Taxation of Services in Florida

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Taxation of Services in Florida

• Florida Taxation and Budget Reform Commission
• Finance and Taxation Committee
• September 13, 2007

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Taxable
NON-TAXABLE SERVICES
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Floridas Experience with Broad Sales and Use Tax
on Services in 1987

• Defining Services/Sales Price
• Situsing Services
• Use Tax Provisions
• Resale
• Exemptions
• Specific Industries
• Administrative Issues

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Defining Services

• 1987 Services Tax applied generally to all
  services
• The Legislature used the Standard Industrial
  Classification (SIC Code)
• Imperfect and often overlapping
• Typically defines establishments not activities
• Outdated

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Sales Price

• 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.

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Situsing

• WHERE WAS A SERVICE SOLD
• Occurs in Florida if more than 50 of the costs
  of performing the service are incurred in the
  state

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UNIQUE SITUSING RULES

• Advertising Benefit in Florida
• to the extent advertising is disseminated in the
  state
• Transportation Benefit in Florida
• 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
• where decedent last established residency

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Use Tax Provision

• Eliminate Competitive Disadvantage
• Taxable where the Benefit is Enjoyed or Used
• Administrative Issues

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Exemptions

• Services sold in Florida, but used out of state
• Employee services
• Occasional or isolated sales
• Partners services
• Intercompany sales

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PYRAMIDING(resale provisions)

• Extremely Contentious Issues
• 1987 Legislation used Restrictive Definition
• 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

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EXEMPTIONS(necessities of life)

• Health and Medical Services
• Social Services
• Educational Services
• Services Associated with Agricultural Products
• Residential Sewage and Garbage
• Bus Transportation/Taxi Cabs

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EXEMPTIONS(to remove competitive disadvantage)

• 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
• Criminal
• Child Support
• Bankruptcy
• Civil Rights

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EXEMPTIONS(to stimulate jobs)

• Commissions to Insurance Agents
• Forestry Services
• Motion Picture Production
• Security/Brokerage Services
• Membership Fees to Nonprofit Groups

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EXEMPTIONS(for institutions)

• Churches (buy and sell)
• Governmental Entities
• Non-Profit Organizations

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ADVERSTISING SERVICES

• 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

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CONSTRUCTION SERVICES

• 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

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OPERATIONAL ISSUES

• Short Implementation Time
• Large Taxpayer Education Effort
• Increase in Registered Dealers (30)
• Compliance Learning Curve
• (Billings and Delinquencies Increased 50)
• Cash Basis Reporting/No Estimated Tax

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• QUESTIONS