Where did Florida impose sales or use tax and local surtax when a contractor fabricated modular homes and erected them elsewhere?

Plain-English summary

Florida treated the modular-home company as a real-property contractor and taxed its direct material costs where fabrication occurred. The company manufactured factory-built homes, delivered them in its own trucks, and permanently attached them to foundations before title and payment became due.

Because the company both fabricated and erected the homes, it consumed the materials in real-property contracts rather than selling completed units as tangible personal property. The special factory-built-building rule limited the fabrication tax base to the cost of items used in manufacture.

Florida tax applied to a home fabricated in Florida for erection in Georgia because the taxable fabrication occurred before interstate shipment. For a home fabricated in a Florida county without a local surtax and erected in a surtax county, the installation county's surtax did not apply; any surtax followed the fabrication location.

What this means for you

The result turned on the contractor completing permanent erection. If it instead sold units to another contractor that performed installation, delivery at the job site would determine the sales-tax and surtax jurisdiction.

Common questions

Q: Did Florida tax the full modular-home contract price? No. Under the factory-built-building rule described, the contractor owed tax on direct material costs.

Q: Did shipment to Georgia eliminate Florida tax? No.

Q: Did the Florida installation county's surtax apply? Not when fabrication occurred in another Florida county and the taxpayer performed the erection.

Q: Did the ruling cover mobile homes? No.

Citations and references

• Fla. Stat. § 212.02(7) — factory-built building definition
• Fla. Stat. §§ 212.05(1), 212.06(1)(a)–(b), and 212.06(14)(a) — contractor, fabrication, and real-property provisions
• Fla. Admin. Code r. 12A-1.051(2)–(3) — real-property contracts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-005

Original ruling text

SUMMARY

QUESTION: How is fabrication of modular homes in Polk
County taxed under Florida's sales and use tax and local
option sales surtax laws?

ANSWER - Based on Facts Below: A taxpayer who fabricates
modular homes in Polk County for use in real property
contracts owes Florida sales or use tax on the cost of
materials used in the homes. Taxpayer's Polk County
fabrication activity is subject to any local option sales
surtax that may be imposed by Polk County rather than any
such surtax of the county where the home is installed.

Feb 14, 2000

Re: Technical Assistance Advisement (00A-005)
XXX ("Taxpayer")
Sales and Use Tax -- Modular Homes
Statutes: 212.02, 212.06, F.S.
Rules: 12A-1.051, F.A.C.

Dear :

This is in response to XXX letter dated September 24, 1999, as
supplemented by our telephone conversation and your letter of
December 10, 1999, in which XXX ("Taxpayer") seeks a technical
assistance advisement on the appropriate sales and use taxation
of Taxpayer's manufacture and installation of manufactured
homes. A letter of technical advice (the "LTA") was issued in
response to XXX letter because it failed to provide certain
information required for a binding technical assistance
advisement. In our telephone conversation and your letter you
have provided that information as well as confirming the
accuracy of certain facts assumed for purposes of the LTA.

Facts

XXX ("Taxpayer") manufactures and erects modular homes.
Taxpayer's plant is located in XXX. Taxpayer manufactures
modular homes there, delivers them in Taxpayer's trucks to the
buyer's building site, and erects them. The fabricated
structures are "factory-built buildings" as defined in section
212.02(7), F.S., are erected on permanent foundations, and are
treated as real property for ad valorem tax purposes. This
letter does not apply to any structures that are "mobile homes"
as defined for purposes of the motor vehicle licensing
provisions in Chapter 320, F.S. The dealers for whom you
fabricate and erect modular homes either own the land where
erection occurs or have contracted to erect the home on land
owned by their customers. The "erection" performed by Taxpayer
involves attaching the modular units to the foundations with
bolts, straps or by other means intended to be permanent.

Taxpayer and its customers operate under Taxpayer's standard
sales agreement, which designates Taxpayer as "Seller" and the
customer as "Builder." The second page of the contract is a
form where the buyer's choices of model, size, siding, flooring,
cabinets, appliance colors, and other features are checked.
This sheet identifies the person who will be acquiring the home
from Taxpayer's customer as "Buyer." This appears to be for
identification purposes only. The only parties to the contract
are Taxpayer and the dealer/builder. Pricing is indicated on
the specification sheet as a base price for the model selected,
with additional charges for some elected options, a subtotal of
the base price plus options, freight, escort fees and charges,
and code data. There is no itemization of job site erection
labor, which is factored into the model and options pricing.

The builders or dealers are responsible for site preparation,
foundation work, sewer and water connections, electricity and
gas hookups, and landscaping. They are also responsible for
interior finishing as defined in Taxpayer's form sales contract.
This includes such items as drywall, painting, and installing
millwork, kitchen fixtures and cabinetry, floor coverings, water
heaters, and forced air heating systems and ductwork that are
not factory installed. Taxpayer's customers must perform the
work for which they are responsible themselves or engage other
subcontractors.

The contract form does not specifically provide for passage of
title and risk of loss from Taxpayer to its customers. You have
represented that title does not pass until after erection.
Except for a small down payment, no obligation to pay Taxpayer
for a home arises until after Taxpayer completes erection at the
job site. This supports your position that title and risk of
loss remain with Taxpayer until its contractual obligations have
been completely performed.

Taxpayer pays sales taxes on all the materials it uses at its
plant to manufacture the homes. It is assumed that if Taxpayer
is required to purchase any additional materials locally to use
in the erection process, Taxpayer pays tax on those purchases at
the time. Taxpayer's invoices do not reflect that any tax is
collected from its customers.

Requested Advisements

You have requested advice on two questions:

1. If Taxpayer manufactures a home in XXX, Florida, for erection
   at a Georgia site, does Taxpayer owe use tax to Florida?

2. If Taxpayer manufactures a home in XXX County, which has no
   local option sales surtax, for erection in a Florida county that
   imposes such a surtax, is Taxpayer required to pay surtax to
   that county?

Applicable Law, Discussion, and Analysis

The basic issue to be addressed is whether Taxpayer is engaged
in the sale of tangible personal property or is performing real
property contracts when it fabricates and erects a modular home.
If Taxpayer is selling tangible personal property, Taxpayer must
collect tax on the full contract price from the customer.

Real property contractors are the consumers of tangible personal
property used in performing contracts. They pay sales or use
tax on that property but collect no tax from their customers.
See sections 212.05(1) and 212.06(1)(a), F.S.; Rule 12A-

1.051(2), (3), F.A.C. Pursuant to section 212.06(1)(b), F.S., a
real property contractor that fabricates tangible personal
property to use in performing contracts must pay use tax on the
fabricated cost of that property, including transportation,
labor, and services as well as materials. There is a special
rule, however, for "factory-built buildings" used in real
property contracts. The statute provides that the tax on
fabrication in that case is imposed only on the "cost price of
items used in the manufacture of such buildings." Section
212.02(7), F.S., defines "factory-built building" as "a
structure manufactured in a manufacturing facility for
installation or erection as a finished building;...." The term
includes residential structures. If Taxpayer is performing real
property contracts, Taxpayer is taxable on its cost of materials
under the fabrication tax statute.

Section 212.06(14)(a), F.S., defines "real property" to mean the
land and improvements thereto and fixtures and is synonymous
with the terms "realty" and "real estate." Buildings that are
attached to foundations in a permanent manner are considered to
be improvements to the land on which they rest. Based on the
facts stated above, Taxpayer is erecting factory-built buildings
in the course of performing real property contracts. Therefore,
Taxpayer is subject to tax on its fabrication under the special
rule for factory-built buildings in section 212.06(1)(b), F.S.
Taxpayer is paying tax on the materials used in the fabrication
of its buildings and is therefore in compliance with that
statute.

Both of Taxpayer's questions deal with the jurisdiction in which
taxes are owed. The tax is imposed on fabrication activity
occurring in XXX County. This activity occurs prior to the time
the manufactured building units are loaded for shipping to the
job site. For this reason, the applicable taxes are Florida
sales taxes and XXX County surtaxes (if any applied). In terms
of the surtax, it is immaterial that the units may be
transported to another county for erection. In terms of the
sales tax, Florida's taxation of the materials used in the
fabrication activity arises in time before the use of the
completed units in another state. Other states may impose a use
tax on the cost of the units as of the time of importation and

use within their borders, but they are generally required to
give a credit against their tax for any Florida tax imposed on
the same costs. (The reverse is also true. Florida will tax
property that a contractor fabricates in another state and then
imports to use in Florida, but gives a credit against that tax
for any use tax paid to the state of origin on fabrication
costs.)

This is a significant difference from the rules that would apply
if Taxpayer were selling the units as tangible personal property
to a contractor who would perform the installation labor, rather
than having Taxpayer do it. In that case, the taxable event for
sales tax and surtax purposes would be the transfer of the
property to the buyer at the job site. The location of delivery
would determine what jurisdiction had the authority to impose
its tax.

Advisements

1. If Taxpayer manufactures a home in Florida for erection at a
   Georgia site, Taxpayer owes use tax to Florida on its direct
   materials costs in accordance with section 212.06(1)(b), F.S.

2. If Taxpayer manufactures a home in XXX County, which has no
   local option sales surtax, for erection in a Florida county that
   imposes such a surtax, Taxpayer is not required to pay surtax to
   that county on its direct materials costs.

Closing Statement

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
and assumptions 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 15 days of the date of this
letter.

Sincerely,

Linda W. Bridges
Senior Attorney
Technical Assistance and Dispute Resolution
850-922-9412

Enclosure
Control #39696