How were delivery and installation charges taxed under an appliance contract covering both built-in fixtures and freestanding appliances?

Plain-English summary

Florida applied sales tax item by item because the appliance contract separately and clearly allocated prices among its components. The Department did not need to decide whether the contract was predominantly for real-property improvements or tangible personal property.

The residential developer bought appliances, delivery, and installation from one vendor for new homes. Some appliances became permanent fixtures, while others remained freestanding tangible personal property. The contract and attached price lists separately priced each appliance and the delivery and installation for each type.

Clear allocation displaced the predominant-nature test

Rule 12A-1.051 treated a contract covering both real-property work and property that remained tangible personal property as a mixed contract. Ordinarily, tax could depend on the contract's predominant nature.

But when a mixed contract made a bona fide and reasonable allocation among its elements, the rule applied tax according to that allocation. Because this contract itemized the components, Florida classified and taxed each item separately.

Freestanding-appliance charges were taxable

Refrigerators, washers, dryers, and other items that remained tangible personal property were retail sales. Section 212.02 included services that were part of the sale in taxable sales price.

Installation remained taxable even when separately stated, and delivery was taxable where the vendor agreed to deliver and the purchaser could not avoid the transportation charge. Florida therefore taxed delivery and installation related to the freestanding appliances.

Fixture-related charges followed real-property treatment

Items permanently attached as fixtures were treated as improvements to real property. The vendor's delivery and installation charges for those items were not subject to tax as retail-sale charges to the developer.

Florida did not decide which specific appliance models actually became fixtures. Although the petition listed stoves, ovens, hoods, dishwashers, and disposals as examples, the price list also appeared to include countertop or freestanding versions.

What this means for you

Residential developers and homebuilders

Require contracts and price schedules to identify each appliance and separately allocate delivery and installation. A credible allocation can avoid applying one tax treatment to the entire mixed package.

Appliance vendors and installers

Determine whether each installed model becomes a fixture or remains tangible personal property. Product labels such as “stove” are not enough when different models attach differently.

Accountants and tax professionals

Test both the allocation and the classification. The ruling relied on a clear itemized contract but expressly declined to verify the developer's claimed fixture percentages or every appliance category.

Common questions

Q: Did Florida treat the whole contract as a real-property contract because 85% of items were claimed as built-ins?
A: No. Clear price allocation made the predominant-nature determination unnecessary.

Q: Were installation charges for freestanding appliances taxable?
A: Yes, even when separately stated.

Q: Were delivery charges for freestanding appliances taxable?
A: Yes under the described contract, as part of the sales price of tangible personal property.

Q: Did Florida rule that every stove or dishwasher was a fixture?
A: No. It lacked enough information and noted that some listed items could be countertop or freestanding models.

Citations and references

• Fla. Stat. § 212.02(16) — sales price includes services that are part of a sale
• Fla. Stat. § 212.05 — tax on sales of tangible personal property
• Fla. Stat. § 212.06(14) — definitions of real property and fixtures
• Fla. Admin. Code r. 12A-1.016(3) — taxable installation of property that remains tangible personal property
• Fla. Admin. Code r. 12A-1.045(3)(a) — unavoidable transportation charges
• Fla. Admin. Code r. 12A-1.051(8) — mixed-contract predominant-nature and allocation rules

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-040

Original ruling text

SUMMARY
QUESTION: Are separately stated delivery and installation charges for appliances, some of which become
improvements to real property, and some of which remain tangible personal property, subject to tax?
ANSWER - Based on information below: The contract clearly allocates the price between the various elements of
the contract. Therefore, it is not necessary to make a determination as to the predominant nature of the contract. The
taxation will apply based on the particular item in question (i.e., a sale of tangible personal property or an
improvement to real property). Installation charges and delivery charges related to the sale of tangible personal
property are subject to tax as part of the sales price of the tangible personal property.

July 19, 2004

Re: Technical Assistance Advisement 04A-040
Sales and Use Tax - Mixed Contracts
Sections: 212.05, 212.06, F.S.
Rule: 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XXX
Dear :
This letter is a response to your petition dated June 16, 2004, 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 sets forth the following information:
[Taxpayer] is a residential development company operating in the state of Florida. [Taxpayer] contracts with outside
suppliers for various upgrades, including appliances, to be added to the home they build. One such contract is with
[Appliance Vendor], for the purchase, delivery and installation of various items in the new homes.... [Taxpayer's]
contract with [Appliance Vendor] is a guaranteed price contract, even though the costs of the appliances, installations
and delivery charges are separately stated on the invoices. The contracted items can be broken out into two
categories, built-in appliances which become fixtures and free standing appliances which remain tangible personal
property. Examples of built-in appliances, which become fixtures, are stoves, ovens, hoods, dishwashers, disposals,
and other built-in items, which are permanently attached to real property. Examples of free standing appliances are

refrigerators, washers and dryer[s]. [Appliance Vendor] is responsible for the delivery and installation of the
appliances, including the affixing the built-ins to the realty. [Appliance Vendor] either affixes/installs the appliances into
the home themselves or contracts with a third party.
In 2003, [Taxpayer] purchased from [Appliance Vendor] approximately 63,000 items of which 85% was for built-in
appliances, which became fixtures[,] and 15% remained tangible personal property.... (Emphasis in Original)
Included with Taxpayer's petition is the contract between itself and Appliance Vendor. The contract includes, as
attachments to Exhibit B, itemized price lists of each appliance that may be supplied by Appliance Vendor, as well as
itemized price lists of delivery and installation per type of appliance.
No information was provided to determine whether all appliances asserted to be built-in (i.e., all stoves) are, in fact,
built-ins (fixtures upon installation). The price list indicates that some of these items are countertop models or free
standing items.
Taxpayer's petition asserts that the contract is a mixed contract, the predominant nature of which is that of an
improvement to real property, and that the taxation of the contract should be that of a contract for an improvement to
real property.

REQUESTED ADVISEMENT
Advice is requested on the taxability of the separately stated delivery and installation charges.

LAW AND DISCUSSION
Section 212.06(14), Florida Statutes, provides guidance for the determination as to whether a person is making
improvements to real property, and it states in pertinent part 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: 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 industrial machinery or
equipment. For purposes of this paragraph, industrial machinery or equipment is not limited to machinery and
equipment used to manufacture, process, compound, or produce tangible personal property. 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.

Rule 12A-1.051, Florida Administrative Code, discusses the taxability of contracts for the improvement to real
property, and it states in pertinent part as follows:
(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.
(a) If the predominant nature of a mixed contract is a contract for real property improvements, taxability will be
determined as if the contract were entirely for real property. For example, a residential developer routinely provides
some items of tangible personal property, such as free standing appliances, with new homes sold under cost-plus
contracts. The predominant nature of the contract is for a dwelling. The developer should pay sales or use tax on the
appliances. A contractor constructs a factory under a turnkey contract that includes providing and installing machinery
and equipment that is not exempt from sales and use tax. The contract is predominantly for a factory, a real property
improvement, and the contractor should pay use tax on the cost of the machinery and equipment. No tax is collected
from the property owner in either case, even through some tangible personal property is included in the project.
(b) If the predominant nature of a mixed contract is a contract for tangible personal property, taxability of the contract
will be determined as if the contract were entirely for tangible personal property. For example, a vendor of a
mechanical conveyor system for a warehouse provides reinforced concrete foundations and embeds steel plates in
the concrete to permit installation of the equipment by bolting it to the plates. The contract is predominantly for the
sale of equipment. The contractor should buy the equipment, concrete, and steel plates tax exempt by extending a
copy of the contractor's Annual Resale Certificate (form DR-13) to the selling dealer and charge tax on the full price
charged to the customer.
(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. For example, a residential developer builds and sells a home on a
cost plus basis, but the contract provides separately stated prices for the sale and installation of certain optional free
standing appliances that are tangible personal property and are not classified as real property fixtures. The contractor
may purchase those appliances by issuing a copy of the contractor's Annual Resale Certificate (form DR-13) to the
selling dealer and charge sales tax on the price paid for the appliances, including installation, by the home buyer. The

contractor is responsible for paying tax on all the materials that are included in the cost plus price of the home, other
than the separately itemized appliances.... (Emphasis Supplied)
This determination does not address which appliances or the specific percentage thereof, become fixtures upon
installation; it is acknowledged that some of the appliances do become improvements to real property upon installation
by Appliance Vendor or its subcontractor. It is, therefore, acknowledged that the contract is a "mixed contract," as
provided in Rule 12A-1.051(8), Florida Administrative Code.
The contract clearly allocates the contract price among the various elements of the contract. In fact, each individual
appliance is priced separately, and the various elements of the delivery and installation are also priced separately.
Therefore, it is not necessary to make a determination as to the predominant nature of the contract. When the contract
price is allocated between the items that become improvements to real property upon installation and the items that
remain tangible personal property, then the taxation is made in accordance with the allocation. Since the various
elements (appliances) are separately priced in the contract, the taxation will follow the classification. The items that
become improvements to real property upon installation will be taxed as improvements to real property. The items
that remain tangible personal property will be taxed as sales of tangible personal property.
Section 212.05, Florida Statutes, imposes tax on the sale of tangible personal property. The tax is based on the "sales
price" of the tangible personal property, which term is defined in section 212.02(16), Florida Statutes, in pertinent part
as "... the total amount paid for tangible personal property, including any services that are a part of the sale...."
Rule 12A-1.016, Florida Administrative Code, discusses the taxability of installation charges as part of the sales price
of tangible personal property, and it states in pertinent part as follows:
(3)(a) The total consideration received for labor or services used in installing tangible personal property which is sold
and does not become a part of realty, is taxable even though such charge may be separately stated.
(b) Contractors and manufacturers who furnish and install the following items are considered to be retail dealers and
are required to charge sales tax on the full price, including installation and any other charges:

4. Household appliances.... (Emphasis Supplied)
   Rule 12A-1.045, Florida Administrative Code, discusses the taxability of transportation charges as part of the sales
   price of tangible personal property, and it states in pertinent part as follows:
   (3)(a) Where the seller agrees to deliver tangible personal property to some designated place and the purchaser
   cannot elect to avoid the charge for transportation services, the charge for the transportation service is subject to tax,
   even if separately stated on an invoice or bill of sale.
   Installation charges and delivery charges are subject to tax as part of the sales price of the items of tangible personal
   property. They are services that are a part of the sale of tangible personal property.

Installation charges and delivery charges by the contractor (Appliance Vendor) performing the installation for items
that become improvements to real property upon installation are not subject to tax.

CONCLUSION
The contract clearly allocates the price between the various elements of the contract. Therefore, it is not necessary to
make a determination as to the predominant nature of the contract. The taxation will apply based on the particular
item in question (i.e., a sale of tangible personal property or an improvement to real property). Installation charges and
delivery charges related to the sale of tangible personal property are subject to tax as part of the sales price of the
tangible personal property.

CLOSING STATEMENT
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
Control #60636