KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com ********************** Florida sales tax on alarm and security systems December 23, 2023 ************************** Florida sales tax on alarm and security systems ************************** Ken, Got a sales tax question for you: I understand the law that you have to charge sales tax on maintenance and monitoring here in Florida but am a little confused on installation after reading this rule. “12A-1.016 (3)(a) The total consideration received for labor or services used in installing tangible personal property which is sold and does not become a part of realty, is taxable even though such charge may be separately stated.” Are our systems part of realty? What about the newer wireless systems? Also do camera systems fall under alarm system category? Thanks, Jarey **************************** Response **************************** I’ll address the legal questions and defer to a tax expert for the tax issues. The Standard Form Agreements clearly provide that the security equipment remains personal property; the equipment does not become a fixture or part of the realty. This would include cameras and any other device that constitutes the security system; same for smoke or heat detectors. But as you will read below, Florida’s taxing authority takes the position that for purposes of sales tax alarm systems are treated as improvements to real property. Confusing? Read below and get more confused. For the tax issue I asked tax expert Mitch Reitman to comment; here’s his response: ***** Ken, Thank you for sending along Jarey’s question on Florida Sales tax. I know that Jarey was probably looking for a simple answer. He has located a Ruling, but it is only one ruling. Unfortunately the law governing sales and use taxes, as in most things legal or governmental, is not that simple. This is just an example of what is entailed in tax controversy and how complicated the answer to a question like this can be. But it is better to have the right answer than to guess. Florida has a Statutory Tax Code, Section 60-060. This is the law regarding state taxes as passed and amended by the Legislative Branch and, in the case of Tax Codes, defines what is taxable. The Code can be a bit vague so many times Regulatory Agencies issue Regulatory Rules to help “clarify” things. The Rule that Jarey cites above was issued by the Florida Department of Revenue, to help taxpayers to interpret the Law. You may notice it wasn’t passed by an elected body, it was issued by a state agency. No one voted on it, no one was able to debate it, the Department of Revenue simply issued it. While many times these Rules do in fact clarify the Law, keep in mind that in this case the Department of Revenue is putting you on notice that this is the way they are going to interpret the law. It is very common for these interpretations to be vague, or even contrary to the original legislation. Florida Rule 12A-1.016 “clarifies” what is meant by Sale and Sales Price. The Rule goes onto to specify (12A-1.016(3)(a)) That The total consideration received for labor or services used in installing tangible personal property which is sold and does not become a part of realty, is taxable even though such charge may be separately stated. Let me give your readers a bit of background on this. Florida follows what are known as the “Contractor Rules” which generally determine how goods and labor used to construct and refurbish buildings, and other real property, are taxed. The thought is that there are a lot of small businesses involved in the construction of real estate, and it is easier to make them the end user of certain materials, and require that they pay sales tax to their suppliers when they purchase them. This often is misinterpreted by Alarm Company owners who believe that they can just pay tax on materials when they pick them up at the distributor and be off the hook. While this may work some of the time, it doesn’t work all of the time, and taxpayers keep coming up with ways to beat the system and states keep issuing Rules. In this case, as in many cases, things became fuzzy, so the Florida Department of Revenue issued Rule 12A-1.016(3)(b), which states: Contractors and manufacturers who furnish and install the following items are considered to be retail dealers and are required to charge sales tax on the full price, including installation and any other charges: What follows is a list of items such as carpeting, draperies, household appliances, and, Equipment used to provide communications services, as defined in s. 202.11(3), F.S., that is installed on a customer's premises. (Rule 12A-1.016(3)(b)14.). So the question now becomes “is alarm equipment considered Equipment used to provide communications services.” To answer this question, the State issued Rule 12A1.009(2)(a) which states: Detective, burglar protection, and other protection services are those services which are rendered to minimize or prevent loss or damage to life, limb, or property and are of a kind typically performed by security or alarm system companies, or are those investigative services which are rendered to obtain evidence or other information for legal, business, employment, or personal purposes of a kind typically performed by detective or investigative agencies. Rule 2A-1.0092(2)(a)3) further clarifies this by stating that these items include Burglar or fire alarm or other security system devices monitoring and maintenance. The State further clarified this by ruling that these items include The installation of alarm or security systems that remain tangible personal property is governed by the provisions of Rule 12A-1.016, F.A.C. There is another Rule (12A-1.0092(2)(a)3.b) that states, The installation of alarm or security systems that become a part of real property is governed by the provisions of Rule 12A-1.051, F.A.C. Just when things appear to be clear, we run into Rule 12A-1.0092(2)(a)3.c, which states: The monitoring or maintenance of alarm or security systems is a taxable service whether such systems are considered to be tangible personal property or a part of real property. The term maintenance includes any inspection of an alarm or security system to confirm its proper working order. The term maintenance does not include the expansion or upgrade of an existing system, but it does include the replacement of defective components. When a taxing authority attempts to “clarify” something by injecting more fuzziness into the Rules, three things may happen: * The Taxpayer interprets the Rule one way, and the State another, * he Taxpayer interprets the Rule and the State never challenges it * The Taxpayer asks the State for Technical guidance and the State responds. When number 1 happens, the issue typically comes up after an audit. The Taxpayer can either give in or fight the Taxing Authority. When the Taxpayer fights it out, the case will end up in either an Administrative Court or in an actual Court of Law. The good news is that I can look up the facts of past cases and see how the Court ruled. Just because a Court rules a certain way, doesn't mean that future Courts will rule the same way. On occasion a case makes it to an appeals court or to the State Supreme Court, in which case, the lower courts will follow the ruling. This doesn’t necessarily mean that the Department of Revenue won’t take another shot at it. While Taxpayers typically prevail at Trial, they pay their attorneys by the hour and Departments of Revenue pay theirs by the year. The cost for a company to litigate a tax matter may exceed the cost of the tax matter itself. When we have a case like this where the Rules seem unclear, we take approach number 3, and request a Technical Ruling. A Technical Ruling doesn’t have the force of law, but it does give us a good idea of how the State will interpret a specific situation. We subscribe to a very expensive service that tracks every section of State Tax Code, Rules, Interpretation, Case Law, and Technical Rulings, so, when a situation is unclear, we can check for a case similar to the one in question. Fortunately, in 1998, a company took the time to get a Technical Ruling on whether burglar and fire alarms were improvements to gain more clarity. This is what the Florida Department of Revenue opined “By way of the above rule quotation, we already have in existence established administrative law on the sales and use tax treatment of permanently affixed burglar and fire alarm systems. Such systems are treated as improvements to real property for sales and use tax purposes. (¶203-621. Technical Assistance Advisement, No. 98A-053, , Florida Department of Revenue, July 14, 1998 98A-053)”. The Department of Revenue has decided that the administrative law is clear and you can rest assured that they will treat this situation in this way. So, the answer to Jarey’s question is, no, alarm systems are improvements to real estate. Regarding his other questions, we know the answers but nothing is free, especially something that takes five paragraphs to explain. Does that mean that they are always improvements to real estate? Not necessarily, but there are things that the company can do to make things work out in a certain manner. Helping our clients to achieve their goals by maneuvering the rules is what we do best. If there is a hoop, best to figure out how to jump through it. If your tax advisor doesn’t know what you do and whether or not it’s taxable, maybe give us a call. Mitch Reitman 817 698 9999 x 101 Reitman Consulting Group Fort Worth, TX http://www.reitman.us *************************** STANDARD FORM AGREEMENTS: To order up to date Standard Form Alarm / Security / Fire and related Agreements click here: www.alarmcontracts.com *************************** CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304. *********************** WEBINARS:https://www.kirschenbaumesq.com/page/alarm-webinars *********************** ALARM ARTICLES: You can always read our Articles on our website at www.kirschenbaumesq.com/page/alarm-articles updated daily ************************* THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily. https://www.kirschenbaumesq.com/page/alarm-exchange ************************* Wondering how much your alarm company is worth? Click here: https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth ****************************** Getting on our email list / Articles archived: Many of you are forwarding these emails to friends or asking that others be added to the list. Sign up for our daily newsletter here: Sign Up. ************************** Ken Kirschenbaum,Esq Kirschenbaum & Kirschenbaum PC Attorneys at Law 200 Garden City Plaza Garden City, NY 11530 516 747 6700 x 301 ken@kirschenbaumesq.com www.KirschenbaumEsq.com
