Did a Florida city's direct-purchase procedures exempt equipment and materials for an energy-efficiency public-works project?

Plain-English summary

A Florida city contracted for energy-efficiency improvements and reserved the right to buy selected materials and equipment directly from vendors. Its agreement and purchase-order form required the city to issue orders, receive invoices, pay vendors from public funds, take title at delivery, and assume risk of loss.

Florida found that those procedures satisfied the five public-works direct-purchase criteria. If the city followed them, its equipment and material purchases for incorporation into the project were exempt from sales tax.

The city also had to issue a Certificate of Entitlement to each vendor and contractor, accepting liability if the Department later found a purchase ineligible. The TAA contains conflicting references to January 2, 2010 and January 2, 2011 for that requirement; its final operative instruction states January 2, 2011.

What this means for you

A governmental entity must be the purchaser in substance, not just in contract wording. Control of ordering, invoicing, payment, title, risk, and certification should remain with the government throughout the direct-purchase process.

Common questions

Did the city's procedures qualify? Yes, if followed as submitted.

What five elements mattered? Direct purchase order, direct invoice, direct public-fund payment, passage of title, and governmental risk of loss.

Was additional certification required? Yes, a Certificate of Entitlement for vendors and contractors.

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 11A-001

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.
Effective January 2, 2010, the governmental entity must also issue a Certificate of Entitlement to
each vendor and each contractor, certifying that the five requirements stated above are satisfied to
purchase materials tax-exempt. Conditions provided in the Agreement and the purchase order
form satisfy the requirements in Rule 12A-1.094, 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.
January 7, 2011
XXX
Re:

Technical Assistance Advisement (TAA) 11A-001
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 December 2, 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), F.S.
Facts
Taxpayer is a city in Florida (City) and entered into an agreement (Agreement) with a contractor
to improve the energy efficiency in certain facilities owned and operated by City. Subsection 8.3
of the Agreement provides the following in part:

8.3 CITY Direct Purchase. Pursuant to Section 212.08(6) of the Florida Statutes and the Fla.
Admin. Code Ann. R. 12A-1.094 and 12A-1.038, the Parties agree to the following procedure
regarding CITY’S direct-purchase from vendors of certain material and/or equipment to be
used in the Project:
8.3.1 The CITY reserves the right, at the CITY’S option, to direct purchase materials,
equipment, and furnishings involved in the Project, including subcontracts, if any
("Direct Purchase") so as to save the sales tax which would otherwise have been due
with regard to the same. [Contractor] and its Subcontractors shall comply with the
CITY’S direct purchase procedures, including but not limited to those listed below.
8.3.2 Attached to this Agreement as Exhibit I is a list of potential Direct Purchase items
for CITY’S consideration….

8.3.5 CITY’S Purchasing Department will issue a direct purchase order to the vendor
of Direct Purchase items at the price proposed in [Contractor’s] or its subcontractor’s
bid, less sales tax….

8.3.8 When delivery of a Direct Purchase order is complete, or a payment is to be made
on a partial shipment, [Contractor] will timely submit to CITY the documentation
supporting the goods received. Invoices for Direct Purchase orders will be sent by the
Direct Purchase vendor directly to CITY’S Accounts Payable Division, with all such
invoices addressed to and in the name of CITY. CITY’S Accounts Payable Division will
forward invoices to the CITY Representative. The CITY Representative will forward to
[Contractor] to verify delivery and sign the invoice and associated documentation
supporting the amount of the payment. Payment will be made by check mailed to the
Direct Purchase vendor as of the next available check run of CITY. CITY will take title
to all materials and equipment ordered through Direct Purchase at the time of purchase.
[Contractor] will assist CITY in assuring prompt payment by supplying the vendor’s FEI
numbers, addresses, phone numbers, etc. All payments will be made in accordance with
the Florida Prompt Payment Act.
City’s Purchase Order provides the following additional terms and conditions:
•
•

City will acquire title to the goods purchased under this Purchase Order upon delivery
from vendor.
In accordance with the provision of [Insurance Company] Installation Floater coverage
in which City is endorsed as either a Loss Payee or Additional Insured, City will
assume liability for the goods purchased under this Purchase Order upon delivery from
vendor.

3. IMMEDIATELY UPON SHIPMENT SEND INVOICE, IN DUPLICATE TO:
   ACCOUNTS PAYABLE/P.O. DRAWER [XXXX] / [CITY], FL [XXXXX]
   Requested Advisement

Taxpayer requests that the Department determine whether the direct purchase provisions in the
Agreement and purchase order 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, 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.
Please note that effective January 2, 2010, Section 8, Chapter 2010-138, L.O.F., also requires
governmental entities to issue a Certificate of Entitlement to purchase materials tax-exempt for
public works projects to each vendor and each contractor, certifying that the five requirements
stated above are satisfied, and that City will be liable for any tax, penalty, or interest due should
the Department later determine that the items purchased do not qualify for exemption under
Section 212.08(6), F.S. See Rule 12A-1.094(4)(c), F.A.C., for more information regarding the
Certificate of Entitlement.
Whether the five requirements in Rule 12A-1.094(4)(b), F.A.C., are met is discussed below:

1. Direct Purchase Order
   City’s Agreement and purchase order form provide that the purchase order is issued
   directly from City; therefore, the first requirement is met.
2. Direct Invoice
   The Agreement and purchase order form require the vendor to directly invoice [City];
   hence, the second requirement is met.
3. Direct Payment
   The Agreement provides that the City is to pay the supplier directly from public funds;
   therefore, the third requirement is met.
4. Passage of Title
   The Agreement and purchase order form provide that City 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 purchase order form provides that City will assume liability for the materials upon
   delivery to the jobsite; hence, the fifth requirement is met.
   Again, please note that effective January 2, 2011, City must also issue a Certificate of Entitlement
   certifying that each of the conditions above is satisfied and that City will be liable for any tax,
   penalty, or interest due should the Department later determine that the items purchased

do not qualify for exemption under Section 212.08(6), F.S., for City to purchase the items taxexempt. Enclosed is a copy of Tax Information Publication 10A01-27, which provides the format
of the Certificate of Entitlement to be issued by the governmental entity.
Conclusion
Provided that the City adheres to the provisions contained in the Agreement and purchase order
form in regards to its direct purchases, no sales tax will be due on City’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) 717-7312
Record ID: 93465