Was a modular turbine intake-air cooling system tangible personal property, allowing resale purchases and tax-free out-of-state delivery?

Subject

Plug and Chill Power System

Plain-English summary

The modular turbine intake-air cooling system was machinery or equipment and therefore tangible personal property. Its function in electrical generation, rather than its attachment at the plant, controlled the classification.

The manufacturer could buy parts incorporated into the completed systems with a resale certificate. A system delivered in Florida would be taxable on its full sales price, but systems manufactured in Florida and delivered and installed at out-of-state generation plants were not subject to Florida sales or use tax.

What this means for you

Equipment can remain tangible personal property after installation when it retains its identity and serves a particular commercial process. Delivery location then determines whether Florida taxes the completed sale.

Common questions

Q: Were incorporated components taxable to the manufacturer? No; they were purchases for resale.

Q: Would a Florida delivery be taxable? Yes, on the full sales price.

Q: Did Florida tax systems delivered and installed out of state? No.

Citations and references

• Fla. Stat. §§ 212.02(14)(c) and 212.02(19) — resale components and electricity as tangible personal property
• Fla. Stat. §§ 212.05(1)(a) and 212.06(1)(a), (1)(b), (5)(a), and (14) — sales, fabrication, exports, and classification
• Fla. Stat. § 212.08(5)(b) and (c) — industrial machinery and electrical-generation equipment
• Fla. Admin. Code r. 12A-1.051(2)(e) — machinery or equipment versus real property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-006

Original ruling text

SUMMARY

QUESTION: Is a system for cooling turbine intake air at
electrical generation plants classified as tangible
personal property for purposes of sales and use tax,
entitling the taxpayer to purchase component parts with a
resale exemption and to make sales to out-of-state
generation plants with no Florida sales or use tax
liability?

ANSWER - Based on Facts Below: Based on the information
provided, the system is refrigeration equipment that would
be classified as industrial machinery or equipment for
purposes of section 212.05(b) and (c), F.S. The system is
therefore classified as tangible personal property under
section 212.06(14), F.S., and Rule 12A-1.051(2), F.A.C.
Taxpayer should purchase component parts with a resale
certificate and collect Florida sales tax on the full sales
price for Florida sales. Systems manufactured for delivery
to and installation at out-of-state electrical generation
plants are not subject to Florida tax.

Jan 22, 2001

Re: Technical Assistance Advisement 01A-006
Sales and Use Tax -- Plug and Chill Power System
Section 212.06(1)(b), (5), (14), F.S.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated December 15, 2000, in which you asked for a
technical assistance advisement concerning the taxation of the
XXX (the "System") developed by XXX ("Taxpayer").

Facts

Taxpayer's primary business is the design and construction of

various real property improvements. Taxpayer manufactures
tangible personal property for use in performing design/build
and other contracts. That tangible personal property may become
part of real property upon installation or may remain tangible
personal property after installation in the case of industrial
machinery and equipment. Taxpayer has developed a product
designated as a XXX (the "System"). The System is a cost
effective method for XXX. It is made up of XXX equipment XXX.
The System design is modular, which facilitates meeting customer
needs and reduces field installation requirements. The System
also takes up much less space than traditional field-erected
systems. Taxpayer has contracted to furnish Systems to out-ofstate generation plants. Once installed at an XXX, a System is
an integral part of the overall XXX system and is necessary to
the most efficient operation of that system. Taxpayer will
purchase component parts of the Systems using a resale
certificate, manufacture the Systems in Florida, arrange for
rail shipment to the customer sites, and unload and install the
Systems at those sites.

Requested Advisement

Taxpayer asks whether it is required to pay tax to Florida on
the purchase of materials that are incorporated into the Systems
during manufacturing, the other costs incurred to manufacture
the Systems in Florida, or the sale and installation of Systems
at out-of-state XXX plants.

Taxpayer Position

Taxpayer classifies the System as industrial machinery and
equipment that is tangible personal property rather than real
property when installed. Because Taxpayer manufactures Systems
as tangible personal property for sale, not for Taxpayer's use
as a real property contractor, Taxpayer believes that purchases
of component parts and other fabrication costs are not subject
to use tax. Taxpayer also believes that no Florida tax is due
on the sale of Systems to out-of-state purchasers because
Florida sales and use tax does not apply to property
manufactured for sale out-of-state.

Applicable Law, Discussion, and Analysis

If a System remains tangible personal property upon
installation, Taxpayer is required to collect Florida sales tax
from the purchaser on the full sales price and remit that tax to
the state if delivery occurs in Florida. See sections
212.05(1)(a), 212.06(1)(a), F.S. If delivery occurs outside the
state, the sale of the Systems as tangible personal property is
not taxable. See section 212.06(5)(a), F.S. In addition, any
materials purchased by Taxpayer that become component parts of
the completed Systems are considered to be purchased for resale
and are not taxable if the Systems are tangible personal
property, regardless of whether the sale of the completed System
is a Florida sale or occurs in another state. See section
212.02(14)(c), F.S.

If a System become real property upon installation, the results
are different. Because they transfer real rather than personal
property, real property contractors cannot purchase their
materials for resale under the definitional requirements of
section 212.02(14), F.S. If the System is considered real
property upon installation, Taxpayer would be the final user of
the System as tangible personal property. Taxpayer would
therefore be taxable on the material and other costs incurred in
Florida to produce the Systems under section 212.06(1)(b), F.S.
Because the tax is imposed on Florida fabrication activity that
occurs prior to property leaving the Florida plant, it is
immaterial whether Taxpayer intends to install a System for a
Florida customer or for a customer located in another state.
(The other state would be required, under federal constitutional
principles, to grant Taxpayer a credit for Florida tax paid
against any tax imposed on Taxpayer's use of the System in that
state.)

The answers to Taxpayer's questions turn on classification of
the Systems as real property or as tangible personal property
under Chapter 212, F.S. Section 212.06(14), F.S., contains
definitions to assist in making that determination. That
statute reads as follows:

(14) For the purpose of determining whether a person is

improving real property, the term:

(a) "Real property" means the land and improvements thereto
and fixtures and is synonymous with the terms "realty" and
"real estate."

(b) "Fixtures" means items that are an accessory to a
building, other structure, or land and that do not lose
their identity as accessories when installed but that do
become permanently attached to realty. However, the term
does not include the following items, whether or not such
items are attached to real property in a permanent manner:
trade fixtures; property of a type that is required to be
registered, licensed, titled, or documented by this state
or by the United States Government,...; or machinery or
equipment....

If Taxpayer is correct in classifying the Systems as machinery
or equipment, those Systems are precluded from treatment as real
property under section 212.06(14), F.S. Rule 12A-1.051, F.A.C.,
provides regulatory guidance on the application of that statute.
The rule provides:

(2)(e)1. "Machinery or equipment" means and includes
property that:
a. is intended to be used in manufacturing, producing,
compounding, processing, fabricating, packaging, moving, or
otherwise handling personal property for sale or other
commercial use, in the performance of commercial services,
or for other purposes not related to a building or other
fixed real property improvement; and

b. may, on account of its nature, be attached to the real
property but which does not lose its identity as a
particular piece of machinery and equipment.

2. "Machinery or equipment" generally does not include
   junction boxes, switches, conduits, wiring, valves, pipes,
   and tubing incorporated into the electrical, cabling,
   plumbing, or other structural systems of fixed works,
   buildings, or other structures, whether or not such items

are used solely or partially in connection with the
operation of machinery and equipment.

3. "Machinery or equipment" serves a particular commercial
   activity that is carried on at a location rather than
   serving general uses of land or a structure. Examples of
   machinery or equipment include conveyor systems, printing
   presses, drill presses, or lathes. Examples of items that
   are not machinery or equipment because they are integrated
   into the structure or realty and retain their usefulness no
   matter what activity is carried on at the site include
   heating and air conditioning system components or water
   heaters. Any property that would be classified as
   machinery or equipment under section 212.08(5), Florida
   Statutes, or any other provision of Chapter 212, Florida
   Statutes, is considered to be machinery or equipment for
   purposes of this rule. In the case of property used in the
   production of electrical or steam energy, any item that
   would qualify as exempt machinery or equipment under
   section 212.08(5)(c), Florida Statutes, is considered to be
   machinery or equipment for purposes of this rule.

Under the statute and the rule, the Systems would be classified
as machinery and equipment. They are used to XXX, which is
treated as tangible personal property for Florida sales and use
tax purposes. See section 212.02(19), F.S. Furthermore, the
Systems would be considered machinery and equipment under
section 212.08(5)(b) and (c), F.S. Section 212.08(5)(b), F.S.,
provides an exemption for machinery and equipment used to
manufacture tangible personal property for sale. It generally
applies to items used in a manufacturing process if the items
are depreciable and have a useful life of at least three years.
Based on the information provided, the Systems would fall within
that classification. (The Systems would not qualify for
exemption because of other requirements and limitations in
section 212.08(5)(b), F.S., but that does not preclude them
fitting the definition of "industrial machinery and equipment"
in that statute.) Furthermore, if sold to a Florida purchaser,
the Systems would qualify for exemption under section
212.08(5)(c), F.S. The Systems therefore are also covered by
the last sentence in the quoted portion of the rule.

Taxpayer correctly classified Systems sold to XXX plants as
machinery and equipment and therefore as tangible personal
property for purposes of Florida sales and use tax. Because the
Systems are tangible personal property, materials incorporated
into the Systems are purchased for resale and Systems sold and
delivered to out-of-state purchasers are exported within the
meaning of section 212.06(5)(a), F.S.

Advisement

Taxpayer is not required to pay tax to Florida on the purchase
of materials that are incorporated into the Systems during
manufacturing, the other costs incurred to manufacture the
Systems in Florida, or the sale and installation of Systems at
out-of-state generation plants.

Closing Statement

This response constitutes a Technical Assistance Advisement
under s. 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 s. 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 15 days of the date of this

letter.

Sincerely,

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

LWB/
Control #: 43463