Did proposed public-works material-purchase procedures qualify for Florida's governmental direct-purchase exemption?

Plain-English summary

The proposed public-works direct-purchase procedures did not qualify for the governmental sales-tax exemption. The documents satisfied most of the Department's criteria: the owner would issue purchase orders, take title at the job site, pay vendors directly, and insure the materials against loss.

The missing element was direct invoicing. The contracts provided that the supplier's invoice would accompany delivery to the subcontractor or construction manager and then be forwarded to the owner. Florida's rule required the original vendor invoice to be submitted directly to the governmental purchaser.

The Department said the exemption could become available if the procedures were revised to require direct original invoicing. It also cautioned that contractor- or subcontractor-manufactured materials could not be included in the governmental direct-purchase program.

What this means for you

Substantial compliance was not enough. Direct-purchase plans must align each required step—order, invoice, payment, title, and risk of loss—with the governmental entity as purchaser.

Common questions

Which requirement failed? Original vendor invoices were not sent directly to the governmental owner.

Could the procedures be corrected? The TAA said revised provisions clearly requiring direct original invoicing could cure this defect.

Could contractor-fabricated materials be included? No. The contractor or subcontractor remained the taxable consumer of materials it manufactured or fabricated.

Citations and references

• Fla. Stat. § 212.08(6) and Fla. Admin. Code rr. 12A-1.038, 12A-1.051, and 12A-1.094, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-043

Original ruling text

SUMMARY
QUESTION: Do the procedures for the purchase of materials set out in the contract for the
construction of public works meet the legal requirements for the Petitioner to purchase the materials
tax exempt?
ANSWER - Based on Facts Below: The procedures do not meet the legal requirement for the
Petitioner to purchase the materials tax exempt. Specifically, the provisions in the contracts do not
indicate that invoices will be sent directly to Petitioner. This is a requirement under the rule.
September 2, 2009
XXX
XXX
XXX
Re:

Technical Assistance Advisement 09A-043
Sales and Use Tax – XXX XXX XXX
Subsection: 212.08(6), Florida Statutes (F.S.)
Rules: 12A-1.038, 12A-1.094, Florida Administrative Code (F.A.C.)
Petitioner: XXX [hereinafter “Owner”]

Dear XXX:
This letter is a response to your petition dated July 15, 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 exhibits provided are sufficient to allow Owner to take
advantage of its tax-exempt status on the purchase of materials for use in a series of public works
contracts.
PRESENTED FACTS
The petition states that you are anticipating entering into contracts for six different construction projects.
Contract provisions governing the direct purchase of materials have been drawn up to cover these
projects, and you ask if the direct purchase procedures outlined in said provisions are sufficient to allow
Owner to use its consumer’s certificate of exemption to procure materials for incorporation into the public

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works contracts.
Included in your request was a document entitled “Attachment 4: Direct Materials Acquisition and Sales
Tax Exempt Purchase Procedures for Public Projects”, which will be a part of the final contract for these
projects. That section reads, in relevant part:
l4.1.3 The Owner will issue its own Purchase Orders directly to the vendor. The Owner's Purchase
Order shall contain or be accompanied by the Owner's exemption certificate and must include the
Owner's name, address, and exemption number with issue and expiration date shown. The
materials shall be purchased from the vendors and suppliers selected by the Subcontractor, for
prices negotiated by the Subcontractor. The Construction Manager will provide all the necessary
information for preparation of the purchase orders by the Owner and will coordinate the purchase
of the materials in a timely manner so as not to negatively impact on the performance of the
construction activity of the project.
14.1.4 The Subcontract amount shall be reduced by the net, undiscounted amount of these
purchase orders, plus all sales taxes. Issuance of the purchase orders by the Owner shall not relieve
the Subcontractor or the Construction Manager of any of their responsibilities regarding material
purchases, or installation, with the exception of the payments for the material so purchased. The
Construction Manager and the Subcontractor shall remain, with respect to materials, supplies and
equipment, fully responsible for coordination, correct quantities ordered, submittals, protection,
storage, scheduling, shipping, security, expediting, receiving, installation, cleaning, and the
management of all applicable warranties.
14.1.5 Notwithstanding the transfer of Owner Purchased Materials by the Owner to the
Subcontractor's possession, the Owner shall retain title to any and all Owner Purchased Materials.
14.1.6 The Owner shall purchase and maintain insurance pursuant to the requirements set forth in
the Owner and Construction Manager Agreement which shall be sufficient to protect against any
loss of or damage to Owner purchased equipment, materials or supplies. Such insurance shall
cover the value of any Owner Purchased Materials not yet incorporated into the Project from the
time the Owner first takes title.

14.2.8 After receipt of the Purchase Order Requisition Form, Owner shall prepare its Purchase
Orders for equipment, materials or supplies which the Owner chooses to purchase directly.
Pursuant to the Purchase Order, the vendor will provide the required quantities of material at the
price established in the vendor's quote to the Subcontractor, less any sales tax associated with such
price. Promptly upon receipt of each Purchase Order, Subcontractor shall verify the terms and
conditions of the Purchase Order prior to its issuance to supplier and in a manner to assure proper
and timely delivery of items. The Owner's Purchasing Director or his designated representative
shall be the approving authority for the Owner on Purchase Orders in conjunction with OwnerPurchased materials. The Purchase Order shall require that the supplier provide the required

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shipping and handling insurance. The Purchase Order shall also require the delivery of the OwnerPurchased Materials on the delivery date provided by the Subcontractor in the Purchase Order
Requisition Form and shall indicate F.O.B. jobsite. The Owner's Purchase Orders shall contain or
be accompanied by the Owner's exemption certificate and must include the Owner's name,
address, and exemption number with issue and expiration date shown.

14.2.12 As Owner-Purchased Materials are delivered to the jobsite, the Subcontractor and the
Construction Manager, as Owner's Representative, shall visually inspect all shipments from the
suppliers, and approve the vendor's invoice for material delivered. The Subcontractor shall assure
that each delivery of Owner-Purchased Material is accompanied by documentation adequate to
identify the Purchase Order against which the purchase is made. This documentation may consist
of a delivery ticket and an invoice from the supplier conforming to the Purchase Order, together
with such additional information as the Owner or Construction Manager may require. The
Construction Manager, as Owner's Representative, shall verify in writing to the Owner the
accuracy of the delivery ticket. The Subcontractor will then forward the invoice to the Owner
through the Construction Manager for payment. The invoice shall be thereupon furnished to the
Owner for processing and payment in the manner as all other Owner invoices are processed. The
Owner shall have the right to assign Owner personnel to verify and audit the accuracy of all Direct
Purchase documents.

14.2.16 Notwithstanding the transfer of Owner-Purchased materials by the Owner to the
Subcontractor's possession, the Owner shall retain title to any and all Owner-Purchased materials.
14.2.17 The transfer of possession of Owner-Purchased Materials from the Owner to the
Subcontractor shall constitute a bailment for mutual benefit of the Owner and the Subcontractor.
The Owner shall be considered the bailor and the Subcontractor the bailee of the Owner-Purchased
materials. Owner-Purchased Materials shall be considered returned to the Owner for purposes of
its bailment at such time as they are incorporated into the Project or consumed in the process of
completing the Project. The Bailee shall have the duty to safeguard, store and protect all OwnerPurchased Materials.
14.2.18 The Owner shall purchase and maintain insurance pursuant to the requirements set forth in
the Owner and Construction Manager Agreement which shalt be sufficient to protect against any
loss of or damage to Owner-Purchased equipment, materials or supplies. Such insurance shall
cover the full value of any Owner-Purchased Materials not yet incorporated into the Project from
the time the Owner first takes title.

14.2.20 On a monthly basis, the Subcontractor shall be required to review invoices submitted by

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all suppliers of Owner-Purchased Materials delivered to the Project site during that month and
either concur or object to the Owner's issuance
of payment to the suppliers, based upon the Subcontractor's records of materials delivered to the
site and any defects in such materials.
14.2.21 In order to arrange for the prompt payment to the supplier, the Subcontractor shall provide
to the Owner, through the Construction Manager, a list indicating the acceptance of the goods or
materials in accordance with the established monthly Payment Request Schedule. The list shall
include a copy of the applicable Purchase Order, invoices, delivery tickets, written acceptance of
the delivered items, and such other documentation as may be reasonably required by the Owner.
Upon receipt and verification of the appropriate documentation, the Owner 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 Subcontractor agrees to assist the Owner to
immediately obtain partial or final release of lien waivers as appropriate.

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 . . . .
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 . . . .

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(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.
(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

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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. (emphasis added)

(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. . . .
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
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

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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 the proposed contract and “Attachment A” clearly indicate that:
1.
2.
3.
4.

Purchase orders shall be executed by the Owner;
Title shall pass to the Owner upon the merchandise arriving at the job site F.O.B.;
Payments shall be made directly by Owner to vendors; and
The Owner has assumed all risk of damage or loss of the supplies, as is indicated by the Owner
obtaining insurance to cover the materials.

However, the documents do not indicate that the invoices will not be sent directly to the Owner.
Paragraph 14.2.12 states that:
14.2.12 As Owner-Purchased Materials are delivered to the jobsite, the Subcontractor and the
Construction Manager, as Owner's Representative, shall visually inspect all shipments from the
suppliers, and approve the vendor's invoice for material delivered. The Subcontractor shall assure
that each delivery of Owner-Purchased Material is accompanied by documentation adequate to
identify the Purchase Order against which the purchase is made. This documentation may consist
of a delivery ticket and an invoice from the supplier conforming to the Purchase Order, together
with such additional information as the Owner or Construction Manager may require. The
Construction Manager, as Owner's Representative, shall verify in writing to the Owner the
accuracy of the delivery ticket. The Subcontractor will then forward the invoice to the Owner
through the Construction Manager for payment. The invoice shall be thereupon furnished to the
Owner for processing and payment in the manner as all other Owner invoices are processed. The
Owner shall have the right to assign Owner personnel to verify and audit the accuracy of all Direct
Purchase documents. (emphasis supplied)
In addition Paragraph 14.2.21 provides that:
14.2.21 In order to arrange for the prompt payment to the supplier, the Subcontractor shall provide
to the Owner, through the Construction Manager, a list indicating the acceptance of the goods or
materials in accordance with the established monthly Payment Request Schedule. The list shall
include a copy of the applicable Purchase Order, invoices, delivery tickets, written acceptance of
the delivered items, and such other documentation as may be reasonably required by the Owner.
(emphasis supplied)
These provisions indicate that the invoices will be provided by the supplier to the contractor or
subcontractor at the time of delivery and subsequently forwarded to the Owner for payment. As such, the
original invoices are not being sent directly to Owner.
CONCLUSION

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The procedures outlined in the documents provided are in compliance with most of the direct purchase
procedures set forth in Rule 12A-1.094(4), F.A.C. However, the provisions do not indicate that invoices
will be sent directly to the county. As such, it does not appear that the Authority will be able to take
advantage of its tax-exempt status for the purchase of materials to be incorporated into the project, unless
these provisions and procedures are revised to clearly indicate that the original invoices shall be submitted
directly to Authority.
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,
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 # 68227