Which systems for a new cogeneration plant qualified for Florida's machinery exemption for producing electrical or steam energy?

View original ruling (PDF)

Subject

Machinery and Equipment Used in Production of Electrical or Steam Energy

Plain-English summary

The Department classified the proposed cogeneration plant's systems individually as fully exempt, partially exempt, or taxable under the integrated-plant approach. Machinery and equipment used as components of producing electrical or steam energy could qualify even when their purpose was to make the plant operate practically or comply with pollution-control mandates.

Many auxiliary power, control, feedwater, fuel-gas, generator, steam-generation, turbine, water-supply, and water-treatment systems qualified. Several systems qualified only in part where some equipment served the separate carbon-dioxide plant, sanitary or nonessential functions, offices, storage, or other nonproduction uses.

Ordinary communications and telephone systems, construction utilities and buildings, general lighting, plant-maintenance systems, most sampling systems, roads, parking, fencing, grading, and space conditioning did not qualify. The ruling said nonqualifying line items were real-property improvements, were not machinery or equipment, or were not used to produce electrical or steam energy.

What this means for you

The exemption was functional and item-specific. Being located at a generating plant was not enough; each system had to be production machinery or an integrated component of the qualifying energy process.

Common questions

Q: Did legally required pollution-control equipment qualify? Yes, under the integrated-plant analysis described in the ruling.

Q: Did every system at the plant qualify? No.

Q: Why were some systems only partly exempt? Parts served the separate CO2 plant or nonproduction, sanitary, office, storage, or general-service functions.

Citations and references

• Fla. Stat. § 212.08(5)(c) — machinery and equipment producing electrical or steam energy
• Jacksonville Electric Authority v. Department of Revenue, 486 So. 2d 1350 (Fla. 1st DCA 1986)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-037

Original ruling text

Jun 18, 1993

RE: Technical Assistance Advisement 93A-037
Sales and Use Tax; Machinery and Equipment Used in
Production of Electrical or Steam Energy.
Section 212.08(5)(c), F.S.

Dear :

This is in response to your letter of November 16, 1992,
wherein you requested a technical assistance advisement
concerning the purchases of machinery and equipment for a new
cogeneration facility. Your letter provides the following
project description.

"The project in question proposes to build XXX, a 110 +/megawatt facility near the XXX. The project will consist
of electric generating equipment, including a steam boiler,
steam turbine generator, combustion gas turbine, pollution
control equipment, water treatment plant and other
auxiliary equipment.

"The primary fuel supply will be a combination of coal and
natural gas or natural gas only. The electrical output of
the facility is to be sold to XXX and XXX. Approximately
5% of the thermal energy output of the facility will be
used in a CO2 manufacturing process by a purchaser which is
unknown at the present time."

RELEVANT AUTHORITY

The statutory authority for the specific exemption in
question is Section 212.08(5)(c), F.S., which provides:

"(c) Machinery and equipment used in production of
electrical or steam energy. - The purchase of machinery and
equipment for use at a fixed location which equipment and
machinery are necessary in the production of electrical or
steam energy resulting from the burning of boiler fuels

other than residual oil is exempt from the tax imposed by
this chapter. Such electrical or steam energy must be
primarily for use in manufacturing, processing,
compounding, or producing for sale items of tangible
personal property in this state. However, the exemption
provided for in this paragraph shall not be allowed unless
the purchaser signs an affidavit stating that the item or
items to be exempted are for the exclusive use designated
herein. Any person furnishing a false affidavit to the
vendor for the purpose of evading payment of any tax
imposed under this chapter shall be subject to the penalty
set forth in s. 212.085 and as otherwise provided by law."

FPL/JEA COURT CASE

As you are aware, the scope of Section 212.08(5)(c), F.S.,
was reviewed by the First District Court of Appeals of Florida
in Jacksonville Electric Authority v. Department of Revenue, 486
So.2d 1350 (Fla. App. 1 Dist. 1986). The case involved the
taxable status of certain machinery and equipment purchased by
the Jacksonville Electric Authority to be used in the burning of
coal to produce electrical energy. The machinery and equipment
fell into three categories: (1) coal handling equipment; (2)
equipment required by state and federal law; and (3)
electrostatic precipitators.

The District Court of Appeals determined that it was the
legislative intent, based on the tape recorded proceedings of
the Florida Senate Committee on Ways and Means, to embrace the
"integrated plant theory" as a basis for interpreting the
exemption for machinery and equipment provided in Section
212.08(5)(c), F.S. Under the "integrated plant theory",
machinery and equipment used in the process of generating
electrical energy, regardless of the fact that such machinery
and equipment was not intrinsically necessary to generate
electrical energy or the sole purpose of such machinery and
equipment was to make the plant function more practically, would
be considered a component part of the manufacturing process.
Therefore, the machinery and equipment used in the process of
generating electrical energy would qualify for the exemption
provided in Section 212.08(5)(c), F.S.

The Court construed Section 212.08(5)(c), F.S., to include
pollution control equipment as "necessary in the production of
steam or electrical energy", notwithstanding that a plant could
theoretically produce electrical or steam energy without the
legally mandated pollution control equipment. The Court stated:

"No matter how theoretical the physics of producing steam
or electrical energy, in reality, no equipment or machinery
in Florida is going to produce electricity without the
mandated pollution control equipment."

DETERMINATION

When determining whether machinery and equipment qualifies
for the exemption provided in Section 212.08(5)(c), F.S., the
Department of Revenue is guided by the Jacksonville Electric
Authority v. Department of Revenue, 486 So.2d 1350 (Fla. App. 1
Dist. 1986), court case which instructed the Department to
embrace the "Integrated Plant Theory." The Department
implemented the court's instructions by amending "Exhibit B" of
the JEA/FPL Declaratory Statement. "Exhibit B" now serves as a
guide for the Department when embracing the "Integrated Plant
Theory." A photocopy of "Exhibit B" is enclosed for your
information and convenience.

Along with your request, you submitted a copy of the final
"Engineering, Procurement and Construction Agreement" for
examination. This technical assistance advisement will respond
to the system definitions as presented in "Exhibit I.A." of that
document. The determination as to whether a particular line
item qualifies or does not qualify is based on whether that line
item matches or is the equivalent to those items listed in
"Exhibit B" of the JEA/FPL Declaratory Statement.

SYSTEM

QUALIFIES
PURSUANT TO
s. 212.08(5)(c)

0400

Auxiliary Power Supply

AP-

0402

AC Power Supply (120/208 V)

APB

Yes

0403

AC Power Supply (480 V)

APC

Yes

0404

AC Power Supply (4,160 V)

APD

Yes

0408

DC Power Supply

APH

Yes

0409

Essential Service AC

API

Yes

0600

Plant Auxiliary Steam

PS-

0604

Process and Auxiliary

PSD

Partial

Steam Supply

(Comment: All machinery and equipment within this category will
qualify for the exemption except for such machinery, equipment,
piping, valves, and accessories that are located within the CO 2
plant as designated by Facility Legend number 20 on the Plot
Plan contained in Exhibit "D" of the "Engineering, Procurement
and Construction Agreement.")

0800

Structures

BS-

0801

Generation Area Structures

0806

Plant Services Building

BSF

0821

Miscellaneous Structures

BSU

BSA

Yes

No

Partial

(Comment: The cooling tower basin and the circulating water pump
intake structure will qualify for the exemption. The
circulating water building will not qualify for the exemption.)

1600

Communications

CM-

1601

Plant Communications

CMA

No

1604

Commercial Telephone

CMD

No

1800

Compressed Air

CA-

1802

Compressed Air

CAB

Partial

(Comment: The distribution piping and valves associated with
nonessential air requirements, including quick disconnects and
outdoor service air will not qualify for the exemption.)

2200

Construction Facilities

CF-

2201

Construction Power

CFA

No

2202

Construction Water

CFB

No

2203

Construction Buildings

CFC

No

2204

Construction Security

CFD

No

2205

Construction Lighting

CFE

No

2210

Construction Sanitary

CFJ

No

and Information System

COA

Yes

2600

Cycle Heat Rejection

HR-

2602

Condenser Air Extraction

HRB

2603

Circulating Water

Facilities

2400

Control

2401

Distributed Control

CO-

HRC

Yes

Partial

(Comment: All machinery and equipment within this category will
qualify for the exemption except for such machinery, equipment,
piping, valves, and accessories that are located within the CO2
plant as designated by Facility Legend number 20 on the Plot
Plan contained in Exhibit "D" of the "Engineering, Procurement
and Construction Agreement.")

2605

Circulating Water Chemical Feed

HRE

Partial

(Comment: All machinery and equipment within this category will
qualify for the exemption except for such machinery, equipment,
piping, valves, and accessories that are located within the CO2
plant as designated by Facility Legend number 20 on the Plot
Plan contained in Exhibit "D" of the "Engineering, Procurement
and Construction Agreement.")

2800

Drains and Plumbing

2806

Plant Services Building Drains
and Plumbing

DP-

DPF

Partial

(Comment: Floor and equipment drains will qualify for the
exemption, while sanitary drains will not qualify for the
exemption.)

3000

Electrical

EE-

3001

Freeze Protection

3002

Grounding

EEB

Yes

3003

Raceway

EEC

Yes

3004

Cathodic Protection

EED

3201

Equipment Cooling

EC-

3201

Auxiliary Cooling Water

ECA

3400

Feedwater

FW-

3401

Boiler Feed

FWA

Yes

3403

Condensate

FWC

Yes

3404

Condensate Return

EEA

Yes

FWD

Yes

Yes

Partial

(Comment: All machinery and equipment within this category will
qualify for the exemption except for such machinery, equipment,
piping, valves, and accessories that are located within the CO2

plant as designated by Facility Legend number 20 on the Plot
Plan contained in Exhibit "D" of the "Engineering, Procurement
and Construction Agreement.")

3405

Cycle Chemical Feed

3600

Fire Protection

3601

Equipment Fire Protection

FWE

Yes

FPA

Partial

FP-

(Comment: That equipment providing protection for the office,
maintenance shop, and warehouse areas will not qualify for the
exemption.)

3800

Fuel Gas

3801

Fuel Gas Supply

FG-

FGA

Yes

(Comment: Piping, valves, or other equipment prior to the
metering station will not qualify for the exemption.)

4000

Fuel Oil

FO-

4001

Fuel Oil Unloading and Storage

FOA

Partial

(Comment: All items will qualify except for the 700,000 gallon
fuel oil storage tank.)

4002

Fuel Oil Supply

FOB

4200

Generator Terminal

4201

Steam Turbine Generator

Yes

GT-

GTA

Bus Duct

4202

Steam Turbine Generator
Transformer

4203

GTB

Yes

Steam Turbine Generator Surge
Protection

GTC

Yes

Yes

4204

Steam Turbine Generator Neutral
Grounding

4206

Yes

Combustion Turbine Generator
Bus Duct

4207

GTD

GTF

Yes

Combustion Turbine Generator
Transformer

GTG

Yes

4600

Lighting

LT-

4601

Generation Area Lighting

LTA

No

4606

Plant Services Building

LTF

No

Lighting

4621

Miscellaneous Structures

LTU

No

Lighting

4800

Plant Maintenance

PM-

4801

Chemical Cleaning

PMA

No

4802

Shutdown Corrosion

PMB

No

Protection

5000

Primary Power Supply

5001

Switchyard

PP-

PPA

No

(Comment: Distribution equipment occurring after the first
step-up transformer will not qualify for the exemption.
However, interconnect equipment as mandated by the Florida
Public Service Commission and the Federal Energy Regulatory
Commission will qualify for the exemption.)

5200

Sampling and Analysis

5203

Steam Cycle Sampling and
Analysis

SASAC

No

5204

Circulating Water Sampling
and Analysis

5205

SAD

No

Water Supply Sampling and

SAE

No

Analysis

5206

Plant Effluent Sampling and
Analysis

SAF

No

5400

Site

ST-

5401

Roads and Parking

STA

No

5404

Fencing and Security

STD

No

5406

Grading and Drainage

STF

No

5407

Site Fire Protection

STG

Partial

(Comment: All equipment will qualify for the exemption except
the hydrant houses where equipment is stored.)

5408

Area Lighting

5600

Space Conditioning

5606

Plant Services Building Space
Conditioning

5621

STH

No

SC-

SCF

No

Miscellaneous Structures Space
Conditioning

SCU

No

5800

Steam Generation

SG-

5801

Steam Generator

SGA

Yes

5806

Boiler Blowdown

SGF

Yes

5807

Main Steam

SGG

Yes

5811

Temporary Blowout

SGK

No

5812

Ducting, Damper, and Stack

6200

Turbine Generator

TG-

6201

Steam Turbine

TGA

6202

Steam Turbine Generator and
Excitation

6203

SGL

TGB

Yes

Yes

Yes

Steam Turbine Seals and

TGC

Yes

TGD

Yes

Drains

6204

Steam Turbine Lube Oil

6206

Steam Turbine Control
and Instrumentation

TGF

6208

Combustion Turbine

6209

Combustion Turbine Generator
and Excitation

6210

TGH

TGI

TGJ

Yes

Yes

Combustion Turbine Control
and Instrumentation

6400

Yes

Combustion Turbine Off-Base
Auxiliaries

6212

Yes

TGL

Waste Collection and

Yes

WW-

Treatment

6401

Chemical Waste Collection
and Treatment

6402

Yes

WWB

No

WWC

Yes

Sanitary Waste Collection
and Treatment

6403

WWA

Wastewater Collection
and Treatment

6404

Oil Spill Prevention

WWD

6600

Water Supply and Storage

6602

Well Water Supply

6603

Service Water

6605

Fire Protection Water

WS-

WSB

Supply and Storage

Yes

WSC

Yes

WSE

Yes

6608

Demineralized Water Supply

6800

Water Treatment

6802

Service Water Treatment

6804

Demineralized Water Treatment
System

Yes

WSH

Yes

WT-

WTD

WTB

Yes

Yes

It is important to note that the exemption provided by
Section 212.08(5)(c), F.S., is limited to machinery and
equipment used in the production of electrical or steam energy.
The above line items indicated as not qualifying for the
exemption are either real property improvements, or are not
machinery or equipment, or if they are machinery or equipment,
they are not used in the production of electrical or steam
energy.

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 and your request

are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of Section 213.22,
F.S. Your name, address, and any other details which might lead
to identification of the taxpayer must be deleted by the
Department before disclosure. In an effort to protect the
confidentiality of such information, we request you notify the
undersigned in writing within 15 days of any deletions you wish
made to the request or the response.

Sincerely,

JEFFERY L. SOFF
Tax Law Specialist
Statutory Compliance

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