Could a contractor treat separately priced water lilies and installation as a retail sale plus installation for public works or exempt-organization jobs?

Plain-English summary

For an ordinary real-property job, a contractor can potentially separate a retail sale of specifically described materials from installation only if every material incorporated into the work is itemized and priced before work begins and the customer takes title and risk of loss upon delivery.

The sample contract itemized water lilies but not possible pots, bags, soil, fertilizer, or other installation materials. If the contractor used any such unlisted material, the contract failed the retail-sale-plus-installation requirements and the contractor owed use tax on the plants and all incorporated materials.

That contract structure was unavailable for public works. A contractor that both supplied and installed materials for a public work was the ultimate consumer. Likewise, a nongovernmental exempt organization could not extend its exemption certificate to the contractor for a real-property improvement contract.

What this means for you

Separate prices for products and labor are not enough. Classification turns on complete pre-work itemization, transfer of title and risk, the nature of the real-property work, and the customer's status.

Common questions

What defeated the sample retail-sale treatment? Using any incorporated material that was not itemized and priced in the contract before work began.

Could the structure be used for public works? No.

Could an exempt organization give its certificate to the contractor? No, not for construction or improvement of real property.

Citations and references

• Fla. Stat. §§ 212.05 and 212.08(6) and Fla. Admin. Code rr. 12A-1.038, 12A-1.048, 12A-1.051, and 12A-1.094, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12A-018

Original ruling text

Interim
Executive Director
Marshall Stranburg

QUESTION 1: Whether Taxpayer’s contracts are retail sale plus installation contracts, and
if these contracts are suitable for use on public works contracts and contracts with exempt
organizations.
ANSWER: If Taxpayer uses any additional materials to install the lilies, then Taxpayer’s

sample contract does not meet the criteria of a retail sale plus installation contract.
Additionally, even if it did, it would not be applicable to public works contracts.
Taxpayer owes use tax on its purchase of plants and all other materials it incorporates
into its jobs.
August 14, 2012
Re:

Technical Assistance Advisement – TAA 12A-018
Sales and Use Tax – Improvements to Real Property, Public Works Contracts
Sections: 212.05, 212.08(6), Florida Statutes (F.S.)
Rules: 12A-1.051, 12A-1.094, Florida Administrative Code (F.A.C.)
Petitioner XXX [hereinafter “Taxpayer”]

Dear XXX:
This letter is a response to your petition dated XXX, 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, Florida Administrative
Code. This response to your request constitutes a TAA and is issued to you under the
authority of Section 213.22, F.S.
Issue
Whether Taxpayer’s contracts are retail sale plus installation contracts, and if these
contracts are suitable for use on public works contracts and contracts with exempt
organizations.
Presented Facts
Taxpayer’s correspondence sets forth the following information:
[Taxpayer] is in the business of providing the non-taxable service of treating
noxious weeds and algae in lakes. Recently, it started a wetlands division, which
will, among other things, install plants around some of the lakes that are being
treated by [Taxpayer. Taxpayer] will not produce the plants [itself]. Instead, [it]
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

will purchase the plants from a supplier and will then enter into retail sale and
installment contracts with the customers. . . . Under the proposed contracts,
[Taxpayer] will agree to sell specifically itemized plants at an agreed price, and to
complete the installation work for an additional agreed price. Also, the purchaser
will assume title and risk of loss to the plants as they are delivered. [Taxpayer]
will remain liable for negligence in handling and installing the plants, and will
warrant the survivability of the plants.
[Taxpayer] has many varied customers. Some are non-exempt property owners.
Some are exempt organizations such as State tax-supported schools, colleges, or
universities, entities exempt from taxation under Section 501(c)(3) or the Internal
Revenue Code of 1986, as amended, and community cemeteries that are exempt
under [Section] 501(c)(13) of the Internal Revenue Code of 1966, as amended,
and are operated for the purpose of maintaining a cemetery that was donated to
the community by deed. Also, some others are exempt governmental entities,
such as Community Development Districts, which are political subdivisions of the
State. It is [Taxpayer’s] position that in all three cases[,] the transactions should
be considered as sales of the plants, followed by a separate installation of the
plants, and not as a use by [Taxpayer] of tangible personal property that is
incorporated into a real estate improvement contract or a public works contract.
[Taxpayer] believes that with respect to non-governmental contracts, the answer
is clearly provided by Rule 12A-1.048(2)(d), F.A.C.[,] and Rule 12A-1.051(3)(d),
F.A.C. However, while [Taxpayer] believes that the answer should be the same
with respect to governmental contracts, the rules under Section 212.08(6)[,]
F.S.[,] and Rule 12A-1.094, F.A.C.[,] are somewhat more ambiguous than those
under the two previously cited sections, and it is for that reason that the TAA is
being requested.
Law and Discussion
Section 212.05, Florida Statutes, generally imposes tax on the sale of tangible personal
property. Contracts for the improvement to real property are generally not subject to tax
on the contract price charged to the customer; instead the contractor owes tax on its cost
of the materials and supplies used in the performance of the job. See Rule 12A-1.051(3)
and (4), Florida Administrative Code, and Rule 12A-1.094(2), Florida Administrative
Code.
I. Retail Sales plus Installation Contracts
This portion of the discussion does not apply to public works contracts.
Rule 12A-1.051(3)(d), Florida Administrative Code, allows contractors to structure
contracts in a manner to sell the tangible personal property to the customer, then also
install the materials for a separate price. 1 The paragraph states as follows:

1

Rule 12A-1.048(2)(d), F.A.C., requires the same level of itemization as Rule 12A-1.051(3)(d), F.A.C.,
and the analysis would be the same under both rules.

Technical Assistance Advisement
Page 3

(d) Retail sale plus installation contracts. These are contracts for improvements to
real property in which the contractor or subcontractor agrees to sell specifically
described and itemized materials and supplies at an agreed price or at the regular
retail price and to complete the work either for an additional agreed price or on
the basis of time consumed. In order for a contract to fit in this category, all the
materials that will be incorporated into the work must be itemized and priced in
the contract before work begins. If a contract itemizes some materials but does not
itemize other materials that will be incorporated into the work, the contract is not
included in this category. Because the sale of the materials is a separable
transaction from the installation, the purchaser must assume title to and risk of
loss of the materials and supplies as they are delivered, rather than accepting title
only to the completed work. The contractor may remain liable for negligence in
handling and installing the items. (Emphasis Supplied)
In order for a contract to be classed as a retail sale plus installation contract, it is
imperative that ALL materials to be incorporated into the job be specifically itemized and
priced in the contract. The sample contract provided lists water lilies for sale, which
water lilies are described (by color) and priced (by each). However, the contract does not
list any installation materials. Depending on the method of installation, Taxpayer may
use submerged pots, aquatic bags, or some other container submerged into the body of
water to plant the water lilies. Additionally, Taxpayer may use topsoil or other planting
materials, as well as fertilizer pellets or similar, when planting (installing) water lilies. If
such materials were incorporated into the job, the sample contract would not meet the
criteria to be classed as a retail sale plus installation contract, and Taxpayer would owe
use tax on its cost of the plants and all the other installation materials in accordance with
Rule 12A-1.051(4), Florida Administrative Code.
II. Governmental Entities
Rule 12A-1.051(1), Florida Administrative Code, states in pertinent part as follows:
(1) Scope of the rule. This rule governs the taxability of the purchase, sale, or use
of tangible personal property by contractors and subcontractors who purchase,
acquire, or manufacture materials and supplies for use in the performance of real
property contracts other than public works contracts performed for governmental
entities, which are governed by the provisions of Rule 12A-1.094, F.A.C. . . .
(Emphasis Supplied)
Therefore, even if Taxpayer perfects a retail sale plus installation contract, it cannot be
used for public works contracts, which are governed by the provisions of section
212.08(6), Florida Statutes, and Rule 12A-1.094, Florida Administrative Code.

Technical Assistance Advisement
Page 4

Rule 12A-1.094, Florida Administrative Code, states in pertinent part as follows:
(2) The purchase or manufacture of supplies or materials by a public works
contractor, when such supplies or materials are purchased for the purpose of
going into or becoming part of public works, whether the purchase or
manufacture occurs inside or outside Florida, is taxable to the public works
contractor if the public works contractor also installs such supplies or materials,
since the public works contractor is the ultimate consumer of such supplies or
materials. Public works contractors that purchase or manufacture such supplies
and materials in Florida are liable for sales tax or use tax on such purchases and
manufacturing costs. A public works contractor that purchases supplies or
materials that may be sold as tangible personal property or may be incorporated
into a public works project may purchase such supplies or materials without tax
by issuing a copy of the contractor’s Annual Resale Certificate and accrue and
remit tax upon withdrawing such supplies or materials from inventory to go into
or become a part of public works. Public works contractors that purchase or
manufacture such materials outside the State of Florida are liable for use tax,
subject to credit for any sales or use tax lawfully imposed and paid in the state of
purchase or manufacture.
(3) The purchase or manufacture of tangible personal property for resale to a
governmental entity is exempt from tax, provided this exemption shall not include
sales of tangible personal property made to, or the manufacture of tangible
personal property by, public works contractors when such tangible personal
property goes into or becomes a part of public works. (Emphasis Supplied)
Rule 12A-1.094, Florida Administrative Code, does not contain any provision for a retail
sale plus installation type contract for public works contracts. The wording of the rule
specifically disallows contractors to sell materials to governmental entities exempt from
tax and to also install the materials. There is no methodology for a contractor to sell
materials to and install materials for a public work contract, and avoid use tax on the
materials installed. Taxpayer owes use tax on the materials it uses in the performance of
a public works contract.
III. Exempt Organizations
Rule 12A-1.038(3), Florida Administrative Code, governs sales made to exempt entities
other than governmental entities. It states, in relevant part:
(a) An entity that holds a valid Consumer’s Certificate of Exemption (Form DR14) issued by the Florida Department of Revenue may extend a copy of its
certificate to the selling dealer to purchase or rent taxable property, admissions, or
services used for its authorized tax-exempt purpose in lieu of paying sales tax.
Purchases of property, admissions, or services used for the entity’s authorized taxexempt purposes must be made with the purchasing entity’s funds and may not be
made with the personal funds of the purchasing entity’s authorized representative.

Technical Assistance Advisement
Page 5

When the payment for taxable property, admissions, or services is made with an
authorized representative’s personal funds, the purchase is subject to tax, even if
the representative is subsequently reimbursed with the entity’s funds….
(e) An entity holding a valid Consumer’s Certificate of Exemption may not
extend a copy of its certificate to a contractor to be applied to contracts for the
construction or improvement of real property. See Rule 12A-1.094, F.A.C., for
guidance on direct purchases by governmental entities of construction materials in
real property projects.
A tax exempt entity may extend its Consumer’s Certificate of Exemption to the selling
dealer to purchase taxable property for its authorized tax exempt purpose, but it may not
extend a copy of its certificate to a contractor for the construction or improvement of real
property. In part one of this Technical Assistance Advisement, the Department
concluded that if Taxpayer was installing additional materials, such as soil for potting, in
addition to the lilies, then the contract was not sufficiently itemized to qualify as a retail
sale plus installation contract under Rule 12A-1.051(3)(d), Florida Administrative Code.
As a result, the contract is a real property contract where Taxpayer and not the tax
exempt entity is the ultimate consumer of the materials. See Rule 12A-1.051(4), Florida
Administrative Code. Under Rule 12A-1.038(3)(e), Florida Administrative Code, the
nonprofit entity may not extend its certificate to Taxpayer, and Taxpayer is required to
pay tax on the materials incorporated into the real property contract.
Conclusion
If Taxpayer uses any additional materials to install the lilies, then Taxpayer’s sample
contract does not meet the criteria of a retail sale plus installation contract. Additionally,
even if it did, it would not be applicable to public works contracts. Taxpayer owes use
tax on its purchase of plants and all other materials it incorporates into its jobs.
Closing Statement
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
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, 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

Technical Assistance Advisement
Page 6

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 10 days of the date of this letter.

Sincerely,

Gary Gray
Administrator
Technical Assistance and Dispute Resolution
Control # 121418