Sales Tax Slice: It’s a Lock: Self-Service Key-Cutting Machines in Kiosks Not Exempt in Florida

In recent years, there have been an increasing amount of self-service kiosks in some of America’s largest retailers. MinuteKEY are the makers of the world’s first ever self-service, fully automated key duplication kiosk, offering their customer’s a duplicate key in just one minute. Long Island City-based KeyMe takes this technology to the next level, offering self-service kiosks that store a digital copy of a customer’s key, in case it is lost or stolen.

Last month, the Florida Department of Revenue determined that the purchase of self-service key-cutting machines, for use in Florida, did not qualify for the state’s exemption on industrial machinery and equipment used in new or expanding businesses that manufacture tangible personal property for subsequent resale.

The at-issue (unnamed) corporation had entered into an agreement with a manufacturer to construct key-cutting devices encased in self-service kiosks. The kiosks combined innovations in robotics, electronics and software engineering to duplicate home, office and padlock keys.

The corporation then contracted with big-box stores throughout the United States to place its self-service key duplication machines to be used by customers. The free-standing kiosks were not installed and therefore not become part of stores’ real property. The corporation made its revenue from the sale of duplicate keys to end-user customers.

Florida law provides that industrial machinery and equipment purchased in new businesses that manufacture, process, compound or produce for sale tangible personal property items at fixed locations are exempt from sales and use tax. A new business is defined as the opening of a new facility or plant, at a fixed location in Florida, to manufacture, process, compound or produce tangible personal property for sale.

The corporation argued that it is a manufacturer of tangible personal property since its key-cutting machines produce an item, a key. The department agreed with this initial argument. However, the department went on to explain that placing kiosks in big-box stores does not constitute the opening of a new facility for exemption purposes.

Additionally, the corporation was not manufacturing, processing, compounding or producing the key. The kiosk key-cutting machines are self-service machines that do not require the corporation’s involvement to produce a key. The actual production is done by the customer, not the store. As such, the corporation’s request for an exemption was denied.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What are the economic impacts of such tax impositions on manufacturers? 

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By Mark J. Kennedy

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