Which replacement fluids, tools, and machine parts qualified for Florida's industrial-machinery repair exemption?

Plain-English summary

The taxpayer manufactured industrial valves with lathes, mills, grinders, polishers, and cutting machines already recognized as qualifying industrial machinery. It asked which frequently replaced fluids, tools, and parts were exempt repairs and which were taxable manufacturing consumables.

Hydraulic oil, extreme-pressure gear oil, heat-transfer fluid, spindle oil, and way lubricant qualified because they were incorporated into machinery for its mechanical operation. Machine cutting or coolant fluids, grinder coolant, honing and cutting oil, and quench oil were taxable: they benefited tools or workpieces or were not incorporated into the machines themselves.

Replacement machine spindles qualified as original machine components. The taxpayer had not supplied enough information to decide whether tool holders did. Cutting tools, abrasive wheels, and polishing brushes were presumed taxable consumables, although an item with a useful life consistent with the industrial-machinery definition could potentially qualify. Replaceable inserts and tips remained taxable.

What this means for you

Frequent replacement does not itself make an item a repair part. Florida looked at incorporation into the primary machine, mechanical function, original-component status, and useful life. Product-by-product documentation is essential.

Common questions

Which oils qualified? The stated hydraulic, gear, heat-transfer, spindle, and way oils used in machine operation.

Were cutting and grinding fluids exempt? No. The ruling treated the named products as taxable consumables rather than machine coolants.

Did all replacement tools qualify? No. Spindles qualified; tool holders were unresolved; tools, wheels, brushes, inserts, and tips were generally taxable subject to the limited useful-life qualification described.

Citations and references

• Fla. Stat. §§ 212.08(5)(b) and 212.08(7)(xx) and Fla. Admin. Code r. 12A-1.063, as quoted and applied in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11A-005

Original ruling text

SUMMARY
QUESTION 1: Whether purchases of lubricating and cutting fluids are exempt from sales and
use tax under s. 212.08(7)(xx), F.S., as repairs to industrial machinery and equipment, or taxable
under Rule 12A-1.063, F.A.C., as tangible personal property consumed in manufacturing.
ANSWER 1: Purchases of specifically named fluids by Taxpayer for the process machinery are
exempt as repairs to industrial machinery and equipment, or are taxable as consumable supplies
as provided in the TAA, based on whether such fluids were or were not determined to be
incorporated into the machinery and equipment.
QUESTION 2: Whether purchases of cutting tools, tool holders, and spindles for milling and
cutting machines, and purchases of grinding wheels and brushes for grinding and polishing
machines are exempt from sales and use tax under s. 212.08(7)(xx), F.S., as repairs to industrial
machinery and equipment, or taxable under Rule 12A-1.063, F.A.C., as tangible personal
property consumed in manufacturing.
ANSWER 2: Purchases of cutting tools, tool holders, and spindles for the milling and cutting
machines, and purchases of grinding wheels and brushes for the grinding and polishing
machines, are exempt as repairs or taxable as consumable supplies as provided in the TAA,
based on whether such items were original machine components and depending on the
depreciable life of the item.

March 16, 2011

Re: Technical Assistance Advisement 11A-005
Sales and Use Tax
Exemption on repairs to machinery and equipment
Sections 212.08(5)(b) and (7)(xx), F.S.
Rule 12A-1.063, F.A.C.
Dear:
This is in response to your request dated October 19, 2010, for a Technical Assistance
Advisement (TAA) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding
a tax exemption issue for XXX (“Taxpayer”). An examination of your letter has established that
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.
Background
Taxpayer is a manufacturer of machinery components properly classified under SIC code
3491, Industrial Valves (NAICS number 332911, Industrial Valve Manufacturing). The

machinery used in the production process includes lathes, milling machines, grinding machines,
polishing machines, and cutting machines. In a prior audit of Taxpayer, it was determined that
all of this machinery qualified as industrial machinery and equipment under the provisions of s.
212.08(5)(b), F.S., and Rule 12A-1.096, F.A.C. The operation of the machinery requires the use
of various coolants and lubricants. Further, the operation of the machinery requires the frequent
replacement of various parts.
Issues

1. Whether the purchase of the following fluids is exempt from sales and use tax under s.
   212.08(7)(xx), F.S., as repairs to industrial machinery and equipment, or taxable under Rule
   12A-1.063, F.A.C., as tangible personal property consumed in manufacturing.
   Machine Coolant and Cutting Fluids: Ecocool 2194, Ecocool S741, Ecocool S761,
   Ecocool Syn 5588, Ecocut Syn 6000, and Lubriplate Syncool 46
   Grinder Coolant: Ecocool Syn 005ND
   Honing and Cutting Oil: Ecocut LCO 8
   Hydraulic Oil: Renolin AW 32 and AW 67
   Extreme Pressure Gear Oil: Renolin EP 150 and EP 220
   Heat Transfer Fluid: Renolin HT 32
   Spindle Oil: Renolin SP 10, SP 22, and SP 5
   Way Lube: Renolin WL 68
   Quench Oil: Thermisol HS 203
2. Whether the purchase of cutting tools, tool holders, and spindles for the milling and
   cutting machines, and the purchase of grinding wheels and brushes for the grinding and
   polishing machines are exempt from sales and use tax under s. 212.08(7)(xx), F.S., as repairs to
   industrial machinery and equipment, or taxable under Rule 12A-1.063, F.A.C., as tangible
   personal property consumed in manufacturing.
   Applicable Authority
   The following passages from the Florida Statutes (F.S.) and the Florida Administrative
   Code (F.A.C.) are pertinent to the issues under consideration.
   Section 212.08(5)(b)6., F.S., provides in part:

a. “Industrial machinery and equipment” means tangible personal property or
other property that has a depreciable life of 3 years or more and that is used as an integral
part in the manufacturing, processing, compounding, or production of tangible personal
property for sale . . . . The term includes parts and accessories only to the extent that the
exemption thereof is consistent with the provisions of this paragraph. . . .
Section 212.08(7), F.S., provides in part:
(xx) Certain repair and labor charges.—

1. Subject to the provisions of subparagraphs 2. and 3., there is exempt from the
   tax imposed by this chapter all 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.
2. This exemption applies only to industries classified under SIC Industry Major
   Group Numbers 10, 12, 13, 14, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35,
   36, 37, 38, and 39 and Industry Group Number 212. As used in this subparagraph, “SIC”
   means those classifications contained in the Standard Industrial Classification Manual,
   1987, as published by the Office of Management and Budget, Executive Office of the
   President. . . .
   Rule 12A-1.063, F.A.C., provides in part:
   (1)(b) The sale, use, storage, or consumption of tangible personal property,
   including machinery and equipment or parts thereof, . . . when said items are used and
   dissipated in fabricating, processing, or converting materials into tangible personal
   property for resale are taxable even though they may become ingredients or components
   of the tangible personal property for sale through accident, wear, tear, erosion, corrosion,
   or similar means. Example: Grinding balls and chains used to crush cement in a
   concrete manufacturing plant are taxable.
   (2) Sandpaper, grinding wheels, saw blades, drills, files and tools of similar
   types, as well as detergents used for removing grease and oil from parts, etc., are taxable.
   (3) Detergents, industrial chemicals and boiler compounds which are used and
   exhausted in caring for, cleansing and preserving the machinery and tools used in the
   manufacturing process are taxable.
   (4) Cutting oil used by machine shops in the manufacture of tangible personal
   property for sale is taxable. . . .
   (7) Cutters, tools, jigs, hobs, etc., even though especially designed for a particular
   job and not reusable except on a job of exactly the same specifications are taxable. . . .
   Discussion
   There are two primary criteria that must be satisfied for a business to receive the
   exemption on repairs pursuant to s. 212.08(7)(xx), F.S. First, the industrial machinery and
   equipment that is being repaired must be used for the manufacturing, processing, compounding,
   production, or preparation for shipping of items of tangible personal property at a fixed location

within this state. Second, the exemption is only available to those industries that are classified
under specified SIC Industry Major Group Numbers.
It has been determined in a prior audit that the major items of machinery and equipment
applicable to this advisement request are industrial machinery and equipment used in
manufacturing. Further, it has been determined that Taxpayer is a manufacturer properly
classified under Industry Group Number 34 (Fabricated Metal Products, Except Machinery and
Transportation Equipment), which is one of the industries that are specifically eligible for the
exemption. However, even though the two primary statutory criteria are satisfied, there still
remains the question of whether the various fluids and parts purchased by Taxpayer actually
constitute repair items.
The provisions of Rule 12A-1.063(2), (3), (4), and (7), F.A.C., clearly state that the
subject fluids and parts would be taxable. On a first consideration, those rule provisions seem to
settle the issue. However, the question has arisen whether those specific rule provisions are in
conflict with the general language of the exemption statute on repairs. It must be noted that the
courts have held that state agencies are not permitted to enlarge, modify, or contravene statutory
provisions. See Department of Business Regulation v. Salvation Ltd., 452 So.2d 65 (Fla. 1st
DCA 1984); Department of Health and Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla.
1st DCA 1980); 4245 Corp. v. Division of Beverage, 371 So.2d 1032 (Fla. 1st DCA 1978);
Florida Growers Coop Transport v. Department of Revenue, 273 So.2d 142 (Fla. 1st DCA 1973),
cert. denied, 279 So.2d 33(Fla. 1973). It is immaterial that rule provisions may have existed
before the statutory exemption; statutory language is controlling. However, it is also important
to note that exemptions must be narrowly construed. In State ex rel. Szabo Food Services, Inc.
v. Dickinson, 286 So.2d 529, 530 (Fla. 1973), the Florida Supreme Court held that:
“Exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly
construed against the taxpayer.” The Court further held that the taxpayer who claimed that his
transactions were exempt “must clearly show that” they fell “within the exemption, with any
doubt being resolved in favor of the State.”
The exemption statute does not provide a definition for the term “repair.” When a statute
fails to a define term, it must be given its ordinary meaning. Rinker Materials Corp. v. City of
North Miami, 286 So.2d 552 (Fla.1973). Accordingly, guidance as to what is a repair must come
from other sources. The American Heritage Dictionary (1985) defines “repair” as “[to] restore to
sound condition after damage or injury; fix.” It is noted that nothing has been stated about
Taxpayer’s machinery and equipment being damaged or broken, only that items need to be
frequently replaced in the ordinary course of business.
The exemption statute also requires the parts and materials to be “incorporated into” the
industrial machinery and equipment. The above-referenced dictionary defines “incorporate” as
“[t]o unite with or blend indistinguishably into something already in existence.” “Incorporated”
is defined as “[u]nited into one body; combined.” Accordingly, when an item used in
manufacturing is replaced, the determining question for exemption purposes becomes whether
and to what extent that replacement item is incorporated into or becomes indistinguishable from
the major item to which it has been attached.

In prior advisements on the repairs exemption, the Department has considered the issue
of whether multiple pieces of machinery in a facility represented a discrete stand-alone process
or an integrated line. Major items of machinery and equipment that are dissimilar in their
function and that have been connected together by pipes, conveyors, or similar devices have
been found to represent a continuous or integrated line. Taxpayer’s situation is different in that a
secondary item, or a collection of secondary items, have been attached to a major item. Each of
the major items (e.g., a lathe or a grinding machine) represents a stand-alone process in the
manufacturing of industrial valves.
Generally, manufacturers of machine tools, meaning the primary industrial machine, only
sell those machines and not the various cutting tools and accessories for those machines. This
division of products into separate classes appears to be evidenced by the fact that industrial
machinery and ancillary items for those machines are classified under different industries in the
SIC code manual. For example, major industrial machines for cutting, grinding, and polishing
metal are all classified under SIC code 3541 (Machine Tools, Metal Cutting Types); while
accessory cutting tools, abrasive wheels, and industrial brushes are classified under SIC codes
3545 (Cutting Tools, Machine Tool Accessories, and Machinists’ Precision Measuring Devices),
3291 (Abrasive Products), and 3991 (Brooms and Brushes), respectively.
At this point, it is necessary to establish an understanding of some terminology. A
machine tool is a large industrial machine, often weighing several tons. You cannot hold a
machine tool in your hands. Cutting tools are the part or device that actually contacts the
workpiece (the product or part being made) and performs the cutting operation. A cutting tool
may be linear (e.g., a saw blade) or rotary (e.g., a drill bit). Some cutting tools are complex in
shape and have inserts or replaceable tips that perform the cutting function. Depending on the
complexity, a cutting tool may cost only a few dollars or thousands of dollars. Just as the name
implies, a tool holder is the part or device that holds a cutting tool in the larger machine tool. An
example of a tool holder would be a chuck or collet that holds a drill bit in an electric drill.
Spindles are the rotating axis of a machine tool. Depending on the type of machine tool, the
spindle may hold the cutting tool or the workpiece.
The exemption statute on repairs also does not provide a definition for “industrial
machinery and equipment.” A definition for that term does exist under s. 212.08(5)(b), F.S.
There, the term means, in part, tangible personal property or other property that has a depreciable
life of three years or more. The various cutting tools, grinding wheels, and polishing brushes
generally have a useful life that is far less than three years. Accordingly, such items are typically
consumables that are used up in the manufacturing process. That fact is consistent with the
provisions addressing such items in Rule 12A-1.063, F.A.C., Tangible Personal Property
Consumed in Manufacturing, Processing, Assembling and Refining.
The issue of cutting and grinding fluids has also been examined. It has been asserted that
cutting fluids are incorporated into the machines and act as machine coolants. Product brochures
reviewed for this advisement do list various machine tools as having coolant tanks of various
capacities for high-pressure through-tool delivery of coolants. Technical articles on highpressure systems indicate that the cutting fluids may be applied at the rate of 10 to 20 gallons per
minute. This high volume of delivery of fluids to rapidly spinning parts creates a lot of splashed

fluid. Accordingly, this operation is carried out in an enclosed space of the machine where the
splashed fluid is captured, filtered, and cooled in a heat exchanger before being returned to the
coolant tank.
Based on research for this advisement, the primary purpose of the fluids is to control
temperature in the cutting or grinding operation. The physical process of deforming metal (i.e.,
cutting or grinding it to a desired shape or dimension) generates a great amount of heat from
friction in both the workpiece and the cutting tool or grinding wheel. This heat is detrimental to
the workpiece in that close machining tolerances may be off because the workpiece may be
changing dimensions. The heat is detrimental to a cutting tool in that the tool may wear out
prematurely and detrimental to a grinding wheel in that resins that bond the abrasive particles of
the wheel may weaken. Professional papers on the topic of cutting fluids are unclear as to
whether the primary cooling purpose of the cutting fluids is for the benefit of the workpiece or
the cutting tool. At best, it is a co-benefit. The primary purpose of the grinding fluids appear to
be primarily for the benefit of the workpiece. Cutting and grinding fluids do not function as a
coolant for the primary machine.
Conclusions
Issue 1. The purchase of fluids by Taxpayer for the process machinery are exempt as
repairs to industrial machinery and equipment, or are taxable as consumables, as follows.
Machine Coolant and Cutting Fluids: (Ecocool 2194, Ecocool S741, Ecocool S761,
Ecocool Syn 5588, Ecocut Syn 6000, and Lubriplate Syncool 46) The purpose of these
fluids is to prolong the life of consumable cutting tools while simultaneously assisting in
the production of quality products for sale. They are not coolants for industrial machine
tools. Accordingly, their purchase is taxable under the provisions of Rule 12A-1.063,
F.A.C.
Grinder Coolant: (Ecocool Syn 005ND) The purpose of this fluid is to prolong the life of
abrasive wheels while simultaneously assisting in the production of quality products. It
is not a coolant for industrial machine tools. Accordingly, its purchase is taxable under
the provisions of Rule 12A-1.063, F.A.C.
Honing and Cutting Oil: (Ecocut LCO 8) The purpose of this fluid is to prolong the life
of cutting tools or abrasive wheels while simultaneously assisting in the production of
quality products. It is not a coolant for industrial machine tools. Accordingly, its
purchase is taxable under the provisions of Rule 12A-1.063, F.A.C.
Hydraulic Oil: (Renolin AW 32 and AW 67) These oils are incorporated into industrial
machinery and equipment for their mechanical operation. Accordingly, their purchase
will qualify as repairs to industrial machinery and equipment under s. 212.08(7)(xx), F.S.
Extreme Pressure Gear Oil: (Renolin EP 150 and EP 220) These oils are incorporated
into industrial machinery and equipment for the mechanical operation of gear boxes and
reducers. Accordingly, their purchase will qualify as repairs to industrial machinery and

equipment under s. 212.08(7)(xx), F.S.
Heat Transfer Fluid: (Renolin HT 32) This fluid is incorporated into industrial
machinery and equipment for their mechanical operation. Accordingly, its purchase will
qualify as repairs to industrial machinery and equipment under s. 212.08(7)(xx), F.S.
Spindle Oil: (Renolin SP 10, SP 22, and SP 5) These oils are incorporated into industrial
machinery and equipment for the mechanical operation of a component part of the
primary machine tool. Accordingly, their purchase will qualify as repairs to industrial
machinery and equipment under s. 212.08(7)(xx), F.S.
Way Lube: (Renolin WL 68) This is a gear lubricant that is incorporated into industrial
machinery and equipment for the operation of a mechanical component part of the
primary machine tool. Accordingly, its purchase will qualify as repairs to industrial
machinery and equipment under s. 212.08(7)(xx), F.S.
Quench Oil: (Thermisol HS 203) This oil is used to quench heat treated parts and is not
incorporated into any machines. Accordingly, its purchase is taxable under the
provisions of Rule 12A-1.063, F.A.C.
Issue 2. The purchase of cutting tools, tool holders, and spindles for the milling and
cutting machines, and the purchase of grinding wheels and brushes for the grinding and
polishing machines, are exempt as repairs or taxable as consumables as follows.
The repair or replacement of any original machine component, meaning a part that was
sold by the primary machines’ manufacturer as a standard, integral component for that specific
machine, will qualify as a repair to industrial machinery and equipment under s. 212.08(7)(xx),
F.S. Based on available information, machine spindles will be considered to be original machine
components. Insufficient information is available to determine whether tool holders, are original
machine components. The burden shall be on the person claiming the exemption to show that a
replacement part replaces an original machine component.
Cutting tools, abrasive wheels, and polishing brushes are all presumed to be consumable
items, not industrial machinery and equipment, and are taxable under the provisions of Rule
12A-1.063, F.A.C. However, if the item can be shown to have a useful life that is consistent
with the definition of industrial machinery and equipment as provided in s. 212.08(5)(b), F.S.,
then the item may be considered to be industrial machinery and equipment as well. Regardless,
replaceable components, such as inserts or tips for cutting tools, remain taxable as consumable
items.
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 expressed in
this response.
You are further advised that this response, your request and related documents are public
records under Chapter 119, F.S., which are subject to disclosure to the public under the
conditions of Section 213.22, F.S. Your name, address, and any other details, which might lead
to identification of the taxpayer, must be deleted before disclosure. In an effort to protect the
confidentiality of such information, we request you provide the undersigned with an edited copy
of your request for Technical Assistance Advisement, backup material and response within
fifteen days of the date of this advisement.
Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

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