Were lump-sum contracts to furnish and install granite countertops, built-in cabinets, and knobs taxable retail sales to the customer?

Plain-English summary

The taxpayer hired contractors under lump-sum agreements to furnish and install a granite countertop, built-in kitchen cabinets, and cabinet knobs. Some contracts separately showed sales tax.

Florida classified all three installed items as improvements to real property. The contractors should not charge sales tax to the customer; instead, they were the consumers and owed use tax on the fabricated cost of the cabinets, countertop, and knobs.

The customer had to request any refund of wrongly charged tax from the contractor, not directly from the Department. If the contractor sought its own refund, the Department would offset use tax due on fabricated cost if that tax had not already been paid.

What this means for you

Permanent installation and contract form can shift tax from the customer price to the contractor's inputs or fabricated cost. Separately listing materials or tax does not necessarily convert a lump-sum real-property contract into a retail sale.

Common questions

Were the installed cabinets and countertops taxable to the customer? No.

Who owed tax? The contractors owed use tax on fabricated cost.

Who had to refund tax charged to the customer? The contractor that collected it.

Citations and references

• Fla. Stat. §§ 212.05 and 212.06 and Fla. Admin. Code rr. 12A-1.014, 12A-1.043, and 12A-1.051, as listed or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-042

Original ruling text

SUMMARY
QUESTION: Are the contracts to sell and install granite countertops, kitchen cabinets, and knobs
properly classed as lump sum real property contracts?
ANSWER: Yes. The contracts are considered lump sum real property contracts. As such, the
contractors should not charge sales tax to the customer. Contractors instead owe use tax on their
fabricated cost of the countertops, cabinets and knobs.
August 17, 2010
XXX
Re:

Technical Assistance Advisement 10A-042
Sales and Use Tax – Improvements to Real Property
Sections: 212.05, 212.06, Florida Statutes (F.S.)
Rules: 12A-1.014, 12A-1.043, 12A-1.051, Florida Administrative Code (F.A.C.)
Petitioner: XXX (Taxpayer)

Dear XXX:
This letter is a response to your petition dated April 29, 2010, 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, F.A.C. This response to your request constitutes
a TAA and is issued to you under the authority of Section 213.22, F.S.
Facts and Requested Advisement
Your petition states that Taxpayer entered into three agreements with two contractors to
renovate their kitchen. Copies of the contracts were provided with the petition. The first
contract is noted as a “Countertop Contract” with XXX dated XXX. The contract is a lump
sum contract in the amount of $XXX including a separate charge in the amount of $XXX for
the sale and installation of a blue pearl granite countertop and a separate charge in the amount
of $XXX for sales tax. The second contract is with XXX dated XXX. The contract is also a
lump sum contract in the amount of $XXX for white cabinets. There is no separate charge for
sales tax in this contract. The third contract is also with XXX. This contract is dated XXX in
the amount of $XXX and includes a separate charge for 31 brush nickel knobs installed at
$XXX each in the amount of $XXX and a separate charge in the amount of $XXX for sales
tax. There is a separate notation on this contract for an additional charge of $XXX and tax in
the amount of $XXX for an amount due of $XXX. However, the contract does not include any
information about this charge.

Technical Assistance Advisement
Page 2 of 4

Advice is requested regarding whether the cabinetry, countertops, and knobs are classed as
improvements to real property, and on the proper tax treatment of the cabinetry as
improvements to real property. Advice is also requested on refunds of taxes overpaid.
Applicable Law
Section 212.05, Florida Statutes, generally imposes tax on the sale of tangible personal
property. Subsection 212.06(14), Florida Statutes, provides guidance in determining whether an
item is an improvement to real property, and it states as follows:
(14) For the purpose of determining whether a person is improving real property, the
term:
(a) "Real property" means the land and improvements thereto and fixtures and is
synonymous with the terms "realty" and "real estate."
(b) "Fixtures" means items that are an accessory to a building, other structure, or land
and that do not lose their identity as accessories when installed but that do become
permanently attached to realty. However, the term does not include the following items,
whether or not such items are attached to real property in a permanent manner: property
of a type that is required to be registered, licensed, titled, or documented by this state or
by the United States Government, including, but not limited to, mobile homes, except
mobile homes assessed as real property, or industrial machinery or equipment. For
purposes of this paragraph, industrial machinery or equipment is not limited to
machinery and equipment used to manufacture, process, compound, or produce tangible
personal property. For an item to be considered a fixture, it is not necessary that the
owner of the item also own the real property to which it is attached.
(c) "Improvements to real property" includes the activities of building, erecting,
constructing, altering, improving, repairing, or maintaining real property.
Rule 12A-1.051, Florida Administrative Code, discusses the application of tax to
improvements to real property, and it states in pertinent part as follows:
(3) Classification of contracts by pricing. The taxability of purchases and sales by real
property contractors is determined by the pricing arrangement in the contract. Contracts
generally fall into one of the following categories:
(a) Lump sum contracts. These are contracts in which a contractor or subcontractor
agrees to furnish materials and supplies and necessary services for a single stated lump
sum price....

Technical Assistance Advisement
Page 3 of 4

(4) General rule of taxability of real property contractors. Contractors are the ultimate
consumers of materials and supplies they use to perform real property contracts and
must pay tax on their costs of those materials and supplies, unless the contractor has
entered a retail sale plus installation contract. Contractors performing only contracts
described in paragraphs (3)(a), (b), (c), or (e) do not resell the tangible personal
property used to the real property owner but instead use the property themselves to
provide the completed real property improvement. Such contractors should pay tax to
their suppliers on all purchases. They should also pay tax on all materials they fabricate
for their own use in performing such contracts, as discussed in subsection (10). They
should charge no tax to their customers, regardless of whether they itemize charges for
materials and labor in their proposals or invoices, because they are not engaged in
selling tangible personal property. Such contractors should not register as dealers unless
they are required to remit tax on the fabricated cost of items they fabricate to use in
performing contracts.

(17) Specific activities classified as real property contracts. Contractors who are
engaged in the following activities are generally considered to be real property
contractors, although any particular job may be determined not to involve an
improvement to real property:

(e) Cabinetry (built-in only)....
Rule 12A-1.014(4), F.A.C., discusses refunds of tax, and it states in pertinent part as
follows:
(4) A taxpayer who has overpaid tax to a dealer, or who has paid tax to a dealer when
no tax is due, must secure a refund of the tax from the dealer and not from the
Department of Revenue.
Rule 12A-1.043(1), Florida Administrative Code, sets forth the procedure for calculating tax on
the fabricated cost of taxable items.
Determination
Built-in cabinetry, countertops, and knobs are classed as improvements to real property upon
installation. Contractors that furnish and install such items are making improvements to real
property. Your letter along with the contracts indicate Taxpayer uses contractors that furnish
and install built-in cabinetry, countertops, and knobs. The contracts in question are lump sum
contracts. As such, the contractors should not charge tax to Taxpayer. Contractors instead owe
use tax on their fabricated cost of the cabinets, countertops and knobs in accordance with Rule
12A-1.043(1), F.A.C.

Technical Assistance Advisement
Page 4 of 4

Taxpayer must secure any refund of tax from the contractor to whom it paid the tax, and not
from the Department of Revenue. See Rule 12A-1.014(4), F.A.C. Details of any tax refund
from the contractor are between the contractor and Taxpayer. However, a refund of tax to the
contractor from the Department will be offset by the use tax it owes on the fabricated cost (if
not previously paid).
This response constitutes a Technical Assistance Advisement under Section 213.22, Florida
Statutes, 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, Florida Statutes. 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, Florida Statutes, and are subject to disclosure to the public
under the conditions of section 213.22, Florida Statutes. 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 questions with regard to this matter you may contact me directly at 850-922-4729.
Sincerely,

Gary L. Gray
Program Administrator
Florida Department of Revenue
Control #: 83069