Could a Florida county directly purchase public-works materials tax-free under its proposed contract procedures?

Plain-English summary

The Department approved the county's proposed procedures for making tax-exempt direct purchases of equipment and materials for a public works project—but only if the county actually entered into and followed the direct-purchase plan.

The county's documents required it to issue purchase orders directly to vendors with its exemption certificate, receive invoices directly, pay vendors from county funds, take title and possession when the goods reached the job site, and bear the risk of loss until the materials were incorporated into the project. Those provisions satisfied the Department's public-works direct-purchase criteria.

What this means for you

A government contractor's purchase does not become exempt merely because the materials will go into government-owned property. The governmental entity itself must be the purchaser in substance and documentation before incorporation into the realty.

Common questions

Did the contract procedures qualify? Yes, if the county implemented the direct-purchase plan as described.

Could the contractor purchase the materials using the county's exemption? Not under the approved structure. The county had to issue the order, receive the invoice, and make direct payment.

Who had to bear the risk of loss? The county, beginning when it took title and possession upon delivery to the job site.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-047

Original ruling text

SUMMARY
QUESTION: Are the provisions of the contract and appendices provided sufficient to
allow the County to take advantage of its tax-exempt status to make direct purchases of
materials?
ANSWER: Predicated upon the fact that the County will enter into a direct purchase
plan, the County may make direct purchases under the provisions of the contract and its
appendices exempt from sales tax. If the County does not enter into a direct purchase
plan, it will not be covered by this advisement.
September 29, 2009
XXX
Re:

Technical Assistance Advisement 09A-047
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: XXXXX [hereinafter “County”]

Dear XXX:
This letter is a response to your petition dated April 27, 2009, including the revised copy
of Exhibit A, Appendix 2, Special Conditions under cover letter dated August 5, 2009,
for the Department's issuance of a Technical Assistance Advisement (TAA) concerning
the above referenced party and matter. Your petition and the revised Exhibit A, Appendix
2 have 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 and revisions provided are
sufficient to allow County 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 construction
project. A contract has been drawn up to cover that project, and you ask if the direct
purchase procedures outlined in said contract are sufficient to allow Owner to use its
consumer’s certificate of exemption to procure materials for incorporation into the public
works contract.

Technical Assistance Advisement
Page 2 of 5
Included with your request is the revised Exhibit A, Appendix 2 of the proposed contract,
which will be a part of the final contract for this project. Exhibit A, Appendix 2, Special
Conditions provides the following conditions regarding the county furnished materials:

1. Sales and Use Taxes. The County is exempt from paying sales and use taxes
   on materials and Equipment purchased for, and incorporated into the [Project] . . .
   The County may make direct purchases of County-Furnished Equipment
   purchased for, or to be incorporated into the Project. . . . All direct purchases of
   materials and Equipment shall be made by the County with funds specifically
   allocated for the construction of the Project and will be deemed “CountyFurnished Equipment” as further defined in the Agreement. The terms and
   conditions applicable to the County's purchases are included as Attachment A to
   these Special Conditions.
   1.1 The Contractor shall: (a) compile Contractor's and any Subcontractors'
   itemized requirement County-Furnished Equipment, including quantities, unit
   costs, manufacturers' or vendors' catalogue or order numbers, delivery
   instructions, and other specific terms and information that is required to order the
   specific County-Furnished Equipment, and terms and conditions to be imposed on
   suppliers regarding delivery and submittal time requirements, and quantities
   thereof required by Contractor or Subcontractors in accordance with the
   applicable requirements of the Agreement, from time to time, during the
   construction of the Project, as materials and County-Furnished Equipment need to
   be ordered for the Project, and submit such compilation to . . . designated
   construction Project manager; (b) prepare a requisition for such County-Furnished
   Equipment on the County's form of requisition. . . . The County shall issue a
   purchase order directly to the vendor of the County-Furnished Equipment prior to
   the Order Date (a “County Purchase Document”). . . . The County shall include
   with any such County Purchase Document, a copy of the County's sales and use
   tax exemption certificate. The County shall make direct payment to the vendor
   from the County's account.
   1.2 The Contractor, upon the delivery of any such County-Furnished Equipment,
   shall verify the conformity of such County-Furnished Equipment with the terms
   of the County Purchase Document and the Agreement documents. . . . County
   shall accept such County-Furnished Equipment and shall take title and possession
   of such County-Furnished Equipment upon its delivery to the Job Site. . . .
   1.3 The County shall assume all risk of loss on all County-Furnished Equipment
   purchased pursuant to its sales and use tax exemption upon delivery to the Job
   Site.

1.10 Upon delivery of the County-Furnished Equipment to the Job Site, the
County assumes risk of loss of the County's-Furnished Equipment. The County

Technical Assistance Advisement
Page 3 of 5
shall be considered the bailor and such Contractor the bailee of the CountyFurnished Materials. County-Furnished Equipment. County-Furnished
Equipment shall be considered returned to the County for purposes of their
bailment at such time as they are incorporated into the Project or consumed in the
process of completing the Project.

LAW AND DISCUSSION
Sales to governmental units are exempt from sales tax pursuant to Subsection 212.08(6),
F.S. 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. Specifically Subsection (4) of the rule provides in
paragraph (a), in part, that:
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. . . .
Rule 12A-1.094(4)(b), F.A.C., provides:
(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.
   a. Direct Invoice. The vendor's invoice must be issued to the governmental
   entity, rather than to the contractor.
2. Direct Payment. The governmental entity must make payment directly to
   the vendor from public funds.

Technical Assistance Advisement
Page 4 of 5

3. 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.
4. 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.
   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.
   To summarize, the conditions that must be met to satisfy the requirements of Rule 12A1.094, F.A.C., and establish that the governmental entity rather than the contractor is the
   purchaser of materials, include:
5. 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;
6. 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;
7. Vendors must directly invoice the governmental entity for supplies;
8. The governmental entity must directly pay the vendors for the tangible personal
   property; and
9. 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.
   When we examine the procedures outlined in Exhibit A, Appendix 2, Special Conditions,
   Provisions Governing State of Florida Sale and Use exemption for County-Furnished
   Material, of the proposed contract, in regard to these five criteria we reach the following
   conclusion.

Technical Assistance Advisement
Page 5 of 5
CONCLUSION
Our answer is predicated on the fact that the County will enter into a direct purchase plan.
If the County does not enter into a direct purchase plan it will not be covered by this
advisement. As outlined in the Agreement and the Appendices to the Agreement, it is the
requirement that the County issue a purchase order directly to the vendor of the CountyFurnished Equipment (Paragraph 1.1 of Exhibit A, Appendix 2); title and possession of
the County-Furnished Equipment passes to County upon delivery of the CountyFurnished Equipment to the job site (Paragraph 1.2 of Exhibit A, Appendix 2); the vendor
of County-Furnished Equipment will invoice County directly for it, and County will
make payment directly to the vendor (Paragraph 1.6 of Exhibit A, Appendix 2); and, the
County will assume all risk of loss or damage for County-Furnished Equipment
(Paragraph 1.10 of Exhibit A, Appendix 2). Thus, the procedures outlined in the
documents provided appear to be in compliance with the direct purchase procedures set
forth in Rule 12A-1.094(4), 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,

Horace Royals
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Control # 69313