Did a governmental owner's contract qualify direct material purchases for an infrastructure public-works project for sales-tax exemption?

Plain-English summary

The Florida Department of Revenue concluded that a governmental owner's proposed contract qualified its direct material purchases for sales-tax exemption on an infrastructure public-works project.

The owner would issue purchase orders directly to suppliers, receive invoices in its own name, pay suppliers directly from public funds, take title and liability when materials reached the jobsite, bear the insurance burden or benefit, and send the required Certificate of Entitlement. The contractor could scope purchases and verify invoices without becoming the purchaser.

Those facts satisfied the direct-purchase requirements. Materials bought by a contractor instead would remain taxable because the governmental exemption covers only purchases made by the governmental entity itself.

What this means for you

Governmental project owners

Keep the government in the substance of every purchase: order, invoice, payment, title, risk, insurance, and certificate.

Contractors

Coordination and invoice review are compatible with an owner direct-purchase program, but purchasing the materials yourself changes the tax result.

Common questions

Q: Did the submitted contract satisfy the exemption rules?
A: Yes.

Q: Would contractor purchases receive the same exemption?
A: No.

Citations and references

• Fla. Stat. §§ 212.08(6) and 213.22
• Fla. Admin. Code r. 12A-1.094

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13A-024

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: Whether the provisions contained in the submitted contract are sufficient to
enable the Taxpayer to realize savings of its tax-exempt status on the purchase of materials for
use in a public works project.
ANSWER:
Section 212.08(6), F.S., provides only direct purchases by governmental entities are exempt. In
another words, if a contractor, who is employed by a governmental entity, purchases tangible
personal property to be used in a public works contract, then the exemption listed in s. 212.08(6),
F.S., does not apply. Rule 12A-1.094, F.A.C., provides the guidelines for purchasing materials
tax-exempt for a public works contract. Here, the Taxpayer’s submitted contract satisfies the
conditions of the foregoing statute and rule.
November 1, 2013
Re:

Technical Assistance Advisement – TAA 13A-024
Sales and Use Tax – Public Works Contract
Section 212.08(6), Florida Statutes (F.S.)
Rule 12A-1.094, Florida Administrative Code (F.A.C.)
XXX (“Taxpayer”)

Dear XXX:
This is in response to your letter dated XXX, 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.
Facts
Taxpayer (hereinafter referred to as Owner) is requesting determination by the Department on
whether a draft Agreement (between the Owner and a contractor to be selected) is a sale to a
governmental body. The Owner states the scope of the work is the following: “[f]urnishing all
coordination, labor, materials and construction services to complete the project work unless
otherwise noted in the Drawings. The primary work will include constructing a new 8” water
main, constructing a new 12” sanitary sewer main with manholes; constructing an 8” reclaimed
water main; constructing a section of 16” forcemain; constructing new storm water piping and
structures; completing full width roadway removal and replacement; street lighting; landscaping
and appurtenances. The work will take place between XXX and XXX.”
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2 of 5
In the Owner’s draft agreement, there is a direct purchase provision, which contains the
following provisions:
(1)
The OWNER will provide Purchase Order Requisition Forms to the
CONTRACTOR.
(2)
The CONTRACTOR will provide detailed scoping and pricing for the Purchase
Order Requisitions in harmony with the Subcontractors.
(3)
Purchase Order Requisitions will be routed to the OWNER’S Purchasing Agent
for processing, with a copy to the Project Manager. The OWNER will issue a purchase
order to the supplier.
(4)
The CONTRACTOR will issue a deductive contract adjustment to the
Subcontractor that will account for the value of the material and the sales tax as it
pertains to that Subcontractor’s contract. All sales tax savings shall be credited to the
OWNER.
(5)
The OWNER will assume liability for the materials upon delivery to the jobsite
and OWNER will acquire title to the supplies or materials purchased under OWNER
purchase order upon delivery to the jobsite. Suppliers shall directly invoice the OWNER.
Invoices will be forwarded to the CONTRACTOR for verification. As the material is
delivered to the Project site, the Subcontractor will approve the vendor’s invoice for
materials delivered. After the Subcontractor accepts delivery of this material it will then
forward the invoice and receipt form to the CONTRACTOR who will review, approve,
and forward the invoice to OWNER for payment directly to the supplier from public
funds. The OWNER will bear the economic burden of obtaining insurance covering
damage or loss or will directly enjoy the economic benefit of the proceeds of any such
insurance.
(6)
The Owner will issue a check for the approved invoice amount and mail this
check directly to the supplier, accompanied by the Certificate of Entitlement. A copy of
the check will be forwarded to the CONTRACTOR in order that the CONTRACTOR can
accurately track and summarize all OWNER Direct Purchase payments.
Requested Advisement
Whether the provisions contained in the submitted contract are sufficient to enable the Owner to
realize savings of their tax-exempt status on the purchase of materials for use in a public works
contract.
Applicable Authority and Discussion
Sales to governmental units are exempt from sales tax, pursuant to Section 212.08(6), F.S.,
which states, in pertinent part:

Technical Assistance Advisement
Page 3 of 5
(a)
There are also exempt from the tax imposed by this chapter sales made to
the United States Government, a state, or any county, municipality, or political
subdivision of a state when payment is made directly to the dealer by the
governmental entity. This exemption shall not inure to any transaction otherwise
taxable under this chapter when payment is made by a government employee by
any means, including, but not limited to, cash, check, or credit card when that
employee is subsequently reimbursed by the governmental entity….
(b)
The exemption provided under this subsection does not include sales of
tangible personal property made to contractors employed either directly to or as
agents of any such government or political subdivision when such tangible
personal property goes into or becomes a part of public works owned by such
government or political subdivision. A determination whether a particular
transaction is properly characterized as an exempt sale to a government entity or a
taxable sale to a contractor shall be based on the substance of the transaction
rather than the form in which the transaction is cast….
(c)
The department shall adopt rules for determining whether a particular
transaction is properly characterized as an exempt sale to a governmental entity or
a taxable sale to a contractor which give special consideration to factors that
govern the status of the tangible personal property before being affixed to real
property. In developing such rules, assumption of the risk of damage or loss is of
paramount consideration in the determination. The department shall also adopt, by
rule, a certificate of entitlement to exemption for use as provided in paragraph (b).
The certificate shall require the governmental entity to affirm that it will comply
with the requirements of this subsection and the rules adopted under paragraph (b)
in order to qualify for the exemption and that it acknowledges its liability for any
tax, penalty, or interest later determined by the department to be owed on such
transactions.
Section 212.08(6), F.S., provides only direct purchases by governmental entities are exempt. In
another words, if a contractor, who is employed by a governmental entity, purchases tangible
personal property to be used in a public works contract, then the exemption listed in s. 212.08(6),
F.S., does not apply.
Rule 12A-1.094, F.A.C., provides the guidelines for purchasing materials tax-exempt for a public
works contract. Rule 12A-1.094, F.A.C., states, in relevant 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. The Executive
Director or the Executive Director’s designee in the responsible program will

Technical Assistance Advisement
Page 4 of 5
determine whether the substance of a particular transaction is a taxable sale to or
use by a contractor or an exempt direct sale to a governmental entity based on all
of the facts and circumstances surrounding the transaction as a whole.
(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)1. To be entitled to purchase materials tax exempt for a public works project, a
   governmental entity is required to issue a Certificate of Entitlement to each
   vendor and to the governmental entity’s contractor to affirm that the tangible
   personal property purchased from that vendor will go into or become a part of a
   public work. This requirement does not apply to any agency or branch of the
   United States government.
6. The governmental entity’s purchase order for tangible personal property to be
   incorporated into the public works project must be attached to the Certificate of
   Entitlement. The governmental entity must issue a separate Certificate of
   Entitlement for each purchase order. Copies of the Certificate may be issued.
7. The governmental entity will also affirm that if the Department determines
   that tangible personal property sold by a vendor tax-exempt pursuant to a

Technical Assistance Advisement
Page 5 of 5
Certificate of Entitlement does not qualify for the exemption under Section
212.08(6), F.S., and this rule, the governmental entity will be liable for any tax,
penalty, and interest determined to be due.
…
Here, the Owner’s contract does satisfy the foregoing conditions. The Owner will issue their
own purchase orders directly to the suppliers, who will directly invoice the Owner. The Owner
will issue a check for the materials directly to the supplier, accompanied by a Certificate of
Entitlement. Moreover, the Owner is assuming liability for the materials upon delivery to the
jobsite and will acquire title to the materials.
Concluding Statement
The Owner’s contract meets the requirement of the above-mentioned Rule, and therefore, the
Owner may purchase the materials tax-exempt for use in a public works contract.
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,

Manshi Shah
Senior Attorney
Technical Assistance and Dispute Resolution
850-717-7312
Record ID: 146212