Was a county's systems-furniture purchase exempt after a turnkey contractor assigned the vendor contract to the county?

Subject

Governmental Entities Exemption

Plain-English summary

The county's direct purchase of freestanding systems furniture was exempt from Florida sales tax after the turnkey project group assigned the vendor contract to the county. The furniture was tangible personal property rather than a permanent fixture.

The county would issue its own purchase order, be invoiced directly, pay the vendor directly, take immediate title, bear the risk of damage or loss before installation, and provide its consumer's exemption certificate. The contractor would continue managing installation but would no longer own or pay for the furniture.

The Department made the conclusion subject to audit verification. If an audit found that the transaction did not satisfy the stated requirements, the answer was null and void.

What this means for you

A public-works contractor's purchases were ordinarily taxable to the contractor. This arrangement qualified only because the county became the genuine direct purchaser before the sale.

Common questions

Q: Did the contract assignment alone create the exemption? No. The county also had to satisfy the direct-purchase, payment, title, risk, and certificate requirements.

Q: Did contractor-managed installation defeat the exemption? No, under the stated structure.

Q: Was the ruling final regardless of actual performance? No. It was expressly subject to audit verification.

Citations and references

• Fla. Stat. § 212.08(6) — direct sales to governmental entities
• Fla. Admin. Code rr. 12A-1.001(9), 12A-1.038, and 12A-1.094 — government purchases, certificates, and public works
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-062

Original ruling text

Sep 10, 1993

RE: TAA 93A-062
Sales Tax
Governmental Entities Exemption
s. 212.08(6), F.S.
Rules 12A-1.001, 12A-1.038 and 12A-1.094, F.A.C.

Dear :

This acknowledges receipt of your letter, dated July 7,
1993, requesting a Technical Assistance Advisement. This
response to your request constitutes a Technical Assistance
Advisement under Chapter 12-11, Florida Administrative Code, and
is issued to you pursuant to the authority of s. 213.22, Florida
Statutes.

FACTS

As ascertained from your letter and our telephone
conversations, the following conclusions of fact have been
reached by the Department. XXX (hereinafter, the County)
contracted on September 16, 1992, with XXX (hereinafter,
Company), and the XXX and XXX (hereinafter, Joint Venture), for
performance of Developer/Manager/Builder Group (hereinafter, the
DMBG) services to accomplish a turnkey build-out of the XXX
(hereinafter, County Center).

The contract between the County and the DMBG is composed of
Phase I and Phase II. Phase I is essentially the design and
procurement of the systems furniture, which requires the DMBG to
conduct a competitive bid process. Phase II includes the
purchase, delivery, construction and management installation of
the systems furniture. The contract required the DMBG to
conduct a rigorous and highly competitive furniture
specification and to enter into a contract with a systems
furniture vendor provided the County Administrator's Designee
gave consent in writing.

In the agreement between the County and the DMBG, an
allowance of XXX was established within the preliminary
guaranteed maximum price for the purchase and installation of
systems furniture, which is composed of free-standing office
cubicles, and will not become permanent fixtures. The DMBG,
after completing a lengthy selection process entered into a
sales contract with XXX (hereinafter, Affiliate) for XXX on XXX.
That figure included the anticipated sales tax of XXX.
Subsequently, the order was reduced to the amount of XXX,
including sales tax. Payment and Performance Bonds between the
DMBG and the County secure 100 percent of the contract price
which includes the systems furniture allowance. In addition to
satisfying the County's insurance requirements, the DMBG must
secure Builder's Risk Insurance.

As indicated by the sales contract between the DMBG and
Affiliate, the DMBG retained the right to assign that sales
contract without the consent of Affiliate. The DMBG
contemplates assigning the sales contract with Affiliate to the
County. Upon acceptance of the assignment by the County
Commissioners, the County would assume all contractual
obligations for payment and all risk of loss. The Payment Bond
provided to the DMBG would be reduced by the amount of XXX. A
purchase order with the tax exempt number preprinted would be
issued directly from County to Affiliate. After the assignment,
Affiliate would look to the County for payment and would owe the
duty of performance to the County. The DMBG would remain
responsible for managing the installation of the systems
furniture as directed by the County.

Payment of 90 percent of the contract sum is due by the
County and payable upon delivery and submission of a proper
invoice by Affiliate. Final payment is due after acceptance and
release of retainage held by the County. The purchase order and
the delivery schedule contemplate the earliest delivery date to
be September 4, 1993.

Enclosed with your letter, and reviewed by this writer were
the following documents: 1) an agreement for developer/manager/
builder group (DMBG) services; 2) first and third drafts of the
modification to (DMBG) agreement; 3) appendices 1 through 6; 4)

exhibits 7 and 8; 5) an additional exhibit 8 (one exhibit 8 is a
performance bond, the other Exhibit 8 is a payment bond); and 6)
an agreement for the provision/installation of systems
furniture.

ISSUE

Whether the assignment of contract from the DMBG with
Affiliate to the County would nevertheless require Affiliate to
charge, collect and remit sales tax to the State of Florida on
the sale of the systems furniture directly to the County?

TAXPAYER'S POSITION

It is your position that s. 212.08(6), F.S., and Rule
12A-1.094, F.A.C., apply to the transaction(s) described herein;
and that it is the Department's longstanding position that
tangible personal property sold to a governmental entity in
connection with a public works project is exempt from Florida
sales tax. Also, you state that by virtue of the contemplated
assignment, the County will be the entity that will be making
the purchase of the systems furniture directly, even though the
DMBG entered into the contract originally, because: 1) the
County will execute the purchase order(s) for the systems
furniture; 2) the County will acquire title to the systems
furniture directly at the point in time it is delivered to the
storage or job site; 3) the County will assume all risk of loss
for the materials once delivered to the job site; 4) the County
will be directly invoiced for the systems furniture it has
ordered in its own name; 5) the County will pay the vendor for
the systems furniture directly; and 6) the DMBG will not retain
any further payment responsibility for the systems furniture.

DISCUSSION AND DETERMINATION

Section 212.08, F.S., provides:

"(6) EXEMPTIONS; POLITICAL SUBDIVISIONS.--There are also
exempt from the tax imposed by this chapter sales made to
the United States Government, a state, or any county,
municipality, or political subdivision of a state when

payment is made directly to the dealer by the governmental
entity..."

In light of this statute, the Department has promulgated
Rule 12A-1.094, F.A.C., which provides, that in the case of a
public works contract, the purchase or manufacture of supplies
or materials by the contractor for incorporation into a public
works project is taxable to the contractor since he is the
ultimate consumer. Accordingly, it is reasonable to conclude
that in such cases the governmental entity is not entirely
insulated from the impact of taxation, since the contractor
would most likely pass the cost of taxation on to the
governmental entity. Thus, under the contract between the
County and the DMBG, Rule 12A-1.094(2)(a), F.A.C., applies,
since it is a public works contract, and the DMBG, as the
ultimate consumer of tangible personal property, would have to
pay sales tax on all materials and supplies purchased from
Affiliate for incorporation into the County Center.

However, as you correctly stated in your letter, the
Department is also directed by s. 212.08(6), F.S., and Rule
12A-1.001(9), F.A.C., which provide that sales tax does not
apply to the purchase of tangible personal property, where
payment is made directly to the dealer by the governmental
exempt entity. Thus, under the proposed contract assignment,
whereby the County would directly purchase the systems furniture
from Affiliate, the parties can arrange the transaction to
legally avoid the imposition of sales tax, if the following
conditions are met.

1) the governmental entity purchases the tangible personal
property in the governmental entity's own name using the
governmental entity's purchase order, and the governmental
entity's line of credit;
2) the governmental entity is invoiced directly for the
purchases and payment is made directly to the vendor by the
governmental entity;
3) the governmental entity is the purchaser in whom title
vests immediately from the vendor;
4) the governmental entity assumes all risk of damage or
loss to the building materials prior to their installation or

incorporation into the project. (A party may be deemed to have
assumed the risk of loss if the party bears the economic burden
of posting a bond or obtaining or obtaining insurance covering
damage or loss.); and
5) the governmental entity is the holder of a consumer's
certificate of exemption, which, in accordance with Rule
12A-1.038, F.A.C., is extended to the vendor at the time of
sale.

The Department concludes, with respect to the proposed
contractual assignment by the DMBG to Affiliate, the following:

-

the systems furniture is tangible personal property, not
permanent fixtures, which will be purchased directly by the
County using the County's purchase order form;

-

the County will be invoiced directly for purchase of the
systems furniture, and the County will make payment to
Affiliate for the systems furniture;

-

title to the systems furniture will vest from Affiliate
immediately to the County;

-

the County will assume risk of damage or loss to the
systems furniture prior to its incorporation to the
project, as evidenced by the County's payment bond; and

-

the County will extend its consumer's certificate of
exemption to Affiliate at the time of purchase as the
exemption number will be preprinted on the purchase order
form.

Therefore, the purchase of the systems furniture by County,
from Affiliate, pursuant to the contract assignment from the
DMBG to County, shall be exempt from sales tax.

This response is predicated upon the facts and
circumstances of your letter, Exhibits and appendices, and is
subject to audit verification. If the Division of Audits,
during an audit, determines that the aforementioned transactions
did not comply with the above stated requirements for the
exemption contained in s. 212.08(6), F.S., then the answer
provided in this letter is null and void.

Also, 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