How did Florida sales tax apply to installed-price flooring contracts, post-sale payment discounts, and advertising that no additional tax would be charged?

Plain-English summary

The flooring company—not the property owner—owed tax on materials used in the described installed-price contracts. Carpet, tile, and other finished flooring installed as real-property improvements made the contractor the ultimate consumer, so it paid sales tax or accrued use tax on its purchases and did not separately charge the customer tax.

An early-payment or cash discount taken after the vendor's sale did not reduce the taxable selling price. Tax remained based on the original sales price rather than the later discounted payment.

The company could advertise that no additional tax would be charged where the customer transaction itself was not taxable. The Department suggested "no additional charges for tax" and noted that it had not reviewed sample contracts or invoices.

What this means for you

Flooring contract structure controls. A lump-sum installed improvement differs from a contract that separately sells and prices every material before work begins.

Common questions

Q: Should the contractor charge the property owner sales tax? No, under the stated real-property contracts.

Q: Who paid tax on flooring materials? The contractor.

Q: Did a post-sale cash discount reduce taxable price? No.

Q: Could the contractor advertise no additional tax? Yes, for the nontaxable customer transaction.

Citations and references

• Fla. Stat. §§ 212.06 and 212.07 — dealer tax duties and tax absorption
• Fla. Admin. Code r. 12A-1.051 — real-property contractors and contract classifications
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-071

Original ruling text

SUMMARY

QUESTION 1: Taxpayer wishes to confirm that it is proper to
pay sales tax or accrue use tax on its materials and
supplies used in its jobs, and that tax should not be
charged to the customer.

ANSWER 1 - Based on Facts Below: Taxpayer should not charge
tax to the property owner/customer. Taxpayer, as the
ultimate consumer of materials and supplies used in the
performance of a real property contract, should pay sales
tax or accrue use tax on its purchases of materials and
supplies used in the contract.

QUESTION 2: Taxpayer requests advice on the proper
application of tax when the payment discount is taken.

ANSWER 2 - Based on Facts Below: Early payment and cash
discounts occur after the sale, and they do not affect the
taxable selling price of the merchandise. Tax is due on
the sales price of the merchandise, and not on a lesser
payment made based on a subsequent discount.

QUESTION 3: Taxpayer realizes that it is improper to
advertise that it will absorb taxes, but it wishes to
inform its customers that its quoted prices do not involve
any additional tax from the customer. Taxpayer requests
advice on the appropriateness of advertising that
information.

ANSWER 3 - Based on Facts Below: There is no prohibition
from advertising that no tax will be charged on a
transaction that is not subject to tax.

Nov 30, 2001

Re: Technical Assistance Advisement 01A-071
Sales and Use Tax

Installation of Flooring Materials
Sections: 212.06, 212.07, F.S.Rule: 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated October 23,
2001, for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced party and
matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

The petition provides the following facts:

Taxpayer owns and operates a flooring company. Taxpayer
sells and, primarily through the use of independent
contractors, installs carpet, tile and other flooring.
Most of the sales are made on a per square foot or yard
installed price. The invoice/contract often "breaks out"
the various costs, but the contract is ultimately priced as
an installed sale. (Emphasis in Original)

Taxpayer deals with some vendors who offer a discount for early
payments or cash (rather than credit card) payments.

No sample contracts or invoices were provided for review with
the petition.

REQUESTED ADVISEMENT

Taxpayer wishes to confirm that it is proper to pay sales tax or
accrue use tax on its materials and supplies used in its jobs,
and that tax should not be charged to the customer.

Taxpayer requests advice on the proper application of tax when

the payment discount is taken.

Taxpayer realizes that it is improper to advertise that it will
absorb taxes, but it wishes to inform its customers that its
quoted prices do not involve any additional tax from the
customer. Taxpayer provides a list of proposed language options
that it might use in its advertising, and asks to know whether
any of the proposed language options are considered permissible
by the Department of Revenue. The proposed language options are
as follows:

1. Includes all applicable taxes.
2. Includes all taxes.
3. Includes tax.
4. No additional taxes.
5. We are a Contractor. We have paid all taxes, and
   there are no additional charges or taxes.
6. We are a Contractor. We have paid all taxes, and
   there are no additional taxes.
7. We are a Contractor. We have paid all taxes.

LAW AND DISCUSSION

Rule 12A-1.051, Florida Administrative Code, provides in
pertinent part:

(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.

(b) Cost plus or fixed fee contracts. These are contracts
in which the contractor or subcontractor agrees to furnish
the materials and supplies and necessary services in
exchange for reimbursement of costs plus a fee that is

fixed in advance or calculated as a percentage of the
costs.

(c) Upset or guaranteed price contracts. These are
contracts in which the contractor or subcontractor agrees
to furnish materials and supplies and necessary services
based on costs plus fees but with an upset or guaranteed
maximum price which may not be exceeded.

(d) Retail sale plus installation contracts. These are
contracts for improvements to real property in which the
contractor or subcontractor agrees to sell specifically
described and itemized materials and supplies at an agreed
price or at the regular retail price and to complete the
work either for an additional agreed price or on the basis
of time consumed. In order for a contract to fit in this
category, all the materials that will be incorporated into
the work must be itemized and priced in the contract before
work begins. If a contract itemizes some materials but does
not itemize other materials that will be incorporated into
the work, the contract is not included in this category.
Because the sale of the materials is a separable
transaction from the installation, the purchaser must
assume title to and risk of loss of the materials and
supplies as they are delivered, rather than accepting title
only to the completed work. The contractor may remain
liable for negligence in handling and installing the items.

(e) Time and materials contracts. These are contracts in
which the contractor or subcontractor agrees to furnish
materials and supplies and necessary services for a price
that will be calculated as the sum of the contractor's cost
or a marked up cost for materials to be used plus an amount
for services to be based on the time spent performing the
contract. These contracts are similar to cost plus or fixed
fee contracts, because the final price to the property
holder will be determined based on the cost of performance.
A time and materials contract may or may not also have a
guaranteed or upset price clause. Time and materials
contracts differ from contracts described in paragraph (d),
because the materials are not completely identified,

itemized, and priced in the contract in advance and because
the property owner is contracting for a finished job rather
than the purchase of materials.

(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.

(17) Specific activities classified as real property
contracts. Contractors who are engaged in the following
activities are generally considered to be real property
contractors, although any particular job may be determined
not to involve an improvement to real property:

(g) Carpeting installed with tacks, glue, or other
permanent means and serving as the finished floor;

(p) Flooring;

(nn) Tile work....

Taxpayer is performing real property improvements using a lump
sum contract or a variation on a lump sum contract. Taxpayer

cannot be considered to use a retail sale plus installment
contract, because the Taxpayer cannot know in advance the exact
amount of all of the installation materials (such as tacks,
glue, amount of grout, etc.) that will required for a given job,
since the actual installation is done by a third party.
Taxpayer does not contemplate in its petition that a retail sale
plus installment contract is possible.

Tax is due on materials and supplies used in the performance of
a real property contract from the ultimate consumer. In a real
property contract, the contractor installing the materials and
supplies is the ultimate consumer (unless the contract is a
retail sale plus installment contract), and it is the party that
owes the tax. The property owner/customer is not the ultimate
consumer. Taxpayer is correct that it should pay sales tax or
accrue use tax on the sales price of its materials and supplies,
and that it should not charge tax to the customer.

Section 212.06(1)(a), Florida Statutes, provides:

(1)(a) The aforesaid tax at the rate of 6 percent of the
retail sales price as of the moment of sale, 6 percent of
the cost price as of the moment of purchase, or 6 percent
of the cost price as of the moment of commingling with the
general mass of property in this state, as the case may be,
shall be collectible from all dealers as herein defined on
the sale at retail, the use, the consumption, the
distribution, and the storage for use or consumption in
this state of tangible personal property or services
taxable under this chapter. The full amount of the tax on a
credit sale, installment sale, or sale made on any kind of
deferred payment plan shall be due at the moment of the
transaction in the same manner as on a cash sale. (Emphasis
Supplied)

Tax is due based on the sales price at the time the sale occurs,
and the tax is due at the moment of the sale. Discounts for
early payment occur after the sale, and do not affect the
taxable selling price of the merchandise. At the time the sale
occurs (invoice is made), the selling dealer cannot know if
early payment will occur. Thus, tax is due based on the price

the merchandise is sold for on the invoice.

In the case of a discount for payment by cash, if at the moment
of the sale (invoice is made), the invoice price is made based
on the cash price, then the taxable selling price is lowered to
the cash price. If, on the other hand, the selling dealer sends
an invoice for payment, and the selling dealer does not know at
the moment of the sale that it will be a cash sale, then the
discount occurs after the sale and does not affect the taxable
selling price of the merchandise.

Section 212.07(4), Florida Statutes, provides:

(4) A dealer engaged in any business taxable under this
chapter may not advertise or hold out to the public, in any
manner, directly or indirectly, that he or she will absorb
all or any part of the tax, or that he or she will relieve
the purchaser of the payment of all or any part of the tax,
or that the tax will not be added to the selling price of
the property or services sold or released or, when added,
that it or any part thereof will be refunded either
directly or indirectly by any method whatsoever. A person
who violates this provision with respect to advertising or
refund is guilty of a misdemeanor of the second degree,
punishable as provided in s. 775.082 or s. 775.083. A
second or subsequent offense constitutes a misdemeanor of
the first degree, punishable as provided in s. 775.082 or
s. 775.083.

This provision prohibits a statement that tax is due on a
transaction, but the selling dealer is nevertheless not going to
collect the tax from the customer. In Taxpayer's specific case,
no tax is due on the transaction; therefore, there is no tax for
Taxpayer to not charge or to absorb. There is no prohibition
from advertising that no tax will be charged on a transaction
that is not subject to tax. This writer suggests that an
appropriate statement would be that there are "no additional
charges for tax".

CONCLUSION

1. Taxpayer should not charge tax to the property
owner/customer. Taxpayer, as the ultimate consumer of materials
and supplies used in the performance of a real property
contract, should pay sales tax or accrue use tax on its
purchases of materials and supplies used in the contract.

2. Early payment and cash discounts occur after the sale, and
   they do not affect the taxable selling price of the merchandise.
   Tax is due on the sales price of the merchandise, and not on a
   lesser payment made based on a subsequent discount.

3. There is no prohibition from advertising that no tax will be
   charged on a transaction that is not subject to tax.

Please be advised that this response has been made based on the
representations made in Taxpayer's petition, and that no copies
of contracts or invoices were provided.

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 upon 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 from that which is 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,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838

Control #47363