Which preventive maintenance, repairs, and equipment replacements qualified for Florida's printing-machinery exemption?

Plain-English summary

Florida ruled that a reprographer in the qualifying printing-industry group could exempt labor, parts, and materials for preventive maintenance and corrective repair of its production machinery.

Preventive work qualified when it kept existing equipment operating efficiently without materially adding to the property or appreciably prolonging its life. Work returning malfunctioning machinery to proper working order also qualified.

Full replacement was narrower. A replacement could count as a repair only when it was a component incorporated into a larger integrated system, the system itself was qualifying machinery, and the failed component could not be repaired with parts and materials. Replacement of clearly stand-alone equipment did not qualify.

For inventory whose taxable use would be known only later, the taxpayer could use a direct pay permit if it met the cited $100,000 annual purchase threshold or use the DR-97 blanket exemption certificate without that minimum, then self-accrue tax for taxable uses. The ruling rejected using a certificate that falsely represented every future use as exempt.

What this means for you

Classify the taxpayer, equipment, activity, and purchased inventory separately. Maintenance records should show whether work preserved operation, repaired failure, replaced an irreparable integrated component, or upgraded or replaced stand-alone machinery.

Common questions

Did preventive maintenance qualify? Yes, within the no-improvement and no-life-extension limits.

Did all replacement equipment qualify? No. Stand-alone replacements did not.

Could uncertain-use parts be bought without vendor tax? Yes, through the approved direct-pay or blanket-certificate procedures with later self-accrual when needed.

Citations and references

• Fla. Stat. §§ 212.08(7)(xx) and 212.183, and Fla. Admin. Code rr. 12A-1.038 and 12A-1.0911, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-003

Original ruling text

SUMMARY
QUESTION: Does Taxpayer qualify for the exemption provided in s. 212.08(7)(xx), F.S., when it
engages in the following activities:
•
•
•
•

Preventive maintenance to avoid malfunctions.
Activities that return machinery and equipment to proper working order.
Actual replacements of machinery and equipment that constitutes an integral part of a
discrete manufacturing or production process but not of replaced stand-alone equipment.
Performs its own maintenance and repairs.

ANSWER: Taxpayer is a qualified industry as required by s. 212.08(7)(xx), F.S., and therefore
qualifies for exemption for the following activities:
•
•
•

•

Preventive maintenance to avoid malfunctions, so long as the maintenance does not
materially add to the property or appreciably prolong the life of the machinery and
equipment;
Activities that return machinery and equipment to proper working order;
Replacement of machinery and equipment when (1) the replacement machinery and
equipment represents a part or component that has been incorporated into a greater existing
item or system of machinery and equipment to make a repair; (2) the repair was made to
qualifying machinery and equipment; and (3) the replacement was made as a result of an
inability to repair the machinery and equipment being replaced with an incorporation of parts
and materials.
Taxpayer may purchase and store items that may be used for exempt repairs through the use
of a direct pay permit or the blanket exemption certificate (DR-97). Taxpayer should not use
the suggested certificate contained in TIP #00A01-15 for purchases of items that may later
be used for a taxable purpose.

February 1, 2010

XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 10A-003
Repair and Maintenance of Machinery and Equipment
Section: 212.08(7)(xx), Florida Statutes (F.S.)
Rules: 12A-1.038(5) and 12A-1.0911, Florida Administrative Code (F.A.C.)
XXX (“Taxpayer”)

Dear XXX:
This is a response to your letter dated December 3, 2009, in which you have requested a Technical
Assistance Advisement on the repair and maintenance of machinery and equipment. Your letter has
been carefully examined and the Department finds it to be in compliance with the requisite criteria
set forth in Chapter 12-11, F.A.C. This reply constitutes a Technical Assistance Advisement
("TAA") and is issued to you under the authority of Section 213.22, F.S.
Stated Facts
Your request states in part:
Taxpayer is a reprographer. Taxpayer provides large format/small format, black and
white/color copying, and printing for predominantly architects, engineers and
contractors. Taxpayer uses various types of machinery and equipment to
manufacture its tangible products.
These machines require repair and maintenance to ensure their smooth continued
manufacturing operation. Taxpayer charges sales tax on the end product to its
customers as well as [self-accrues] use tax on invoices that vendors have not properly
charged them sales tax.
There exists an exemption in the [Florida] tax law for repairs made to equipment
used in the printing industry.

Taxpayer is engaged in activities associated with reprinting commercial documents
listed under qualifying SIC code group number 27 “Printing, publishing and allied
Industries” as a reprographer….

Taxpayer’s Position
You ask for confirmation that Taxpayer qualifies for the exemption provided in s. 212.08(7)(xx),
F.S., when it engages in the following activities:
•
•
•
•

Preventive maintenance to avoid malfunctions.
Activities that return machinery and equipment to proper working order.
Actual replacements of machinery and equipment that constitutes an integral part of a
discrete manufacturing or production process but not of replaced stand-alone equipment.
Performs its own maintenance and repairs. Taxpayer is permitted to purchase and store
items that may be used for an exempt repair or may be used for a taxable activity without
paying any tax at the time of purchase through the use of a blanket exemption certificate and

accruing use tax if it is later used in a taxable manner.
Applicable Authority and Discussion
Preventive Maintenance and Repairs
The exemption provided by s. 212.08(7)(xx), F.S., is applicable to labor charges for the repair of,
and parts and materials used in the repair of and incorporated into, industrial machinery and
equipment which is used for the manufacture, processing, compounding, production, or preparation
for shipping of items of tangible personal property at a fixed location within this state. The statute
does not define the term “repair.” When a statute fails to define terms, they must be given their
ordinary meaning. Rinker Materials Corp. v. City of North Miami, 286 So.2d 552 (Fla. 1973).
Merriam-Webster’s Collegiate Dictionary, Tenth Edition (1999) defines “repair” as “to restore by
replacing a part or putting together what is torn or broken; to restore to a sound or healthy state” and
defines “maintain” as “to keep in an existing state; preserve from failure or decline.” In the context
under consideration, both terms refer to taking action to keep existing machinery and equipment
operating properly at existing levels. The exemption applies regardless whether an engine belt is
replaced when it is merely worn out or it is replaced after it snaps. In either case, there is an action
that involves using labor and a replacement belt in order for the engine to perform in its intended
manner. This interpretation is supported by Treas. Regs. section 1.162-4, which characterizes repairs
as operations that “neither materially add to the value of the property nor appreciably prolong its
life, but keep it in an ordinarily efficient operating condition.” The exemption therefore extends to
preventive maintenance as well as to corrective repairs, provided the maintenance does not
materially add to the property or appreciably prolong its life.
Replacement of Machinery and Equipment
Generally, the exemption is not applicable to replacements of industrial machinery and equipment.
In order for replacement machinery and equipment to be considered a repair under s. 212.08(7)(xx),
F.S., it must be demonstrated that: (1) the replacement machinery and equipment represents a part or
component that has been incorporated into a greater existing item or system of machinery and
equipment to make a repair; (2) the repair was made to qualifying machinery and equipment; and (3)
the replacement was made as a result of an inability to repair the machinery and equipment being
replaced with an incorporation of parts and materials. For instance, the replacement of any piece of
qualifying industrial machinery and equipment that is integrated by virtue of physical connection
and used to perform a series of manufacturing operations without interruption will qualify as a repair
if the loss of function of any part of the machinery and equipment on the line would render the
remainder of the line useless, and the replacement resulted from an inability to repair the defective
item on the line. Thus, under these conditions, replacement of the defective item could be considered
an incorporation of parts and materials to make a repair to the integrated line as required by s.
212.08(7)(xx), F.S. On the other hand, if a replacement item is a piece of clearly stand-alone
machinery or equipment, it cannot be exempted as a part or material under s. 212.08(7)(xx), F.S.,
given that the stand-alone item never becomes incorporated into a greater whole of existing
machinery and equipment.

Purchasing Procedures
In Tax Information Publication (“TIP”) 00A01-15, dated July 5, 2000, the Department provided a
suggested format for a certificate that purchasers could extend to vendors when claiming the
exemption for machinery and equipment repairs. You ask whether it is permissible to issue the
suggested certificate to purchase items that may or may not be used for exempt repairs. The items
may be used for exempt repairs or may be used for a taxable activity. Accordingly, the suggested
use of the certificate is inappropriate because the certificate states that purchased items will be used
for exempt repairs, which is not necessarily the case.
Although Taxpayer may not use the suggested certificate to claim a complete exemption on all
purchases from a vendor and determine taxability at the date of later use, Taxpayer has two
alternative procedures that both permit this result. First, Taxpayer could apply for a direct pay
permit that could be offered to vendors. Pursuant to s. 212.183, F.S., the Department may by rule
provide for self-accrual of tax under specified circumstances, including cases “(w)here the taxable
status of types of tangible personal property will be known only upon use.” The Department has
issued Rule 12A-1.0911, F.A.C., providing guidelines and procedures for obtaining self-accrual
authorization. A direct pay permit may be issued under that rule to dealers who purchase annually
$100,000 or more of taxable tangible personal property, specifically including “maintenance and
repairs for the dealer’s own use...” The self-accrual authority in that case applies to ‘‘taxable
tangible personal property, including maintenance and repairs for the dealer’s own use, [when] the
taxable status of the property will be known only when the dealer uses the property.” Rule 12A1.0911(2)(a)6., F.A.C. That is precisely the type of property under consideration in this case. If
Taxpayer spends more than $100,000 per year on property falling into this category, it would be
authorized to obtain a direct pay permit by following the procedures set forth in Rule 12A-l.0911,
F.A.C.
Second, Taxpayer could use the Suggested Format for Blanket Exemption Certificate Based on
Property’s Use, form DR-97. This certificate can be issued in accordance with Rule 12A-1.038(5),
F.A.C., which applies to persons other than the federal government who do not hold a Consumer’s
Certificate of Exemption and permits those persons to purchase tangible personal property exempt
from tax based on the use of the property. There is no minimum dollar requirement to use this
certificate. Both the direct pay permit and the blanket exemption certificate would allow the vendors
to collect no tax and authorize self-accrual by Taxpayer, if and when the materials purchased are
subsequently used in a taxable manner.
Advisements
Based on the information provided in your letter, Taxpayer is a member of a qualified industry as
required by the statute. Taxpayer qualifies for exemption under s. 212.08(7)(xx), F.S., for the
following activities:
•

Preventive maintenance to avoid malfunctions, so long as the maintenance does not
materially add to the property or appreciably prolong the life of the machinery and
equipment;

•
•

•

Activities that return machinery and equipment to proper working order;
Replacement of machinery and equipment when (1) the replacement machinery and
equipment represents a part or component that has been incorporated into a greater existing
item or system of machinery and equipment to make a repair; (2) the repair was made to
qualifying machinery and equipment; and (3) the replacement was made as a result of an
inability to repair the machinery and equipment being replaced with an incorporation of parts
and materials.
Taxpayer may purchase and store items that may be used for exempt repairs through the use
of a direct pay permit or the blanket exemption certificate described above. Taxpayer should
not use the suggested certificate contained in TIP #00A01-15 for purchases of items that may
later be used for a taxable purpose.
Closing Statement

This response constitutes a Technical Assistance Advisement under s. 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 s. 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.
If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at (850) 488-9669.
Sincerely,

Tammy S. Miller
Senior Attorney
Technical Assistance & Dispute Resolution
Record ID:

75679