Did purchases of self-service key-cutting kiosks qualify for Florida's new-business machinery exemption?

Plain-English summary

The Florida Department of Revenue denied the industrial-machinery exemption for self-service key-cutting kiosks placed in big-box stores.

The machines appeared to satisfy the definition of industrial machinery and equipment and produced tangible personal property for sale. But the exemption also required a new business at a fixed Florida facility or plant. The Department said placing a kiosk inside another retailer's store was not opening a new facility. It also emphasized that customers operated the machines to make keys without the taxpayer's direct involvement.

The taxpayer's purchases of the kiosks were therefore subject to sales tax under section 212.05.

What this means for you

Kiosk and vending-machine operators

Equipment can satisfy the machinery definition yet still fail the exemption because the business-location and production requirements are separate tests.

Manufacturers and expansion projects

Document the fixed Florida facility, when productive operations begin, who performs the production, and whether the purchases fall within the statute's timing rules.

Common questions

Q: Did the kiosks qualify as industrial machinery and equipment?
A: They appeared to meet that definition, but the purchases still failed the overall exemption.

Q: Why was the exemption denied?
A: A kiosk placement was not a new fixed facility, and the customer—not the taxpayer—used the self-service machine to produce the key.

Citations and references

• Fla. Stat. §§ 212.02(19), 212.05, 212.055, 212.08(5)(b), and 213.22
• Fla. Admin. Code r. 12A-1.096

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-021

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: DOES TAXPAYER’S PURCHASE OF SELF-SERVICE KEY-CUTTING MACHINES,
FOR USE IN FLORIDA, QUALIFY FOR THE EXEMPTION AS INDUSTRIAL MACHINERY AND
EQUIPMENT USED IN NEW OR EXPANDING BUSINESSES THAT MANUFACTURE TANGIBLE
PERSONAL PROPERTY FOR SUBSEQUENT RESALE UNDER S. 212.08(5)(b), F.S., AND RULE
12A-1.096, F.A.C.?
ANSWER: TAXPAYER’S PURCHASES OF SELF-SERVICE KEY-CUTTING MACHINES, FOR
USE IN FLORIDA, DO NOT QUALIFY FOR THE EXEMPTION AS INDUSTRIAL MACHINERY
AND EQUIPMENT USED IN NEW OR EXPANDING BUSINESSES THAT MANUFACTURE
TANGIBLE PERSONAL PROPERTY FOR SUBSEQUENT RESALE IN THE STATE OF FLORIDA
UNDER S. 212.08(5)(b), F.S., AND RULE 12A-1.096, F.A.C.
September 16, 2014
Re:

Technical Assistance Advisement 14A-021
XXXX (“Taxpayer”)
Florida Sales and Use Tax
Exemption For Machinery and Equipment
Sections 212.05, 212.055, 212.08, Florida Statute (F.S.)
Rule 12A-1.096, Florida Administrative Code (F.A.C.)
BP#: XXXX

Dear XXXX:
This letter is in response to your request dated XXXX, for issuance of a Technical Assistance Advisement
(“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the taxability of
machinery and equipment. An examination of your request has established you complied with the
statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby
granting your request for a TAA.
FACTS PRESENTED
Taxpayer is a C Corporation headquartered in XXXX. Taxpayer has spent several years fine-tuning the
technology to create a highly accurate, reliable and easy to use key-cutting machine. To that end,
Taxpayer executed a Manufacturing Services Agreement with XXXX (“Manufacturer”) to manufacture a
key-cutting device which is encased in a self-service kiosk. Taxpayer’s kiosks combine innovations in
robotics, electronics, and software engineering to duplicate home, office, and padlock keys. To support its
business model, Taxpayer contracts with big-box stores throughout the U.S. to locate its self-service key
duplication machines on-site for a period of 3 to 5 years for use by customers. The kiosk machines are
free-standing and are not installed so as to become part of real property. Taxpayer derives its revenue
from the sale of duplicate keys to end-user customers that are produced by the kiosks. Taxpayer collects
tax on the sale of the duplicate keys and remits the tax to the state taxing authority. In addition to key
duplication, the machine imprints a design on a customer’s new duplicate key.
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

TAA
Page 2

In addition to the facts presented above, research conducted by the Department found that payment for the
duplicate key is made directly at the key-cutting machine, by the purchasing customer, by inserting either
a credit card or a debit card. No payment is made to the big-box stores.
REQUESTED ADVISEMENT
Does Taxpayer’s purchase of self-service key-cutting machines, for use in Florida, qualify for the
exemption as industrial machinery and equipment used in new or expanding businesses that manufacture
tangible personal property for subsequent resale under s. 212.08(5)(b), F.S., and Rule 12A-1.096, F.A.C.?
TAXPAYER’S POSITION
Your request of XXXX, states, in part:

… the activity of duplicating a key is commonly regarded as a “manufacturing process” that
refines, improves, and changes the condition of raw materials into a new, different or more useful
property that includes fabrication or production of special made-to-order articles. As such,
[Taxpayer] is a manufacturer who is exclusively engaged in the business of fabricating,
compounding or creating from its own raw materials tangible personal property (i.e., duplicate
keys) through the use of machinery, for sale through the regular channels of trade.
In addition, [Taxpayer’s] self-service key duplication machine qualifies for the Industrial
Machinery and Equipment exemption because the machine is tangible personal property with a
depreciable life of 3 years or more, and the machine provides a significant function within the
production process, such that the production of the key could not be completed without the
machine (i.e., the machine is “integral” to the production of the machine).
… Because the machines are newly placed in [big box locations], [Taxpayer] qualifies as a “new
business” for purposes of claiming the Industrial Machinery and Equipment exemption because
each placement of a kiosk represents a new business location in the State of Florida in which
[Taxpayer] manufactures, processes, compounds, or produces an item of tangible personal
property for sale. … Under the terms of contract, the [Taxpayer’s] kiosks are to be located on-site
at these locations for a period of 3 to 5 years.

APPLICABLE LAW AND DISCUSSION
Unless a specific exemption applies, s. 212.05, F.S., provides it is the legislative intent that every person is
exercising a taxable privilege that engages in the business of selling or repairing tangible personal
property1 in this state. For exercising such a privilege, a tax is levied on each taxable transaction or
1

Tangible personal property means and includes personal property which may be seen, weighed, measured, or touched or is in
any manner perceptible to the senses. See s. 212.02(19), F.S.

TAA
Page 3

incident. The tax is due and payable at the rate of 6 percent, plus any applicable surtaxes imposed under s.
212.055, F.S., on the total consideration received for each item or article of tangible personal property
when sold at retail or repaired in this state.
Section 212.08(5)(b), F.S., provides that industrial machinery and equipment 2 purchased for use in new
businesses that manufacture, process, compound, or produce for sale items of tangible personal property at
fixed locations are exempt from sales and use tax upon an affirmative showing by the taxpayer to the
satisfaction of the Department that such items are used in a new business in Florida. Such purchases must
be made before the date the business first begins its productive operations, and delivery of the purchased
item must be made within 12 months after that date.
A new business means opening a new facility or plant, at a fixed location in Florida, to manufacture,
process, compound, or produce an item of tangible personal property for sale, provided no other facility or
plant in this state that manufactured, processed, compounded, or produced the same or a similar item of
tangible personal property was closed to open the new facility or plant, or will be closed within 12
months. See Rule 12A-1.096(2)(e)3., F.A.C.
The machinery and equipment purchased by Taxpayer that is located in big-box stores does appear to
meet the definition of “industrial machinery and equipment” under s. 212.08(5)(b)6.a., F.S. However,
Taxpayer would not be considered a “new business” under the provisions of Rule 12A-1.096(2)(e)3.,
F.A.C. This subparagraph defines a new business to mean the opening of a new facility or plant, at a fixed
location in Florida, to manufacture, process, compound, or produce an item of tangible personal property
for sale. The machinery and equipment do produce an item of tangible personal property for sale, a key,
but the actual production of the key is done by the customer and not by Taxpayer. The placement of a
kiosk in a big-box store does not constitute the “opening of new facility” for purposes of this exemption.
In addition, Taxpayer is not manufacturing, processing, compounding, or producing the key. As clearly
indicated, the kiosk key-cutting machines are self-service machines that do not require Taxpayer’s direct
involvement to produce a key.
Accordingly, the Department does not accept the Taxpayer’s contention that machinery and equipment as
outlined above would qualify for the exemption from sales and use tax provided under s. 212.08(5)(b),
F.S., and Rule 12A-1.096, F.A.C. It is the Department’s position that the purchases of the self-service
key-cutting machines are subject to tax pursuant to s. 212.05, F.S.

2

Section 212.08(5)(b)6.a., F.S., defines “Industrial machinery and equipment” to mean “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 or is exclusively used in spaceport activities. A building and
its structural components are not industrial machinery and equipment unless the building or structural component is so closely
related to the industrial machinery and equipment that it houses or supports that the building or structural component can be
expected to be replaced when the machinery and equipment are replaced. Heating and air-conditioning systems are not
industrial machinery and equipment unless the sole justification for their installation is to meet the requirements of the
production process, even though the system may provide incidental comfort to employees or serve, to an insubstantial degree,
nonproduction activities. The term includes parts and accessories only to the extent that the exemption thereof is consistent with
the provisions of this paragraph.”

TAA
Page 4

CONCLUSION
Taxpayer’s purchases of self-service key-cutting machines, for use in Florida, do not qualify for the
exemption as industrial machinery and equipment used in new or expanding businesses that manufacture
tangible personal property for subsequent resale in the state of Florida under s. 212.08(5)(b), F.S., and
Rule 12A-1.096, F.A.C.
This response constitutes a Technical Assistance Advisement under s. 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 s. 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 and 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 s.
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.
Kind Regards,

Alan R. Fulton
Tax Law Specialist
Technical Assistance & Dispute Resolution
850-717-6735
ARF\sf
Record ID: 168798