How did Florida tax a manufacturer selling fabricated components to a related real property contractor for installation inside and outside Florida?

Plain-English summary

A manufacturer fabricated automated components and sold them in arm's-length transactions to a separate LLC. The LLC installed the components as part of real property contracts in Florida and outside Florida. The manufacturer asked about tax on its input purchases, fabrication activity, Florida deliveries, and export deliveries.

The Department separated the chain into three tax events:

1. Manufacturer's inputs and fabrication: Not taxable under these facts. The manufacturer bought tangible personal property for resale and fabricated components exclusively for sale to the LLC. It was not making items for its own use, so the fabrication-cost tax in section 212.06(1)(b) did not apply.
2. Components delivered in Florida: Taxable retail sales. The LLC was a real property contractor and therefore the ultimate consumer of materials used in its contracts. The manufacturer had to collect and remit sales tax when it delivered the components to the LLC in Florida.
3. Components delivered outside Florida: Not subject to Florida sales tax when the sale was committed to export from the outset, the manufacturer delivered the goods outside Florida by common carrier or its own transportation, possession transferred outside Florida, installation occurred outside Florida, and the manufacturer kept adequate export records.

The Department stressed that the parties' intent to export was not enough. The movement out of Florida had to be continuous and unbroken, without the purchaser exercising control or using the goods in Florida.

What this means for you

Manufacturing for resale differs from fabricating for your own contract

Florida's fabrication-cost tax targets a person making property for its own use. This manufacturer sold completed components to a separate contractor at fair market value, so its input purchases were for resale and its own fabrication cost was not taxed.

A real property contractor is usually the consumer

The LLC did not resell the components to property owners as tangible personal property. It used them to complete real property improvements, making its purchases from the manufacturer taxable retail sales when delivered in Florida.

Export treatment depends on delivery, not destination plans alone

A Florida seller needs contract terms requiring out-of-state delivery and must use its own transportation, U.S. mail, or a qualifying carrier, exporter, broker, or forwarding agent. Delivery to a Florida location for later export does not by itself establish the exemption.

Keep records connecting each item to its final destination

The ruling requires documentation identifying the property, purchaser, and ultimate destination. Examples include delivery orders supported by trip records and common-carrier receipts or bills of lading.

Common questions

Q: Did the manufacturer owe tax on raw materials used to make the components?
A: No. Under these facts, those purchases were for resale because the finished components were sold to the LLC.

Q: Did the manufacturer owe use tax on its fabrication cost?
A: No. It fabricated for sale to another legal entity, not for its own use in a real property contract.

Q: Were Florida deliveries to the contractor taxable?
A: Yes. The LLC was the ultimate consumer as a real property contractor, so the manufacturer had to collect sales tax on retail sales delivered inside Florida.

Q: When did the export exemption apply?
A: When the sale terms committed the components to out-of-state delivery, the seller shipped them outside Florida, possession transferred there, installation occurred outside Florida, and sufficient export records were maintained.

Citations and references

• Fla. Stat. § 212.02(14), (15), and (20)-(21) (retail sale, sale, and use)
• Fla. Stat. § 212.05 (tax on retail sales and use)
• Fla. Stat. § 212.06(1)(b) (fabrication for one's own use)
• Fla. Stat. § 212.06(5)(a)1. (property produced or manufactured for export)
• Fla. Stat. §§ 212.21(2), 213.22, and 608.471(3)
• Fla. Admin. Code r. 12A-1.0015 (continuous export process and documentation)
• Fla. Admin. Code r. 12A-1.051 (real property contractors and fabricated items)
• Kings Bay Yacht and Country Club, Inc. v. Green, 173 So. 2d 509 (Fla. 1st DCA 1965)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-012

Original ruling text

SUMMARY
QUESTION:

1. Whether Taxpayer’s purchases, fabricated costs, or sales are subject to sales tax.
2. Whether Taxpayer’s sales, destined for installation outside Florida, are exempt
   from sales tax as exports.
   ANSWER:
   Section 212.06(1)(b), F.S., provides that any person who manufactures, produces,
   compounds, processes, or fabricates tangible personal property for his or her own use is
   required to pay tax upon the cost of manufacturing, producing, compounding, processing,
   or fabricating such items ("fabricated cost"). See also Rules 12A-1.043(1), and 12A1.051(10), F.A.C. Here, Taxpayer is manufacturing and fabricating for exclusive resale
   to a real property contractor. Taxpayer’s purchases of tangible personal property are for
   resale. Taxpayer is not manufacturing for its own use. Therefore, Taxpayer’s purchases
   and fabricated costs are not subject to sales tax.
   For sales delivered inside Florida, Taxpayer must collect and remit sales tax on the retail
   sale. When Taxpayer ships the Components outside Florida, maintains sufficient records of
   export, and installation occurs outside Florida, then the sales where delivery and possession
   are transferred outside of Florida are not subject to Florida sales tax.
   March 19, 2009
   XXX
   Re:

Technical Assistance Advisement 09A-012
Manufacture and Export
Sales and Use Tax
Sections 212.02, 212.05, 212.06, 608.471, Florida Statutes (F.S.)
Rules 12A-1.0015, 12A-1.051, Florida Administrative Code (F.A.C.)
XXX (“Taxpayer”)
FEIN: XXX
XXX ("LLC")
FEIN: XXX

Dear XXX:
This is in response to your letter dated February 9, 2009, requesting this Department’s
issuance of a Technical Assistance Advisement (TAA) pursuant to section 213.22, F.S.,
and Rule Chapter 12-11, F.A.C., regarding the above referenced matter and parties. An
examination of your letter has established that you have complied with the statutory and

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regulatory requirements for issuance of a TAA. Therefore, the Department is hereby
granting your request for a TAA.
FACTS
Taxpayer is a manufacturer of automated XXX (“Components”). These Components are
used in the completion of real property contracts. Taxpayer manufactures for sale to
LLC. Taxpayer sells these Components to LLC in an arm’s length transaction. LLC
installs Components at Florida locations and non-Florida locations.
Taxpayer provides that when the LLC purchases the Components for installation in
Florida, the LLC pays sales tax to Taxpayer at the time of purchase. Taxpayer has
evidenced this by providing an invoice dated January 10, 2009, where the Taxpayer

collected sales tax from LLC when the Components were sold and shipped within
Florida. Taxpayer then remits the sales tax on those sales to the Florida Department of
Revenue.
However, when the LLC purchases a Component from the Taxpayer for installation
outside Florida, Taxpayer treats these as purchases for export, and the LLC does not pay
sales tax on the purchase. Taxpayer has evidenced this by providing an invoice dated
XXX, where the Taxpayer sold and shipped Components to LLC outside Florida and did
not collect Florida sales tax.
ISSUES

3. Whether Taxpayer’s purchases, fabricated costs, or sales to LLC are subject to
   sales tax.
4. Whether Taxpayer’s sales to LLC, destined for installation outside Florida, are
   exempt from sales tax as exports.
   ADVISEMENT REQUESTED
   Taxpayer provides it operates strictly as a manufacturer and wholesaler of the
   Components. Taxpayer argues it purchases tangible personal property exempt from sales
   tax as a purchase for resale. Taxpayer believes the sales to LLC that are shipped outside
   Florida are exempt from Florida sales tax.
   APPLICABLE STATUTES AND RULES
   Legislative intent is stated in Section 212.21(2), F.S., which provides in relevant part:

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It is hereby declared to be the specific legislative intent to tax each and every sale,
admission, use, storage, consumption, or rental levied and set forth in this chapter,
except as to such sale, admission, use, storage, consumption, or rental as shall be
specifically exempted therefrom by this chapter subject to the conditions appertaining
to such exemption. . . . (emphasis supplied)
Section 212.05, F.S., similarly declares the legislative intent to tax retail sales of tangible
personal property and uses of tangible personal property. Subsection (1) of Section 212.05,
F.S., provides in pertinent part:
(1) For the exercise of such privilege, a tax is levied on each taxable transaction or
incident, which tax is due and payable as follows:
(a)l.a. At the rate of 6 percent of the sales price of each item or article of tangible
personal property when sold at retail in this state, computed on each taxable sale for
the purpose of remitting the amount of tax due the state, and including each and every
retail sale.

(b) At the rate of 6 percent of the cost price of each item or article of tangible
personal property when the same is not sold but is used, consumed, distributed, or
stored for use or consumption in this state; . . . .
Section 212.06, F.S., provides in pertinent part:
(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 . . . .
(b) Except as otherwise provided, any person who manufactures, produces,
compounds, processes, or fabricates in any manner tangible personal property for his
or her own use shall pay a tax upon the cost of the product manufactured, produced,
compounded, processed, or fabricated . . . .

(5)(a)1. Except as provided in subparagraph 2., it is not the intention of this chapter
to levy a tax upon tangible personal property imported, produced, or manufactured in
this state for export, provided that tangible personal property may not be considered
as being imported, produced, or manufactured for export unless the importer,
producer, or manufacturer delivers the same to a licensed exporter for exporting or to
a common carrier for shipment outside the state or mails the same by United States
mail to a destination outside the state; . . . nor is it the intention of this chapter to levy
a tax on any sale which the state is prohibited from taxing under the Constitution or
laws of the United States. Every retail sale made to a person physically present at the

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time of sale shall be presumed to have been delivered in this state. (emphasis
supplied)

Section 212.02, F.S., provides in pertinent part:
(14)(a) "Retail sale" or a "sale at retail" means a sale to a consumer or to any person
for any purpose other than for resale in the form of tangible personal property or
services taxable under this chapter, and includes all such transactions that may be
made in lieu of retail sales or sales at retail. . . .

(15) "Sale" means and includes:
(a) Any transfer of title or possession, or both, exchange, barter, license, lease, or
rental, conditional or otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration.

(20) "Use" means and includes the exercise of any right or power over tangible
personal property incident to the ownership thereof, or interest therein, except that it
does not include the sale at retail of that property in the regular course of business. . . .
(21) The term "use tax" referred to in this chapter includes the use, the consumption,
the distribution, and the storage as herein defined.

Section 608.471(3), F.S., provides in pertinent part:
Single-member limited liability companies and other entities that are disregarded for
federal income tax purposes must be treated as separate legal entities for all nonincome-tax purposes. . . .
Rule 12A-1.0015, F.A.C., provides in pertinent part:
(1) SCOPE.
(a) Tangible personal property imported, produced, or manufactured in this state
for export, as provided in s. 212.06(5)(a)1., F.S., is not subject to Florida sales tax
when the importer, producer, or manufacturer delivers the property to a licensed
exporter for export outside Florida or to a common carrier for shipment outside
Florida, or mails the property by United States mail to a destination outside
Florida. This rule is intended to provide tax guidelines for the sale of tangible
personal property for the purposes of export from Florida.

(2) SALES OF PROPERTY IRREVOCABLY COMMITTED TO
EXPORTATION.

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(b) When a dealer sells tangible personal property, commits the property to the
exportation process at the time of sale, and the exportation process remains
continuous and unbroken until the property is exported from Florida, the dealer is not
required to collect tax. The intent of the seller and the purchaser to export the
property is not sufficient to establish that the property is not subject to tax in Florida.
The delivery of the property to a location in Florida for subsequent export from
Florida is insufficient to establish documentary evidence that the property sold was
irrevocably committed to the exportation process. The following are examples of
methods to commit the property to the exportation process at the time of sale:

1. The dealer is required by the terms of the sale contract to deliver the property
   outside Florida using the dealer's own mode of transportation;
2. The dealer is required by the terms of the sale contract to mail the property by
   United States mail to a destination located outside Florida; or
3. The dealer is required by the terms of the sale contract to deliver the property to a
   carrier, licensed customs broker, or forwarding agent for final and certain movement
   of the property to a destination located outside Florida.
   a. The term "carrier" means a person regularly engaged in the business of transporting
   tangible personal property owned by other persons for compensation. The term
   "carrier" includes common carriers and contract carriers.

(c) Any dealer who makes tax-exempt sales of tangible personal property for export
outside Florida is required to maintain records to document that the property is
committed to the exportation process at the time of sale and that the exportation
process is continuous and unbroken until the property is exported from Florida. The
dealer is required to maintain records that identify the tangible personal property sold
and the delivery destination of the property. The documentation must clearly
establish that the property was not commingled with the mass of property within
Florida. If the purchaser exercises any act of dominion or control that would
constitute "use" of the property by the purchaser in Florida within the meaning of that
term set forth in s. 212.02(20), F.S., the property was not irrevocably committed to
the exportation process. Examples of records to document sales for export to points
outside Florida are:
1. Internal delivery orders identifying the property sold and the destination and date
of delivery that are supported by receipts of expenses incurred in delivering the
property, such as trip tickets or truck logs signed by the person who delivers the
property;
2. United States Postal Service parcel post receipts with supporting documentation
identifying the property and the destination;
3. Common carriers' receipts, bills of lading, or similar documentation that evidences
the delivery destination; . . . .
Rule 12A-1.051, F.A.C., provides in pertinent part:

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(1) Scope of the rule. This rule governs the taxability of the purchase, sale, or use of
tangible personal property by contractors and subcontractors who purchase, acquire,
or manufacture materials and supplies for use in the performance of real property
contracts . . . .
(2) Definitions. For purposes of this rule, the following terms have the following
meanings:
(a) "Fabricated cost" means the cost to a real property contractor of fabricated items,
as defined in the following paragraph. The elements of cost included in fabricated
cost are set forth in Rule 12A-1.043, F.A.C. Fabricated cost does not include the cost
of transporting fabricated items from the contractor's plant to the job site or the cost
of labor at the job site where the fabricated items are incorporated into the real
property improvement.
(b) "Fabricated items" means items contractors manufacture, produce, process,
compound, or fabricate for their own use in performing contracts for improvements
to real property. The term applies only to items the contractor manufactures,
produces, processes, compounds, or fabricates at a plant or shop maintained by the
contractor. For this purpose, a temporary facility established at a job site that is used
exclusively in connection with performing a contract for a real property improvement
at that job site is not considered to be a plant or shop maintained by the contractor.

(d) "Improvement to real property" or "real property improvement" includes the
activities of building, erecting, constructing, altering, improving, repairing, or
maintaining real property.

(f) "Manufacture, produce, compound, process, or fabricate" means:

1. To convert or condition tangible personal property by changing the form,
   composition, quality, or character of the property;
2. To make, build, create, produce, or assemble components or items of tangible
   personal property in a new or different manner;
3. To physically apply materials and labor necessary to modify or change the
   characteristics of tangible personal property.
   The terms do not include activities that do not result in any change in the character
   or quality of tangible personal property. For example, a repair or restoration of
   property to return it to its original state and level of functionality is not included
   within the defined activities.
   (g) “Real property” means land, improvements to land, and fixtures. It is
   synonymous with the terms “realty” and “real estate.”
   (h)1. "Real property contract" means an agreement, oral or written, whether on a
   lump sum, time and materials, cost plus, guaranteed price, or any other basis, to:

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a. Erect, construct, alter, repair, or maintain any building, other structure, road,
project, development, or other real property improvement;

2. The term "real property contract" does not include:
   a. A contract for the sale or for the sale and installation of tangible personal property
   such as machinery and equipment; or
   b. A contract to furnish tangible personal property that will be installed or affixed in
   such a way as to become a fixture or improvement to real property if the person
   furnishing the property has not also contracted to affix or install it.

(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.

(10) Use tax on fabrication costs. Contractors may maintain shops, plants, or similar
facilities where they manufacture, produce, compound, process, or fabricate items for
their own use in performing contracts. Contractors are required to pay use tax on the
fabricated cost of those items. The elements that must be included in the taxable cost
of such items are set forth in Rule 12A-1.043, F.A.C. In the case of real property
contractors, the taxable cost of an item manufactured, produced, compounded,
processed, or fabricated for use in performing a contract does not include labor that
occurs at the job site where the item will be incorporated into a real property
improvement or transportation from the plant where an item was fabricated to the job
site. Examples of real property contractors who are subject to tax under this
subsection include cabinet contractors who build custom cabinets in their shops,
roofing contractors who operate tile plants, or heating/air conditioning/ventilation
contractors who maintain sheet metal shops for making ductwork. Real property
contractors that are required to remit use tax on fabricated items must register as
dealers for purposes of remitting such tax if they are not already registered as dual
operators.

(17) Specific activities classified as real property contracts. Contractors who are
engaged in the following activities are generally considered to be real property

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contractors, although any particular job may be determined not to involve an
improvement to real property:

(hh) [Products] that are permanently attached to realty;

DISCUSSION
Section 212.05, F.S., imposes sales tax on the retail sale of tangible personal property. A
"retail sale" is defined by Section 212.02(14)(a), F.S., as a sale for any purpose other than
for resale. Section 212.02(15)(a), F.S., defines "sale" broadly as "[a]ny transfer of title or
possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in
any manner or by any means whatsoever, of tangible personal property for a
consideration." Section 212.06(1)(b), F.S., provides that any person who manufactures,
produces, compounds, processes, or fabricates tangible personal property for his or her own
use is required to pay tax upon the cost of manufacturing, producing, compounding,
processing, or fabricating such items ("fabricated cost"). See also Rules 12A-1.043(1), and
12A-1.051(10), F.A.C. Tax is levied upon each retail sale or upon the fabricated cost of
manufacturing, producing, compounding, processing, or fabricating items, at the rate of six
percent (6%), plus any applicable local discretionary surtax. Sections 212.05(1)(a)1.a.
and 212.06(1)(a), F.S.; see Section 212.054(2), F.S.
Here, Taxpayer is manufacturing and fabricating for exclusive resale to LLC. Taxpayer’s
purchases of tangible personal property are for resale. Taxpayer is not manufacturing for
its own use. Therefore, Taxpayer’s purchases and fabricated costs are not subject to sales
tax.
The tax levied pursuant to Chapter 212, F.S., is imposed at the level of the purchaser or
ultimate consumer/user of tangible personal property. See Sections 212.02(14)(a) and
212.07(1)(a), F.S.; see also Section 212.06, F.S. Real property contractors are generally
considered to be the ultimate consumers or users of the tangible personal property they
purchase to perform a real property contract (i.e., they are not reselling the tangible
personal property). See Rule 12A-1.051(4), F.A.C.; Kings Bay Yacht and Country Club,
Inc. v. Green, 173 So. 2d 509 (Fla. 1st DCA 1965). The stated general rule for real
property contractors is that they should not charge tax to their customers, regardless of
whether or not they itemize charges for materials or labor, because they are not engaged in the
activity of selling tangible personal property. Rule 12A-1.051(4), F.A.C. Real property
contractors are considered the ultimate consumers of the materials and supplies they use to
perform real property contracts, so they must pay tax on the costs of those materials and
supplies. Rule 12A1.051(4), F.A.C. The tax upon the fabricated cost of items
manufactured, produced, compounded, processed, or fabricated for one's own use applies to
real property contractors. Rule 12A-1.051(2)(a) and (b) and (10), F.A.C.
Here, the transactions between LLC and its customers constitute improvements to real
property and are therefore real property contracts for the purposes of Chapter 212, F.S. LLC

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will contract directly with in-state and out-of-state customers. LLC, instead of
manufacturing products for its customers, will purchase products fabricated to its
specifications from Taxpayer. Taxpayer stated that LLC will purchase the products from
Taxpayer in arm's length transactions. Thus, Taxpayer's sales to LLC will be made at fair
market value, and will reflect Taxpayer's direct and indirect costs incurred in
manufacturing, insuring, and delivering the products to LLC. Because LLC is a real
property contractor with respect to its contracts with customers, its purchases from Taxpayer
will constitute retail sales taxable under Section 212.05(1)(a)1.a., F.S., unless the conditions of
an exemption are met. See Section 212.21(2), F.S.; Rule 12A-1.051(4), F.A.C.
For sales delivered inside Florida, Taxpayer must collect and remit sales tax on the retail
sales to LLC.
For sales delivered outside Florida, Taxpayer's position is that sales of products by Taxpayer
to LLC will constitute nontaxable sales for export pursuant to Section 212.06(5)(a)1.,
F.S., and Rule 12A-1.0015, F.A.C. Section 212.06(5)(a)1., F.S., and Rule 12A1.0015(1)(a), F.A.C., provide a "safe harbor" for dealers that sell items of tangible personal
property that are exported from Florida. These provisions indicate that a seller is not
required to collect and remit tax to this Department when the seller is required by the
terms of the sale to deliver the item:
•
•
•
•

to a licensed exporter for exporting;
to a common carrier or forwarding agent for shipment outside Florida;
to the U.S. mail for mailing to a destination outside Florida; or
using its own mode of transportation to a destination outside Florida.

Taxpayer provides that the contracts specify from the outset that the products are being
fabricated for delivery to LLC outside Florida. Taxpayer is required to deliver via common
carrier or Taxpayer's own transportation.
Taxpayer, as the selling dealer, is also required to keep sufficient records to document that
the item was exported outside Florida, such as the nonexhaustive list of examples
provided in Rule 12A-1.0015(2)(c), F.A.C. As long as the necessary documentation is
maintained, the Department will be able to confirm that Taxpayer was not required to
collect and remit sales tax on the transaction pursuant to Section 212.06(5)(a)1., F.S.
Such documentation should identify: (a) the item(s) sold; (b) the purchaser; and (c) the
ultimate destination of the item(s). The required documentation must be maintained until
the tax imposed by Chapter 212, F.S., may no longer be determined and assessed under
Section 95.091(3), F.S. (currently, for three years from the later of: the date the tax is due,
the date the return with respect to the tax is due, or the date such return is filed).
Under the facts provided, Taxpayer ships the Components to LLC outside Florida,
maintains sufficient records of export, and installation occurs outside Florida. Therefore,
these sales where delivery and possession are transferred outside of Florida are not subject
to Florida sales tax.

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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
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. 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,

H. French Brown, IV
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Ctrl# 59323