Was a kitchen and bath remodeler a retail seller or a lump-sum real-property improvement contractor for Florida sales tax?

Plain-English summary

The Florida Department of Revenue classified a kitchen and bath remodeler as a lump-sum real-property improvement contractor rather than a retailer selling materials to homeowners.

The remodeler supplied and permanently installed custom stone countertops, cabinets or refacing products, tile, and mosaics. Its customer contracts stated one total price without separately pricing labor and materials, and customers did not take title or risk of loss before installation. The products became fixtures through adhesives and mechanical fasteners.

As the real-property contractor, the remodeler was the ultimate consumer of the materials. Its suppliers should collect sales tax on its purchases, and the remodeler was liable if tax was not collected. The applicable discretionary surtax depended on where the tangible personal property was delivered.

What this means for you

Kitchen, bath, and countertop contractors

Lump-sum contracts for permanently installed fixtures generally place sales-tax liability on the contractor's material purchases, not on a separately stated retail sale to the homeowner.

Material suppliers

The ruling says suppliers should collect tax on stone, tile, mosaics, and other products sold to the contractor for these projects.

Accountants and tax professionals

Distinguish a lump-sum real-property contract from a retail-sale-plus-installation contract. The latter requires all incorporated materials to be itemized and priced before work begins, with the customer taking title and risk of loss on delivery.

Common questions

Q: Why were the installed products fixtures?
A: They were customized for the spaces and permanently attached with adhesives, screws, bolts, and other fasteners.

Q: Did the remodeler collect sales tax from customers on the lump-sum contract?
A: The Department instead treated the remodeler as liable for tax on its own material purchases.

Q: Which county's discretionary surtax applied?
A: The ruling says the surtax was based on the location where the tangible personal property was delivered.

Citations and references

• Fla. Stat. §§ 212.02(16), 212.05(1)(a)1.a., 212.06(14), and 213.22
• Fla. Admin. Code rr. 12A-1.016, 12A-1.051, and 12A-15.008(1)(a)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17A-018

Original ruling text

August 30, 2017

Executive
Director
Leon Biegalski

XXXXXX
XXXXXX
XXXXXX
Subject: Technical Assistance Advisement (“TAA”)
TAA 17A-018
Real Property Improvements
Section(s) 212.02(16), 212.05, and 212.06(14), Florida Statutes (“F.S.”)
Rule(s) 12A-1.051 and 12A-15.008, Florida Administrative Code (“F.A.C.”)
XXXXXXX (“Petitioner”) (“Taxpayer”)
Business Partner#: XXXXXX
FEI#: XXXXXXXX
XXXXXXXXXX (“Franchisor”)
Dear XXXX:
This letter is a response to your petition dated May 22, 2017, but mailed on July 8, 2017, for the
Department’s issuance of a Technical Assistance Advisement (“TAA”) to Petitioner, regarding
whether Taxpayer is a seller of tangible personal property or a real property improvement
contractor. Your petition has been carefully examined, and the Department finds it to be in
compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. 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 is a real property improvement contractor for purposes of Rule 12A-1.051,
F.A.C.?
Facts
Engineered stone is manufactured by the Franchisor and is then sold to Taxpayer. Engineered
stone is custom cut to client’s needs by either the Franchisor or Taxpayer. Re-facing products,
tile, and mosaics are sold by the Franchisor to the Taxpayer. All other materials are purchased
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
by Taxpayer from other vendors. All Franchisor’s material suppliers are either Florida registered
businesses or have nexus with Florida.
Taxpayer is a franchisee of Franchisor. Taxpayer is a kitchen and bath remodeling business,
installing custom engineered stone countertops, new cabinets, or door and re-facing products and
services. Taxpayer is the installer of tile and mosaic products. Taxpayer does not fabricate
tangible personal property.
Taxpayer has a showroom location that displays materials available to potential clients.
Taxpayer’s customers are not allowed to purchase materials for self-installation. Taxpayer is the
only installer of these materials offered at the showroom.
Taxpayer performs an in-home consultation with customers to discuss the project. If a customer
wishes to proceed further, then a written XXXX is provided to the customer that contains a
project description with a total price for the project.
In this agreement, the labor and material are not separately stated. Once the customer signs the
agreement, a deposit is due and refundable for three days. After the three-day period, there is no
refund. After the three-day period, Taxpayer orders materials from Franchisor and other
vendors.
Taxpayer installs the tangible personal property to the customer’s residence as permanent
attachments, using permanent construction adhesives, product specific adhesives, screws, nuts,
bolts, and other mechanical fasteners. Taxpayer’s agreements with its customers do not address
the acceptance of title or delivery by the customer prior to the time of installation.
Taxpayer Position
The installations are intended to be permanent, and are necessary to the proper functioning of the
baths, showers, kitchens, and other areas where they are installed. Taxpayer believes it enters
into lump sum contracts with its customers for the installation of items that become a real
property improvement.
Taxpayer believes that sales tax is due on the purchases made from Franchisor and its other
vendors. Taxpayer does not make retail sales of tangible personal property. Taxpayer believes
that if Franchisor and Taxpayer’s other vendors fail to collect sales tax, then Taxpayer should
remit sales tax directly to the Department on its purchases of tangible personal property from
Franchisor and Taxpayer’s other vendors.
Requested Advisement
Taxpayer would like to know whether it is considered a real property improvement contractor
and whether Taxpayer should collect sales tax from its customers or pay the tax on the purchase
price of tangible personal property used in its contracts. Taxpayer would like to know the
applicable County discretionary sales surtax.
Law and Discussion

Technical Assistance Advisement

The primary issue identified by the request is whether Taxpayer is improving real property, or
selling tangible personal property to Taxpayer’s customers. Section 212.05(1)(a)1.a., F.S.,
applies to sales of tangible personal property. It provides, in part, the following:
It is hereby declared to be the legislative intent that every person is exercising a taxable
privilege who engages in the business of selling tangible personal property at retail in
this state ….
(1) For the exercise of such privilege, a tax is levied on each taxable transaction or
incident, which tax is due and payable as follows:
(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible
personal property when sold at retail in this state, computed on each taxable sale for the
purpose of remitting the amount of tax due the state, and including each and every retail
sale.
Section 212.06(14), F.S., provides, in part, the following:
(14) For the purpose of determining whether a person is improving real property, the term:
(a) “Real property” means the land and improvements thereto and fixtures and is
synonymous with the terms “realty” and “real estate.”
(b) “Fixtures” means items that are an accessory to a building, other structure, or land and
that do not lose their identity as accessories when installed but that do become permanently
attached to realty….
(c) “Improvements to real property” includes the activities of building, erecting,
constructing, altering, improving, repairing, or maintaining real property.
Section 212.05, F.S., provides that the sale of tangible personal property is subject to sales tax on
the sales price of the tangible personal property sold. The sales price can include the charge for
installation and other services that are part of the sale of the tangible personal property. See s.
212.02(16), F.S., and Rule 12A-1.016, Florida Administrative Code (“F.A.C.”).
Generally, stone masonry and tile installations are considered real property improvement
contracts. See Rule 12A-1.051(17), F.A.C. Rule 12A-1.051(4), F.A.C., provides that real
property improvement contractors are the ultimate consumers of materials and supplies they use
to perform real property contracts and must pay tax on their costs of those materials and supplies.
As to the issue whether Taxpayer’s sales are for real property improvements, Rule 12A-1.051,
F.A.C., applies. Rule 12A-1.051, F.A.C., provides, in part, the following:
(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
….
(2) Definitions. For purposes of this rule, the following terms have the following
meanings:

Technical Assistance Advisement
(c)1. "Fixture" means an item that is an accessory to a building, other structure, or to land,
that retains its separate identity upon installation, but that is permanently attached to the
realty. Fixtures include such items as … built-in cabinets, counters ….

(h)1. "Real property contract" means an agreement, oral or written, whether on a lump
sum, time and materials, cost plus, guaranteed price, or any other basis, to:
a. Erect, construct, alter, repair, or maintain any building, … or other real property
improvement;

c. Furnish and install tangible personal property that becomes a part of or is directly …
embedded in or securely affixed to … a structure thereon.

Rule 12A-1.051(2)(c)3., F.A.C., provides that the determination whether an item is a fixture
depends upon a review of all the facts and circumstances. When attachment of the tangible
personal property is screwed or bolted in place and removal is impossible without causing
substantial damage to the underlying realty, then the item attached tends to be considered a
fixture. If the property holder who causes an item to be attached to realty intends that the item
will remain in place for an extended or indefinite period of time, that item is more likely to be
a fixture. If the property owner reports the value of the item for property tax purposes as
realty and depreciates the item for federal income tax purposes as real property, this tends to
indicate an intent that the property be permanently attached as a fixture. If items are custom
designed or custom assembled to be attached in a particular space, they are more likely to be
classified as fixtures. Customization indicates intent that the items are to remain in place
following installation. Based on the information provided in the request, Taxpayer’s
installation services relate to fixtures.
Rule 12A-1.051(3), F.A.C., provides the classification of contracts by pricing. The taxability of
purchases and sales by real property contractors is determined by the pricing arrangement in the
contract. Contracts generally fall into different categories. As to lump sum contracts, the
contractor agrees to furnish materials and supplies, and necessary services, for a single stated
lump sum price.
Rule 12A-1.051(3)(d), F.A.C., address 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.” 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…. “ (Emphasis added)
Response

Technical Assistance Advisement

Based on the documentation and information provided, Taxpayer is a lump sum real property
improvement contractor. Taxpayer does not issue contracts provided for by Rule 12A1.051(3)(d), F.A.C., because Taxpayer’s customers do not obtain title and assume risk of loss of
the items installed until the items are attached as fixtures.
Taxpayer’s sales are for real property improvements as provided by Rule 12A-1.051(4), F.A.C.
Taxpayer is liable for the tax on its purchases of tangible personal property. Taxpayer’s
suppliers should be collecting and remitting sales tax on Taxpayer’s purchases of stone, tile,
mosaics, and other products used by the Taxpayer to complete the real property improvement
contracts. The discretionary sales surtax is due based on where the tangible personal property is
delivered. See Rule 12A-15.008(1)(a), F.A.C.
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 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 10 days of the date of this
letter.
Respectfully,
Chuck Wallace
Chuck Wallace
Technical Assistance & Dispute Resolution
(850) 717-7541
Record ID: 16435