Did a county's requisition procedure exempt direct purchases of a sludge dewatering system and metal building for a public-works project?

Plain-English summary

The county planned to buy a sludge-process dewatering system, associated equipment, and a metal building directly for incorporation into a public-works project.

Florida approved the county's requisition procedure. The county would issue its purchase order and exemption certificate directly to the vendor, receive the invoice, pay from public funds, take title upon jobsite delivery, and assume liability for the materials.

If the county followed the form, no sales tax was due on those equipment and material purchases.

What this means for you

The government must be the actual purchaser before materials become real property. A contractor may coordinate receipt or approve invoices, but ordering, payment, title, and risk must remain with the governmental entity.

Common questions

Did the county's form qualify? Yes.

When did title pass? Upon delivery to the jobsite.

Who paid the vendor? The county directly from public funds.

Citations and references

• Fla. Stat. §§ 212.06 and 212.08(6) and Fla. Admin. Code rr. 12A-1.038(4) and 12A-1.094, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-030

Original ruling text

SUMMARY
QUESTION:
Whether the purchase of tangible personal property to be incorporated into a public works
contract by a governmental entity qualifies for the tax exemption under Section 212.08(6).
ANSWER: 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.
Conditions provided on Taxpayer’s requisition form satisfies the requirements in Rule 12A1.094, F.A.C. Provided that the Taxpayer adheres to the provisions contained in the requisition
form, no sales tax will be due on Taxpayer’s purchase of equipment and materials to be
incorporated into the project.
June 25, 2010
XXX
Re:

Technical Assistance Advisement (TAA) 10A-030
Sales and Use Tax – Public Works Contract
Sections 212.06, 212.08(6) Florida Statutes (F.S.)
Rules 12A-1.038(4), 12A-1.094, Florida Administrative Code (F.A.C.)
XXX (Taxpayer)
FEI #: XXX
Consumer’s Certificate of Exemption #: XXX

Dear XXX:
This is in response to your letter dated June 4, 2010, 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., concerning a public works contract. An examination of your letter has
established you have complied with the statutory and regulatory requirements for issuance of a
TAA. Therefore, the Department is hereby granting your request for a TAA.
Issue
Whether the purchase of tangible personal property to be incorporated into a public works
contract by a governmental entity qualifies for the tax exemption under Section 212.08(6).
Facts
In your letter dated June 4, 2010, you provided that Taxpayer, a county, is a political subdivision
and meets the exemption provisions under section 212.08(6), F.S. Taxpayer is installing a
Sludge Process Dewatering System, which includes the installation of a sludge process
dewatering system and associated equipment and a metal building. Taxpayer would like to
purchase the Sludge Process Dewatering System and the metal building in compliance with Rule
12A-1.094(4), F.A.C., to reduce construction costs of the project.

Technical Assistance Advisement
Page 2 of 4
Taxpayer’s requisition form provides the following:
This purchase order is being issued by … County directly to the vendor supplying the
above referenced materials that the contractor will use for the … Project…. See attached
… County’s Florida Consumer Certification of Exemption.
Vendor must directly invoice the County for the Owner Direct Purchase, but the
contractor shall be responsible for approving [and] receiving reports for goods that were
received in accordance with the specifications and forwarding them to the Project
Manager who forwards them to the County to be processed for payment.
Additional Terms & Conditions: The [County] will assume liability for the materials
upon delivery to the jobsite and [County] will acquire title to the supplies or materials
purchased under [County] purchase order upon delivery to the jobsite. Suppliers shall
directly invoice the [County]. Invoices will be forwarded to the Contractor. As the
material is delivered to the Project site, the Trade Contractor will approve the vendor's
invoice for materials delivered. After the Trade Contractor accepts delivery of this
material it will then forward the invoice and receipt form to the Contractor who will
review, approve, and forward the invoice to [County] for payment directly to the supplier
from public funds.
The [County] will issue a check for the approved invoice amount and mail this check
directly to the supplier. A copy of the check will be forwarded to the Contractor in order
that the Contractor can accurately track and summarize all [County] Direct Purchase
payments.
Requested Advisement
Taxpayer requests that the Department determine whether the direct purchase provisions in the
General Terms & Condition and the requisition form are in compliance with Rule 12A-1.094,
F.A.C., for the purchase of materials to be incorporated into a public works contract to be
exempt from sales tax.
Applicable Authority 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. 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….”
By its terms, Section 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,

Technical Assistance Advisement
Page 3 of 4
F.A.C., which provides in part:
(4)(a) The exemption in Section 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….
(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 … that such
   sales are, in substance, tax exempt direct sales to the government.
   Rule 12A-1.094(2) and (3), F.A.C., states 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.
   Whether the five requirements in Rule 12A-1.094(4)(b), F.A.C., are met is discussed below:
6. Direct Purchase Order
   Taxpayer’s requisition form provides that the purchase order is issued directly from
   Taxpayer to the vendor along with a copy of Taxpayer’s Florida Consumer’s
   Certificate of Exemption; therefore, the first requirement is met.
7. Direct Invoice
   The requisition form requires the vendor to directly invoice Taxpayer; hence, the

Technical Assistance Advisement
Page 4 of 4
second requirement is met.

3. Direct Payment
   The requisition form provides that the Taxpayer is to pay the supplier directly from
   public funds; therefore, the third requirement is met.
4. Passage of Title
   The requisition form provides that Taxpayer will acquire title to the supplies or
   materials purchased under the purchase order upon delivery to the jobsite. The fourth
   requirement is met.
5. Assumption of Risk
   The requisition form provides that Taxpayer will assume liability for the materials
   upon delivery to the jobsite; hence, the fifth requirement is met.
   Conclusion
   Provided that the Taxpayer adheres to the provisions contained in the requisition form, no sales
   tax will be due on Taxpayer’s purchase of equipment and materials to be incorporated into the
   project.
   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 that 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 15 days of the date of this
   letter.
   Sincerely,

Angel Sessions
Senior Tax Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Record ID: 84426