized" computer software
is taxable when a part of a sale or lease of tangible personal
property, such as computer hardware, unless the tangible
personal property is inconsequential. Section 212.08(7)(v)1.,
F.S., Rule 12A-1.032(4), F.A.C. A sale, lease or license of
"non-customized" computer software is taxable.

To determine the taxability of amounts received for the
maintenance of computer hardware or software, an initial
determination should be made whether such amounts were received:
(1) for the issuance of a "service warranty," within the meaning
of section 212.0506, F.S., or (2) for maintenance performed, not
under the terms of a "service warranty," but performed on an "as
needed" or "as requested" basis.

Amounts received for the issuance of a service warranty are
potentially taxable. The service warranty could provide for
"labor only" repairs, or for "labor and parts" repairs. Section
212.0506(2), F.S., and Rule 12A-1.105(b)1., F.A.C. A service
warranty is defined as any contract or agreement which
indemnifies its holder for the cost of "maintaining, repairing,
or replacing tangible personal property." Section 212.0506(3),
F.S. Therefore, for a warranty to be taxable it must cover
tangible personal property. In Taxpayer's situation, a warranty
covering computer hardware and "non-customized" computer
software would be taxable under section 212.0506, F.S.; however,
a warranty covering "customized" computer software would not be
taxable under such section, since customized software is not
subject to tax as tangible personal property.

The subsequent payment of claims by persons who issue
taxable service warranties are not subject to taxation. Section
212.0506(9), F.S.

Services in the nature of maintenance performed on an "as
needed" or "as requested" basis, and not under the terms of a
service warranty, are taxable when provided as part of the same
transaction as the sale or lease of tangible personal property.

The taxability of the sale of professional or personal
services, to the extent such services are rendered in the
development of "customized" computer software, has been
discussed above. With regard to the taxability of the sale of
other services that may be rendered under the terms of the three
agreements at issue herein, such services are generally not
taxable when sold on a "stand alone" basis. However, they
become taxable when sold as a part of a taxable sale or lease of

tangible personal property, unless the exception contained in
section 212.08(7)(v)1., F.S., applies. Moreover, the mere
separate statement of services and sales on an invoice is not
dispositive as to the taxability of services sold as part of the
same transaction.

Application of Law to Management Agreement 1

A review of the foregoing indicates that rendering the
services at issue will be subject to tax only when they are sold
either as a part of the same transaction as the sale of tangible
personal property, or when they are a service warranty. For
this reason, the focus is whether these management agreements
constitute the sale, lease or license of tangible personal
property to Taxpayer; or, the issuance of a taxable service
warranty to Taxpayer.

Management Agreement 1, entered into between Taxpayer and
Provider, sets out the following in Article 1 as the purpose of
such agreement.

[Taxpayer] is a supplier of building and construction
materials with rapidly increasing operations across the
United States. [Taxpayer] is currently using internal
resources to manage and operate its [Florida] Data
Center,.... [Taxpayer] desires to use an independent
vendor to manage and operate the [Florida] Data Center
during the term of this Agreement.

[Provider] is a premier provider of services of the type
required by [Taxpayer] and wishes to provide [Taxpayer]
with such services in accordance with the terms hereof....
The providing of such services will require close
cooperation between [Taxpayer] and [Provider]. [Taxpayer]
will retain the responsibility for determining the
strategic goals of the [Florida] Data Center and for
designing the technical solutions for achieving such goals.
[Provider] will work at [Taxpayer's] direction to achieve
implementation of such technical solutions and will be
responsible for the ongoing operations of the implemented
solutions.

This Agreement sets forth the terms and conditions pursuant
to which (i) [Provider] will manage and operate the
[Florida] Data Center and (ii) [Provider] will return the
[Florida] Data Center operations to [Taxpayer] or its agent
at the termination or expiration hereof....

Page two of the May 29, 1998, letter states that "the main
intent of [Management Agreement 1] is to manage and support the
[Florida] data center and the equipment housed in the data
center." Page two of the June 4, 1999, letter states that "there
are no [Taxpayer] employees at the [Florida] Data Center. All
personnel are employees of [Provider]." Page four of that
letter states that, typically, Provider staffs the Florida Data
Center on a daily basis with "two Computer Operators, two
Technical Resource Personnel, and one Data Center Manager."

The agreement addresses the provision of two significant
types of tangible personal property: computer hardware and "noncustomized" computer software. The provision of computer
hardware is addressed in paragraph 5.1(a) of the agreement, as
follows:

[Provider] shall supply personal computers for the
[Provider] Staff. [Taxpayer] will supply all other
computer hardware necessary for the operation of the
[Florida] Data center.... (emphasis supplied)

Schedule 5.1(b) attached to the agreement is a ten-page
list of data center computer hardware, identified as "[Supplier
No. 2] Data Center Hardware." This schedule lists, in terms of
quantity, six hundred and eighty-nine (689) items of hardware to
be provided by Taxpayer for use at the Florida Data Center.

The June 4, 1999, letter provides the following information
concerning the personal computers to be supplied by Provider to
its staff.

These PC's are used for E-mail and office functions by
[Provider's] employees. [Provider] employees will take
these PC's with them upon completion of the contract.

These PC's are never utilized by [Taxpayer's] employees....
[The] PC's are analogous to a professionals tools of the
trade."

The provision of computer software is addressed in
paragraph 5.2(a) of the agreement, as follows:

[Provider] will provide a standard suite of office
automation software, including Microsoft Windows, Microsoft
Word, and Microsoft Excel, for the [Provider] Staff and if
appropriate to effectively operate the [Florida] Data
Center, will license Vantive software for the [Provider]
Staff. [Taxpayer] will supply all other software necessary
for the operation of the [Florida] Data Center....
(emphasis supplied)

Schedule 5.2(c)(i), attached to the agreement, is a fourpage list of data center computer software, identified as
"[Supplier No. 2] Data Center Software." This schedule lists,
in terms of quantity, one hundred ninety-nine (199) software
product items to be provided by Taxpayer for use at the Florida
Data Center.

You state:

... the standard suite of office automation software would
be considered tools of the trade and these programs are the
property of [Provider]. As such, [Provider] will take
these programs with them when the contract terminates.

Paragraph 5.3(c) of the agreement, titled "License of
[Provider] Work Product," provides as follows:

[Provider] hereby grants to [Taxpayer] a royalty-free,
nonexclusive, irrevocable, worldwide license, with the
right to sublicense, to use, copy, modify and upgrade (i)
all software programs including source code, documentation
and manuals prepared, developed, designed, produced or
conceived by [Provider], and (ii) other [Provider] work
product in written, graphic, magnetic or other tangible
form prepared, developed, designed, produced or conceived

by [Provider]....

The foregoing language prompted a question by the
Department whether Provider would be developing computer
software during the course of its performance under the
contract. In response, you stated on page two of the June 4,
1999, letter that:

[Provider] does not develop any software. This clause was
included in the contract to [cover] any contingencies in
the event [Taxpayer] opted to have [Provider] develop
software. If [provider] did develop any software, the
software would be based on a time and materials basis and
it would be customized. [Provider] is not writing programs
for the business Service Center; instead they are modifying
existing software. We do not expect there to be any
software development by [Provider] in the future. (emphasis
supplied)

In summary, the foregoing indicates that the computer
hardware and "non-customized" computer software primarily
necessary for the operation of the Florida Data Center is
obtained by Taxpayer from sources independent of Provider; that
is, such tangible personal property is not supplied by Provider
or one of Provider's subcontractors. It appears that the only
computer hardware and "non-customized" computer software
supplied by Provider is that supplied to its employees as "tools
of the trade." Under the facts and circumstances described
herein, these "tools of the trade" would not be considered to be
tangible personal property that has been sold, leased or
licensed to Taxpayer by Provider or one of Provider's
subcontractors.

One instance of a sale of tangible personal property that
does occur under the terms of this agreement may be found in
paragraph 6.1(c) thereof. That paragraph addresses the
development by Provider of a procedures manual. You stated in
the June 4, 1999, letter that this manual was to be made
available "in both hard copy and [electronic] format." However,
you also stated that "not all of the procedures manuals have
been completed...." It appears that the provision of these

manuals is a minor part of this agreement, when such agreement
is viewed in its entirety.

The agreement addresses the provision of maintenance
contracts to cover both computer hardware and computer software.
The maintenance contracts are to cover the computer hardware and
computer software described in Schedules 5.1(b) and 5.2(c)(i),
and referred to as the "[Supplier No. 2] Hardware" and the
"[Supplier No. 2] Software," respectively. It should be noted
that this is the computer hardware and the "non-customized"
computer software to be obtained by Taxpayer from sources
independent of Provider or its subcontractors.

With the foregoing as a foundation, we now proceed to your
list of specific questions. Each question will be reproduced in
its entirety.

1. Is the transition fee required by [Management Agreement 1]
   exempt as both a professional service in accordance with Chapter
   212.08(7)(v), F.S., and as a consulting service as described in
   Rule 12A-1.032(5), F.A.C.?

You have described this fee as follows:

This is a required one time start up cost of $250,000 which
covers the cost of analyzing the business and setting up to
perform work for [Taxpayer]. Specifically, this includes
transitioning the services previously performed internally
by [Taxpayer] to [Provider].

It appears that this fee compensates Provider for
professional or personal services rendered in transitioning the
services involved in managing the Florida Data Center from
Taxpayer to Provider. As such, this fee will not be taxable
unless the services involved are rendered as a part of the sale
of an item or items of tangible personal property. In our
discussions above, we noted that it appears that Provider, the
person charging this fee, has not sold, leased or licensed to
Taxpayer either of the two most significant items of tangible
personal property addressed in the agreement, the computer
hardware and the "non-customized" computer software. Taxpayer

has represented that such hardware and software have been
obtained by it through separate and independent contracts or
agreements with other entities, such as Supplier No. 2. Taxpayer
has represented that, in the case of this agreement, Supplier
No. 2 is not a subcontractor of Provider for the sale, lease or
licensing of the Supplier No. 2 hardware and software utilized
at the Florida Data Center.

Although Provider does develop and supply to Taxpayer a
procedures manual or manuals, as previously discussed, such
items of tangible personal property are considered to be a minor
or inconsequential part of the agreement as a whole. Therefore,
the professional or personal services that are the subject of
this question would not be taxable whether they were or were not
considered to be a part of the sale of the manuals. If the
services are not considered to be a part of the sale of tangible
personal property (the manuals), they are not taxable because
they are not a part of the sale of any item or items of tangible
personal property. If the services are considered to be a part
of the sale of tangible personal property (the manuals), they
are not taxable because the "sale" element of the transaction
(the manuals) is an "inconsequential" part of the transaction,
within the meaning of section 212.08(7)(v)1., F.S.

As discussed in our response to your fourth question
below, it appears that Provider (through its subcontractor,
Supplier No. 2) has issued certain taxable service warranties to
Taxpayer. However, section 212.0506, F.S., controlling the
taxation of service warranties, does not tax otherwise
nontaxable professional or personal services "bundled" with the
issuance of such warranties.

In conclusion, based upon the facts represented to the
Department as stated above, and for the reasons discussed above,
this transition fee would not be taxable.

2. Is the charge for Data Center Management an exempt
   professional service in accordance with Chapter 212.08(7)(v),
   F.S., or is it taxable in accordance with Chapter 212.02(16)(a),
   F.S., since it is bundled with software upgrades?

You have described this charge as follows:

This includes the management and operation of the [Florida]
data center and it encompasses software updates. This is a
monthly fee of $54,000 to cover personnel charges. This
fee is not bundled to any other item covered by [Management
Agreement 1].

As previously discussed, it was the understanding of the
Department that all non-customized computer software utilized at
the Florida Data Center was to be obtained by Taxpayer through
sources independent of Provider or Provider's subcontractors.
Therefore, your question whether the professional or personal
services rendered by Provider in the daily management and
operation of the data center were taxable "since [they are]
bundled with software upgrades" created some confusion. Upon
our inquiry as to the source of these software upgrades, you
replied, by fax dated June 14, 1999, that such upgrades were
obtained by Taxpayer directly from various software vendors, and
not through Provider. It is our further understanding that
Provider renders services in connection with installing these
upgrades.

Since the non-customized computer software involved here,
the software upgrades, has not been provided by Provider, the
services are not rendered as a part of the sale of such tangible
personal property. Such tangible personal property was sold,
leased or licensed to Taxpayer in a separate and distinct
transaction with various unidentified software vendors.

From the foregoing, and as discussed in our response to
your first question, it does not appear that the services
rendered by Provider, and at issue in this question, have been
sold as a part of the sale, lease or license, by Provider to
Taxpayer, of any item or items of tangible personal property.

In conclusion, based upon the facts represented to the
Department as stated above, and for the reasons discussed above,
this charge would not be taxable.

3. Is the charge for Disaster Recovery an exempt professional

service in accordance with Chapter 212.08(7)(v), F.S., since it
is not bundled with the sale of any taxable tangible personal
property?

You have described this fee as follows:

This fee encompasses the recovery of data in the event of a
disaster. [Taxpayer] requested the inclusion of this
service in the contract. This was not a requirement of
[Provider]; therefore, this is not bundled to any other
item in [Management Agreement 1]. The charge is $22,707
per month. The actual support for this service is performed
by [a subcontractor of Provider] which is located [outside
the State of Florida].

The foregoing indicates that performance of services
related to this charge occurs outside of the State of Florida.
Additionally, for the reasons stated in our response to your
first question, it does not appear that any services rendered
would have been sold in connection with the sale by Provider or
its subcontractors, to Taxpayer, of any item or items of
tangible personal property. Therefore, this charge is not
taxable.

4. Are charges for hardware support, maintenance contracts, and
   software support taxable in accordance [with] Rule 12A-1.105(1),
   [F.A.C.]?

It appears that this question related to three items you
have identified, on page three of the May 29, 1998, letter as
"hardware support fee," "maintenance contracts," and "software
support fee." You have described each as follows:

Hardware [S]upport Fee - This is a monthly maintenance
support fee of $12,332. It encompasses installing
equipment, ordering new hardware, resolving hardware
related problems, rebooting systems for repairs, and
coordinating preventive maintenance and repairs. This also
covers the actual hardware maintenance charge which
[Provider] pays to [Supplier No. 2]. This fee is not
bundled with any other product or service in [Management

Agreement 1]. (emphasis supplied)

Maintenance Contracts _ [Taxpayer] pays for maintenance on
its hardware to its hardware supplier, [Supplier No. 2], or
another such alternative as designated by [Management
Agreement 1]. (emphasis supplied)

Software Support Fee _ This is a monthly charge of $6,359
for software support which is paid to [Supplier No. 2] by
[Provider]. This fee encompasses programming products as
well as installing, testing, and supporting third party
software. It is not bundled to any item covered by
[Management Agreement 1]. (emphasis supplied)

On page thirteen of the May 29, 1998, letter you take the
position, with regard to these fees, that "the separate charges
for hardware support, maintenance contracts, and software
support are all taxable in accordance with Rule 12A-1.105(1),
F.A.C., since these charges are for maintenance and support on
taxable computer hardware and software." It should be noted
that Rule 12A-1.105, F.A.C., addresses the taxation of service
warranties. From the foregoing, it appears that you have taken
the position that these fees have been paid to Provider for the
issuance of service warranties.

Section 212.0506(3), F.S., defines service warranties as
agreements which indemnify the holder of the contract or
agreement for the cost of "maintaining, repairing, or replacing"
tangible personal property. It appears that the described fees
are fixed, monthly amounts that must be paid by Taxpayer whether
or not any maintenance is actually rendered during any given
month. Additionally, the property covered, computer hardware and
non-customized computer software, is tangible personal property,
the sale of which within the State of Florida would be taxable;
and, the descriptions of these fees indicate that the services
to be rendered under the terms of the maintenance agreements
involve the maintenance, repair or replacement of such property.
For the foregoing reasons, these fees are considered to have
been received for the issuance of service warranties, within the
meaning of section 212.0506, F.S.

In conclusion, based upon the facts represented to the
Department as stated above, and for the reasons discussed above,
these fees would be taxable as amounts received for the issuance
of service warranties.

5. Is the charge for Security Administration an exempt
   professional service in accordance with Chapter 212.08(7)(v),
   F.S., since it is strictly for labor?

You have described this charge as follows:

This is a monthly service fee which entails adding,
changing, and deleting user identifications to the various
systems at [Taxpayer]. This charge is strictly for labor
and it is not bundled with any other item covered by
[Management Agreement 1].

As described, the foregoing charge compensates Provider for
rendering services. As such, and for the reasons discussed and
explained more fully in our response to your first question, the
Department would not consider it to be taxable.

6. Are charges for Additional Services considered exempt
   professional services in accordance with Chapter 212.08(7)(v),
   F.S., or are some of these charges subject to sales or use tax
   since they may involve repairs or maintenance on tangible
   personal property?

You have described these charges as follows:

These might include training, installing product upgrades,
and maintaining software. Most of these charges are
strictly for services and are billed based on the number of
full time employees utilized to complete the task. These
services are optional at the discretion of [Taxpayer] and
they are not bundled with other products or services in
[Management Agreement 1].

If the above described services are sold as a part of, or
"bundled" with, the sale of an item or items of tangible
personal property (e.g., software upgrades), such services would

be taxable under the authority of sections 212.05(1), F.S., and
212.02(16), F.S.

If any contracts or agreements relating to provision of the
above described services (such as those for "maintaining
software") satisfy the definition of a service warranty, as
previously discussed, amounts received for the issuance of such
warranties would be taxable under the authority of section
212.0506, F.S.

Application of Law to Management Agreement 2

Management Agreement 2, entered into between Taxpayer and
Provider, sets out the following in Article 1 as the purpose of
such agreement.

[Taxpayer] is currently using internal resources to perform
distributed systems management services including, but not
limited to, determining corporate PC hardware and software
standards, planning, procurement of PC, LAN and certain WAN
requirements and coordinating the installation of such
purchases and maintaining the PC, LAN and WAN systems.
[Taxpayer] desires to use an independent vendor to provide
certain planning, procurement and support activities as set
forth in this Agreement during the term of this Agreement.

[Provider] is a premier provider of services of the type
required by [Taxpayer] and wishes to provide [Taxpayer]
with such services in accordance with the terms hereof.
This Agreement sets forth the terms and conditions pursuant
to which (i) [Taxpayer] will transfer to [Provider] certain
of its distributed systems management operations in
accordance with the terms of this Agreement, (ii)
[Provider] will provide distributed systems management
services to [Taxpayer] and (iii) [Provider] will return the
distributed systems management operations to [Taxpayer] or
its agent at the termination or expiration hereof.

On page four of the May 29, 1998, letter you state that the
"main intent of [Management Agreement 2] is to provide server
and network support services." You continue by stating that

"the contract provides for network management of all [Taxpayer]
locations, PC support and leasing of PC's, Local Area Network
(LAN) support, lease of the LAN, and a help desk." (emphasis
supplied) As previously mentioned, Schedule 2.2 attached to this
agreement indicates that at least two hundred and fifty (250)
Taxpayer locations are affected.

On page four of the June 4, 1999, letter, in response to
the Department's request for a definition of a "distributed
systems management" system, you stated:

A "distributed systems management" system is not software.
This is [Provider] terminology to describe managing the
Help Desk and PC's.

As with Management Agreement 1, Management Agreement 2
addresses the provision of two significant types of tangible
personal property, computer hardware and "non-customized"
computer software. The provision of computer hardware is
addressed in paragraph 5.6(a) of the agreement, as follows:

[Taxpayer] shall continue to own all [the equipment listed
on an attached schedule and owned by Taxpayer on the
effective date of this agreement] until such assets are
retired from service. Any additional Network Hardware
acquired by [Provider] for use in the Distributed Network
shall be owned or leased by [Provider].

On page two of the May 29, 1998, letter you stated that
"[Taxpayer] separately leases PC's and Network equipment from
[Supplier No. 1]. Rental payments are made directly to
[Supplier No. 1] by [Taxpayer]."

The foregoing two statements concerning the contracting
party responsible for supplying the computer hardware involved
in this agreement appeared to be conflicting. The agreement
stated that additional computer hardware was to be supplied for
Taxpayer's use by Provider. However, the statement made in the
May 29, 1998, letter implied that Taxpayer obtained the hardware
from an independent vendor, instead of through Provider. Upon
inquiry, you provided the following explanation in the June 4,

1999, letter.

[Taxpayer] pays [Supplier No. 1], but [Supplier No. 1] is a
subcontractor for [Provider]. Payment is handled in this
manner to avoid upcharges from [Provider]. [Supplier No.
1] is providing all the existing hardware; they are
stepping into [Provider's] shoes for this. There is no
contract between [Supplier No. 1] and [Taxpayer]. We have
an attachment... which indicates who is paid for particular
items. One hundred percent of the system hardware is
indirectly acquired through [Provider] by way of [Supplier
No. 1]. (emphasis supplied)

Paragraphs 4.1, 4.2, 4.3, and 5.7 of this agreement address
the provision of the necessary computer software. These
paragraphs indicate that such software may be provided by either
Taxpayer or Provider. In response to the Department's inquiry
whether any non-customized computer software was actually being
sold, leased or licensed to Taxpayer by Provider under this
agreement, you made the following statements.

There is no software provided by [Provider] in this
contract. The language contained in this contract was
"boilerplate" for all three contracts and the provision for
developing software was never utilized. This option exists
to allow us to take advantage of it in the event we so
desired. The option would protect our interest in such
software if it was ever developed. (emphasis supplied)

You explained the provision of the software upgrades
mentioned in paragraph 8.4 of the agreement as follows:

Updates to system software consist of [Provider] installing
third party software. [Taxpayer] pays for the software
directly. [Provider] personnel are not writing new
programs or modifying existing programs. (emphasis
supplied)

In summary, the foregoing indicates that no "noncustomized" computer software is being provided under this
agreement by Provider or its subcontractors. However, all of

the existing computer hardware involved is being supplied by
Provider, through one of its subcontractors.

Paragraph 5.2 of the agreement indicates that Provider will
develop and supply to Taxpayer a procedures manual or manuals.
In your June 4, 1999, letter you provided the following
information concerning these manuals.

There were no procedures manuals provided for this contract
and we do not anticipate the provision of such manuals in
the future. This clause was boilerplate for all three
contracts but this option was not utilized in this
particular contract.

The agreement provides, in paragraphs 5.6(b) and 5.7(c),
that Provider is to be responsible for the maintenance of the
necessary computer hardware and software. However, in the June
4, 1999, letter you made the following statement, in the context
of explaining the meaning of the term "technical support."

Technical support can involve repairs to hardware but this
is done through [Supplier No. 1]. [Supplier No. 1] subcontracts this work to [an unrelated corporate entity], who
supplies the parts.

The foregoing statement may be interpreted as meaning that
hardware maintenance is not supplied by Provider or one of its
subcontractors. When asked for clarification, you stated in a
June 14, 1999, telephone conversation that Supplier No. 1 was
acting, in this instance, as a subcontractor of Provider.
Therefore, such maintenance is being provided by Provider,
indirectly through a subcontractor.

With the foregoing as a foundation, we now proceed to your
list of specific questions. Each question will be reproduced in
its entirety.

1. Is the implementation fee required by [Management Agreement
   2] exempt as both a professional service in accordance with
   Chapter 212.08(7)(v), F.S., and as a consulting service as
   described in Rule 12A-1.032(5), F.A.C.?

You have described this fee as follows:

This is a mandatory fee per location for the
implementation, conversion, and connection to the
mainframe. It encompasses installing equipment,
transitioning between [Taxpayer] and [Provider] staff, and
surveying sites. The fee of $688,750, or $2,755 per
location, covers all locations in the United States.
(emphasis supplied)

It appears that you take the position that this fee is
designed to compensate Provider for services rendered in
transitioning the "network management" and "support" of Taxpayer
locations from the internal staff of Taxpayer to Provider. As
such, you assert that such fee should be nontaxable under the
authority of either section 212.08(7)(v), F.S., or Rule 12A1.032(5), F.A.C.

As previously discussed, professional or personal services
are taxable when they are sold as a part of, or "bundled with,"
the sale, lease or license of tangible personal property, unless
section 212.08(7)(v)1., F.S., applies. It appears that the
focus of this agreement is on the provision of the PC's, and the
networking and support related thereto. Schedule 2.2, attached
to this agreement, lists two hundred and fifty (250) of
Taxpayer's locations as being affected by the agreement. The
information you have supplied indicates that Provider, through
subcontractors, has provided all of the computer hardware at
issue here. This hardware would be a critical element in
Provider's performance under the terms of the agreement.
Additionally, a mandatory implementation fee, such as that
described above, would be an integral part of such performance.

For the foregoing reasons, the professional or personal
services represented by this implementation fee would be
considered a part of the sale, lease or license, by Provider to
Taxpayer, of tangible personal property (the computer hardware).
Additionally, the sale, lease or license of the computer
hardware would not be considered to be an "inconsequential"
element, within the meaning of section 212.08(7)(v)1., F.S., of

the transaction by which the "network management" of Taxpayer's
locations is being provided. Therefore, the exemption from
taxation provided by such section would not be available for
this fee.

With regard to your assertion that Rule 12A-1.032(5),
F.A.C., should exempt this fee from taxation, we have the
following response. In Taxpayer's situation, Provider is not
merely providing recommendations and/or customizing software,
both of which are considered to be services. Provider is also
supplying tangible personal property, the computer hardware, to
Taxpayer. Rule 12A-1.032(5), F.A.C., would exempt from taxation
the rendering of professional or personal services, such as
described herein, if the person providing the services was not
also supplying, as a part of the same transaction, some item of
tangible personal property. Since Provider is supplying Taxpayer
with tangible personal property, computer hardware, as a part of
the transaction whereby the services are being provided, Rule
12A-1.032(5), F.A.C., would not exempt the services from
taxation.

In conclusion, based upon the facts represented to the
Department as stated above, and for the reasons discussed above,
this implementation fee would be taxable, to the extent it
relates to the computer hardware that is being supplied to the
Florida locations of Taxpayer.

2. Is the charge for Technical Support Services an exempt
   professional service in accordance with Chapter 212.08(7)(v),
   F.S., or is it taxable in accordance with the determination of
   TAA 94A-054 since it encompasses hardware and software support?

You have described this charge as follows:

This entails consulting services, hardware and software
procurement, hardware and software installation, software
distribution and maintenance, hardware maintenance, help
desk support, performance reporting, LAN administration and
monitoring, security management, storage management, asset
management, and configuration management. Software
maintenance consists of scheduling, testing, and installing

new releases and upgrades, maintaining standard software
inventory, and distributing software to end users.
Hardware maintenance consists of coordinating and
dispatching maintenance personnel, troubleshooting and
repairing hardware, and providing recovery services. This
is not contractually bundled with any other item in
[Management Agreement 2]. (emphasis supplied)

The foregoing reflects a variety of professional or
personal services, many of which appear to be connected with
some type of computer hardware or software "maintenance." The
Department's representative discussed this maintenance with you
by telephone on June 14, 1999, in order to determine whether
such maintenance was rendered under a service warranty or on an
as needed basis. During this discussion, the Department's
representative noted that it did not appear that a fixed,
monthly fee was charged for the "maintenance" at issue in this
question. This observation was based on the fact that none of
the fixed fees contained on Schedule 12.1, labeled "Service
Fees," was identified as being for "technical support services."
You stated that you believed the maintenance was performed on an
as needed basis.

However, whether the services identified above as
"maintenance" services are or are not to be rendered under a
service warranty, all services listed above appear to be an
integral and necessary part of the monthly provision of the PC's
to Taxpayer's locations. For example, services are to be
rendered in installing the hardware and software, supporting the
operation of such hardware and software, and in providing the
security necessary to the efficient operation thereof. These
types of services would be expected to be provided on a monthly,
"on going" basis during the term of the agreement. Therefore,
for these reasons and those discussed in our response to your
first question, the services identified as "technical support
services" would be considered to be a part of the sale or lease
of tangible personal property, the computer hardware. The
provision of such hardware is not considered to be
"inconsequential," as that term is used in section
212.08(7)(v)1., F.S. Therefore, the exemption from taxation
provided by the referenced section would not be available for

this charge.

In conclusion, based upon the facts represented to the
Department as stated above, and for the reasons discussed above,
this charge for technical support services would be taxable, to
the extent it relates to the computer hardware that is being
supplied to the Florida locations of Taxpayer.

3. Is the charge for Account Management an exempt professional
   service in accordance with Chapter 212.08(7)(v), F.S., even
   though this is a mandatory charge?

You have described this fee as follows:

This is a mandatory monthly fee of $42,500 for maintaining
the account.

You have taken the following position with regard to the
taxability of the monthly account management fee.

While the account management fee paid for maintaining the
account is mandatory, it is strictly a professional service
and as such is exempt from Florida sales and use tax in
accordance with Chapter 212.08(7), F.S.

The Department determines this mandatory fee to be taxable,
to the extent it relates to computer hardware that is being
supplied to Florida locations of Taxpayer, for the reasons
stated in our responses to your first and second questions
above. The fee is imposed as part of the same transaction as
the monthly provision of the PC's, and the networking and
support related thereto.

4. Is the charge for WAN Management Fee an exempt professional
   service in accordance with Chapter 212.08(7)(v), F.S., even
   though this is an essential element of [Management Agreement 2]?

You have described this fee as follows:

This fee of $40,000 per month is for the support of
approximately 220 locations throughout the United States.

Each additional site is $100 per month. The fee
encompasses connecting the WAN at [Taxpayer] locations,
managing and maintaining the WAN, and managing vendors
involved. [Provider] is responsible for backing up servers
and for restoring accidentally deleted files. [Taxpayer]
staff are responsible for handling the actual backup
medium. There is no separate charge for the backup
service.

You describe the foregoing as professional or personal
services that should not be taxed for either of two reasons. As
one reason, you state on page fourteen of the May 29, 1998,
letter that this fee does not represent an amount received for
the issuance of a service warranty; and, therefore, should be
"exempt in accordance with the parameters set forth in Rule 12A1.105(1)(b)1., F.A.C." As a second reason, you state that this
"fee is strictly for a professional service and as such is
exempt from Florida sales and use tax in accordance with Chapter
212.08(7), F.S."

The Department considers this fee as an amount received for
professional or personal services rendered as a part of the sale
or lease of tangible personal property, the computer hardware,
which is not exempt from taxation under section 212.08(7)(v)1.,
F.S. Our reasons for this position are as discussed more fully
in our responses to your first and second questions. The above
described services are an integral and necessary part of the
monthly provision of the PC's and the networking and support
thereof. It should be noted that you have taken the position,
as stated in your question 4. above, that these services are an
essential element of this agreement.

In conclusion, based upon the facts represented to the
Department as stated above, and for the reasons discussed above,
this WAN management fee would be taxable, to the extent it
relates to Florida locations of Taxpayer.

5. Are Equipment Fees taxable in accordance [with] Chapter
   212.02(10)(g), F.S.? If so, are the Maintenance Fees paid to
   [Provider] on this equipment taxable in accordance with Rule
   12A-1.105(1), F.A.C.?

You have described these fees as follows:

This actually covers two separate fees, each of which is
based on the equipment rented. Currently, [Taxpayer] pays
[Supplier No. 1] for the rental of equipment and sales tax
is charged on this equipment rental. [Taxpayer] pays a
separate maintenance fee to [Provider] based on the
equipment rented from [Supplier No. 1]. The fee to
[Provider] covers a monthly support fee for the equipment.
Both the equipment fee paid to [Supplier No. 1] and the
support fee paid to [provider] are mandatory. These fees
cover equipment both within and without Florida. (emphasis
supplied)

You have stated your position concerning the taxability of
the above as follows:

The monthly equipment rental fee paid to [Supplier No. 1]
and the separate maintenance fee paid to [Provider] are
taxable in accordance [with] Chapter 212.05(1)(a)1.a.,
F.S., Rule 12A-1.032(2), F.A.C., and Rule 12A-1.105(1),
F.A.C., since they are for the rental of tangible personal
property and the maintenance and support on computer
equipment respectively.

As you have determined, the monthly lease of computer
hardware is taxable under section 212.05(1), F.S., as a lease of
tangible personal property; and, the monthly, fixed fee charged
for services to be rendered in the maintenance and support of
such hardware is taxable under section 212.0506, F.S., as an
amount received for the issuance of a service warranty. Both
fees are taxable to the extent they relate to Taxpayer's Florida
locations.

6. Is Storage Management an exempt professional service in
   accordance with Chapter 212.08(7)(v), F.S., since it is not
   bundled with the sale of any taxable tangible personal property?

You have provided the following information concerning
these charges.

Storage management consists of managing server backups and
the media including off-site storage of the tapes,
developing and implementing virus protection, maintaining
applications software, procuring and installing test
systems, and providing computer security. Maintaining
applications software is not an actual maintenance since it
does not indemnify [Taxpayer] for the repair or replacement
of the software. This is strictly an optional professional
service that is provided throughout the United States. It
is solely for labor; therefore, this charge is not subject
to Florida sales or use tax in accordance with Chapter
212.08(7)(v), F.S.

In a telephone conversation with the Department's
representative on June 16, 1999, you indicated that the tapes
utilized for storage of this backup data were supplied by
Taxpayer, and not by Provider. You further indicated that the
storage facility in which such backup data was maintained was
contracted for and paid by Taxpayer directly, and not by or
through Provider. Considering the foregoing, it appears that
your question concerns only the taxability of the professional
or personal services rendered by Provider in the area of
"storage management."

You have not described these services as "essential." If
the decision to utilize these services rests solely with
Taxpayer, and any charges related thereto are separately stated
on a Provider invoice, the Department would not consider such
services to be "a part of" a taxable sale or lease of tangible
personal property. As previously discussed, if services such as
these are not part of a sale of tangible personal property, they
are not taxable. However, in the event the services are not
available at the sole option of Taxpayer, the Department would
consider such services to have been rendered as "a part of" a
taxable sale or lease of tangible personal property; and, the
Department would not consider such services to be exempt from
taxation under section 212.08(7)(v)1., F.S.

7. Are separate charges for Help Desk exempt as professional
   services in accordance with Chapter 212.08(7)(v), F.S., since

they are not bundled with the sale of any taxable tangible
personal property?

You have described this charge as follows:

This involves assisting users with questions and problems,
tracking problem resolution, and dispatching maintenance
and report assistance. The help desk includes technical
support services and emergency repairs for the WAN, LAN and
servers, and desktop computers. The charge for the help
desk is a set fee of $12,000 per month, but if the number
of calls exceed[s] a certain amount this cost increases.
The help desk covers all of the United States and calls are
answered in [another state]. This fee is not bundled with
any other charge in [Management Agreement 2]. (emphasis
supplied)

References above to "repairs" being made prompted the
Department to request additional information regarding the
nature of the services being rendered in this question. In a
telephone conversation with the Department's representative on
June 14, 1999, followed by confirmation in writing, you
indicated that the "repairs" referred to represented mere
telephone support. You indicated that Provider's help desk
personnel "do not have the capability to mirror a person's
[personal computer]." Therefore, no actual "repairs" are made.
Additionally, you stated that Provider's personnel perform these
services from offices located in another state; and, that
Provider does "not send anyone from their staff" to any of
Taxpayer's locations in the State of Florida to perform repairs.

From the foregoing, it appears that no services have been
rendered in, or tangible personal property provided to,
locations within the State of Florida. Therefore, no sales or
use tax would be imposed by the State of Florida on these
charges.

8. Are charges for Additional Services exempt from tax in
   accordance with Chapter 212.08(7)(v), F.S., since they are not
   bundled with any item of the contract or are some of these
   charges subject to sales or use tax since they may involve

repairs or maintenance on tangible personal property?

You have described these charges as follows:

[Taxpayer] may request that [Provider] provide additional
services. These services may be strictly labor or they may
involve printer repairs. Additional Services are
separately stated, itemized, and billed. These are
performed at [Taxpayer's] discretion and they are not a
mandatory component of [Management Agreement 2].

As previously discussed, professional or personal services
that are not provided as a part of a sale of tangible personal
property are not taxable. However, if such services are
provided as a part of a sale of tangible personal property, they
would be subject to taxation. Section 212.05(1), F.S.
Generally, professional or personal services rendered as you
have described above would not be considered to be "a part of" a
taxable sale of tangible personal property, with the exception
of printer repairs that include the provision of parts by the
repairer. Additionally, it is important to recall here that
amounts received for the issuance of a service warranty are
taxable, although a particular warranty may provide for "labor
only" repairs. Section 212.0506, F.S.

9. Chapter 212.05(1)(a)1.a., F.S., states that only sales within
   the State are subject to Florida sales or use tax. In the event
   any of the above elements of [Management Agreement 2] are deemed
   taxable, how is the Florida portion of tax determined since the
   benefits are derived throughout the United States? Would the
   tax due be pro-rated based on the number of locations in
   Florida, the number of states in which [Taxpayer] does business,
   the number of contract related items of tangible personal
   property located in Florida, the overall fee paid on contract
   related tangible personal property located in Florida, or some
   other consideration?

This concern has been addressed in each of our responses to
your specific questions. Please see those responses.

Application of Law to Management Agreement 3

Management Agreement 3, entered into between Taxpayer and
Provider, sets out the following in Article 1 as the purpose of
such agreement.

[Taxpayer] is currently using internal resources to perform
information technology services and intends to implement a
new information processing system over the next several
years. In order to facilitate the transition to the new
processing system, [Taxpayer] desires to use an independent
vendor of information technology services to provide the
management, maintenance and operation of its centralized
mainframe systems during the term of this Agreement.

... [Provider] wishes to provide [Taxpayer] with such
services in accordance with the terms hereof. This
Agreement sets forth the terms and conditions pursuant to
which (i) [Taxpayer] will transfer to [Provider] certain of
its information technology operations, (ii) [Provider] will
provide information technology services to [Taxpayer] and
(iii) [Provider] will return, or decommission, as the case
may be, the information technology operations to [Taxpayer]
or its agent at the termination or expiration hereof.

On page six of the May 29, 1998, letter you explain this
agreement as follows:

The main intent of [Management Agreement 3] is to manage
the VAX system. [Management Agreement 3] provides
application support for the [Taxpayer]... applications
(software), houses the computer equipment to run such
application in the [Provider] [out-of-state] Data Center,
provides technical and operation support to those systems,
and provides disaster recovery services for such
applications.

The foregoing explanation indicates that any tangible
personal property (computer hardware or software) being supplied
by Provider to Taxpayer, under the terms of this agreement, is
to be supplied to locations in states other than the State of
Florida. Upon the Department's written inquiry, you provided

the following additional information in the letter dated June 4,
1999.

None of the hardware involved is located in Florida; all of
it is now at the [Provider] Data Center in [another state].
(emphasis supplied)

[Provider] provides no canned, customized, or any other
software to [Taxpayer].

With regard to the possible issuance of taxable service
warranties, or the performance of taxable repairs, within the
State of Florida, you provided the following information.

There is no hardware or software maintenance in Florida for
[Management Agreement 3] since that [agreement's] system is
not located in Florida. (emphasis supplied)

With regard to the possibility of other forms of tangible
personal property being sold or leased to locations within the
State of Florida, you provided the following information.

[N]one of the tapes mentioned [in Schedule 12.1] are
provided to locations in Florida.

There is no procedures manual provided with this contract.
In the event a procedures manual was provided it would be
located in [another state] as this is where the service is
provided.

With regard to the "technical support" and "help desk"
functions to be performed under the terms of the agreement, you
stated as follows.

Generally technical support and help desk functions are not
provided to Florida locations as this system is seldom used
in Florida. Even if these functions involved Florida
locations, they could not involve the repair of hardware at
Florida locations since there is no hardware in Florida.

In summary, the foregoing indicates that no tangible

personal property is sold or leased to locations within the
State of Florida; and, no taxable service warranties covering
tangible personal property located within the State of Florida
are being issued under the terms of this agreement.

The letter of May 29, 1998, continues by asking the
following series of eight questions, similar to those asked for
Management Agreements 1 and 2, concerning whether products
provided and services rendered under the terms of Management
Agreement 3 are taxable by the State of Florida.

1. Is the implementation fee required by [Management Agreement
   3] exempt as both a professional service in accordance with
   Chapter 212.08(7)(v), F.S., and as a consulting service as
   described in Rule 12A-1.032(5), F.A.C.?

2. Is the charge for Account Management an exempt professional
   service in accordance with Chapter 212.08(7)(v), F.S., even
   though this is a mandatory charge?

3. Is the charge for VAX/Operation Support an exempt
   professional service in accordance with Chapter 212.08(7)(v),
   F.S., even though this is an essential element of the...
   contract and despite the fact that it involves tangible personal
   property located outside of Florida?

4. Are charges for Applications Support taxable in accordance
   [with] Rule 12A-1.105(1), [F.A.C.]?

5. Are Tape Consumable Charges taxable in accordance [with] Rule
   12A-1.032(7), [F.A.C.]?

6. Are charges for Additional Services exempt from tax in
   accordance with Chapter 212.08(7)(v), F.S., since they are not
   bundled with any item of the contract or are some of these
   charges subject to sales or use tax since they may involve
   repairs or maintenance on tangible personal property?

7. Are Disaster Recovery Fees exempt professional services in
   accordance with Chapter 212.08(7)(v), F.S., since they are not
   bundled with any other element of the contract and since they

are strictly for labor?

8. Chapter 212.05(1)(a)1.a., F.S., states that only sales within
   the State are subject to Florida sales or use tax. In the event
   any of the above elements of [Management Agreement 3] are deemed
   taxable, how is the Florida portion of tax determined since the
   benefits are derived throughout the United States? Would the
   tax due be pro-rated based on the number of locations in
   Florida, the number of states in which [Taxpayer] does business,
   the number of contract related items of tangible personal
   property located in Florida, the overall fee paid on contract
   related tangible personal property located in Florida, or some
   other consideration?

Based upon the representations made to the Department that
no tangible personal property is being sold or leased to
locations within the State of Florida, and no taxable service
warranties covering tangible personal property located within
the State of Florida are being issued, the Department's response
to each of your questions 1. through 7. is the same. No taxable
events have occurred for which sales and use tax would be due to
the State of Florida. Since no sales and use tax would be due
to the State of Florida, no response is deemed necessary to your
question 8.

V. CONCLUDING REMARKS

The foregoing Department responses were directed to the
specific questions you posed. You are reminded that the
taxability of transactions occurring outside the terms of these
agreements has not been specifically addressed. Such
transactions may or may not be taxable. For example, you stated
that the equipment utilized by the Florida Data Center, as
described in Management Agreement 1, is obtained by Taxpayer
from an unrelated supplier, not from Provider or Provider's
subcontractors. The purchase or lease of such equipment within
the State of Florida would be taxable under section 212.05(1),
F.S. We refer you to the discussion of the law generally
applicable to your facts and circumstances set out in part III.
of this letter.

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 advice, as specified in section 213.22, F.S. Our
response is predicated upon those facts and the specific
situations summarized above. You are advised that subsequent
statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice
is based may subject similar future transactions to a different
treatment from that which is 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 section 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,

Anne Townsend, Senior Tax Specialist
Technical Assistance and Dispute Resolution

Control No. 38047
Enclosure