How did Florida's industrial machinery repair exemption apply to phosphate operations, preventive maintenance, replacements, and stored parts?

Subject

Machinery and Equipment Repair Exemption

Plain-English summary

The phosphate mining and beneficiation, chemical, and terminal operations were qualifying fixed-location production or shipping activities, and most listed items met the industrial-machinery definition. The ruling preserved specific item-level exceptions rather than declaring every asset exempt.

“Repairs” included preventive maintenance and work returning machinery to proper order. It also included replacing machinery integral to a discrete manufacturing or production process, but not replacing stand-alone equipment. That treatment did not depend on keeping the facility's output increase below 10%.

For parts that might later be used in either exempt repairs or taxable work, the proposed blanket exemption certificate was not appropriate. Qualifying members could instead obtain a direct pay permit, buy without vendor-collected tax, and self-accrue tax when an item was put to taxable use.

What this means for you

The exemption required both a qualifying operation and qualifying machinery or repair work. Inventory uncertainty was handled through direct-pay procedures, not a certificate asserting that every stored part would be exempt.

Common questions

Q: Did preventive maintenance count as repair? Yes.

Q: Did replacing machinery count? Yes for equipment integral to a discrete process, but not for stand-alone equipment.

Q: Did all listed machinery qualify? Most did, subject to the advisement's specific exceptions.

Q: Could uncertain-use parts be bought without tax? Yes through an approved direct pay permit, with later self-accrual for taxable use.

Citations and references

• Fla. Stat. § 212.08(7)(zz) — industrial machinery and equipment repair exemption
• Fla. Stat. § 212.08(5)(b)2.a. — new and expanding business machinery
• Fla. Stat. § 212.183 — self-accrual authority
• Fla. Admin. Code rr. 12A-1.096 and 12A-1.051 — machinery and real-property classification
• Fla. Admin. Code r. 12A-1.0911 — direct pay permits
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-059

Original ruling text

SUMMARY

QUESTION 1: Whether certain machinery and equipment used in
phosphate mining/beneficiation operations, chemical
operations, and terminal facility operations are used in
activities that qualify for the machinery and equipment
repair exemption provided in section 212.08(7)(zz), F.S.?

ANSWER - Based on Facts Below: The mining/beneficiation
operations, chemical operations, and terminal facility
operations are all activities that fall with the meaning of
"manufacture, processing, compounding, production, or
preparation for shipping of items of tangible personal
property at a fixed location within this state," as
required by section 212.08(7)(zz), F.S.

QUESTION 2: Whether the machinery and equipment described
above is "industrial machinery and equipment" within the
meaning of section 212.08(7)(zz), F.S.?

ANSWER - Based on Facts Below: Except for the specific
exceptions noted, the items under consideration are
"industrial machinery and equipment" within the meaning of
section 212.08(7)(zz), F.S.

QUESTION 3: Whether the term "repairs," as used in section
212.08(7), F.S., includes preventive maintenance to avoid
malfunctions, as well as activities that return machinery
and equipment to proper working order?

ANSWER - Based on Facts Below: The term "repairs," as used
in section 212.08(7), F.S., includes preventive maintenance
to avoid malfunctions, as well as activities that return
machinery and equipment to proper working order.

QUESTION 4: Whether the term "repairs," as used in section
212.08(7), F.S., includes actual replacements of machinery
and equipment that constitute an integral part of a
manufacturing or production process so long as there is no
expansion that increases productive output of the facility
by ten percent or more as described in section

212.08(5)(b)2.a., F.S.?

ANSWER - Based on Facts Below: The term "repairs," as used
in section 212.08(7), F.S., includes actual replacements of
machinery and equipment that constitute an integral part of
a discrete manufacturing or production process. The term
does not include replacements of stand alone equipment.
Treatment of a replacement as a repair does not depend on
whether there is an increase in productive output of less
than ten percent.

QUESTION 5: Are phosphate mining/manufacturing companies
that perform their own maintenance and repair permitted to
purchase and store items that may be used for an exempt
repair and may be used for a taxable activity without
paying tax at the time of purchase by issuing blanket
exemption certificates to vendors?

ANSWER - Based on Facts Below: Phosphate
mining/manufacturing companies that perform their own
maintenance and repair are permitted to purchase and store
items that may be used for an exempt repair or may be used
for a taxable activity without paying any tax at the time
of purchase by issuing blanket exemption certificates to
vendors. Council members may purchase such items without
paying any tax and accrue tax upon subsequent taxable use
by obtaining and providing vendors with a copy of a direct
pay permit.

Sep 20, 2001

Re: Technical Assistance Advisement 01A-059
Sales and Use Tax -- Machinery and Equipment Repair
Exemption
Section 212.08(7), F.S.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated October 19, 2000, in which you asked for a
technical assistance advisement concerning the extent to which
the exemption provided in section 212.08(7)(zz), F.S. (2000),
applies to certain operations of the members of the XXX (the
"Council"). Your request has been reviewed and meets the
requirements for issuance of a technical assistance advisement
to an association as the representative of its members.

Facts

Council members are engaged in mining and processing phosphate
rock and in producing phosphatic chemicals and fertilizers. A
Council member may be involved only in mining and processing
rock, only in producing chemicals and fertilizers, or in both
categories of activities.

Mining and Processing

Mining begins with clearing and preparing a mine site using
machinery and equipment such as bulldozers and tractors. After
site preparation is complete, mining begins using large cranelike equipment called draglines. Draglines dig up phosphatebearing matrix and deposit it into a pit, where it is mixed with
water to form a slurry. The slurry is transported using a
series of pumps through a pipeline to the processing location.

Processing is referred to as beneficiation, which consists of a
washing and screening operation followed by a froth floatation
operation. The washing and screening involves moving the matrix
through a series of metal screens while spraying the mix with
water. This reduces the size of the particles and removes
unwanted materials. Froth floatation involves coating the
matrix with chemicals and injecting streams of air bubbles into
the liquid mix. These steps remove sand and clay from the matrix
and leave a product consisting only or primarily of phosphate
rock.

The rock is then loaded into rail cars for transport to
manufacturing facilities. Those facilities are generally in the
vicinity of the mining operations. Some rock, however, is

shipped over long distances to in-state or out-of-state
manufacturing facilities. The railcars travel on spur lines from
the mining/beneficiation plant to main rail lines maintained by
carrier railroads that are in turn connected to spur lines at
the manufacturing facility.

Machinery and equipment used in the mining and beneficiation
processes include earthmoving equipment, other off-road
vehicles, draglines, pipelines, pumps, washers, floatation
chambers, dryers, rod mills, tanks, bins, silos, electrical
equipment, conveyors, computer control equipment, loading
equipment, rail cars, locomotives, and maintenance shop
equipment. Any particular operation may use additional types of
machinery or equipment in its mining and processing operations
that are not specifically listed.

Chemical and Fertilizer Manufacturing Operations

Phosphate rock arriving at the manufacturing facility is
unloaded and typically run through a grinder to reduce the size
of the particles or make them uniform in size. The rock is then
moved to a phosphoric acid plant ("PAP") where it is mixed with
sulfuric acid to produce phosphoric acid. Some phosphoric acid
is sold. The remainder is used as the primary raw material for
manufacture of other phosphate products. Gypsum is produced as
a by-product of the phosphoric acid production process. The
gypsum is placed in piles adjacent to the facilities.

Most manufacturers manufacture the sulfuric acid needed in order
to ensure availability. Molten sulfur is delivered to the
facility by rail or truck. That sulfur is then processed into
sulfuric acid at a sulfuric acid plant ("SAP") and then
transported through piping to the PAP. The SAP process produces
substantial quantities of heat and steam energy. Some of the
steam is used directly in plant operations. Much of the steam
is captured and used to generate electrical energy through use
of a turbine generator. That electrical energy is then used in
plant operations.

Phosphoric acid is used in the manufacture of various final
products. The primary products are fertilizers such as mono-

ammonium phosphate ("MAP"), di-ammonium phosphate ("DAP"), and
granular triple super phosphate ("GTSP"). In addition,
significant quantities of liquid fertilizers and animal feed
ingredients are manufactured by Council members. A variety of
other phosphatic chemicals and products are also manufactured.
Each type of final product involves a plant facility
specifically designed and configured for that product. The
finished products are prepared for shipment. Some products are
shipped directly from the manufacturing facility to the customer
by truck or rail. In most cases, the products are either loaded
directly onto vessels for shipment to customers (if the
manufacturing facility is located at a port) or are moved in
railcars or trucks to a port or to another transloading
terminal.

Machinery and equipment used in the manufacturing operations
include heavy equipment such as loaders and off-road vehicles,
grinding equipment, PAP machinery and equipment, SAP machinery
and equipment, final product plant equipment, shipping
facilities, conveyors, piping, pumps and motors, turbines,
electrical generation and distribution equipment, equipment used
to place and move gypsum, railcars, locomotives, and maintenance
shop equipment.

Terminal Facilities

Council members ship the bulk of their products through
transportation terminals such as the XXX or other transloading
facilities. The product is shipped by rail or truck to the
terminals, where Council members own or lease facilities,
machinery, and equipment used in unloading, temporary storage,
and loading for further shipment. The machinery and equipment
at terminal facilities include tanks, silos, heaters, heavy
equipment, off-road vehicles, boilers, and pumps.

Requested Advisements

Council requests the following advisements on behalf of its
members on the following issues:

1. Whether the machinery and equipment described above and

used in mining/beneficiation operations, chemical
operations, and terminal facility operations are used in
activities that qualify for the machinery and equipment
repair exemption provided in section 212.08(7)(zz), F.S.?

2. Whether the machinery and equipment described above is
   "industrial machinery and equipment" within the meaning of
   section 212.08(7)(zz), F.S.?

3. Whether the term "repairs," as used in section 212.08(7),
   F.S., includes preventive maintenance to avoid
   malfunctions, as well as activities that return machinery
   and equipment to proper working order?

4. Whether the term "repairs," as used in section 212.08(7),
   F.S., includes actual replacements of machinery and
   equipment that constitute an integral part of a
   manufacturing or production process so long as there is no
   expansion that increases productive output of the facility
   by ten percent or more as described in section
   212.08(5)(b)2.a., F.S.?

5. Whether Council members that perform their own maintenance
   and repair are permitted to purchase and store items that
   may be used for an exempt repair and may be used for a
   taxable activity without paying tax at the time of purchase
   by issuing blanket exemption certificates to vendors?

Council Positions

Council's positions on the requested advisements are as follows:

1. The mining/beneficiation operations, chemical operations,
   and terminal facility operations are all activities that
   fall with the meaning of "manufacture, processing,
   compounding, production, or preparation for shipping of
   items of tangible personal property at a fixed location
   within this state" as required by section 212.08(7)(zz),
   F.S. The mining and beneficiation activities are described
   in Standard Industrial Classification ("SIC") Major Group
   14, and the chemical production processes are described in

SIC Major Group 28, both of which are included in the
statute's list of qualifying SIC Major Group numbers.

2. Based on Rule 12A-1.096, F.A.C., dealing with purchases of
   industrial machinery and equipment by new and expanding
   businesses, and Rule 12A-1.051, F.A.C., dealing with
   classification of machinery and equipment as tangible
   personal property rather than real property, the items
   under consideration are "industrial machinery and
   equipment" within the meaning of section 212.08(7)(zz),
   F.S.

3. The term "repairs," as used in section 212.08(7), F.S.,
   includes preventive maintenance to avoid malfunctions as
   well as activities that return machinery and equipment to
   proper working order.

4. The term "repairs," as used in section 212.08(7), F.S.,
   includes actual replacements of machinery and equipment
   that constitute an integral part of a manufacturing or
   production process so long as there is no expansion that
   increases productive output of the facility by ten percent
   or more as described in section 212.08(5)(b)2.a., F.S.

5. Council members that perform their own maintenance and
   repair should be permitted to purchase and store items that
   may be used for an exempt repair and may be used for a
   taxable activity without paying tax at the time of purchase
   by issuing blanket exemption certificates to vendors.

Applicable Law, Discussion, and Analysis

Section 212.08(7)(zz), F.S., reads as follows:

(zz) Certain repair and labor charges.--

1. Subject to the provisions of subparagraphs 2. and 3.,
   there is exempt from the tax imposed by this chapter all
   labor charges for the repair of, and parts and materials
   used in the repair of and incorporated into, industrial
   machinery and equipment which is used for the manufacture,

processing, compounding, production, or preparation for
shipping of items of tangible personal property at a fixed
location within this state.

2. This exemption applies only to industries classified
   under SIC Industry Major Group Numbers 10, 12, 13, 14, 20,
   22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36,
   37, 38, and 39 and Industry Group Number 212. As used in
   this subparagraph, "SIC" means those classifications
   contained in the Standard Industrial Classification Manual,
   1987, as published by the Office of Management and Budget,
   Executive Office of the President.

Subparagraph (zz)3. provides that the exemption will be phased
in at 25 percent per year, beginning July 1, 1999. The
exemption is currently at the 75 percent level and will become a
total exemption effective July 1, 2002.

The statutory language contains numerous limitations on the
exemption.

*

It applies only to charges for labor or for parts and
materials that are incorporated into qualifying machinery
and equipment in the course of a repair. It does not apply
to any other expenses related to a repair transaction. For
example, rentals of equipment used in making repairs and
purchases of consumable supplies that are not incorporated
into the machinery or equipment being repaired are not
exempted by this statute.

*

The taxpayer must use the machinery and equipment being
repaired in an activity described in the specified SIC
Major Group numbers.

*

The machinery and equipment must be used to manufacture,
process, compound, or produce tangible personal property or
to prepare tangible personal property for shipping.

*

The machinery and equipment must be used at a fixed
location in Florida.

Qualification of Council Member Activities

The first requested advisement is that the mining,
beneficiation, chemical, and shipping activities described above
are ones in which industrial machinery and equipment can be
repaired on an exempt basis. Under the statute, the SIC Major
Group number applicable to an activity determines whether a
taxpayer carrying out the activity is eligible for exemption on
machinery and equipment repairs. The SIC classification of an
activity is determined by reference to the Standard Industrial
Classification Manual, 1987, as published by the Office of
Management and Budget, Executive Office of the President (the
"Manual").

SIC Major Group 14 is titled "Mining and Quarrying of
Nonmetallic Minerals, Except Fuels." The Manual provides that
this Major Group includes "establishments primarily engaged in
mining or quarrying, developing mines, or exploring for
nonmetallic minerals, except fuels." It also includes "...
primary preparation plants, such as those engaged in crushing,
grinding, washing, or other concentration." Under the
guidelines in the Manual, SIC Major Group 14 also includes
establishments engaged primarily in "crushing, pulverizing, or
otherwise treating other nonmetallic minerals" regardless of
whether that facility is operating in conjunction with a mine.
Industry Group 147 is titled "Chemical and Fertilizer Mineral
Mining" and Industry 1475 is "Phosphate Rock." The mining and
beneficiation activities described above are clearly within the
intended scope of the statute.

The description under SIC Code 1475 also states, "Establishments
primarily engaged in the production of phosphoric acid, superphosphates, or other manufactured phosphate compounds or
chemicals are classified in Manufacturing, Major Group 28. That
Major Group is titled "Chemicals and Allied Products." That
Major Group includes, among others, establishments that
manufacture "finished chemical products to be used... as
materials or supplies in other industries, such as...
fertilizers,...." SIC Code 2874 specifically covers the
manufacture of phosphatic fertilizers. The Manual's lists of
products typically produced at establishments classified under

SIC code 2874 includes ammonium phosphates, diammonium
phosphates, mixed fertilizers, phosphoric acid, and plant foods.
The description of the chemical processes carried on by the
Council members establishes that the facilities involved in
those processes are used in a qualifying manufacturing activity.

The activities carried on at shipping terminals would be
classified under non-qualifying SIC Major Group numbers if those
activities were performed by a company providing transportation
services to other enterprises. The Manual, however, provides
that transportation facilities that furnish services "only to
other establishments of the same enterprise are classified as
auxiliary to the establishments or units of the enterprise which
they serve." Therefore, terminal facilities owned or leased and
operated by a Council member exclusively in conjunction with
further shipment of that Council members phosphate products
would be considered part of the member's qualifying
manufacturing activities. This result is supported by the fact
that "preparation for shipping" was added to the list of
qualifying uses of machinery a year after the enactment of
section 212.08(7)(zz), F.S. The apparent intent was to expand
the exemption to include machinery and equipment used in postproduction preparations for shipping of products included in the
qualifying SIC Major Group numbers. The activities carried on
at shipping terminals by Council members are therefore also
qualifying activities for purposes of the exemption.

Qualification of Items as Industrial Machinery and Equipment

Section 212.08(7)(zz), F.S., does not define the phrases
"industrial machinery and equipment" or "fixed location." There
is, however, a similarly worded, long-standing exemption in
section 212.08(5)(b), F.S., for purchases of industrial
machinery and equipment by new and expanding businesses. That
exemption applies to "[i]ndustrial machinery and equipment"
purchased by "businesses which manufacture, process, compound,
or produce for sale items of tangible personal property at fixed
locations...." The phrase "industrial machinery and equipment"
is defined for purposes of that exemption as follows:

6. For the purposes of the exemptions provided in

subparagraphs 1. and 2., these terms have the following
meanings:

a. "Industrial machinery and equipment" means "section 38
property" as defined in s. 48(a)(1)(A) and (B)(i) of the
Internal Revenue Code, provided "industrial machinery and
equipment" shall be construed by regulations adopted by the
Department of Revenue to mean tangible property used as an
integral part of... the manufacturing, processing,
compounding, or producing for sale of items of tangible
personal property. Such term includes parts and accessories
only to the extent that the exemption thereof is consistent
with the provisions of this paragraph.

The term as used in section 212.08(7)(zz), F.S., differs in that
the exemption for repairs extends to machinery and equipment
used in preparing tangible personal property for shipping and
does not require that the tangible personal property be produced
for sale. Nonetheless, it is appropriate to look to section
212.08(5)(b), F.S., for guidance as to what types of property
qualify under the similarly worded exemption in section
212.08(7)(zz), F.S.

The Department has promulgated Rule 12A-1.096, F.A.C., to
provide guidance in applying the new and expanding business
exemption. In relevant part, that rule provides:

12A-1.096 Industrial Machinery and Equipment for Use in a
New or Expanding Business.

(1) Definitions - The following terms and phrases when used
in this rule shall have the meaning ascribed to them except
where the context clearly indicates a different meaning:

(a) "Fixed location" means being permanently affixed to one
location or plant site. The term also includes any portable
plant which is set up for a period of not less than six
months in a stationary manner so as to perform the same
industrial manufacturing, processing, compounding, or
production process that could be performed at a permanent
location or plant site. The geographical limits of the

fixed location for purposes of this rule are limited to the
immediate permanent location or plant site. Facilities or
plant units that are within the same building, or that are
on the same parcel of land if not contained in a building,
are considered to be one fixed location.

(b) "Industrial machinery and equipment" means tangible
personal property or other property with a depreciable life
of 3 years or more that is used as an integral part in the
manufacturing, processing, compounding, or production of
tangible personal property.... Buildings and their
structural components are not industrial machinery and
equipment unless the building or structural component is so
closely related to the industrial machinery and equipment
that it houses or supports that the building or structural
component can be expected to be replaced when the machinery
and equipment itself is replaced. Heating and air
conditioning systems are not considered industrial
machinery and equipment, unless the sole justification for
their installation is to meet the requirements of the
production process,....

(c) "Integral to" means that the machinery and equipment
provides a significant function within the production
process, such that the production process could not be
complete without that machinery and equipment.

(d) "Manufacture, process, compound, or produce..." means
the various industrial operations of a business where raw
materials will be put through a series of steps to make an
item of tangible personal property....

(e) "Mining activities" means phosphate and other solid
minerals severance, mining, or processing operations.
Mining activities end at the point where the mineral is
readily identifiable as the final product of mining or
where it is ready to be compounded or mixed with other
materials to form a new material....

(g) "Production process" or "production line" means those
industrial activities beginning when raw materials are

delivered to the new or expanding business' fixed location
and generally ending when the items of tangible personal
property have been packaged for sale, or are in saleable
form if packaging is not done. However, the production
process may include quality control activities after the
items have been packaged (or are in saleable form if
packaging is normally not done), if such quality control
activities are required by good manufacturing practices or
mandated by state or federal government agencies....

(9) Types of industrial machinery and equipment that will
or will not qualify for the exemption.

(a) For the purpose of this exemption industrial machinery
and equipment includes:

1. Special foundations required for the support of such
   qualifying machinery and equipment;

2. Electrical wiring from the nearest power panel or
   disconnect box to the qualifying machinery and equipment;
   and

3. Plumbing connections necessary to connect the machinery
   and equipment to the nearest water supply or drain line.
   ...
   (c) Quality control equipment installed within the
   production line and required to perform quality checks on
   each item, article, or batch produced before the item,
   article, or batch can be sold qualifies for the exemption.

(d) Preproduction, random, or postproduction quality
control equipment shall qualify as industrial machinery and
equipment, if it is an integral part of the production
process.

(e) Industrial machinery and equipment which is an integral
part of the production process, as well as in
postproduction, such as a fork-lift, will qualify for the
exemption.
...

(g) Pollution control equipment, or sanitizing and
sterilizing equipment that is an integral part of the
production process qualifies for exemption.

(h) Monitoring machinery and equipment that is an integral
part of the production process qualifies for exemption.

(i) Machinery and equipment used to remove waste materials
away from industrial machinery and equipment, where the
removal is required to maintain the operation of the
production process, will qualify for exemption. For
example, equipment used to remove wood chips and sawdust
from around a qualified industrial wood lathe will qualify
for exemption.
...
(k) Conveyers or related equipment used to transport raw
materials from the storage area located at the fixed
location to the production line will qualify for exemption.

(l) Computers used to direct and control the functions of
exempt industrial machinery and equipment will qualify for
exemption, even though such computers may also have nonproduction related applications or uses.

(m) Machines used to control exempt industrial machinery
and equipment through the reading or sensing of a tape or
some other similar means will qualify for exemption.
...
(o) Machinery and equipment used in the general repair or
maintenance of the plant or production machinery and
equipment, such as welders, gear-pullers, or bench
grinders, does not qualify for the exemption. However,
specialized machinery and equipment that is continuously
required to keep production machinery and equipment
calibrated or in optimum condition such as a sharpening
machine in a sawmill, will qualify for the exemption.
...
(q) Scales at the start of, or within, the production
process that are necessary to weigh raw materials or
ingredients, or finished goods at the time of packaging,
will qualify for the exemption.

...

In general, the machinery and equipment described as used in the
mining and beneficiation processes will qualify for the
exemption so long as each item has a depreciable life of three
years or more and that item is used exclusively at the mining
location. With those qualifications, repairs to earthmoving
equipment, other off-road vehicles, draglines, pipelines, pumps,
washers, floatation chambers, dryers, rod mills, tanks, bins,
silos, electrical equipment, conveyors, and loading equipment
will be exempt. Any additional types of machinery or equipment
that are used directly in removing phosphatic rock from the
ground, in processing it to make it suitable for further
manufacture or for sale, in conveying it from one stage of the
mining/beneficiation process to the next, or in loading it for
shipment will also qualify if the depreciable life and fixed
location tests are satisfied.

Repairs to computer equipment will be exempt if the computers
are used to direct and control other qualifying machinery and
equipment.

Rail cars and locomotives used to move phosphate rock off the
fixed location where mining and beneficiation occur for delivery
to another location will not qualify, because such railcars and
locomotives do not meet the "fixed location" requirement. Any
railcars and locomotives used exclusively at the mining facility
to move phosphatic rock from one stage to another of the
mining/beneficiation process may be repaired on an exempt basis.

Maintenance shop equipment may or may not qualify. Rule 12A1.096(9)(o), F.A.C., provides the guidelines to be applied to
maintenance shop equipment. Items used in general repair and
maintenance of the mining plant will not qualify. Only
specialized items that are in continuous use to keep mining or
beneficiation machinery and equipment properly calibrated or in
optimum condition will qualify.

Machinery and equipment used in the manufacturing operations
include heavy equipment such as loaders and off-road vehicles,
grinding equipment, PAP machinery and equipment, SAP machinery

and equipment, final product plant equipment, shipping
facilities, conveyors, piping, pumps and motors, turbines,
electrical generation and distribution equipment, equipment used
to place and move gypsum, railcars, locomotives, and maintenance
shop equipment. All of those items with a depreciable life of
three years or more will qualify to be repaired on an exempt
basis with the possible exceptions of railcars, locomotives, and
maintenance shop equipment. As noted above, railcars and
locomotives that bring phosphatic rock from a mining location to
a noncontiguous manufacturing facility or that transport final
phosphate products from the manufacturing facility fail to
satisfy the "fixed location" requirement. In addition,
maintenance shop equipment must be analyzed under the general
maintenance versus specialized continuous use standard discussed
above.

Machinery and equipment at terminal facilities that is used to
unload, store, and reload phosphate products for further
shipment will also qualify for the repair exemption. This
includes tanks, silos, industrial heaters, heavy equipment, offroad vehicles, boilers, and pumps.

It must be noted that the repair exemption does not extend to
real property repairs. Therefore, any repairs or maintenance
performed on general purpose buildings or other real property
improvements (e.g., roads) will not qualify for exemption.

Preventive Maintenance

The exemption provided in section 212,08(7)(zz), F.S., extends
to "all labor charges for the repair of, and parts and materials
used in the repair of and incorporated into," qualified
machinery and equipment. The statute does not define the term
"repair." When a statute fails to define terms, they must be
given their ordinary meaning. Rinker Materials Corp. v. City of
North Miami, 286 So.2d 552 (Fla.1973). Webster's New Universal
Unabridged Dictionary (1996) defines "repair" as "to restore to
a good or sound condition after decay or damage; mend" and
defines "maintain" as "to keep in an appropriate condition,
operation, or force." In the context under consideration, both
terms refer to taking action to keep existing machinery and

equipment operating properly at existing levels. The exemption
therefore applies regardless of whether an engine belt is
replaced when it is merely worn or whether it is replaced after
it snaps. In either case, there is an action that involves
using labor and a replacement belt in order for the engine to
perform in its intended manner. This interpretation is
supported by Treas. Regs. section 1.162-4, which characterizes
repairs as operations that "neither materially add to the value
of the property nor appreciably prolong its life, but keep it in
an ordinarily efficient operating condition...." The exemption
extends to preventive maintenance as well as to corrective
repairs.

Not all expenses incurred in the course of an exempt repair are
exempt. The exemption is limited by its terms to charges for
labor and parts that are incorporated into the machinery and
equipment. It does not apply to any other expenses incurred in
the course of a repair. For example, if equipment is rented to
use in making a repair, the rental charges are not exempted by
section 212.08(7)(zz), F.S. Consumable items and tools that are
used in the course of an exempt repair but are not incorporated
into the machinery and equipment, such as rags, cleaning
solutions, sandpaper, wrenches, hammers, and drills are not
exempt.

Replacements

Taxpayer also asks for an advisement that the exemption extends
to the replacement of machinery and equipment, so long as the
replacement does not cause an increase in productive output of
10 percent or more. Taxpayer bases this position on the fact
that an increase of 10 percent or more would qualify a business
purchasing machinery and equipment as an expanding business
under section 212.08(5)(b), F.S. Such a business would be
exempt on those purchases to the extent that the sales taxes due
in a calendar year exceeded $50,000. Taxpayer acknowledges that
whether exemption is available when there is a purchase of
machinery and equipment combined with a 10 percent or greater
increase in productivity should be determined under section
212.05(5)(b), F.S. Taxpayer argues that in any case where
productivity does not increase by at least 10 percent, treatment

as a repair is appropriate.

Exemptions must be strictly construed against Taxpayers. The 10
percent productivity increase in section 212.08(5)(b), F.S., is
clearly intended to differentiate between exempt purchases of
machinery and equipment and purchases which are not exempt
because they do not add sufficiently to the amount of tangible
personal property that will be sold and generate tax revenues.
Taxpayer's interpretation of section 212.08(7)(zz), F.S., would
render that distinction meaningless by providing that failure to
meet the 10 percent test would result in exemption under section
212.08(7)(zz), F.S., instead of section 212.08(5)(b), F.S. In
fact, a business that increased productive output by less than
10 percent could thereby receive a greater tax benefit than one
that met the 10 percent increase cutoff. A business that
invested $2,000,000 in replacements for existing machinery and
equipment and increased productivity by 10 percent would be
subject to section 212.08(5)(b), F.S. The tax on $2,000,000 in
purchases of machinery and equipment would be $120,000, and the
taxpayer would be required to pay the first $50,000 of that
amount. If the increase in productivity were only 9 percent,
under Taxpayer's interpretation, the entire $2,000,000 would be
exempt (once the exemption is completely phased in). A taxpayer
would receive a $70,000 greater tax exemption by limiting the
increase in productivity, which is patently inconsistent with
the intent of section 212.08(5)(b), F.S., to encourage increases
in productive output.

The exemption under section 212.08(7)(zz), F.S., is limited to
"labor charges for the repair of, and parts and materials used
in the repair of and incorporated into, industrial machinery and
equipment." The type of transaction covered by that exemption
must be determined by considering the language of the statute
itself. It applies to any parts or materials incorporated into
existing industrial machinery and equipment. The critical
question is from what perspective it is to be applied. If a
stand alone machine, such as a dragline, is scrapped and
replaced with a new one, that new machine cannot be classified
as a part or material that has been incorporated into a greater
existing machine or piece of equipment. If, however, a series
of operations on phosphatic rock or product are performed

sequentially without interruption by machinery and equipment
that is integrated by virtue of physical connection, loss of
function of any part of the line would render the remainder of
the line useless as well. Replacement of the defective element
would in that case be an incorporation of parts and materials to
repair the integrated line. Replacement of the entire line,
however, would not be an exempt repair, because the added
machinery and equipment could not be characterized as a part of
a greater whole. In addition, where there is a discrete
process, only machinery and equipment involved in that process
will be considered integrated for the repair exemption. Points
in the overall mining/beneficiation/manufacturing process at
which materials are not being acted upon in any way other than
to move or store them and points at which those materials could
either be sold or used in their current form or undergo
additional processes are interruptions that break the
integration of machinery and equipment.

Applying this principle to the operations of Council members
leads to the following conclusions:

*

Draglines, railcars, locomotives, bulldozers, tractors, and
other off-road vehicles are stand alone machinery or
equipment and cannot be replaced on an exempt basis under
section 212.08(7)(zz), F.S.

*

The process by which slurry is mixed, transported, washed
and screened, and put through froth flotation is an
integrated process in which each piece of equipment is
physically connected to the next piece of equipment.
Slurry moves directly from the pit through the washers,
screens, and floatation chambers. Pumps, pipes, washers,
floatation chambers, dryers, electrical equipment,
conveyors, computer control equipment, and other individual
components of the continuous production line that begins
with mixing the slurry and ends with loading the rock for
shipment to the manufacturing facilities can be replaced on
an exempt basis as part of the repair or maintenance of the
existing mining/beneficiation line.

*

The grinder and PAP perform an integrated operation by
which phosphatic rock is transformed into phosphoric acid,

which can either be sold in that state or undergo further
processing. Equipment that is interconnected with the PAP
and transports the gypsum byproduct to the storage piles
adjacent to the facilities is part of the PAP process as
well. Any bulldozers or similar equipment used to move
gypsum once deposited in the storage piles are stand alone
equipment and cannot be replaced as a part of any larger
integrated process.
*

The manufacture of sulfuric acid at the SAP is an
integrated process, and any equipment that is part of that
process will be considered a part of the machinery
comprising the SAP.

*

The cogeneration of electricity is an integrated process.
The turbine generator and any related equipment that works
in conjunction with the generator to produce electrical
energy and distribute that energy to other plant operations
will be viewed as forming an integrated production line for
purposes of the machinery repair exemption. (It should be
noted that cogeneration equipment may be exempt under s.
212.08(5)(c), F.S., as well.)

*

Each final product production line will be viewed as
integrated for purposes of the machinery and equipment
repair exemption. A component of that line may be replaced
as a repair of the integrated line.

*

Whether shipping machinery and equipment can be replaced as
parts of an integrated shipping process will be determined
based on whether any component equipment is physically and
functionally integrated with other components. Cranes and
off-road vehicles are stand alone equipment. Tanks,
conveyors, silos, heaters, boilers, and pumps, however, may
be part of integrated lines for unloading, storing, or
loading phosphate products.

Procedures

In Tax Information Publication ("TIP") 00A01-15 the Department
provided a suggested format for a certificate that purchasers
could issue to vendors when claiming the exemption for machinery

and equipment repairs. The Council requests advice on whether
it is permissible to issue the suggested certificate to purchase
parts and materials that may or may not be used for exempt
repairs. Council members often maintain large maintenance shops,
warehouses, and store yards with replacement parts, materials,
and supplies for use in the repair and maintenance of their
facilities. The parts and materials may be used in repair and
maintenance of industrial machinery and equipment that qualifies
for exemption under s. 212.08(7)(zz), F.S., or may be used in
other repair and maintenance operations that are not qualified
for exemption.

The suggested use of the certificate is inappropriate because
the certificate states that purchased items will be used for
exempt repairs, which is not necessarily the case. In addition,
the suggested procedure would be unduly complicated prior to the
time when the exemption is completely phased in. As of this
time, offering a certificate means only that the vendor will
collect sales tax on a reduced percentage of the sales price. A
Council member would be required to track the date each item is
purchased as well as its cost and the tax paid to be certain an
appropriate amount of tax is paid each time an item is used for
a taxable purpose.

Although Council members may not use the suggested certificate
to claim complete exemption on all purchases from a vendor and
determine taxability at the date of later use, there is an
alternative procedure that permits this result. Council members
could apply for a direct pay permit that could be offered to
vendors. That permit would allow the vendors to collect no tax,
even during the phase-in period for the exemption, and authorize
self-accrual by the Council members if and when the materials
purchased are subsequently used in a taxable manner. Pursuant
to section 212.183, F.S., the Department may by rule provide for
self-accrual of tax under specified circumstances, including
cases "(w)here the taxable status of types of tangible personal
property will be known only upon use." The Department has
issued Rule 12A-1.0911, F.A.C., providing guidelines and
procedures for obtaining self-accrual authorization. A direct
pay permit may be issued under that rule to dealers who purchase
annually $100,000 or more of taxable tangible personal property,

specifically including "maintenance and repairs for the dealer's
own use,...." The self-accrual authority in that case applies
to "purchases of tangible personal property when the taxable
status of such property will be known only upon its use." Rule
12A-1.0911(1)(b), F.A.C. That is precisely the type of property
under consideration in this case. Any Council member that spends
more than $100,000 per year on property falling into this
category would be authorized to obtain a direct pay permit by
following the procedures set forth in Rule 12A-1.0911, F.A.C.

Advisements

1. The mining/beneficiation operations, chemical operations,
   and terminal facility operations are all activities that
   fall with the meaning of "manufacture, processing,
   compounding, production, or preparation for shipping of
   items of tangible personal property at a fixed location
   within this state," as required by section 212.08(7)(zz),
   F.S.

2. Except for the specific exceptions noted, based on Rules
   12A-1.096, F.A.C., dealing with purchases of industrial
   machinery and equipment by new and expanding businesses and
   Rule 12A-1.051, F.A.C., dealing with classification of
   machinery and equipment as tangible personal property
   rather than real property, the items under consideration
   are "industrial machinery and equipment" within the meaning
   of section 212.08(7)(zz), F.S.

3. The term "repairs," as used in section 212.08(7), F.S.,
   includes preventive maintenance to avoid malfunctions, as
   well as activities that return machinery and equipment to
   proper working order.

4. The term "repairs," as used in section 212.08(7), F.S.,
   includes actual replacements of machinery and equipment
   that constitute an integral part of a discrete
   manufacturing or production process. The term does not
   include replacements of stand alone equipment.

5. Council members that perform their own maintenance and

repair are permitted to purchase and store items that may
be used for an exempt repair or may be used for a taxable
activity without paying any tax at the time of purchase by
issuing blanket exemption certificates to vendors. Council
members may purchase such items without paying any tax and
accrue tax upon subsequent taxable use by obtaining and
providing vendors with a copy of a direct pay permit.

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 s. 213.22, F.S. Ordinarily, confidential
information, such as the identity of the person to whom an
advisement is issued, must be deleted before public disclosure.
In the situation in which a taxpayer association is seeking an
advisement on behalf of its members, having the identity of the
requesting association remain in the published advisement is
useful to those using the advisement for guidance. No specific
taxpayer information is included in an advisement issued to a
taxpayer association, and concerns about protecting proprietary
information are not present under such circumstances. However,
in light of statutory requirements as to confidentiality, a
taxpayer association must give its consent to the Department to
allow its name to be included in the published advisement. The
taxpayer association to which this advisement is issued has
given written consent to allow the disclosure of its identity.

Sincerely,

Linda W. Bridges
Revenue Program Administrator I
Technical Assistance and Dispute Resolution
(850) 488-7157

LWB/
Control #: 46424