Could a Florida school board use its sales-tax exemption to purchase materials directly for a school construction project?

Plain-English summary

A Florida school board proposed a direct-purchase program for materials used in a school construction project. The contractor would prepare material lists, coordinate deliveries, inspect goods, and recommend invoice payment, but the school board would control the actual purchases.

The Department approved the procedures, provided they were incorporated into the final contract and no other terms conflicted. The documents satisfied the five Rule 12A-1.094 factors for treating the school board—rather than the construction contractor—as the purchaser:

1. School-board staff would issue purchase orders containing the sales-tax exemption instructions.
2. Vendors would invoice the school board directly.
3. The school board would pay vendors directly.
4. Title would vest in the school board at F.O.B. job-site delivery and remain with it before installation.
5. The school board would bear the risk of loss by being named as an additional insured on coverage maintained for the materials.

The contractor's possession of delivered materials was characterized as a bailment: the school board remained the owner, while the contractor had a duty to safeguard, store, and protect the materials until incorporation into the project.

The ruling also excludes contractor- and subcontractor-fabricated materials from the direct-purchase program. A contractor manufacturing an item for installation is the ultimate consumer and owes use tax on the full cost under the cited rules.

What this means for you

The school board must be the purchaser in substance

Florida looks at the whole transaction. The exemption works when the government entity—not merely its contractor—orders, is invoiced for, pays for, owns, and bears the loss on the materials.

Contractor assistance does not automatically defeat the exemption

The contractor could assemble purchase information, inspect shipments, verify invoices, and hold materials as bailee. Those tasks did not displace the school board's ownership and payment responsibilities under the reviewed documents.

Insurance can establish the risk-of-loss factor

The contractor maintained the coverage here, but the school board was named as an additional insured for the full value of materials from the time it took title. The Department treated that arrangement as the board assuming the economic risk of loss.

Fabricated items remain a separate taxable category

The direct-purchase procedure applied to vendor-supplied materials. It could not include articles manufactured or fabricated by the contractor or a subcontractor for installation in the project.

Common questions

Q: Were the school board's proposed material purchases exempt?
A: Yes, if the final contract preserved the reviewed provisions and contained no conflicting terms.

Q: Could the contractor inspect deliveries and approve invoices?
A: Yes. The contractor could act as the board's representative for those tasks while vendors still invoiced the board and the board made the actual payments.

Q: Who owned the materials before installation?
A: The school board took title at job-site delivery. The contractor held the materials as bailee and had to safeguard them.

Q: Did contractor-provided insurance shift the risk back to the contractor?
A: Not under these facts. The policy covered the materials from the time the board took title, and the school board was an additional insured.

Citations and references

• Fla. Stat. § 212.08(6) (direct government purchases exempt; contractor purchases for public works excluded)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.038(4) (government exemption documentation and direct payment)
• Fla. Admin. Code r. 12A-1.094(1)-(5) (public-works material purchases and direct-purchase criteria)
• Fla. Admin. Code r. 12A-1.051(10) (tax on contractor-manufactured materials)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-017

Original ruling text

SUMMARY
QUESTION:
Are the procedures and contract provided sufficient to allow School Board to take advantage of its tax
exempt status on the purchase of materials for use in a public works contract?
ANSWER:
The procedures and contract provided meet the legal requirement for the School Board to purchase
materials tax exempt for incorporation into a public works contract.
The School Board is directly issuing the purchase order to the suppliers, is receiving the invoice directly
from the suppliers, and is directly paying said suppliers. The title to the property is passing directly to the
School Board at the time of delivery and the School Board is assuming the risk of loss.
April 3, 2009
XXX
Re:

Technical Assistance Advisement 09A-017
Sales and Use Tax – Public Works Contract
Subsection: 212.08(6), Florida Statutes (F.S.)
Rules: 12A-1.038, 12A-1.094, Florida Administrative Code (F.A.C.)
Petitioner: XXX

Dear XXX:
This letter is a response to your petition dated January 27, 2009, 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. This response to your request constitutes
a TAA and is issued to you under the authority of Section 213.22, F.S.
ISSUE
Whether the provisions contained in the contract provided are sufficient to allow XXX XXX to take
advantage of its tax-exempt status on the purchase of materials for use in a public works contract.
PRESENTED FACTS
The petition states that you are anticipating entering into a contract for a school construction project. A
contract has been drawn up to cover that project, and you ask if the direct purchase procedures outlined in

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said contract are sufficient to allow XXX XXX to use its consumer’s certificate of exemption to procure
materials for incorporation into the public works contract.
Attached to your request was “Exhibit A,” which will be a part of the final contract for this project. That
exhibit provides in relevant part:

1. The Contractor will prepare a specific listing of all materials, equipment, and supplies to be
   purchased directly by the XXX XXX XXX XXX.
2. XXX XXX XXX XXX staff will use the listing to issue purchase orders to specified vendors
   for material, equipment, or supplies. All purchase orders will have instructions regarding the sales
   tax exemption. Purchase orders will advise the vendor that the XXX XXX XXX XXX is the
   purchaser in which title will vest upon delivery.
3. The purchase order will contain specific delivery instructions including location of job site. A
   copy of the purchase order will be forwarded to the Contractor.
4. Vendors will submit invoices to the XXX XXX. XXX XXX staff will consult with the
   Contractor to confirm delivery and quantity prior to recommending payment of all invoices. The
   Contractor will return confirmed invoices to the XXX XXX XXX XXX with receiving slips. The
   XXX XXX XXX XXX will then process the invoices for direct payment to the vendors.
5. The Contractor will purchase and maintain adequate insurance through an appropriate policy, or
   rider to an existing policy, to cover the risk of loss or damage to all items purchased through this
   procedure once delivered to the site. . . .
6. In the event of a conflict between the above guidelines and the XXX XXX XXX XXX
   Procedures identified as Exhibit B, the XXX XXX XXX XXX Procedures shall prevail.
   “Exhibit B” further specifies, in part, that:
7. After receipt of the Purchase Order Requisition Form, XXX XXX shall prepare its Purchase
   Orders for equipment, materials, or supplies which the XXX XXX chooses to purchase directly,
   pursuant to the quantities of material at the price established in the vendor’s quote, less any sales
   tax associated with such price. The Superintendent and the Director of Finance or their designated
   representatives shall be the approving authority for the XXX XXX on Purchase Orders in
   conjunction with XXX XXX purchased materials. The Purchase Order shall also require the
   delivery of the XXX XXX purchased materials to the project site on the delivery dates and shall
   indicate F.O.B. jobsite. . . .
8. In order to arrange for the prompt payment to the supplier, the Contractor shall provide the
   XXX XXX, a list indicating the acceptance of the goods or materials in accordance with the
   established monthly copy of the applicable Purchase Order, invoices, delivery tickets, written
   acceptance of the delivered items, and such other documentation as maybe reasonably required by

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the XXX XXX. Bi-monthly, the Contractor shall review invoices submitted by all suppliers of
XXX XXX purchased materials delivered to the project site during that month and either concur
or object to the XXX XXX’s issuance of payment to the suppliers, based upon the Contractor’s
records of materials delivered to the site and any defects in such materials. If the vendor’s invoices
properly reflect equipment, materials, and/or supplies ordered on a XXX XXX Purchase Order for
the project and received in good condition, the Contractor will sign the invoice, indicating
approval for payment and then forward the invoices to the Director of Facilities for review and
written approval. Then the invoices are furnished to the Finance Department of the XXX XXX for
processing and payment in the manner as all other XXX XXX invoices are processed. Upon
receipt and verification of the appropriate documentation, the XXX XXX shall prepare a check
drawn to the supplier based upon the receipt of data provided. This check will be released,
delivered and remitted directly to the supplier. The XXX XXX shall have the right to assign XXX
XXX personnel to verify and audit the accuracy of all direct purchase documents. . . .

13. Notwithstanding the transfer of XXX XXX purchased materials by the XXX XXX to the
    Contractor’s possession, the XXX XXX shall retain title to any and all XXX XXX purchased
    materials. The XXX XXX will take title to the owner-purchased materials prior to their
    incorporation into the project.
14. The transfer of possession of XXX XXX purchased materials from the XXX XXX to the
    Contractor shall constitute a bailment for the mutual benefit of the XXX XXX and the, Contractor.
    The XXX XXX shall be considered the bailor and the Construction Manager the bailee of the
    XXX XXX purchased materials. XXX XXX purchased materials shall be considered returned to
    the XXX XXX for purposes of its bailment at such time as they are incorporated into the project.
    Bailee shall have the duty to safeguard, store and protect all XXX XXX materials.
15. The insurance purchased and maintained by the Contractor pursuant to the applicable article of
    the Owner and Contractor Agreement shall be sufficient to protect against any, loss of or damage
    to XXX XXX purchased equipment, materials or supplies. Such insurance shall cover the full
    value of any XXX XXX purchased materials not yet incorporated into the project from the time
    the XXX XXX first takes title. The XXX XXX shall be named as an Additional Insured Party on
    such policies of insurance.
    LAW AND DISCUSSION
    Sales to governmental units are exempt from sales tax pursuant to Subsection 212.08(6), F.S., which
    provides in pertinent part:
    There are also exempt from the tax imposed by this chapter sales made to the United States
    Government, a state, or any county, municipality, or political subdivision of a state when payment
    is made directly to the dealer by the governmental entity. . . . This exemption does not include
    sales of tangible personal property made to contractors employed either directly or as agents of
    any such government or political subdivision thereof when such tangible personal property goes
    into or becomes a part of public works owned by such government or political subdivision . . . .

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Rule 12A-1.038(4), F.A.C., contains guidelines for claiming and documenting the exemption.
Governmental entities must obtain a consumer's certificate of exemption from the Department of
Revenue. Vendors are required to obtain for their records proper documentation of the exempt status of
the sale.
By its terms, Subsection 212.08(6), F.S., exempts only direct purchases by governmental entities. The
exemption does not apply when a contractor, employed by a governmental entity, purchases tangible
personal property that is to be incorporated into public works owned by the entity. Administrative
guidelines governing the taxability of materials purchased for public works contracts, such as those
involved in the instant situation, are contained in Rule 12A-1.094, F.A.C., which provides in pertinent
part:
(1) This rule shall govern the taxability of transactions in which contractors manufacture or
purchase supplies and materials for use in public works contracts . . . .
(2) The purchase or manufacture of supplies or materials by a public works contractor, when such
supplies or materials are purchased for the purpose of going into or becoming part of public
works, whether the purchase or manufacture occurs inside or outside Florida, is taxable to the
public works contractor if the public works contractor also installs such supplies or materials,
since the public works contractor is the ultimate consumer of such supplies or materials. Public
works contractors that purchase or manufacture such supplies and materials in Florida are liable
for sales tax or use tax on such purchases and manufacturing costs. A public works contractor that
purchases supplies or materials that may be sold as tangible personal property or may be
incorporated into a public works project may purchase such supplies or materials without tax by
issuing a copy of the contractor's Annual Resale Certificate and accrue and remit tax upon
withdrawing such supplies or materials from inventory to go into or become a part of public
works. Public works contractors that purchase or manufacture such materials outside the State of
Florida are liable for use tax, subject to credit for any sales or use tax lawfully imposed and paid in
the state of purchase or manufacture.
(3) The purchase or manufacture of tangible personal property for resale to a governmental entity
is exempt from tax, provided this exemption shall not include sales of tangible personal property
made to, or the manufacture of tangible personal property by, public works contractors when such
tangible personal property goes into or becomes a part of public works.
(4)(a) The exemption in Subsection 212.08(6), F.S., is a general exemption for sales made directly
to the government. A determination whether a particular transaction is properly characterized as an
exempt sale to a governmental entity or a taxable sale to or use by a contractor shall be based on
the substance of the transaction, rather than the form in which the transaction is cast. The
Executive Director or the Executive Director's designee in the responsible program will determine
whether the substance of a particular transaction is a taxable sale to or use by a contractor or an
exempt direct sale to a governmental entity based on all of the facts and circumstances
surrounding the transaction as a whole.

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(b) The following criteria that govern the status of the tangible personal property prior to its
affixation to real property will be considered in determining whether a governmental entity rather
than a contractor is the purchaser of materials:

1. Direct Purchase Order. The governmental entity must issue its purchase order directly to
   the vendor supplying the materials the contractor will use and provide the vendor with a
   copy of the governmental entity's Florida Consumer's [Certificate] of Exemption.
2. Direct Invoice. The vendor's invoice must be issued to the governmental entity, rather than
   to the contractor.
3. Direct Payment. The governmental entity must make payment directly to the vendor from
   public funds.
4. Passage of Title. The governmental entity must take title to the tangible personal property
   from the vendor at the time of purchase or delivery by the vendor.
5. Assumption of the Risk of Loss. Assumption of the risk of damage or loss by the
   governmental entity at the time of purchase is a paramount consideration. A governmental
   entity will be deemed to have assumed the risk of loss if the governmental entity bears the
   economic burden of obtaining insurance covering damage or loss or directly enjoys the
   economic benefit of the proceeds of such insurance.
   (c) Sales are taxable sales to the contractor unless it can be demonstrated to the satisfaction of the
   Executive Director or the Executive Director's designee in the responsible program that such sales
   are, in substance, tax exempt direct sales to the government.
   (5) Contractors that manufacture materials for incorporation into public works shall be liable for
   tax in the manner provided in subsection (10) of Rule 12A-1.051, F.A.C. . . . (emphasis added)
   Rule 12A-1.038(4)(b), F.A.C., states that in order for a sale to a state or local governmental entity to be
   tax exempt, "[p]ayment for tax-exempt purchases . . . must be made directly to the selling dealer by the . .
   . political subdivision of a state. . . ." Rule 12A-1.094(2) and (3), F.A.C., state that purchases of materials
   for public works contracts are taxable to the contractor as the ultimate consumer, where the contractor is
   deemed to be the purchaser. If the purchaser of the materials is the governmental entity, however, the
   transaction is exempt. For there to be an exempt transaction, the governmental entity must directly
   purchase, hold title to, and assume the risk of loss of the tangible personal property prior to its
   incorporation into realty, and satisfy various factors contained in Rule 12A-1.094, F.A.C.
   Rule 12A-1.094(4), F.A.C., which sets forth the criteria that govern the status of the tangible personal
   property prior to its affixation to real property, will be considered in determining whether a governmental
   entity rather than a contractor is the purchaser of materials. These criteria include direct purchase order,
   direct invoice, direct payment, passage of title, and assumption of risk of loss. However, the assumption
   of risk of damage or loss during the time that the building materials are physically stored at the job site
   prior to their installation or incorporation into the project is a paramount consideration. The governmental
   entity must assume all risk of loss or damage for the tangible personal property during that period. To
   establish that it has assumed that risk, the governmental entity should purchase, or be the insured party

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under, insurance on the building materials.
To summarize, the conditions that must be met to satisfy the requirements of Rule 12A-1.094, F.A.C., and
establish that the governmental entity rather than the contractor is the purchaser of materials, include:

1. The governmental entity must execute the purchase orders for the tangible personal property
   involved in the contract, which must include the governmental entity’s consumer’s certificate of
   exemption number. The contractor may present the governmental entity's purchase orders to the
   vendors of the tangible personal property;
2. The governmental entity must acquire title to and assume liability for the tangible personal
   property at the point in time when it is delivered to the job site until the time it is incorporated as
   real property;
3. Vendors must directly invoice the governmental entity for supplies;
4. The governmental entity must directly pay the vendors for the tangible personal property; and
5. The governmental entity must assume all risk of loss or damage for the tangible personal property
   involved in the contract, as indicated by the entity's acquisition of, or inclusion as the insured party
   under, insurance on the building materials.
   In this case, the procedures outlined in “Exhibit A” and “Exhibit B” clearly indicate that:
   1.
   2.
   3.
   4.
   5.

Purchase orders shall be executed by the XXX XXX;
Title shall pass to the XXX XXX upon the merchandise arriving at the job site F.O.B.;
The suppliers shall be required to invoice the XXX XXX directly;
Payments shall be made directly by XXX XXX to vendors; and
The XXX XXX has assumed all risk of damage or loss of the supplies, as is indicated by XXX
XXX being named as an insured party on the insurance covering the supplies.
CONCLUSION

The procedures outlined in the documents provided are in compliance with the direct purchase procedures
set forth in Rule 12A-1.094(4), F.A.C. Provided that these provisions are incorporated into the final
contract for the project, and no other contract provisions conflict, the XXX XXX will be able to take
advantage of its tax-exempt status for the purchase of materials to be incorporated into the project.
Please be advised that, as specified in Rule 12A-1.094(5), F.A.C., contractors, including subcontractors,
that manufacture or fabricate their own materials for installation in the project cannot be included in a
governmental entity's direct purchase program. Under the rule, the contractor and subcontractors, not the
government entity, are deemed to be the ultimate consumers of the articles of tangible personal property
they manufacture or fabricate to perform their contracts. As such, the contractor and subcontractors are
subject to use tax on the full cost of the manufactured or fabricated articles, as detailed in Rule 12A1.051(10), F.A.C.
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,

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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 Section

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 10 days of the date of this letter.

Sincerely,

Kama D. S. Monroe
Senior Attorney
Technical Assistance and Dispute Resolution
Control # 61565