Were separately itemized septic, electrical, and other real-property improvements included in the taxable price of a mobile home?

Subject

Mobile Home Sales with Real Property Improvements

Plain-English summary

Reasonably allocated site-improvement charges that were separately listed on the dealer's contract were not part of the mobile home's taxable sales price. The contract combined a sale of tangible personal property—the mobile home—with real-property improvements such as a septic tank and electrical hookup, making it a mixed contract.

The third-party providers performed the improvements under lump-sum contracts. They were the ultimate consumers of the materials and had to pay sales tax to their suppliers; neither they nor the mobile-home dealer resold those improvement materials to the customer.

What this means for you

Clear, reasonable contract allocation separated the taxable home sale from the real-property improvement work. Simply financing all charges together did not make every item part of the home's sales price.

Common questions

Q: Were the separately itemized improvements included in the home's taxable price? No.

Q: Did the subcontractors owe tax on their materials? Yes.

Q: Did the ruling accept the stated allocation? Yes, because it appeared reasonable for the materials and work.

Citations and references

• Fla. Stat. § 212.05(1) — retail sales of tangible personal property
• Fla. Stat. § 212.06(14) — real property and fixtures
• Fla. Admin. Code r. 12A-1.051 — real-property contractors and mixed contracts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-056

Original ruling text

SUMMARY

QUESTION: How are contracts treated for sales tax
purposes, where the contract includes the sale of a mobile
home, as tangible personal property, and the sale of
improvements to real property separately listed and
itemized on the contract?

ANSWER - Based on Facts Below: Such contracts are classed
as "mixed contracts," when the contract clearly allocates
the contract price among the various elements of the
contract. As such, the elements representing real property
improvements, which are separately listed and itemized in
the contract, are not elements of the total amount paid for
the mobile home (tangible personal property) and should not
be included in the taxable sales price.

Sep 07, 2001

Re: Technical Assistance Advisement 01A-056
Sales and Use Tax - Mobile Home Sales with Real Property
Improvements
Section 212.05, F.S.

Dear :

This is in response to your letter of August 7, 2001, in which
you asked for a technical assistance advisement concerning the
taxability of real property improvements included in the sale of
a mobile home by XXX ("Taxpayer").

Taxpayer sells new and used manufactured (mobile) homes,
generally to customers that own the lot on which the unit will
be placed. The Taxpayer sells and provides all services required
for set-up of the units on the customer's lot, allowing the
customer to finance the total cost. Taxpayer contracts, with
third party providers, for the set-up services, which include
wells, septic, electric, and driveways.

Your letter states: "Since lenders require that each item which
is part of a sale be detailed on a purchase agreement signed by
both the customer and the dealer, [Taxpayer's] policy has always
been to list these items [real property improvements] on their
Form 500 and include them as part of the taxable sale." You
further state that: "Based on their previous experience and
discussions with other dealers, this is the standard practice in
the mobile home industry." As supporting documentation, you
provided a copy of the Taxpayer's Form 500 and vendor invoices
for the separately listed and itemized items representing real
property improvements that were a part of the sale and included
in the taxable sales price (i.e., septic tank and electrical
hook up and service pole).

Statutory and Regulatory Authority

Section 212.05(1), F.S., provides in part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state....

Section 212.06(14), F.S., provides:

(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, including, but not
limited to, mobile homes, except mobile homes assessed as
real property; or machinery or equipment. For an item to be
considered a fixture, it is not necessary that the owner of
the item also own the real property to which it is
attached.

(c) "Improvements to real property" includes the
activities of building, erecting, constructing, altering,
improving, repairing, or maintaining real property.

Rule 12A-1.051, F.A.C., contains the Department's interpretation
of the statute regarding contractors who repair, alter, improve,
and construct real property. Specifically, subsection (4), of
the rule provides:

(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.

Subsection (8), of the rule, provides, in part:

(8) Mixed contracts. A real property contract may also
include materials and labor that are not real property
improvements. A contract that includes both real property
work and tangible personal property is referred to in this
subsection as a mixed contract. A mixed contract is not the
same as a contract described in paragraph (3)(d) of this
rule. Paragraph (3)(d) deals with a real property contract
in which the contractor separately itemizes and prices all
the materials that will be incorporated as part of the real
property. A mixed contract is one that involves a real
property improvement, maintenance, or repair and also
involves providing tangible personal property that remains
tangible personal property and does not become part of the
real property. In the case of a mixed contract, taxability
depends upon the predominant nature of the work performed
under the contract and upon the contract terms....

(c) The determination of the predominant nature of a
contract will depend upon the facts and circumstances of
each case. Consideration will be given to the description
of the project and the responsibilities of the contractor
as set forth in the contract. Consideration will also be
given to the relative cost of performance of the real
property and tangible personal property components of the
contract.

(d) If a mixed contract clearly allocates the contract
price among the various elements of the contract, and such
allocation is bona fide and reasonable in terms of the
costs of materials and nature of the work to be performed,
taxation will be in accordance with the allocation....

Discussion/Conclusion

In this instant case, the Taxpayer is entering into a contract
to furnish both tangible personal property and real property
improvements, albeit the real property improvements are
subcontracted to a third party provider of such services. Such
a contract would be classed as a "mixed contract" and, as such,
the contract clearly allocates the contract price among the

various elements of the contract. The allocation appears to be
reasonable in terms of the cost of the materials and nature of
the work performed.

Accordingly, the items separately listed and itemized on the
Taxpayer's Form 500 that are allocated to the cost of
improvements to real property are not elements of the total
amount paid for tangible personal property (mobile home) and
should not be included in the taxable sales price. Such items
were provided under a lump sum contract and, as such, the
subcontractor performing the respective contract is the ultimate
consumer of the materials and supplies used in the performance
of the contract. Since the subcontractor is the ultimate
consumer of the materials and supplies used in the performance
of the contract, neither the subcontractor nor the Taxpayer is
reselling these items to the customer. The subcontractors
should pay sales tax to their suppliers on all purchases for the
materials and supplies used in the performance of the contract.

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 s. 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,

Horace Royals
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control No. 46326