Can a Florida government retroactively remove sales tax after its contractor already bought public-works materials and paid the tax?

Plain-English summary

The Florida Department of Revenue ruled that a governmental entity could not retroactively remove sales tax after a contractor or subcontractor had already purchased construction materials and paid the tax. Sales tax was due at the moment of the contractor's transaction.

For a public-works material purchase to be an exempt direct sale to the government, five requirements had to be present: a government-issued purchase order, an invoice directly to the government, direct payment from public funds, passage of title to the government, and government assumption of risk of loss.

The government also had to issue the vendor and contractor a Certificate of Entitlement tied to the purchase order. Supplying that certificate and an exemption certificate only after the sale could not change who made the original purchase or satisfy the five requirements.

What this means for you

Government procurement teams

Set up exempt purchases before vendors invoice or contractors pay. A planned direct purchase that is not implemented at the transaction stage will not qualify retroactively.

Public-works contractors and suppliers

Confirm the purchaser before accepting an order. Rebilling a completed contractor purchase to the government does not transform the substance of the transaction.

Accountants and tax professionals

Audit the full documentary chain: purchase order, certificate, invoice, payment, title, insurance, and risk of loss. Missing transaction-stage steps cannot be cured simply by later paperwork.

Common questions

Q: Can the vendor remove tax after receiving government certificates later?
A: No. The ruling says later certificates do not make the contractor's completed purchase exempt.

Q: What are the five required direct-purchase criteria?
A: Direct purchase order, direct invoice, direct payment, passage of title, and government assumption of risk of loss.

Q: Must the purchase order accompany the Certificate of Entitlement?
A: Yes. The government must issue a separate certificate tied to each purchase order.

Q: Why can't the vendor simply rebill the government?
A: Florida examines the transaction's substance, and the contractor—not the government—made the original taxable purchase.

Citations and references

• Fla. Stat. §§ 212.06(1)(a), 212.08(6)(b), and 213.22
• Fla. Admin. Code rr. 12A-1.056(1)(a) and 12A-1.094(4)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 19A-005

Original ruling text

QUESTION: If a contractor or a subcontractor purchases materials for a project for an exempt
governmental entity and pays tax at the time of the sale, can the governmental entity submit a
Certificate of Exemption and a Certificate of Entitlement to the vendor after the transaction has
occurred and have the sales tax on that transaction removed?
ANSWER: No. If a contractor or subcontractor purchases materials for a governmental entity and pays
tax at the time of the sale, the five criteria of 1) Direct Purchase Order, 2) Direct Invoice, 3) Direct
Payment, 4) Passage of Title, and 5) Assumption of the Risk of Loss will not have been met. Therefore,
the governmental entity cannot submit a Certificate of Exemption and a Certificate of Entitlement to a
vendor after a transaction has occurred and have the sales tax removed. Another requirement for a
governmental entity to be entitled to purchase materials tax exempt for a public works project is that a
purchase order be attached to the Certificate of Entitlement and that these be issued to the vendor
supplying the materials for the project. Providing a Certificate of Entitlement to a vendor after a sale
has occurred would not meet this requirement, and the sale would not be tax exempt pursuant to Rule
12A-1.094(4)(a)-(c), F.A.C.
February 25, 2019
XXXX
XXXX
XXXX
Re:

Technical Assistance Advisement No. 19A-005
Sales and Use Tax – Public Works Contracts
XXXX (“Taxpayer”)
Sections 212.06(1)(a) and 212.08(6)(b), Florida Statutes (“F.S.”)
Rules 12A-1.056(1)(a) and 12A-1.094, Florida Administrative Code (“F.A.C.”)

Dear XXXX:
This letter is a response to your petition on behalf of XXXX (“Taxpayer”), dated October 8, 2018, for the
Florida Department of Revenue’s (the “Department’s”) issuance of a Technical Assistance Advisement
("TAA") concerning whether, if a contractor or a subcontractor purchases materials for a project for an
exempt governmental entity and pays tax at the time of the sale, the governmental entity can submit a
Certificate of Exemption and a Certificate of Entitlement after a transaction has occurred. 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 s. 213.22, F.S.

XXXX (“Taxpayer”)
February 25, 2019
Florida Department of Revenue
Page #2

Requested Advisement
If a contractor or a subcontractor purchases materials for a project for an exempt governmental entity
and pays tax at the time of the sale, can the governmental entity submit a Certificate of Exemption and a
Certificate of Entitlement to the vendor after the transaction has occurred and have the sales tax on that
transaction removed?
Facts As Provided
This petition for a TAA is brought on behalf of XXXX (“Taxpayer”). XXXX. The request for advisement
arises out of situations in which there are misunderstandings as to whether the contractors or
subcontractors are going to be purchasing the materials to be incorporated into exempt governmental
entities’ building projects or whether the exempt entities are going to be purchasing the materials
directly. On occasion, contractors or subcontractors purchase and pay tax on building materials which
will be used in projects for governmental entities. In these instances, the governmental entities may
have planned on purchasing the materials themselves and not paying tax by virtue of using Certificates
of Exemption and Certificates of Entitlement. Often, in these situations, pressure comes from the
governmental entities through the contractors and subcontractors to the material suppliers for the
suppliers to re-bill the completed sales directly to the governmental entities without the tax. The
governmental entities also ask the suppliers to apply the Certificates of Exemption and Certificates of
Entitlement retroactively back to the time of the sales in order for the suppliers to remove the tax on
the contractors’/subcontractors’ purchases.
Applicable Law and Discussion
Sales tax is due at the time of the moment of the sales transaction. Rule 12A-1.056(1)(a), F.A.C.,
provides, in relevant part:
The total amount of tax on cash sales, credit sales, installment sales, or sales made on any
kind of deferred payment plan shall be due at the moment of the transaction. . . .
(Emphasis added.)
See also s. 212.06(1)(a), F.S. Therefore, if a contractor or a subcontractor purchases building materials
for a governmental entity’s project, the contractor or subcontractor must pay tax at the time of the sale
or purchase.
Rule 12A-1.094(4)(a)-(c)1. and 2., F.A.C., pertaining to Public Works Contracts, also provides, 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

XXXX (“Taxpayer”)
February 25, 2019
Florida Department of Revenue
Page #3

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 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 Certification 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. . . .
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.
   See also s. 212.08(6)(b), F.S.
   When a governmental entity submits a Certificate of Entitlement to a vendor, one of the things it is
   affirming in the Certificate is that purchase of the tangible personal property contained in the Purchase
   Order it is submitting with the Certificate of Entitlement meets the five exemption requirements in Rule
   12A-1.094(4)(b)1.-5., F.A.C., above. See Rule 12A-1.094(4)(c), F.A.C. The Certificate of Entitlement

XXXX (“Taxpayer”)
February 25, 2019
Florida Department of Revenue
Page #4

contains a checklist with those five exemption requirements listed, and an authorized representative of
the governmental entity must initial beside each requirement affirming that the requirement has been
met. See Rule 12A-1.094(4)(c)4., F.A.C. The exemption requirements in the checklist that the
governmental representative must affirm have been met in a Certificate of Entitlement are:

1. The purchase order attached to the Certificate of Entitlement must be issued
   directly to the vendor supplying the tangible personal property the Contractor will use in
   the identified public works.
2. The vendor’s invoice must be issued directly to the governmental entity.
3. Payment of the vendor’s invoice must be made directly by the governmental entity
   to the vendor from public funds.
4. A governmental entity must take title to the tangible personal property from the
   vendor at the time of purchase or of delivery by the vendor.
5. The governmental entity must assume the risk of damage or loss at the time of
   purchase or delivery by the vendor.
   See Rule 12A-1.094(4)(b) and (c)4., F.A.C.
   An authorized representative of the governmental entity and the purchaser must also sign the Certificate
   of Entitlement, declaring under penalty of perjury that the facts stated in it are true. See Rule 12A1.094(4)(c)4., F.A.C.
   Turning to your question as to whether a governmental entity can submit a Certificate of Exemption and
   a Certificate of Entitlement to a vendor after a contractor or subcontractor has purchased materials and
   paid tax and have the tax on those materials retroactively removed, the answer is “no.” In order for a
   governmental entity to be entitled to purchase materials tax exempt for a public works project, it must:
   . . . 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. . . .1
   See Rule 12A-1.094(4)(c)1., F.A.C.

A representative for the governmental entity must also affirm in the Certificate of Entitlement that each
of the five exemption requirements delineated above (and found in Rule 12A-1.094(4)(b) and (c)4.,
F.A.C.) have been met. The first requirement is that the purchase order be attached to the Certificate of
Entitlement and that these be issued to the vendor supplying the materials for the public works project.
1

This requirement does not apply to any agency or branch of the United States government.

XXXX (“Taxpayer”)
February 25, 2019
Florida Department of Revenue
Page #5

Therefore, if a Certificate of Entitlement is not submitted at the time of purchase, the governmental
entity will not meet that first exemption requirement and it will not be entitled to purchase those
materials tax exempt. If a contractor or subcontractor purchases materials for a governmental entity
and pays tax at the time of the sale and the governmental entity submits a Certificate of Exemption and
Certificate of Entitlement to the vendor after the transaction has occurred, as in your scenario, the sale
will not be tax-exempt pursuant to Rule 12A-1.094(4)(a)-(c)1. and 2.
Conclusion
If a contractor or subcontractor purchases materials for a governmental entity and pays tax at the time
of the sale, the five criteria of 1) Direct Purchase Order, 2) Direct Invoice, 3) Direct Payment, 4) Passage
of Title, and 5) Assumption of the Risk of Loss will not have been met. Therefore, the governmental
entity cannot submit a Certificate of Exemption and a Certificate of Entitlement to a vendor after a
transaction has occurred and have the sales tax removed. Another requirement for a governmental
entity to be entitled to purchase materials tax exempt for a public works project is that a purchase order
be attached to the Certificate of Entitlement and that these be issued to the vendor supplying the
materials for the project. Providing a Certificate of Entitlement to a vendor after a sale has occurred
would not meet this requirement, and the sale would not be tax exempt pursuant to Rule 12A1.094(4)(a)-(c), 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 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,

Katharine Heyward
Katharine Heyward
Senior Attorney
Technical Assistance & Dispute Resolution
Record ID: XXXX