Which costs entered the Florida use-tax base when a road contractor excavated its own fill dirt from owned or leased borrow pits?

Subject

Fill Dirt

Plain-English summary

The contractor's use-tax base included the land cost plus costs attributable to clearing, excavating, and loading its self-supplied fill dirt. The Department included clearing and grubbing, access-road site preparation, inbound equipment mobilization and unloading, mining-equipment depreciation, fuel, labor and repairs, depletion, and the labor, fuel, and repair costs of loading.

The front-end loader equipment itself was excluded, as were borrow-pit reclamation costs. Outbound mobilization and loading costs for removing equipment from the pit were also excluded. Overhead and indirect costs entered the base only to the extent attributable to mining and excavation.

The Department said the classification was preliminary and subject to audit verification.

What this means for you

The historical cost method did not stop at the dirt's raw land value. It traced direct and allocable indirect costs through getting the material cleared, excavated, and loaded, while excluding later reclamation and specified equipment-removal costs.

Common questions

Q: Were access roads and initial clearing included? Yes.

Q: Were both inbound and outbound mobilization included? No. Only costs of bringing the equipment into the borrow pit were included.

Q: Was the front-end loader itself included? No, but its loading labor, fuel, and repair costs were included.

Q: Were reclamation costs included? No.

Q: Were overhead and indirect costs automatically included in full? No. Only the portion attributable to mining and excavation entered the base.

Citations and references

• Fla. Admin. Code r. 12A-1.051(11), (12) — contractor use tax on self-supplied fill materials
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-038

Original ruling text

Jun 23, 1993

RE: TAA 93A-038
Sales Tax on Fill Dirt
Rule 12A-1.051(11), (12), F.A.C.

Dear :

This acknowledges receipt of your letters dated March 23,
1993, and May 11, 1993, to the Department, requesting a
Technical Assistance Advisement (TAA) on the transaction
described below.

FACTS

The XXX, (hereinafter, Taxpayer) is a road contractor which
will be involved in the excavation of its own fill for the use
and supplying of dirt to its own projects for the construction
of roadways within Florida. Taxpayer either owns or leases the
location from which the dirt will be excavated.

You are seeking the Department's determination as to the
appropriate method for calculating the taxable base under Rule
12A-1.051(12), F.A.C.

Your letter of March 23, 1993, provides a list of
categories of items which might be included within the
calculation of such costs, and your letter of May 11, 1993,
provides additional categories. The categories listed in your
letter dated May 11, 1993, were incorporated into the listed
categories of your March 23, 1993, letter, as agreed pursuant to
our conversation and my written confirmation to you, dated May
19, 1993, and as indicated below.

Your letter of March 23, 1993, contained the categories
stated below.

Mobilization
Explanation: Company freight on equipment into and out of

Borrow Pit.
Labor - Loading and unloading of equipment.

Mining Operations
Explanation: a. Depreciation on equipment used in excavation
of dirt.
b. Fuel, oil and grease for use in mining
equipment.
c. Equipment operator for mining equipment labor.
d. Repair labor to mining equipment.
e. Repair parts to mining equipment.
f. Depletion of owned property.

Loading Equipment
Explanation: a. Front end loader equipment for loading dirt
into rented trucks.
b. Front end loader labor.
c. Fuel, oil and grease for front end loader
equipment.
d. Repair labor for front end loader equipment.
e. Repair parts for front end loader equipment.

Reclamation of Borrow Pit
Explanation: a. Labor, equipment, fuel and repairs to
reclaim property in compliance with Borrow
Pit Permit.

Overhead

Your subsequent correspondence of May 11, 1993, included
the categories listed below, on the left; to the right of the
page is listed my understanding, as confirmed by you, regarding
where these categories shall fall with respect to the first list
of categories contained in the TAA request dated March 23, 1993.

CATEGORY

MY UNDERSTANDING

Clear and Grub

(This represents clearing

Clear and Grub - Labor

of some bush prior to

Clear and Grub - GM

the actual excavation.)

Clear and Grub - Outside Rental

Site Preparation

(This represents labor

Access Road - Labor

charges for access roads

Access Road - EM

in preparation for the

Access Road - PM

actual excavation.)

Mobilization

(This is already included

Mobilization Labor

in the category labeled

Mobilization - SUB

"mobilization" of the

Mobilization - EM

original TAA request.)

Mobilization - Outside Rental

Mining and Loading

(This is already included

Mining and Loading - Labor

in categories labeled

Mining and Loading - EM

"Mining Operations" and

Mining and Loading - SUB

"Loading Equipment" of the

Mining and Loading - Outside Rental

original TAA request.)

Depletion Cost
Depletion Surcharge

Pit Reclamation

(This is already included

Pit Reclamation - Labor

in the category labeled

Pit Reclamation - EM

"Reclamation of Borrow

Pit Reclamation - SUB

Pit" of the original

Pit Reclamation - Outside Rental

Indirect Costs
Drug Testing

(These are overhead
expenses, and shall be

Expense Material

included in the category

Supervision Labor labeled
Engineering Labor

"Overhead" of the
original TAA request.)

Clerical Labor
Survey Labor
Survey Outside Crews Material
Ticket Writer - Day
Ticket Writer - Night
Outside Engineering Material
Permits/Licenses/Taxes Material
Radios Material
Program & Supplies Labor

TAA request.)

Program & Supplies Material
Sanitary Service Material
Security Sub
Supervisory Relocation Material
Travel - Per Diem - Material
Small Tools & Supplies Material
Office Equipment & Supplies Material
Engineering Supplies Material
Temporary Buildings Labor
Temporary Buildings Material
Electric Hookup Material
Telephone Hookup Material
Water Hookup Material
Electric Use Charge Material
Telephone Use Charge Material
Water Use Charge Material
Ice Material
Vacation & Holiday Labor
Workmans Comp & Liability Material
Workmans Comp & Liability Deductibles Material
Taxes Payroll Material
Equipment & Equipment Operations

(These are other indirect

Outside Rental Material

costs, and shall be

Fuel/Oil/Grease Labor

labeled "Indirect Costs".)

Fuel/Oil/Grease Material
Repair, Depreciable Equip - Labor
Repair, Depreciable Equip - Material
Freight Material
Equip Erect & Dism Labor
Equip Erect & Dism Material

DISCUSSION AND DETERMINATION

Rule 12A-1.051, F.A.C., provides in pertinent part as
follows:

"(1) This rule shall govern the taxability of purchases or
use of tangible personal property by contractors who
purchase or manufacture materials and supplies for use in
the performance of non public works contracts....

"(11)(a) When a contractor secures the rock, shell, fill
dirt and similar materials he uses in construction work
from a quarry, pit or other location he owns or leases, he
is the ultimate consumer of such materials and is liable
for use tax thereon. The basis upon which the contractor
shall remit the tax is the fair retail market value
determined by establishing either the price he would have
to pay for it on the open market or the price he would
regularly charge if he sold it to other contractors or
users.
"(b) When a contractor does not own or lease the land but
has entered into an agreement to purchase fill dirt, rock,
shell or similar materials for his own use, and wherein the
contractor will excavate and remove the material, the
taxable basis shall include the cost of the material plus
all costs of clearing, excavating and removing, including
labor and all other costs incurred by the contractor.
"(12) In lieu of the method described in paragraph (11)(a)
above, for determining the taxable basis on rock, shell,
fill dirt and similar materials a contractor uses in
construction work, the Department will accept as the
taxable basis the land cost plus all costs of clearing,
excavating and loading, including labor, power, blasting,
etc."

Therefore, as provided in the above quoted rule, all costs
related to the acquisition of the land, in addition to all costs
related to the clearing, excavating, loading and blasting,
including the cost of labor and power, shall be included to
determine the taxable basis.

Consistent with the aforementioned rule, the Department's
conclusion regarding the inclusion or exclusion of these
categories from the taxable base are listed below. To the left
hand of the page will be listed the categories of cost, and to
the right hand of the page will be listed the Department's
preliminary determination of which categories are to be included
or excluded from the taxable base.

CATEGORY OF COST

INCLUDED OR EXCLUDED

Clear and Grub
Explanation: The actual clearing of bush prior to commencing
any work.

Included

Site Preparation
Explanation: The cost for access roads.

Included

Mobilization
Explanation: Company freight on equipment into and out of
Borrow Pit.*

(NOTE:

Explained

Only the mobilization costs for bringing the equipment

in is to be included in the taxable base, not the mobilization
costs for taking the equipment from the site.)

Labor - Loading and unloading of
equipment.*

(NOTE:

Explained

Only the loading costs for bringing the equipment in

is to be included in the taxable base, not the loading costs for
taking the equipment from the site.)

Mining Operations
Explanation: a. Depreciation on equipment used in excavation
of dirt.

Included

b. Fuel, oil and grease for use in mining
equipment.

Included

c. Equipment operator for mining equipment labor.*

Included

d. Repair labor to mining equipment.
Included

e. Repair parts to mining equipment.
Included

f. Depletion of owned property. Included

Loading Equipment

Explanation: a. Front end loader equipment for loading dirt
into rented trucks.

Excluded

b. Front end loader labor.*

Included

c. Fuel, oil and grease for front end loader
equipment.*

Included

d. Repair labor for front end loader equipment.
Included

e. Repair parts for front end loader equipment.
Included

Reclamation of Borrow Pit
Explanation: a. Labor, equipment, fuel and repairs to
reclaim property in compliance with Borrow
Pit Permit.

Overhead

Excluded

Explained

(NOTE: To the extent that the costs are attributable to the
mining and excavation of the fill dirt, these costs shall be
included in the taxable base.)

Indirect Costs

Explained

(NOTE: To the extent that the costs are attributable to the
mining and excavation of the fill dirt, these costs shall be
included in the taxable base.)

(Please be advised that the Department had notice that your
position is that the items followed by an asterisk, were the
categories you contend are included within the taxable basis;
and that all other items in the list are not subject to being
included within the taxable basis. As stated above, the
Department agrees, in part, with you.)

This response is predicated upon the facts and
circumstances of your letters and our conversations, and is
subject to audit verification.

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
based 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 s. 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,

Nydia Men‚ndez
Technical Assistant

NM/pb
Con. #8498