Was an $8,900 lump-sum contract to install a moored electrical fountain in a retention pond a taxable retail sale or a real-property improvement?

Subject

Water Fountain Installation

Plain-English summary

The installed pond-aeration fountain was a real-property improvement, not a retail sale of the finished fountain to the association. Its mooring was driven into the pond bed, electrical cables ran to a control panel, and the fountain was expected to remain indefinitely.

Under the $8,900 lump-sum contract, the contractor owed tax to suppliers on materials. If the contractor manufactured the fountain, it owed tax on fabricated cost. It should not have collected sales tax on the total contract price charged to the association.

What this means for you

Permanent attachment and intended duration drove the fixture analysis. Lump-sum real-property treatment shifted tax from the customer-facing contract price to the contractor's inputs.

Common questions

Q: Was the fountain a real-property improvement? Yes.

Q: Did the association owe tax on the full contract price? No.

Q: Who paid tax on materials? The contractor.

Citations and references

• Fla. Stat. § 212.06(14) — real property and fixtures
• Fla. Admin. Code r. 12A-1.051 — real-property contractors and fixtures
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-039

Original ruling text

SUMMARY

QUESTION: Taxpayer is a Property Owners' Association that
contracted to have a water fountain installed in its
retention basin (holding pond) to aerate the water. A
mooring for the fountain has been driven into the bed of a
pond and electrical cables were run from the fountain to a
control panel. The Contract reflects a lump sum of
$8,900.00 for the fountain and installation cost, with
sales tax added to the total price for the fountain, pump,
electrical attachments, labor, and other supplies and
materials necessary to install the fountain. Is the lump
sum contract for a fountain a real property improvement for
which sales tax should not be charged to the purchaser?

ANSWER - Based on Facts Below: The manner of attachment of
the fountain, and the fact that the fountain is expected to
remain in place for an indefinite period of time, indicate
that the fountain is a real property improvement. Since
the real property improvement will be performed under a
lump sum contract, the contractor should pay the tax to
suppliers on the cost of the materials. Additionally, if
the contractor was the manufacturer of the fountain, tax
should be paid by the contractor on the fabricated cost of
the fountain. Tax should not be collected on the total
contract price charged to the Taxpayer.

Jul 11, 2001

Re: Technical Assistance Advisement 01A-039
XXX ("Taxpayer")
XXX ("Contractor")
Sales and Use Tax - Water Fountain Installation
Rule: 12A-1.051, F.A.C.

Dear :

This response is in reply to your letter dated May 24, 2001,

requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter 1211, F.A.C., regarding the referenced matter and parties. An
examination of your petition has established that you have
complied with the statutory and regulatory requirements for
issuance of a TAA. Therefore, the Department is hereby granting
your request for issuance of a TAA.

FACTS

Taxpayer is a Property Owners' Association that contracted to
have a water fountain installed in its retention basin (holding
pond) to aerate the water. Taxpayer has supplied a copy of the
Contract/Proposal showing that the mooring for the fountain has
been driven into the bed of a pond and electrical cables were
run from the fountain to a control panel. The Contract reflects
a lump sum of $8,900.00 for the fountain and installation cost,
with sales tax added to the total price for the fountain, pump,
electrical attachments, labor, and other supplies and materials
necessary to install the fountain. Taxpayer believes that sales
tax should not be due on a lump sum contract for a real property
improvement.

APPLICABLE LAW

Rule 12A-1.051, Florida Administrative Code, which implements
the statutory provisions set forth in s. 212.06(14), F.S.,
regarding real property and fixtures, states in pertinent part:

(2)(c)1. "Fixture" means an item that is an accessory to a
building, other structure, or to land, that retains its
separate identity upon installation, but that is
permanently attached to the realty. Fixtures include such
items as wired lighting, kitchen or bathroom sinks,
furnaces, central air conditioning units, elevators or
escalators, or built-in cabinets, counters, or lockers.

3. The determination whether an item is a fixture depends
   upon review of all the facts and circumstances of each
   situation. Among the relevant factors that determine
   whether a particular item is a fixture are the following:

a. The method of attachment. Items that are screwed or
bolted in place, buried underground, installed behind
walls, or joined directly to a structure's plumbing or
wiring systems are likely to be classified as fixtures.
Attachment in such a manner that removal is impossible
without causing substantial damage to the underlying realty
indicates that an item is a fixture.

b. Intent of the property holder in having the item
attached. If the property holder who causes an item to be
attached to realty intends that the item will remain in
place for an extended or indefinite period of time, that
item is more likely to be a fixture. That intent may be
determined by reviewing all of the property holder's
actions in regard to the item, including how the item is
treated for purposes of ad valorem and income tax purposes.
For example, if a property owner reports the value of the
item for purposes of ad valorem taxation of the realty and
depreciates the item for tax and financial accounting
purposes as real property, that indicates an intent that
the property is permanently attached as a fixture.

c. Real property law. If an interest in an item arises upon
acquiring title to the land or building, the item is more
likely to be considered a fixture. For example, if the
seller of real property would be expected to leave an item
behind when vacating the premises for a new owner without
the contract specifically requiring that it be left, that
item is likely to be classified as a fixture.

d. Customization. If items are custom designed or custom
assembled to be attached in a particular space, they are
more likely to be classified as fixtures. Customization
indicates intent that the items are to remain in place
following installation.

e. Permits and licensing. If installation of an item
requires a construction permit or licensing of the
contractor under statutes or regulations governing the
building trades, that item is more likely to be regarded as

a fixture.

f. Legal agreements. The terms of any purchase agreement
deed, lease, or other legal document pertaining
specifically to an item may be relevant in determining
whether that item is a fixture of real property.

The foregoing list of factors relevant to determining
whether an item is a fixture is intended to be illustrative
only. Additional factors may exist in any particular case,
and the weight to be given to the factors will also vary in
each case....

(h)1. Real property contract" means an agreement, oral or
written, whether on a lump sum, time and materials, cost
plus, guaranteed price, or any other basis, to:...

c. Furnish and install tangible personal property that
becomes a part of or is directly wired or plumbed into the
central heating system, central air conditioning system,
electrical system, plumbing system, or other structural
system that requires installation of wires, ducts,
conduits, pipes, vents, or similar components that are
embedded in or securely affixed to the land or a structure
thereon....

(3) Classification of contracts by pricing. The taxability
of purchases and sales by real property contractors is
determined by the pricing arrangement in the contract.
Contracts generally fall into one of the following
categories:

(a) Lump sum contracts. These are contracts in which a
contractor or subcontractor agrees to furnish materials and
supplies and necessary services for a single stated lump
sum price....

(4) General rule of taxability of real property
contractors. Contractors are the ultimate consumers of
materials and supplies they use to perform real property
contracts and must pay tax on their costs of those

materials and supplies, unless the contractor has entered a
retail sale plus installation contract. Contractors
performing only contracts described in paragraphs (3)(a),
(b), (c), or (e) do not resell the tangible personal
property used to the real property owner but instead use
the property themselves to provide the completed real
property improvement. Such contractors should pay tax to
their suppliers on all purchases. They should also pay tax
on all materials they fabricate for their own use in
performing such contracts, as discussed in subsection (10).
They should charge no tax to their customers, regardless of
whether they itemize charges for materials and labor in
their proposals or invoices, because they are not engaged
in selling tangible personal property. Such contractors
should not register as dealers unless they are required to
remit tax on the fabricated cost of items they fabricate to
use in performing contracts....

DISCUSSION

From the information provided, the manner of attachment of the
fountain, and the fact that the fountain is expected to remain
in place for and indefinite period of time, indicate that the
fountain is a real property improvement. Since the real
property improvement was performed under a lump sum contract,
the contractor should have paid the tax to suppliers on the cost
of the materials. However, if the contractor was the
manufacturer of the fountain, tax should have been paid by the
contractor on the fabricated cost of the fountain. Tax should
not have been collected on the total contract price charged to
the Taxpayer.

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 and
administrative rule changes or those 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., which are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request that 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,

Michael T. Cavanaugh
Tax Law Specialist
Technical Assistance and Dispute Resolution
850-922-9411
Enclosure
Control # 45445