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16A-012 – Sales and Use Tax – Electronic Exemption Certificates

QUESTION: MAY TAXPAYER’S METHOD FOR USE OF AN EEC SATISFY THE REQUIREMENTS OF RULE 12A-1.038, F.A.C.?

ANSWER: YES. THE PROCEDURES USED BY TAXPAYER ENSURE THAT, WHEN AN EEC IS RECEIVED, THE CRITERIA OF RULE 12A-1.038, F.A.C., AND CRITERIA OF ADDITIONAL REGULATIONS ARE SATISFIED. THE PROPOSED AUTHENTICATION PROCEDURES ENSURE THE VALIDITY OF THE EXEMPTION CLAIMED.

July 27, 2016

Subject: Technical Assistance Advisement (“TAA”) 16A-012 Sales and Use Tax Electronic Exemption Certificates;

Section(s) 212.05, 212.08, 212.21, 212.085, 668.003, 668.50, Florida Statutes (“F.S.”) Rule(s) 12A-1.038, 12A-1.053, 12A-1.087, Florida Administrative Code (“F.A.C.”)

XXXXXX (“Taxpayer”)(“Petitioner”)

FEIN: XXXXX

BPN: XXXXX

Dear XXXXX:

This letter is a response to your petition dated January 15, 2016, for the Department’s issuance of a Technical Assistance Advisement (“TAA”) to Petitioner, regarding whether Taxpayer may receive exemption certificates in electronic format. Your petition has been carefully examined, and the Department finds it to be in compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of section 213.22, F.S.

Issue

Whether Taxpayer may accept exemption certificates in electronic format in lieu of physical certificates?

Facts

Taxpayer is XXXXXXX provider. Taxpayer seeks to receive and store Florida Sales and Use Tax exemption certificates in an electronic format (“Electronic Exemption Certificates”)(“EEC”). Taxpayer currently allows its customers to download, complete, and physically submit various sales and use tax exemption certificates for completeness, accuracy of required inputs (such as SIC codes), corroboration of account holder’s name, proper signature, and effective dates. Taxpayer is in the process of developing a website that allows its customers to electronically complete, sign, and submit an EEC in lieu of completing physical certificates. The EEC would be for certain XXXX purchases for XXXX use. Adobe software will be used.

The customer is required to provide required names, account numbers, location addresses, various identifying numbers, telephone number, and the date. The identifying numbers include those used for federal withholding and income tax purposes, social security numbers, Florida sales tax numbers, and industry codes.

The customer will be required to electronically sign the document using a digital identification (“Digital ID”) that contains the customer’s name and e-mail address, the name of the organization that issued it, a serial number, and an expiration date. The Digital ID will be used for certificate security and digital signatures. Taxpayer will conduct the same thorough review and validation of the EEC as is done currently for the physical exemption certificates.

Taxpayer Position

The Department should accept the EEC in the same manner as a written exemption certificate. This is because Taxpayer’s acceptance of EEC will have the same force and effect as a written exemption certificate. Taxpayer will require its customers to fully complete the EEC, which will contain the same information contained on the written forms promulgated and suggested by the Department. Taxpayer will require customers to sign the EEC with a Digital ID. Taxpayer will retain the submitted EEC in its electronic books and records. The petition cites sections 668.004, 668.03(5), and 668.06, Florida Statutes (“F.S.”).

Applicable Statutes and Rules

Section 212.05, F.S., provides that the sales tax must be imposed on the sale of tangible personal property. This includes the sale of electrical power. See s. 212.05(1)(e)1.c., F.S. Section 212.21(2), F.S., provides, in part, the following:

(2) It is hereby declared to be the specific legislative intent to tax each and every sale, admission, use, storage, consumption, or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, consumption, or rental as shall be specifically exempted therefrom by this chapter subject to the conditions appertaining to such exemption....

All sales of tangible personal property are taxable unless the items are specifically exempt from the tax. Wanda Marine Corporation v. Department of Revenue, 305 SO 2D 65 (FLA. 1 DCA 1974). The request provides exemptions provided by s. 212.08(5)(e) and 212.08(7)(j), F.S., apply to certain Taxpayer sales. Rule 12A-1.053, F.A.C., and Rule 12A-1.087, F.A.C., address the referenced exemptions. The Rules provide specific procedures required to establish the exemptions.

Taxpayer must maintain documentation to support exempt transactions for a minimum of three (3) years. See ss. 212.13(2), 213.35, and 95.091, F.S. Consequently, under Florida law, the burden is on Taxpayer as the party claiming the exemption, to establish from its books and records that it is clearly entitled to a particular exemption when making a sale. This includes exemption certificates used to support an exempt sale. Rule 12A-1.038, F.A.C., provides basic requirements regarding exemption certificates.

Taxpayer is required to ascertain whether a transaction is taxable or exempt when making a sale. Rule 12A-1.038(1), F.A.C., provides that the exempt nature of the transaction must be established by the selling dealer and that unless the selling dealer shall have taken from the purchaser the required documentation as provided by the Department, then the sale shall be deemed to be taxable. Rule 12A-1.038(5)(b), F.A.C., provides that a purchaser who may qualify for an exemption on account of use of property must extend an exemption certificate to the selling dealer in lieu of paying tax. The Rule requires that an exemption certificate must contain the purchaser’s name, address, the reason for which the use of the property or service qualifies for exemption based on its use, and the signature of the purchaser or an authorized representative of the purchaser. In addition to the general requirements for exemption certificates provided by Rule 12A-1.038, F.A.C., XXXX., provide additional requirements for the exemptions claimed by Taxpayer.

In regard to exemption certificates, s. 212.085, F.S., also applies. It provides:

Fraudulent claim of exemption; penalties.—When any person shall fraudulently, for the purpose of evading tax, issue to a vendor or to any agent of the state a certificate or statement in writing in which he or she claims exemption from sales tax, such person, in addition to being liable for payment of the tax plus a mandatory penalty of 200 percent of the tax, shall be liable for fine and punishment as provided by law for a conviction of a felony of the third degree, as provided in s. 775.082, s. 775.083, or s. 775.084.

Chapter 212, F.S., and Rule Chapter 12A-1, F.A.C., do not address the issue of whether a dealer may accept an EEC or whether the Department is required to accept the receipt of an EEC as proof regarding the exempt nature of a sale. Even if an EEC were accepted by the Department as evidence, then an EEC must still include all required information as provided by the Florida Administrative Code for exemption certificates that are received in physical form or as a copy of a physical format exemption certificate sent electronically. In all instances, a signature is required. The petition provides that an electronic or digital signature should be accepted by the Department. The petition cites ss. 668.002, 668.003(4), 668.004, and 668.006, F.S. Chapter 668, F.S., addresses electronic commerce. Section 668.002, F.S., provides:

It is the intent of the Legislature that this act:
(1) Facilitate economic development and efficient delivery of government services by means of reliable electronic messages.
(2) Enhance public confidence in the use of electronic signatures.
(3) Minimize the incidence of forged electronic signatures and fraud in electronic commerce.
(4) Foster the development of electronic commerce through the use of electronic signatures to lend authenticity and integrity to writings in any electronic medium. (5) Assure that proper management oversight and accountability are maintained for agency-conducted electronic commerce.

Section 668.50(18)(c), F.S., provides that a governmental agency is not required to accept or use electronic records or electronic signatures. Section 668.50(18)(a), F.S., provides that each agency will determine whether, and the extent to which, electronic signatures and electronic records may be sent or accepted to and from other persons.

Section 668.004, F.S., provides, “Unless otherwise provided by law, an electronic signature may be used to sign a writing and shall have the same force and effect as a written signature.” Section 668.003(3) and (4), F.S., provides the following definitions:

(3) “Digital signature” means a type of electronic signature that transforms a message using an asymmetric cryptosystem such that a person having the initial message and the signer’s public key can accurately determine:
(a) Whether the transformation was created using the private key that corresponds to the signer’s public key.

(b) Whether the initial message has been altered since the transformation was made.

A “key pair” is a private key and its corresponding public key in an asymmetric cryptosystem, under which the public key verifies a digital signature the private key creates. An “asymmetric cryptosystem” is an algorithm or series of algorithms which provide a secure key pair.

(4) Electronic signature” means any letters, characters, or symbols, manifested by electronic or similar means, executed or adopted by a party with an intent to authenticate a writing. A writing is electronically signed if an electronic signature is logically associated with such writing.

Section 668.50(9)(a), F.S., provides that an electronic record or electronic signature is attributable to a person if the record or signature was the act of the person. The statute provides that the act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. Section 668.50(2)(n), F.S., defines the term “security procedure.” Section 668.003(3), F.S., defines the term “digital signature,” which your letter provides Taxpayer will obtain. Section 668.50(11), F.S., addresses notarization.

The definition of electronic signature provided by s. 668.003(4), F.S., affords parties engaged in electronic commerce flexibility in selecting an appropriate electronic signature solution. However, it also sets parameters on the parties. A selling dealer seeking to accept an EEC must make certain that any electronic sound, symbol, or process that is used to create an electronic signature is attached to or logically associated with the applicable EEC and that the electronic signature is made by the purchaser with the intent to sign the certificate. Although the electronic signature is evidence of the purchaser’s intent, the selling dealer accepting an EEC must establish a procedure to authenticate or prove the identity of the purchaser and/or the authorized purchaser’s representative.

A selling dealer must make reasonably certain that the individual accessing and electronically signing an EEC is the individual identified on the certificate, so that an electronic signature would not be able to be repudiated for purposes of s. 212.085, F.S. Furthermore, an EEC must incorporate all other requirements for exemption certificates. Also, the Department must be able to verify, upon request or audit, a dealer’s procedures employed to ensure the accuracy or integrity of the authentication process. This review should be able to be made in a simple manner.

Since s. 668.50(9), F.S., provides discretionary authority with the Department, until audit procedures are established by the Department, a determination as to whether the EEC procedures or EEC itself may be accepted by the Department is to be made on a case by case basis. In all cases, the procedures employed must be readily available for inspection and access by the Department, including but not limited to circumstances when a taxpayer is under audit. The exemptions claimed must be easily verified and simple to authenticate. The exemption certificate must be capable of being accurately reproduced so as to be perceptible by human sensory capabilities and be capable of being accessed by the Department if requested.

Conclusion

Currently, acceptance of an EEC by Taxpayer is not prohibited by Florida Statutes, by any provision of the Florida Administrative Code, or otherwise by the Department. Taxpayer may accept EEC as requested based on the information provided. Taxpayer must continue to comply with the procedures provided herein. This advisement should not be interpreted to include resale certificates and State-issued exemption certificates.

This response constitutes a Technical Assistance Advisement under section 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 section 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 section 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 10 days of the date of this letter.

Respectfully,

Charles Wallace
Technical Assistance & Dispute Resolution 850-717-7541

Record ID: 209387

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