Were furniture and equipment purchased under a Department of Defense dormitory contract exempt as qualifying federal-contract property?

Plain-English summary

The taxpayer held a Department of Defense contract to construct a student dormitory and a change order to furnish and install interior furniture, fixtures, and equipment. Subcontractors handled parts of the furniture package.

Florida ruled that the dormitory construction itself was not a qualifying contract because it constructed or improved real property. The separate furniture-and-equipment work did qualify: the tangible property was charged as a direct contract cost, and the federal cost-accounting provisions caused title to vest in the government.

Purchases of qualifying property were treated as sales for resale and were not subject to sales tax if all requirements were met. The taxpayer and subcontractors had to provide vendors with their Annual Resale Certificates or Direct Pay Permits.

What this means for you

A federal project can contain taxable and exempt scopes. Real-property construction remained excluded, while separately identifiable tangible property could qualify when direct-cost and government-title requirements were satisfied.

Common questions

Was the dormitory construction contract exempt under this rule? No.

What part qualified? The separate purchase and installation of interior furniture and equipment.

What vendor documentation was required? An Annual Resale Certificate or Direct Pay Permit from the contractor or subcontractor.

Citations and references

• Fla. Stat. §§ 212.02(14)(a), 212.06, and 212.08(6), (17) and Fla. Admin. Code rr. 12A-1.038(4) and 12A-1.094, as listed or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11A-004

Original ruling text

SUMMARY
QUESTION:
The issue is whether the purchase of tangible personal property to be incorporated into a contract
to construct a student dormitory at an air force base is subject to sales tax.
ANSWER:
Taxpayer’s contract with the Department of Defense to construct the student dormitory is not a
qualifying contract, because it is a contract to repair, alter, improve, or construct real property.
However, Taxpayer’s contract to furnish and install furniture and other tangible personal
property at the dormitory is a qualifying contract. The cost of the tangible personal property is
allocated or charged as a direct item of cost to the contract. The contract is subject to federal
cost accounting regulations, which provide that if an item is charged as a direct cost, title will
vest in the government.
The purchase of qualifying property under the qualifying contract is not subject to sales tax,
because it is treated as a sale for resale. To receive the exemption, Taxpayer and the
subcontractors must issue a copy of their Annual Resale Certificate or a copy of their Direct Pay
Permit to the vendor of the qualifying property.
January 4, 2011
XXX
Attn: XXX
XXX
XXX

Re:

Technical Assistance Advisement (TAA) 11A-004
Sales and Use Tax – Qualifying Contract
Sections 212.02(14), 212.06, 212.08(6), (17), Florida Statutes (F.S.)
Rules 12A-1.038(4), 12A-1.094, Florida Administrative Code (F.A.C.)
XXX (Taxpayer)
XXX (Subcontractor X)
Florida Sales Tax No.: XXX

Dear XXX:
This is in response to your letter dated November 12, 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 the above referenced matter. 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

Technical Assistance Advisement
Page 2 of 5
The issue is whether the purchase of tangible personal property to be incorporated into a contract
to construct a student dormitory at XXX is subject to sales tax.
Facts
Taxpayer was awarded a contract with the Department of Defense to construct a student
dormitory. Taxpayer was also awarded a change order to the original contract to purchase and
install interior furniture, fixtures, and equipment for the dormitory. Taxpayer subcontracted with
another company (Subcontractor X) to manage the furniture, fixtures, and equipment package.
Subcontractor X subcontracted with subcontractors Y and Z to purchase certain furniture,
fixtures, and equipment for the student dormitory. Subcontracts Y and Z provided the price for
each item sold, sales tax, and freight and installation charges. Subcontractor X was awarded the
amount invoiced by the subcontractors Y and Z, plus a 1% management fee.
The letter dated February 20, 2009, from the contracting officer to Taxpayer, subcontracts, and
the Amendment of Solicitation/Modification of Contract all reference the Federal Acquisition
Regulations System in Title 48 of the Code of Federal Regulations.
Requested Advisement
Taxpayer requests that the Department determine whether the purchase of the furniture, fixtures,
and equipment by Taxpayer, Subcontractor X, and second tier subcontractors is exempt from
sales tax.
Applicable Authority and Discussion
Section 212.21(2), F.S., provides that it is the legislative intent to tax each and every sale,
admission, use, storage, consumption, or rental levied and set forth in this chapter, except as to
such sale, admission, use, storage, consumption or rental that is specifically exempted by
Chapter 212, F.S. Sales made to governmental entities are specifically exempt when payment is
made directly to the dealer by the governmental entity. Section 212.08(6), F.S. This exemption
does not apply to sales of tangible personal property made to contractors employed either
directly or as agents of any such government or political subdivision thereof when such tangible
personal property goes into or becomes a part of public works owned by such government or
political subdivision.
However, the purchase of “qualifying property” and “overhead materials” in a “qualifying
contract” by contractors and subcontractors with the United States Department of Defense or the
National Aeronautics and Space Administration are not subject to tax. A sale of qualifying
property is not subject to sales tax because it is treated as a sale for resale. Section
212.02(14)(a), F.S. “Overhead materials” are specifically exempt under Section
212.08(17)(d)4., F.S. The terms are defined as follows:
“Qualifying contract”: a contract with the United States Department of Defense or the
National Aeronautics and Space Administration, or a subcontract thereunder, but does
not include a contract or subcontract for the repair, alteration, improvement, or

Technical Assistance Advisement
Page 3 of 5
construction of real property, except to the extent that purchases under such a contract
would otherwise be exempt from the tax imposed by this chapter. Section 212.08(17)(c),
F.S.
“Overhead materials”: all tangible personal property, other than qualifying property as
defined in s. 212.02(14)(a) and electricity, which is used or consumed in the performance
of a qualifying contract, title to which property vests in or passes to the government
under the contract. Section 212.08(17)(b), F.S.
“Qualifying property”: tangible personal property, other than electricity, which is used or
consumed by a government contractor in the performance of a qualifying contract as
defined in s. 212.08(17)(c), to the extent that the cost of the property is allocated or
charged as a direct item of cost to such contract, title to which property vests in or passes
to the government under the contract. Section 212.02(14)(a), F.S.
“Direct item of cost” or “direct cost”: [A]ny cost which is identified specifically with a
particular final cost objective. Direct costs are not limited to items which are
incorporated in the end product as material or labor. Costs identified specifically with a
contract are direct costs of that contract. 48 C.F.R. § 52.256-1(e)(2). All costs identified
specifically with other final cost objectives of the contractor are direct costs of those cost
objectives. 48 C.F.R. § 9904.418-30.
In summary, to be a “qualifying property,” an item must be:
1) Tangible personal property, excluding electricity;
2) Used or consumed by a government contractor, including prime contractors and
subcontractors, to perform a qualifying contract;
3) Allocated or charged in whole or in part as a direct item of cost to such qualifying
contract; and
4) Transferred (i.e., title, but not necessarily possession, must pass) to the government
under the contract.
Section 212.08(17), F.S., provides the following in pertinent part:
(d) … The exemption provided in this subsection does not apply to any part of the cost
of overhead materials allocated to a contract that is not a qualifying contract.
(e) Possession by a seller of a resale certificate or direct-pay permit relieves the seller
from the responsibility of collecting the tax, and the department shall look solely to the
contractor for recovery of such tax if it determines that the contractor was not entitled to
the exemption. The contractor shall self-accrue and remit any applicable sales or use tax
due with respect to overhead materials and with respect to costs allocable to contracts
that are not qualifying contracts….

Technical Assistance Advisement
Page 4 of 5
Taxpayer’s contract with the Department of Defense to construct the student dormitory is not a
qualifying contract, because it is a contract to repair, alter, improve, or construct real property.
However, Taxpayer’s contract to furnish and install furniture and other tangible personal
property at the dormitory is a qualifying contract. The cost of the tangible personal property is
allocated or charged as a direct item of cost to the contract. The contract is subject to federal
cost accounting regulations, which provide that if an item is charged as a direct cost, title will
vest in the government.
The purchase of qualifying property under the qualifying contract is not subject to sales tax,
because it is treated as a sale for resale. To receive the exemption, Taxpayer and the
subcontractors must issue a copy of their Annual Resale Certificate or a copy of their Direct Pay
Permit to the vendor of the qualifying property.
Conclusion
Taxpayer’s contract with the Department of Defense to purchase and install tangible personal
property consisting of interior furniture and equipment for the student dormitory is a “qualifying
contract,” as defined in Section 212.08(17)(c), F.S. The purchase of qualifying property under
the contract is not subject to sales tax if all the requirements are met.
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

Technical Assistance Advisement
Page 5 of 5
(850) 717-7312
Record ID: 92786