Could an expanding Florida manufacturer authorize its contractor to buy materials tax-exempt for a processing line, dedicated structure, and chemical tanks?

Plain-English summary

A Florida manufacturer had already obtained a temporary tax exemption permit for an expanding manufacturing facility. Its project added a processing line, a dedicated structure housing that process, and chemical storage tanks. The work also involved utilities and connections such as steam, chilled water, HVAC, wiring, and piping.

Florida allowed the manufacturer to authorize its construction contractor to make qualifying purchases under the permit. The manufacturer had to enter the contractor's name in the authorization section of a permit copy. The contractor could then present that copy to vendors when buying industrial machinery, equipment, parts, or materials for the processing line, its dedicated structure, and the storage tanks.

The dedicated process structure could qualify because it contained no offices, storerooms, or incidental-use areas and was closely tied to the large-scale industrial process it housed. The rule also recognizes qualifying foundations, wiring from the nearest power point, plumbing connections, and installation labor in the circumstances it describes.

The exemption stopped at items that did not physically become part of the completed work. Scaffolding, cranes, special tools, equipment rentals, and consumable supplies used only during installation did not qualify.

What this means for you

The expanding business must control the permit

The contractor cannot simply claim the manufacturer's exemption. The qualifying business must name the contractor or subcontractor on its own temporary permit.

Each contractor needs direct authorization

An authorized contractor may extend the permit to its vendors, but it may not authorize another contractor or subcontractor. Each participant needs its own permit copy directly from the manufacturer.

Permanent incorporation is the practical dividing line

Machinery, components, parts, and qualifying structural materials that become part of the process can be exempt. Temporary installation equipment and consumed supplies cannot.

The manufacturer bears misuse risk

The rule makes the qualifying business responsible for sales and use tax on nonqualifying items that its contractors or subcontractors buy tax-exempt under the permit.

Common questions

Q: Could the contractor use the manufacturer's exemption permit?
A: Yes, after the manufacturer named the contractor in the permit's authorization section.

Q: Did the processing-line structure qualify?
A: Under these facts, yes. It was a dedicated structure closely related to the process and had no offices, storerooms, or other incidental-use areas.

Q: Did cranes and scaffolding qualify?
A: No. Items used during installation but not physically incorporated into the final work were excluded.

Q: Could the contractor authorize its subcontractor?
A: No. Each contractor or subcontractor had to obtain authorization directly from the expanding manufacturer.

Citations and references

• Fla. Stat. § 212.08(5)(b) (industrial machinery and equipment for qualifying expanding facilities)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.096(1), (3), (5), and (8) (definitions, expanding businesses, permits, and qualifying items)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-002

Original ruling text

SUMMARY
QUESTION: Whether purchases by a contractor for a processing line and chemical storage
tanks at an expanding manufacturing facility are exempt from sales and use tax under the
provisions of Section 212.08(5)(b), F.S.
ANSWER: The qualifying expanding business may authorize the contractor to make taxexempt purchases on its behalf for the process line and chemical storage tanks. The qualifying
expanding business should enter contractor’s name in the appropriate authorization section on a
copy of the temporary tax exemption permit. The contractor may then purchase industrial
machinery and equipment or parts or materials tax-exempt for the construction of the processing
line, the structure for that processing line, and the chemical storage tanks by extending a copy of
the permit to its vendors. The contractor may not use the permit to purchase or rent items taxexempt that do not physically become a part of the final completed work.
January 14, 2009

XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 09A-002
Sales Tax – Industrial Machinery and Equipment Exemption
Section 212.08(5)(b), Florida Statutes (F.S.)
Rule 12A-1.096, Florida Administrative Code (F.A.C.)

Dear XXX:
This is in response to your letter of November 18, 2008, requesting a Technical
Assistance Advisement (TAA) concerning the applicability of a sales and use tax exemption to
purchases by XXX (hereinafter “Contractor”) in the construction of a processing line and
chemical storage tanks at a manufacturing facility owned by XXX (hereinafter
“Manufacturer”). This response to your request constitutes a TAA under Chapter 12-11, Florida
Administrative Code (F.A.C.), and is issued to you under the authority of Section 213.22,
Florida Statutes (F.S.).
Stated Facts
Manufacturer operates an industrial manufacturing facility in Florida. Manufacturer
applied for, and was issued, a temporary tax exemption permit for the purpose of making taxexempt purchases of industrial machinery and equipment as an expanding business under the
provisions of Section 212.08(5)(b), F.S. The expansion project involves the construction and
installation of a process line and chemical storage tanks. Contractor has been awarded the
contract to construct the process line and the chemical storage tanks. The work includes a steam
system, chilled water, HVAC, electrical wiring, and piping. The process will be contained in a

structure that will not contain any offices, store rooms, or other incidental use areas.
Issue
Whether purchases by Contractor for the expansion project are exempt from sales and use
tax under the provisions of Section 212.08(5)(b), F.S.
Applicable Authority
The following passages from the Florida Statutes (F.S.) and the Florida Administrative
Code (F.A.C.) are applicable to the issue under consideration.
Section 212.08(5)(b), F.S., provides in part:

2. Industrial machinery and equipment purchased for exclusive use by an
   expanding facility which is engaged in spaceport activities as defined by s. 212.02 or for
   use in expanding manufacturing facilities or plant units which manufacture, process,
   compound, or produce for sale items of tangible personal property at fixed locations in
   this state are exempt from any amount of tax imposed by this chapter upon an affirmative
   showing by the taxpayer to the satisfaction of the department that such items are used to
   increase the productive output of such expanded facility or business by not less than 10
   percent.
   3.a. To receive an exemption provided by . . . subparagraph 2., a qualifying
   business entity shall apply to the department for a temporary tax exemption permit. . . .
   Rule 12A-1.096, F.A.C., provides in part:
   (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:
   ...
   (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
   for sale or is exclusively used in spaceport activities. 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,
   even though the system may provide incidental comfort to employees, or serves, to an
   insubstantial degree, non-production activities. For example, a dehumidifier installed for
   the sole purpose of conditioning air in a factory, where the manufacturing of electronic
   components requires a controlled-humidity environment, will be considered industrial
   machinery and equipment. (See subsection (8) of this rule.)

(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.
...
(3) Expanding Business.
(a) The purchase of industrial machinery and equipment, parts and accessories,
and the installation thereof, is exempt from tax when purchased by an expanding business
that uses such machinery and equipment at a fixed location in this state to increase the
productive output of tangible personal property that is manufactured, processed,
compounded, or produced for sale by not less than 10 percent, or for exclusive use in
spaceport activities.
...
(5) Temporary Tax Exemption Permit - Refund or Credit.
(a) To receive the exemption provided under subsection (2) or (3), a qualifying
business entity must apply to the Florida Department of Revenue, Technical Assistance
and Dispute Resolution, Post Office Box 7443, Tallahassee, Florida 32314-7443, for a
temporary tax exemption permit. The business entity seeking a temporary tax exemption
must file an Application for Temporary Tax Exemption Permit (Form DR-1214) with the
Department prior to receiving a permit or refund for the new or expanded business.
Upon a tentative affirmative determination of the business’s qualification for exemption
by the Executive Director or the Executive Director’s designee, a temporary tax
exemption permit will be issued to, or a refund authorized for, the business entity.
(b)1. A temporary tax exemption permit may be issued only to the qualified
business entity which will use the qualifying machinery and equipment at a fixed location
in this state in manufacturing, processing, compounding, or producing tangible personal
property for sale, or for exclusive use in spaceport activities. Such permit may be
extended by the business entity to its vendor(s) or to its authorized contractor(s)
operating under lump sum, cost plus, fixed fee, guaranteed price, or any other type of
contract executed for the purpose of constructing a new or expanded business. The
authorized contractor(s) may, likewise, extend the temporary tax exemption permit to its
vendor(s) for use in purchasing qualifying machinery and equipment tax exempt. The
business entity that extends the temporary tax exemption permit to a contractor or
subcontractor for the purpose of authorizing that contractor or subcontractor to purchase
qualifying machinery and equipment tax exempt will be responsible for paying the sales
and use tax on any nonqualified items purchased tax exempt by the contractor or
subcontractor.
...
(8) 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.
...
(t) Installation labor charges qualify for exemption. However, other installation
costs, such as equipment rental or expendable supplies, which do not become a physical
part of qualifying machinery and equipment, will not qualify for exemption. . . .
Discussion and Response
Subparagraph 2. of s. 212.08(5)(b), F.S., provides an exemption from sales and use tax to
expanding businesses on purchases of industrial machinery and equipment. Industrial machinery
and equipment that is integral to the production process will qualify for exemption. Generally,
the exemption begins at that point in the production process where raw materials are received,
and the exemption ends at that point where the product is packaged for sale or is in saleable form
if packaging is not done. Rule 12A-1.096(8), F.A.C., provides some guidelines as to the various
types of machinery and equipment that will or will not qualify for exemption.
It should be noted that the administrative rule has been written from the perspective of a
manufacturing operation with separate machinery that is contained within a factory building.
However, the exemption is also applicable to purchases of parts and materials, which when
assembled, comprise a single, large-scale industrial process. If that process is contained or
housed within its own dedicated structure, that structure will also be considered qualifying
industrial machinery and equipment pursuant to Rule 12A-1.096(1)(b), F.A.C. The exemption
does not extend to purchases or rentals of items, such as scaffolding, cranes, special tools, or
consumable items that are utilized in the installation, but do not physically become a part of the
final completed work.
The expanding business may purchase industrial machinery and equipment tax-exempt
when it extends a copy of its temporary tax exemption permit to the vendor. Pursuant to Rule
12A-1.096(5)(b)1., F.A.C., the expanding business may also authorize its contractor and
subcontractors to make tax-exempt purchases on its behalf. When doing so, the expanding
business should enter the contractor’s or subcontractor’s name in the appropriate authorization
section on a copy of the temporary tax exemption permit. The contractor or subcontractor may
then purchase industrial machinery and equipment or parts or materials tax-exempt for the
expansion project by extending a copy of the permit to their vendors. A contractor may not
authorize another contractor or a subcontractor to make purchases on its behalf. Each contractor
or subcontractor should obtain a copy of its own permit directly from the qualifying expanding
business.
Conclusion
Manufacturer may authorize Contractor to make tax-exempt purchases on its behalf for
the process line and chemical storage tanks. Manufacturer should enter Contractor’s name in the
appropriate authorization section on a copy of the Manufacturer’s temporary tax exemption
permit. Contractor may then purchase industrial machinery and equipment or parts or materials
tax-exempt for the construction of the processing line, the structure for that processing line, and

the chemical storage tanks by extending a copy of the permit to its vendors. Contractor may not
use the permit to purchase or rent items tax-exempt that do not physically become a part of the
final completed work.
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 documents are public
records under Chapter 119, F.S., which are subject to disclosure to the public under the
conditions of Section 213.22, F.S. Your name, address, and any other details, which might lead
to identification of the taxpayer, must be deleted before disclosure. In an effort to protect the
confidentiality of such information, we request you provide the undersigned with an edited copy
of your request for Technical Assistance Advisement, backup material and response within
fifteen days of the date of this advisement.
Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

id# 54976