Could a cabinet manufacturer prorate Florida's boiler-fuel exemption when one gas meter served production and building heat?

Plain-English summary

A cabinet manufacturer burned natural gas to cure a sealer or top coat at a required temperature. The same dealer, meter, and invoice also supplied gas used to heat the plant for employee comfort during cooler months. The taxpayer proposed using summer production and fuel data to estimate and refund the historical production-use share.

Florida rejected proration. The boiler-fuel exemption required the purchased fuel to be used exclusively in the manufacturing, processing, compounding, or production of tangible personal property for sale. If any portion of the purchased gas served another purpose, the full mixed-use purchase was taxable.

The Department also stated that if the taxpayer had received a vendor refund under earlier advice while the gas had mixed uses, the taxpayer owed the refunded amounts to the state.

What this means for you

Actual manufacturing necessity was not enough. The exemption depended on exclusive qualifying use of the purchased fuel, supported by the required certificate. A calculation estimating production consumption could not cure a shared-meter mixed-use purchase.

Common questions

Did gas used to cure cabinet finishes serve manufacturing? Yes, but the same gas supply also heated the facility.

Could the taxpayer estimate the exempt share from summer production data? No. Florida found no statutory authority to prorate the exemption.

What happened when any gas served a nonmanufacturing purpose? None of the mixed-use purchase qualified for the exemption.

What did the exemption certificate require? A statement that the fuel would be exclusively used as combustible fuel in the qualifying production process.

What about an earlier refund obtained from the vendor? If mixed use existed when the refund was received, the ruling says the taxpayer owed the refunded amount to Florida.

Citations and references

• Fla. Stat. § 212.08(7)(b) (exclusive-use manufacturing boiler-fuel exemption)
• Fla. Admin. Code r. 12A-1.059(2) (fuel exemption and certificate)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-038

Original ruling text

SUMMARY
QUESTION 1: The taxpayer manufactures cabinets. Natural gas is purchased and used to bake a wood sealer/top
coat onto a completed cabinet at a specified temperature. All natural gas purchased by the taxpayer goes through one
meter, and some is used to heat the facility in which cabinets are manufactured. The question then is: may the
exemption from sales tax authorized by s. 212.08(7)(b), F.S., on boiler used to manufacture tangible personal property
for sale be prorated using factors provided by the taxpayer?
ANSWER 1 - Based on Facts Below: The answer is no. There are no provisions found in Chapter 212, F.S., which
authorizes proration of the exemption granted in s. 212.08(7)(b), F.S. One provision of s. 212.08(7)(b), F.S.,
specifically states: "... however, such exemption shall not be allowed unless the purchaser signs a certificate stating
that the fuel to be exempted is for the exclusive use designated herein."

December 5, 2006

Re: Technical Assistance Advisement 06A-038
Sales and Use Tax - Tax on Boiler Fuels Used in the Manufacturing Process
Statute(s): Section 212.08, F.S.
Rule Section: 12A-1.059, F.A.C.
Petitioner: XXX (hereinafter referred to as Taxpayer)
FEI: XX
Dear :
This letter is a response to your petition dated XX, 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, Florida
Administrative Code (F.A.C.). This response to your request constitutes a TAA and is issued to you under the
authority of s. 213.22, Florida Statutes (F.S.).
FACTS
The following facts were presented in your request for a Technical Assistance Advisement (TAA) dated XX, which
resulted in the issuance of TAA Number 02A-053:
[Taxpayer] is a subsidiary of [Parent] Corporation, a publicly traded company incorporated in the State [other than
XXX].

Taxpayer operates a production facility in []XXX. This plant began production during 2000.
The taxpayer cures their cabinets using a wood sealer/top coat. The curing of the XXX involves a chemical reaction
[that] changes the composition of the XXX from XXX. Curing requires the presence of a prescribed heat
environment.... The production line provides temperatures of up to 154 degrees [Fahrenheit] for this purpose....
Heat for the curing process is provided through the burning of XXX purchased from [XXX company]. Invoices for these
purchases include sales taxes....
Due to the nature of the XXX/XXX used by the Taxpayer, curing in the absence of the prescribed heat environment
would result in an unsalable product....
Provided with the petition was a memorandum by the vendor, which states that if the XXX/XXX is not baked until the
board surface temperature reaches 130º Fahrenheit, the following consequences may occur:
No information was provided as to whether any of the natural gas is used for any other purpose, such as to heat the
building, to heat hot water, or for other non-manufacturing related purposes.
The facts, as presented in your letter of August 8, 2006, are:
This request is related to my previous correspondence, Ref. Technical Assistance Advisement, No. 02A-053, Dated
December 2, 2002.
My client has been purchasing XXX for use as outlined in the aforementioned TAA. Additionally, they have also been
purchasing natural gas to heat the plant's physical facilities for employee comfort during the cooler months of the year.
The purchase of XXX for these two uses is from the same dealer, is measured by a single meter, and is billed on the
same invoice.
Rule 12A-1.059(1)[(a)] provides for an exemption for residential use of natural gas when "separately metered".
Section 212.08(7)(b) provides for an exemption when it is purchased for the "exclusive use" of defined production
purposes. Since Section 212.08(7)(b) doesn’t require the metering of purchases, can the amount of natural gas
purchased for use in a production activity be determined in an alternative manner? This query is posed for the
purpose of determining historical production-related quantities and not for issuing an exemption certificate to a dealer.
REQUESTED ADVISEMENT
As stated in your letter:
Would the following procedure be an acceptable method of determining the quantity of XXX purchased for exempt
purposes?

1. Heating for employee comfort purposes is not required throughout the year. During the summer months, gas is
   used exclusively for production purposes.

2. My client maintains daily production records measured as number of cabinets produced.

3. Copies of dealer invoices detailing the quantities and cost of natural gas purchased for the past three years are
   available.
4. The foregoing information can be used to determine the per unit amount of natural gas used exclusively for
   production purposes during summer months. Using this data, a per unit average of natural XXX required for
   production purposes can be determined.
5. The average per unit XXX requirement as determined in the preceding step, would be applied to historical
   production quantities to determine the historic total amount of XXX used exclusively for production purposes.
6. The amount of sales taxes paid for exempt activities would be determined by multiplying the quantities determined
   in the foregoing step by the actual unit prices as detailed on each invoice.
   LAW AND DISCUSSION
   Section 212.08(7)(b), Florida Statutes, provides:
   (b) XX - When purchased for use as a combustible XXX, purchases of natural XXX residual oil, recycled oil, waste oil,
   solid waste material, coal, sulfur, wood, wood residues or wood bark used in an industrial manufacturing,
   processing , compounding, or production process at a fixed location in this state are exempt from the taxes
   imposed by this chapter; however, such exemption shall not be allowed unless the purchaser signs a certificate
   stating that the fuel to be exempted is for the exclusive use designated herein. This exemption does not apply to the
   use of boiler fuels that are not used in manufacturing, processing, compounding, or producing items of tangible
   personal property for sale, or to the use of boiler fuels used by any firm subject to regulation by the Division of Hotels
   and Restaurants of the Department of Business and Professional Regulation. [Emphasis supplied]
   Rule 12A-1.059(2), Florida Administrative Code, provides in part:
   (a) "XXX. When purchased as a combustible fuel, purchases of natural gas, residual oil, recycled oil, waste oil, solid
   waste material as defined in Section 403.703(13), F.S., coal, sulfur, wood, wood residues, or wood bark used in an
   industrial manufacturing, processing, compounding, or production process at a fixed location in this state is exempt.
   For the purpose of this exemption, the term "residual oil" means ASTM Grades No. 5 and No. 6, heavy diesel, and
   bunker C. This exemption does not apply to any type of liquefied petroleum gases, naphtha, kerosene, or distillate fuel
   oil, such as diesel fuels, No. 1 and No. 2 heating oils, and No. 4 fuel oil. The term "fixed location" means being
   permanently affixed to one location or plant site, or any portable plant which may be 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. To be entitled to this exemption at
   the time of purchase, the purchaser must issue the seller a certificate stating that the combustible fuel is used in an
   industrial manufacturing, processing, compounding, or production process. The following is a suggested format of a

certificate to be used for this purpose:
EXEMPTION CERTIFICATE
BOILER FUELS USED TO PRODUCE TANGIBLE
PERSONAL PROPERTY FOR SALE
__ , incorporated in the State of __, its undersigned officer who is duly authorized,
hereby certifies to ___ that purchases of natural gas, residual oil, recycled oil, waste oil, solid
waste material as defined in Section 403.703(13), F.S., coal, sulfur, wood, wood residues, or wood bark under
account number ____ will be exclusively used as a combustible fuel in the manufacturing,
processing, compounding, or production of tangible personal property for sale. This industrial process is located at
___ in ___Florida, County of __ . Further, it is certified that
____ is not subject to regulation by the Division of Hotels and Restaurants of the Department of
Business and Professional Regulation. The purchase of the combustible fuel pursuant to this certification is exempt
from tax, pursuant to Section 212.08(7)(b), F.S.
Dated at , Florida, this ___ day of ___.
AUTHORIZED OFFICER OF COMPANY
BY: ____
TITLE: _______
(b) The sale of boiler fuels that are not used in manufacturing, processing, compounding, or producing items of
tangible personal property for sale is subject to tax. The sale of boiler fuels used by any firm subject to regulation by
the Division of Hotels and Restaurants of the Department of Business and Professional Regulation is subject to tax....
The statutes and the rule require that the boiler fuel be purchased for exclusive use in the manufacturing process as a
combustible fuel. The language of s. 212.08(7)(b), F.S., does not permit the proration of sales tax on fuel used for
exempt purposes and that used for nonexempt purposes. If Taxpayer’s fuel use is exclusively as a combustible fuel in
the manufacturing process, then Taxpayer is entitled to purchase the fuel exempt from sales and use tax, and
discretionary sales surtax, if applicable. If Taxpayer uses any portion of the fuel for any other purpose, such as for
heating the premises during the cooler months, then none of the fuel purchased is exempt from tax.
CONCLUSION
Determination is made, because Chapter 212, F.S., is void of provisions that grant taxpayers the authority to prorate
sales and use tax on purchases of natural gas used for taxable and nontaxable purposes, that all natural gas
purchased and used for multiple purposes (both exempt and taxable) is subject to sales and use tax. This
determination is supported by the statement on the suggested exemption certificate which states in part: "purchases
of natural gas... will be exclusively used as a XXX in the manufacturing, processing, compounding, or production of
tangible personal property for sale."
Additionally, if the taxpayer acted on the advice given in TAA Number 02A-053, which states: "Refunds of taxes

overpaid must be secured from Taxpayer's vendor," if the taxpayer had multiple uses of the natural gas at the time
taxpayer received a refund from the taxpayer's vendor, the taxpayer then owes all amounts received from the vendor
directly to the State.
You are further advised that this response, your request and related backup documents are public records under
Chapter 119, Florida Statutes, and are subject to disclosure to the public under the conditions of s. 213.22, Florida
Statutes. 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,
Lynwood Taylor
Tax Law Specialist
Technical Assistance and Dispute Resolution
Control # 23672