FL Sales Tax - GBR Case Holds DOR Rule Invalid

UPDATE: The FL DOR filed a notice of appeal in the GBR case. Stay tuned!

The Florida Department of Revenue promulgates many administrative rules interpreting Florida’s Chapter 212 sales and use tax statutes. But the Department of Revenue only has authority to create interpretive administrative rules if a statute gives the agency specific authority to do so for each specific statute. Even with the authority to interpret the statute, the Department still may not expand upon or conflict with the statute. Our firm found a gapping hole in the Department of Revenue’s rule making process. Portions of some of the long, interpretive administrative rules cross over to interpreting other statutes for which the Department has not been giving interpretive authority. It is improper for an agency create interpretive rules without the legislative authority by sneaking the interpretation into other rules for which interpretative authority has been granted. This is at the heart of what is already become known as the “GBR Case” and the case could spell big problems for many, many cases before the Department of Revenue. Taxpayers and Tax Professionals should be paying attention. This article focuses on the GBR rule challenge as well as a sister GBR case focused on whether commissions paid by vending machine owners to the land owners should be subject to Florida sales tax as rent.

GBR’s Rule Challenge

At issue in the GBR rule challenge case were two statutes: (1) Section 212.031, Fla. Stat., which pertains to Florida’s imposition of sales tax on commercial rent and (2) Section 212.0515, Fla. Stat., which addresses the sales tax treatment of vending machines. Section 212.031, Fla. Stat., does not mention vending machines; similarly; section 212.0515, Fla. Stat., does not mention commercial rent tax on vending machines.

Of importance in this case, Section 212.0515(6), Fla. Stat. allows for the Florida Department of Revenue to adopt rules necessary to administer sec. 212.0515. However, section 212.031, Fla. Stat., does not provide for any such allowance for sec. 212.031.

Rule 12A-1.044, Florida Administrative Code, addresses the taxability of vending machines and was enacted pursuant to the allowance for rules made in section 212.0515. At issue in GBR was provision 12A-1.044(5)(a), which states “[i]f the machine owner is also the operator and the operator places the machine at another person’s location, the arrangement between the machine operator and location owner is a lease or license to use real property.”

In short, the rule combines section 212.031’s imposition of sales tax on commercial rent with section 212.0515’s imposition of tax on vending machine sales in the rule addressing vending machines. However, the Department, when given interpretive authority, may not expand or conflict with statutes being interpreted. GBR successfully argued that Rule 12A-1.044 was an invalid exercise of the delegated legislative authority because the vending machine rule, which was allowed for the administration of the vending machine statute, had a rogue provision that improperly included an expansion of the commercial rent statute.

The Court agreed. Specifically, the Court found that section 212.0515, F.S., did not confer the Department with specific authority to enact an interpretive rule dealing with taxing payments between the owner and operator of a vending machine and the owner of the property where the vending machine may be placed as a license to use real property. Furthermore, the Court found no support for the taxing of vending machines as rent in section 212.031, F.S., Florida’s commercial rent tax statute. As a result, the Administrative Law Judge entered a final order in favor of GBR holding that the portion of rule 12A-1.055 dealing with rent from vending machines was an invalid exercise of agency authority. This brings us to substantive GBR case.

GBR’s Substantive Case

The sister portion of the GBR case involves the Florida Department of Revenue assessing sales tax on a vending machine service contract under the theory that the commissions paid to the land owner were taxable rent. Florida is the only state in the country that imposes sales tax on commercial rentals and the Department has found many ways to interpret rent into different types of commercial transactions there were the parties never contemplated rent. The GBR case is a tale of just such a case.

GBR engaged in bids with various schools across the south Florida area to operate vending machines with county schools. The bids from the counties required “full turn-key operation” that met with federal nutritional requirements imposed on public schools. The relationship was such that GBR would maintain and stock the machines, repairing a portion of them when they became damaged, and provide the schools with a commission as a percentage of the sales made in the machines. Upon audit, the Florida Department of Revenue took the position that GBR was renting space from the schools where the vending machines were placed and that the commissions paid to the schools were subject to sales tax as rent.

During the audit, the Department relied on rule 12A-1.044(5)(a) which clearly states “[i]f the machine owner is also the operator and the operator places the machine at another person’s location, the arrangement between the machine operator and location owner is a lease or license to use real property.” Normally, the Department’s rule would be given great deference by the Court. However, because GBR successfully challenged this rule as an invalid exercise of authority, the Court could review the facts of the case against just the statutes. With the Court’s hands untied, GBR now had a chance to convince the Court that under these facts, the commissions paid to the schools was something other than rent.

A key fact was that the schools were required to meet federal nutritional guidelines for any food provided to the students. Out of the 700 vending machines GBR installed into the schools, about 60% were beverage machines and the remaining 40% were for snacks. Of note, the beverage vending machines are owned by the bottling companies and not owned by GBR. So while GBR is responsible under the contracts to stock, maintain, and service all the machines, they repair only the machines they own and not the beverage machines.

For the non-beverage machines, GBR maintained ownership of the machines while giving schools certain rights to the machines. For example, the schools decided where the vending machines will be located on the property, controlled the times during the day when the vending machines are operational and accessible, controlled the types of products to be placed in the machines, controlled pricing strategies, and had keys to the machines as well to review the meter, monitor transactions, and reconcile revenue. The school also restricted GBR’s access to the machines to only those employees who pass background checks.

Department of Revenue auditors are trained to see things as black and white. The reality is many transactions are much more complicated than they understand. In an auditor’s mind, a taxpayer is either (1) renting the tangible, personal property of the vending machines to the school OR (2) they are renting space from the school to operate their vending machines. In their minds, there is nothing outside of this model. In the first scenario, the business should collect tax from their customer on the rental price of the machines. Meanwhile, in the second scenario, the business must pay sales tax on their rental expense.

However, as any business owner knows, arrangements between sellers and customers often fall into a variety of different categories. In this case, the intention of the agreement was not to rent machines to the schools, or to rent space from the schools to operate their business. Rather, it was to provide a service to the schools to help meet the federal nutritional guidelines imposed on the schools. The Florida Department of Revenue does not like this third option. Why? Because it is not subject to Florida sales tax! Florida only taxes a very narrow group of services, and vending machine services don’t fall even close within the taxable categories.

Fortunately, the ALJ, or Administrative Law Judge, hearing the case could see the arrangement for what it was. Emphasizing the fact that the schools required GBR to provide snacks in compliance with the new federal nutritional guidelines, the Court deduced that the substance of the arrangement was a service contract. The schools didn’t want to deal with complying with new federal nutritional guidelines. The school hired GBR to do it for them. As such, there was no rental of tangible personal property by the schools and certainly no rental of commercial space by GBR. Consequently, the judge held in favor of GBR.

The implications of this case are vast for there are many other Florida Department of Revenue created rules that have the same fatal flaw. This could open the door to a tilting of the scales in many cases against the FL DOR for the taxpayer savvy enough to add the arguments. If you or your clients have cases before the Florida Department of Revenue, then please contact our firm to explore whether the DOR may have relied on an invalid rule!

undefinedAbout the Author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton is in charge of the Tampa office of the firm and his primary practice area is Florida sales and use tax controversy. Mr. Sutton worked in the State and Local Tax department of Arthur Andersen for a number of years and was an adjunct professor at Stetson University College of Law from 2002 – 2013 teaching State and Local Taxation as well as Boston University’s LLM in Tax Law. Mr. Sutton also serves as the Chairman of State and Local Tax for the American Academy of Attorney-CPA’s and speaks frequently throughout Florida on Florida tax matters. You can read more about Mr. Sutton in his firm BIO.

undefinedAbout the Author: Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College. To learn more about Ms. Moffa, visit her firm bio.

About the Firm: 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 clients against Florida sales and use taxes for more than 25 years with over 100 years of cumulative experience working for 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 also have former Department of Revenue agents on staff who know how the tax agents think. With offices in Fort Lauderdale, Tampa, & Tallahassee, the law offices of Moffa, Sutton, & Donnini, PA represent taxpayers and business owners throughout the entire State of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.


Section 212.031, F.S. Tax on rental or license fee for use of real property

Section 212.0515, F.S. Sales from vending machines; sales to vending machine operators; special provisions; registration; penalties

Rule 12A-1.044, F.A.C. Vending Machines

GBR – Substantive - Chapter 120 Petition

GBR – Substantive – Recommended Order

GBR – Rule Challenge – Chapter 120 Petition

GBR – Rule Challenge – Final Order

GBR – Rule Challenge – Notice of Appeal


FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, CPA, Esq.

FLORIDA NOTICE OF FINAL ASSESSMENT (NOFA) | FL DEPT. OF REVENUE, published December 2, 2018, by Matthew Parker, Esq.

FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.

GO TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.