Transcript Taxation of Services in Florida Florida Taxation and Budget Reform Commission Finance and Taxation Committee September 13, 2007

Taxation of Services in Florida
Florida Taxation and Budget Reform
Commission
Finance and Taxation Committee
September 13, 2007
Taxable
SERVICES THAT ARE PART OF A TANGIBLE PERSONAL
PROPERTY TRANSACTION
• Non-optional delivery and transportation charges
• Engineering services “inextricably intertwined” with the
sale of telecommunications equipment
“PURE” SERVICES SPECIFICALLY TAXED
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Non residential cleaning
Non residential pest control
Security services, detective, burglar protection services
Communication services
ALTERATION, REMODELING, MATINENANCE,
ADJUSTMENT AND REPAIR OF TANGIBLE PERSONAL
PROPERTY
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Business Equipment Repair
Tire repair
Jewelry Repair/soldering
Shoe repair
Clothing alterations/repair
Furniture Restoration
Paint/chrome applications
Vehicle repair
Fabrication of TPP
NON-TAXABLE SERVICES
“PURE” SERVICES
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Laundry
Lawn care
Domestic services
Fitness trainer
Music lessons
PROFESSIONAL AND PERSONAL SERVICES
Professional
• Attorney Documents
• Architectural Blueprints
• Accounting Services
• Banking Services
• Credit Reporting
• Funeral Services
Insurance
• Insurance Policies
• Claims Documents
Personal
• Pedicure
• Beauty Salon/Barber Shop
• Manicure
• Massage
Florida’s Experience with Broad
Sales and Use Tax on Services in
1987
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Defining Services/Sales Price
Situsing Services
Use Tax Provisions
Resale
Exemptions
Specific Industries
Administrative Issues
Defining Services
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1987 Services Tax applied generally to “all
services”
The Legislature used the Standard
Industrial Classification (SIC Code)
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Imperfect and often overlapping
Typically defines establishments not activities
Outdated
Sales Price
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“the total amount paid for tangible
personal property or services … without
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.”
Situsing
WHERE WAS A SERVICE SOLD
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Occurs in Florida if more than
50% of the costs of performing
the service are incurred in the
state
WHERE WAS A SERVICE USED
Individuals
where real property
related to service is
located
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where the purchaser
receives tangible
personal property
representing service
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where the greater
proportion of services are
performed
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Businesses
where real property
related to service is
located
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where the business
situs of tangible personal
property related to
service is located
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where the purchaser’s
local market related
to the service exists
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multistate business –
where it is doing business
– apportioned
 single state business –
where it does business
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UNIQUE SITUSING RULES
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Advertising – Benefit in Florida
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Transportation – Benefit in Florida
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to the extent advertising is disseminated in the state
on an allocated basis with 50% at point of origin and
50% at point of termination
Services provided to the estate of a decedent –
Benefit
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where decedent last established residency
Use Tax Provision
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Eliminate Competitive Disadvantage
Taxable where the Benefit is Enjoyed or
Used
Administrative Issues
Exemptions
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Services sold in Florida, but used out of
state
Employee services
Occasional or isolated sales
Partner’s services
Intercompany sales
PYRAMIDING
(resale provisions)
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Extremely Contentious Issues
1987 Legislation used Restrictive Definition
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Brokers or intermediaries
Written contract specifically identifying the ultimate
customer
Separately state value on subsequent resale
Tangible personal property used by person providing
service was taxable
EXEMPTIONS
(necessities of life)
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Health and Medical Services
Social Services
Educational Services
Services Associated with Agricultural
Products
Residential Sewage and Garbage
Bus Transportation/Taxi Cabs
EXEMPTIONS
(to remove competitive disadvantage)
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Realtors Commissions (Added 5¢ to doc stamp tax)
Motor Freight Transportation (Added 5¢ per gallon to tax on diesel)
Water/Rail Transportation
Insurance
Financial Services
Interest/Discount Charges
Certain Legal Services
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Criminal
Child Support
Bankruptcy
Civil Rights
EXEMPTIONS
(to stimulate jobs)
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Commissions to Insurance Agents
Forestry Services
Motion Picture Production
Security/Brokerage Services
Membership Fees to Nonprofit Groups
EXEMPTIONS
(for institutions)
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Churches (buy and sell)
Governmental Entities
Non-Profit Organizations
ADVERSTISING SERVICES
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Taxed only on charges for medium itself
and costs of brokering medium
Computed on portion of sales or cost price
that reflects market coverage in Florida as
a % of total market coverage
CONSTRUCTION SERVICES
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If the cost of the construction service was less
than $5,000, it was deemed fully taxable
If the cost of the construction service was
greater than $5,000, tax was due on 50% of the
total contract price
The prime contractor could get credit for other
services purchased, but had to meet the
restrictive documentation requirement noted
previously
OPERATIONAL ISSUES
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Short Implementation Time
Large Taxpayer Education Effort
Increase in Registered Dealers (30%)
Compliance Learning Curve
(Billings and Delinquencies Increased 50%)
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Cash Basis Reporting/No Estimated Tax
QUESTIONS