Did Florida use tax apply when a dealer loaned inventory vehicles to nonemployees as restricted demonstrators?

Plain-English summary

The dealership owed no additional use tax on the restricted demonstrator loans. The vehicles remained untitled inventory available for sale, carried dealer plates, and were loaned under agreements designed to promote and demonstrate the vehicles within the dealer's business.

The operators were relatives of the owner's family and the spouse of a management employee, not dealership employees. Even so, the Department found sufficient business purpose because the cars remained available for customer demonstrations and sale, had mileage and time limits, stayed in the selling area, and were subject to other restrictions. Any personal use was incidental. The dealer still had to pay the annual use tax then imposed for each dealer plate.

What this means for you

A no-charge vehicle loan was not automatically exempt. The approved result depended on the vehicle remaining for-sale inventory, proper dealer-plate use, no title or registration obtained by the dealer, and use solely in connection with the dealership's business.

Common questions

Q: Did it matter that the drivers were nonemployees? Not by itself. The documented business purpose and restrictions controlled on these facts.

Q: Could the vehicles be used for hire? No. The ruling required use consistent with dealer-plate rules, not for-hire use.

Q: Was every tax eliminated? No. The ruling retained the annual use tax on each dealer plate under the law then cited.

Citations and references

• Fla. Stat. § 212.0601(1), (3) — dealer-plate tax and no-charge loans
• Fla. Stat. §§ 212.02(14)(a), 212.05(1)(b) — resale inventory and taxable use
• Fla. Stat. §§ 320.08(12), 320.13(1)(a) — dealer plates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-052

Original ruling text

SUMMARY

Question: Are vehicles that bear dealer license plates and
that are loaned by a dealership to individuals for
demonstration purposes in connection with the dealership's
business subject to use tax?

Answer - Based on Facts Below: The use of a motor vehicle
for demonstration purposes in connection with a
dealership's business is not considered a taxable use of
the motor vehicle, as long as a title and registration has
not been obtained by the dealership for such vehicle, and
as long as the vehicle remains in inventory for sale. A
dealer license plate should be affixed to the motor vehicle
when it is used in this manner. Pursuant to s.
212.0601(1), F.S., the dealership must pay an annual use
tax of $27 for each dealer license plate purchased under s.
320.08(12), F.S., in addition to the license tax imposed by
that section.

Sep 27, 1999

Re: Technical Assistance Advisement 99A-052
Sales and Use Tax -- Use Tax on Vehicles Loaned as
Demonstrators
Section 212.0601(1), F.S. (Supp. 1998)
XXX ("Taxpayer")

Dear:

Your letter of June 10, 1999, requested a Technical Assistance
Advisement concerning the above referenced matter. This
response constitutes a Technical Assistance Advisement (TAA)
under Chapter 12-11, Florida Administrative Code, and is issued
to you under the authority of s. 213.22, Florida Statutes.

STATED FACTS

The following facts are reprinted herein, as stated in your
letter:

[Taxpayer] is a motor vehicle dealership.... [Taxpayer]
allows certain individuals to operate vehicles in its
inventory on a temporary basis pursuant to demo agreements.
The vehicles are loaned to such individuals and they make
no payment to [Taxpayer] for the use of the vehicles. At
present, four individuals operate Dealer inventory vehicles
although [Taxpayer] may in the future loan vehicles to
others on the same terms and conditions. Three of the
individuals who currently operate loaned vehicles are
members of the [Taxpayer] family. The fourth is the wife
of a XXX management employee of [Taxpayer]. None of these
individuals is an employee of [Taxpayer], nor do they
perform any service for [Taxpayer].

The vehicles are loaned pursuant to demo agreements which
restrict the use of the vehicles as follows:

(1) The vehicle must be available for demonstration to
customers at any time during [Taxpayer's] business
hours and is subject to sale without regard to the
operator's convenience.
(2) The vehicles must be kept clean and ready for
demonstration at all times.
(3) [Taxpayer] selects the vehicles to be loaned.
(4) The operators agree to strive for high visibility of
the vehicle in order to help advertise [Taxpayer's]
product.
(5) The operators may only drive the vehicles within
[Taxpayer's] normal selling area and vacation use is
prohibited.
(6) If maintenance is required, it is performed by
[Taxpayer's] service department.
(7) The vehicles must be returned to [Taxpayer] with no
more than 6,000 miles (or within 6 months, whichever
comes first).

The vehicles are not titled and bear dealer license plates
pursuant to Sections 320.08(12) and 320.13(1), Florida

Statutes. During their use by these individuals, the
vehicles remain in [Taxpayer's] inventory and for sale at
all times. Such vehicles are routinely recalled from the
individuals and sold to third party customers of
[Taxpayer].

[Taxpayer] was recently audited for the period of XXX. The
auditors concluded that these loaned vehicles were not
subject to Florida use tax, except the $27 annual use tax
payable pursuant to section 212.0601(1), Florida Statutes.
However, the auditors have requested that [Taxpayer] obtain
a ruling from the Department on the nontaxability of these
loaner vehicles.

REQUESTED ADVISEMENT

Taxpayer seeks a determination that the vehicles bearing dealer
license plates and loaned by Taxpayer to individuals under the
facts set forth above are not subject to use tax, other than the
$27 annual use tax required by s. 212.0601(1), F.S. (Supp. 1998)

APPLICABLE LAW

The following statutory law is relevant to the issue under
advisement:

Section 212.0601, F.S., provides:

212.0601 Use taxes of vehicle dealers.-

(1) Each motor vehicle dealer who is required by s.
320.08(12) to purchase one or more dealer license plates
shall pay an annual use tax of $27 for each dealer license
plate purchased under that subsection, in addition to the
license tax imposed by that subsection. The use tax shall
be for the year for which the dealer license plate was
purchased.

(2) There shall be no additional tax imposed by this
chapter for the use of a dealer license plate for which,
after July 1, 1987, a dealer use tax has been paid under

this section. This exemption shall apply to the time period
before the sale or any other disposition of the vehicle
throughout the year for which the dealer license plate
required by s. 320.08(12) is purchased.

(3) Unless otherwise exempted by law, a motor vehicle
dealer who loans a vehicle to any person at no charge shall
accrue use tax based on the annual lease value as
determined by the United States Internal Revenue Service's
Automobile Annual Lease Value Table.

4) Notwithstanding the provisions of a motor vehicle rental
agreement, no sales or use tax and no rental car surcharge
pursuant to s. 212.0606 shall accrue to the use of a motor
vehicle provided at no charge to a person whose motor
vehicle is being repaired, adjusted, or serviced by the
entity providing the replacement motor vehicle.

DETERMINATION

Tangible personal property purchased for resale by a registered
dealer is not subject to sales tax. Section 212.02(14)(a), F.S.
However, use tax applies to any tangible personal property,
including a motor vehicle, that is not resold, but that is used,
consumed, distributed, or stored for use or consumption in this
state. Section 212.05(1)(b), F.S.

The use of a motor vehicle for demonstration purposes in
connection with a dealership's business is not considered a
taxable use of the motor vehicle under s. 212.05(1)(b), F.S., as
long as a title and registration has not been obtained by the
dealership for such vehicle, and as long as the vehicle remains
in inventory for sale. A dealer license plate should be affixed
to the motor vehicle when it is used in this manner. Section
320.13(1)(a), F.S.

In this case, the motor vehicles are used by relatives of the
owner's family and the wife of a management employee, all of
whom are not employees of Taxpayer. However, despite the fact
the vehicles are used by nonemployees, Taxpayer has provided
sufficient evidence that the vehicles are used in the regular

course of business in connection with the dealer's business
purpose of selling vehicles, and any personal use of the
vehicles by the nonemployees is incidental to the business use.

First, the vehicles are not registered or titled in the names of
the relatives or spouse, but are used under the authority of a
valid dealer license plate issued pursuant to s. 320.08(12),
F.S. According to the facts asserted in your letter, the
Department of Highway Safety and Motor Vehicles has not
contested the use of dealer license plates on demonstrator
vehicles loaned to relatives of the owner's family or the wife
of the management employee. Section 320.13(1)(a), F.S.,
specifically restricts the use of a dealer license plate to
vehicles that are in inventory for sale, or while being operated
in connection with the dealer's business, and specifically
states that such dealer license plates are not valid for use for
hire. The permitted uses in s. 320.08(12), F.S., are consistent
with the permitted nontaxable uses under Chapter 212, F.S.

Additionally, according to the facts asserted in your letter,
the vehicles in question remain on Taxpayer's books and records
as inventory. Finally, the vehicles are loaned pursuant to
demonstration agreements which restrict the use of the vehicles
in a manner consistent with the assertion that the vehicles are
used for demonstration purposes, as described in the Facts,
supra.

Based on the facts provided in your letter, as long as the motor
vehicle loaned remains in inventory for sale and is used solely
in connection with the dealer's business, consistent with the
permitted uses of the dealer license plate issued pursuant to s.
320.08(12), F.S., and as long as it is not loaned as a "for
hire" motor vehicle, no use tax shall be due on the loan of such
motor vehicle. Section 212.0601(3), F.S., is not applicable to
this transaction.

It must be noted that, pursuant to s. 212.0601(1), F.S.,
Taxpayer must pay an annual use tax of $27 for each dealer
license plate purchased under s. 320.08(12), F.S., in addition
to the license tax imposed by that section.

This response constitutes a Technical Assistance Advisement
under s. 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 s. 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 advice 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,

Ralph G. Pepe
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850) 922-4802

Control #: 38072