Car washes come in many different shapes and sizes. Some are coin operated and self-served. Others are the type one drives his or her car through to get the car washed. And still others are drop the car off, the place may hand wash the car, and provide detailing of the car interior. Just as there is a broad spectrum of car washes, there is also a myriad of Florida sales and use tax applications for car washes. Those in the car wash industry must be cognizant of the Florida sales and use tax ramifications. If not, they could be cleaned out by the Florida Department of Revenue.
Like other car wash facilities, coin operated and self-served car washes need to understand when and how to charge Florida sales tax on certain transactions. As a general rule, a pure wash job, which only encompasses water and detergent, is not subject to sales tax. However, if wax or another type of protective film or coating is added to the car, then the entire transaction becomes taxable. The Florida Department of Revenue requires these types of car wash facilities to charge an effective rate of tax on each taxable transaction, as the amount paid by the customer is assumed to include tax. The car wash operator would divide the total receipts from the taxable transactions by a predetermined effective rate to arrive at the gross taxable sales. The gross taxable sales is subtracted from the total taxable receipts to get to the amount of sales tax due and payable to the Florida Department of Revenue. There may be instances where a car wash operator collects a lower rate of Florida sales tax than what should have been collected by the car wash operator. In those instances, the car wash operator must prove this to the Florida Department of Revenue. If done, then the car wash operator may get the benefit, without penalty, of collecting the lower tax rate. Some of these types of car washes will have vending machines on premises to provide additional premium items. The car wash operator must ensure the correct amount of sales tax is charged on the premium items sold via the vending machines.
The next category of car washes is those in which the customer can drive his or her car through. The machinery inside the “tunnel” does all the work for the customer. In these instances, a customer normally has to buy the service before entering the tunnel. The purchase can be inside a gas station, at the gas pump, at an ordering booth, via an mobile app, or endless other possibilities. In short, the customer has the option to choose from a menu of various services. The customer then pays for the service and receives the same. In this scenario, the service could be a plain wash job or have various added features and premium services to enhance the customer’s experience. Like before, a plain wash should not be subject to Florida sales tax. However, a wash that includes something like a wax or other protective film on the car causes the entire charge to be subject to Florida sales tax. Where some car wash operators run afoul is with how the menu of services are described. While it may be considered to be marketing the description to enhance sales, the menu can cause the Florida Department of Revenue to believe the transaction is subject to Florida sales tax. As far as the Florida Department of Revenue is concerned at that point, the burden is on the car wash operator to show what really happens. While the burden should be on the Florida Department of Revenue to prove something is taxable, this rarely happens in practice, as the Florida Department of Revenue considers businesses guilty until proven innocent. In short, car wash operators in this category must be very careful to accurately describe what they are selling but still be able to market it to make a sale in the first place. Otherwise, car wash operators could find themselves staring down the barrel of a large tax bill.
The final category of car washes is that in which the car is hand washed and there may or may not be detailing of the car. The hand application of products does not generally change the Florida sales and use tax consequences of the transaction. Thus, a plain wash job should remain not subject to Florida sales tax. Likewise, a car wash that includes wax or other protective film on the car can cause the entire sale to be subject to Florida sales tax. A distinguishing factor in this category is the detailing work that is done inside the car. While automotive detailing services generally fall under NAICS code 811192, these services in and of themselves should not be subject to Florida sales tax. When combined with something that is taxable, such as a wash and wax, then the entire charge, including the interior detailing, can become subject to Florida sales tax.
As a nice surprise to car wash operators, if you cannot show the difference between taxable and nontaxable transactions, the Florida Department of Revenue is great by wanting to help you with that decision in stating everything is subject to Florida sales tax. With friends like that, who needs enemies. This is yet something else car wash operators must be weary of when running a business.
Next, we turn to purchases of supplies. As it pertains to purchasing wax and other protective films that are taxable to the customer, the purchase of these items should be exempt from Florida sales and use tax. To be exempt, the car wash operator should extend its Florida Annual Resale Certificate to its vendor. For other types of supplies such as soap, the purchase of these items are normally taxable to the car wash operator, as the soap is usually associated with a nontaxable service transaction of cleaning the car. There may be an argument the soap could be purchased exempt just like the wax, at least to some extent. Specifically, where the service to the customer is taxable, then the purchase should be exempt. This goes for all items purchased. The issue comes into play with the soap, or other similar items, purchased and resold as part of a nontaxable service transaction versus that resold as part of a taxable transaction. The most conservative position would be for the car wash operator to pay the tax on the soap. However, there could be strategies and positions to take that in certain circumstances, the soap purchased is exempt from Florida sales and use tax.
A good source of revenue can be vacuuming. Sometimes vacuuming is provided to customers free of charge. In other instances, customers are charged directly to use the vacuum equipment. The charge may be from the car wash operator directly or a third-party. If a third-party, then there may be an agreement between the third-party and the car wash operator to split the revenues from the vacuuming for the right to use that area of the property. Watch out! Such an arrangement could be construed as a taxable commercial real property rental. Thus, the car wash operator would have to charge the third-party sales tax on the revenue share received by the car wash operator. If not, the car wash operator could be held liable for the tax and interest, potentially penalties too, for failing to do so.
In conclusion, car wash operators must be cognizant of numerous areas of the business. Florida sales and use tax issues usually take a backburner to running the operations. However, it should not. If not properly addressed, such sales and use tax issues can and do cause financial issues for the car wash operator.
About the author: David Brennan is partner with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistate tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctor in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. While working for the Florida Department of Revenue as a Senior Attorney, David focused on various sales and use tax issues. You can read his BIO HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Section 212.02, F.S. – Definitions.
Section 212.05, F.S. - Sales, storage, use tax.
Rule 12A-1.006, F.A.C. - Charges by Dealers.
ADDITIONAL RESOURCES
2023 FLORIDA SALES TAX UPDATE PART I, published July 5, 2023, by David J. Brennan, Jr., Esq.
2023 FLORIDA SALES TAX UPDATE PART II, published August 14, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AUDITS PROCESS AND TRAPS, published March 4, 2023, by David J. Brennan, Jr., Esq.
PHONE CALL FROM FLORIDA DEPARTMENT OF REVENUE: SALES TAX, published October 15, 2022, by Jeanette Moffa, Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.