Who owed Florida sales or use tax on portable bus-stop shelters supplied and installed for a regional transportation authority?

Subject

Sale and Installation of Bus Stop Shelters

Plain-English summary

The shelter contract was a public-works contract, making the contractor the taxable ultimate consumer. The shelters could be relocated, but the project was publicly authorized, bid and bonded like construction, required foundations and bolted installation, and left risk of loss with the contractor until delivery and turnover.

If the contractor manufactured or fabricated the shelters, it owed use tax on full manufactured cost. If it bought them, it had to pay sales tax to its suppliers. Because the contractor bore that tax as consumer, its contract charges to the transportation authority were not subject to sales or use tax again.

What this means for you

Portability did not prevent public-works treatment. The Department considered the project's public purpose, construction character, anchoring, installation obligations, insurance, and risk allocation together.

Common questions

Were the shelters' relocation capability decisive? No.

Who paid tax if the contractor fabricated them? The contractor, on full manufactured cost.

Who paid tax if the contractor bought them? The contractor paid its suppliers.

Was the authority's contract payment taxed again? No.

Citations and references

• Fla. Stat. §§ 1.01(8), 163.566(1), 163.570, 212.08(6), and 213.22
• Fla. Admin. Code rr. 12A-1.051(5) and 12A-1.094
• Housing by Vogue, Inc. v. Department of Revenue, 422 So. 2d 3 (Fla. 1982)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-036

Original ruling text

Jun 17, 1994

Re: Technical Assistance Advisement 94(A)-036 Sales Tax - Sale and Installation of Bus Stop Shelters Pursuant to a Contract With a Governmental Entity s. 212.08(6), F.S. Rule 12A-1.094, F.A.C. Parties: XXX (herein "the Contractor") XXX (herein "the Authority")

Dear

This response is in reply to your, April 1, 1994, petition for the Department's issuance of a Technical Assistance Advisement ("TAA") pursuant to s. 213.22, F.S. Your petition regards the referenced matter and parties. The Department has carefully examined your petition and finds it to meet the criteria set forth in Chapter 12-11, F.A.C., requisite to issuance of a TAA. Therefore, the Department is by this response issuing the requested TAA.

DISCUSSION OF FACTS

Your petition imparts the following information regarding the issue under advisement herein:

"We have a Purchase Order from the [Authority] to provide and install bus stop shelters in public right-of-ways. On March 25, 1993, we wrote the Bureau of Taxpayer Assistance to clarify the tax status of this transaction; our request and its supporting documents are enclosed. On April 26, 1993 we received a nonbinding opinion from Mr. Dan Wagner of your department. Mr. Wagner's reply and its attachments are also enclosed.

"In trying to understand Mr. Wagner's logic in reaching his nonbinding opinion we find repeated reference to a three pronged test with the third prong (the intention of the owner) being the most heavily weighted. The Owner's expressed intention to relocate the shelters as their needs dictate should satisfy this

issue; however, we have expanded on the Owner's intentions and we have also addressed the other two issues.

"First of all these are bus stop shelters, not bus stations, and they are portable (see photo). They are installed in right-ofway not owned by the Authority and must be moved to accommodate road widening, utility improvements, or bus route changes. They can be installed, removed, stored, and then re-installed. They do not become part of the real estate and [the Authority] has no intention of transferring the ownership of the shelters to the owner of the right-of-way. What more can be said to demonstrate that the Owner's intentions satisfy every requirement mentioned in Mr. Wagner's letter?

"Secondly, the method of attachment (bolts) is utilized to maintain portability, prevent vandalism, and satisfy local safety codes for wind loads; how else could they be held down?

"Finally, the land is not adapted to the shelter. The land is public right-of-way upon which there is currently a bus stop. The addition, removal, or relocation of the shelter is determined by the volume of boarders, not the property.

"We believe the bus stop shelters are tangible personal property and as such enjoy [the Authority's] tax exemption. Likewise, we think the concrete foundations are incidental to the shelter and are tax exempt as well."

The following relevant excerpts are taken from the bid documents submitted in support of your petition:

"PART III - TECHNICAL SPECIFICATIONS

"[The Authority] shall receive bids in accordance with the conditions set forth in Part II for the furnishing/ installation of:... BUS STOP SHELTERS... meeting the following specifications:

" ... 1.2 PROJECT DESCRIPTION....

"The project generally consists of:

"A. ... Mall Bus Stop

"1. Two large shelters installed on existing foundations. "2. Three large benches, four small benches, two lean rails and two trash cans, installed on existing concrete slabs or sidewalks....

"B. ... Mall Transfer Station

"1. Six large shelters with foundations installed in an existing paved area.... "3. Remove existing paving and foundations as required to install new foundations .... "

"PART II - SOLICITATION/CONTRACTUAL PROVISIONS ....

"2.20 Assumption of Risk of Loss:

"[The Authority] shall assume risk of loss of the equipment upon delivery, installation and such start up or turnover procedures as are set out in the specifications. Prior to this delivery or release, the Contractor shall have risk of loss of the equipment, including any damages sustained by common carrier....

"2.30 Insurance:

"During the life of the Contract, the Contractor shall provide, pay for and maintain with companies satisfactory to [the Authority], the types of insurance described herein....

"2.30.2 Commercial General Liability Insurance shall be paid for and maintained by the Contractor. Coverage shall include Personal Injury, Contractual for this Agreement, Independent Contractors, Broad Form Property Damage including Completed operations, and Products and Completed

operations coverages and shall include coverage for C' (collapse) andU' (underground) Property Damage Liability exposures.

"Completed Operations Coverage shall be maintained for a period of not less than three (3) years following final acceptance by [the Authority]....

"2.30.6 Builder's Risk Insurance shall be provided by
[the Authority] on the project insuring the Contract Price and naming [the Authority] as the Named Insured and the General Contractor, Subcontractor, and subordinate Subcontractors as to their interests on an `All Risk' form.... Loss, if any, under this coverage shall be adjusted with [the Authority] with the cooperation of the General Contractor and any Subcontractor with the claim check made payable to [the Authority] for their own interest and the interests of the General Contractor and al[l] subcontractors and subordinate subcontractors....

"November 30, 1992
NOTICE TO ALL BIDDERS
AMENDMENT NO. 2
BUS STOP SHELTERS
Dated October 23, 1992

*

*

*

"Additions to drawings: ...
"B. Contractor shall provide one 3/4" electrical conduit with pull-wire routed from 2 feet outside of the concrete slab area up into the center of one of the shelters steel columns ....

"Item # 4 Page 29 Section 4.1 Bid and Performance Security

"The contract period is for three years. Section 4.1 states that the contractor shall be required to supply a

performance bond or Letter of Credit satisfactory to [the Authority] equal to 100 percent of the estimated annual contract amount. This would mean the contractor would only be required to supply a performance bond equal to one third of the total bid amount...."

REQUESTED ADVISEMENT

You favor a reply from the Department to the effect that the Contractor and the Authority are exempt from payment of sales or use tax on the bus stop shelters on the basis of the Contractor being considered a retailer of tangible personal property in performance of its contract with the Authority and the Authority being an exempt governmental entity.

DISCUSSION AND ANALYSIS OF LAW

The following relevant statutory, administrative, and case law are consulted in addressing the issue under advisement herein:

Section 212.08(6), F.S.: "(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. This exemption shall not inure to any transaction otherwise taxable under this chapter when payment is made by a government employee by any means, including, but not limited to, cash, check, or credit card when that employee is subsequently reimbursed by the governmental entity. This exemption does not include sales of tangible personal property made to contractors employed either directly or as agents of any such government or political subdivision thereof when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision thereof, except public works in progress or for which bonds or revenue certificates have been validated on or before August 1, 1959...." (Emphasis Supplied)

Chapter 163, Intergovernmental Programs, Part V, Regional Transportation Authorities, s. 163.566(1), F.S.: "'Authority' means a body politic and corporate created pursuant to this part."

Section 163.570, F.S., Special region taxation: "Any regional transportation authority created hereunder shall be deemed a special tax district.... " (Emphasis Supplied)

Title I, Construction of Statutes, Chapter I, Definitions, Section 1.01(8), F.S.: "(8) The words public body,'body politic,' or `political subdivision' include counties, cities, towns, villages, special tax school districts, special road and bridge districts, bridge districts, and all other districts in this state." (Emphasis Supplied)

In construing the exemption provided in s. 212.08(6), F.S., above, the Department must adhere to and be guided by the longstanding and fundamental precept of statutory construction, established by the Florida Supreme Court, which mandates that exemptions from or exceptions to taxing statutes must be strictly construed against the taxpayer. See Asphalt Pavers v. Dept. of Revenue, 584 So.2d 57 (Fla. 1st DCA 1991); Dade Cty. Taxing Auth. v. Cedars of Lebanon, 355 So.2d 1205 (Fla. 1978), reh. den. April 5, 1978; Williams v. Jones,, 326 So.2d 425 (Fla. 1975), reh. den. March 4, 1976; Straughn v. Camp, 293 So.2d 689 (Fla. 1974); United States Gypsum Company v. Green, 110 So.2d 409 (Fla. 1959).

REGULATORY LAW

Section 212.08(6), F.S., above, is elucidated by the ensuing sections of the Department's Rule 12A-1.094, F.A.C.:

"(1) This rule shall govern the taxability of transactions in which contractors manufacture or purchase supplies and materials for use in public works, as that term is referred to in Section 212.08(6), F.S. This rule shall not apply to non-public works contracts as those contracts are governed under the provisions of Rule 12A-1.051, F.A.C....

"(a) Contractor' is one who is engaged in the repair, alteration, improvement or construction of real property. Contractors include, but are not limited to, persons engaged in building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier or billboard work. This definition includes subcontractors. "(b)Public works' are defined as construction projects for public use or enjoyment, financed and owned by the government, in which private persons undertake the obligation to do a specific piece of work. The term
`public works' is not restricted to the repair, alteration, improvement, or construction of real property and fixed works where the sale of tangible personal property is made to or by contractors involved in public works contracts. Such contracts shall include, but not be limited to, building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier or billboard contracts.... "(2) 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.... "(3)(a) The purchase or manufacture of tangible personal property for resale to a governmental body is exempt from tax provided this exemption shall not include sales of tangible personal property made to contractors employed either directly or as agents of the United States Government, a state, or any county. municipality, or political subdivision of a state when such tangible personal property goes into or becomes a part of public works financed or owned by such governmental bodies or political subdivisions.... "(b) With regard to contracts with government entities, the exemption in subsection (3)(a) is appropriate only where the levy would otherwise fall on the government itself, or on an agency or instrumentality so closely connected with that government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned. A finding of exempt status,

however, requires something more than the implication of traditional agency notions, so that to resist a state's taxing power, a private taxpayer must actually stand in the government's shoes as a principal, rather than as a contractor employed either directly or as the government's agent. A contractor will not be deemed to actually stand in the government's shoes if the contractor has a substantial independent role in making purchases. Accordingly, the fact that title passes directly to the government and payment is made with government funds, in and of itself, cannot characterize the transaction as an exempt purchase if the purchasing entity, in its role as a purchaser, is sufficiently distinct from the government. "(4) The exemption in subsection (3)(a) is a general exemption for sales made to the government. The exception in subsection (2)(a) is a specific exception for sales to contractors. A determination of whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction, rather than the form in which the transaction is cast. The Executive Director or... designee in the responsible division will determine whether the substance of a particular transaction is governed by subsection (2)(a) or is a sale to a governmental body as provided by subsection (3) of this rule based on all of the facts and circumstances surrounding the transaction as a whole. The Executive Director or... designee in the responsible division will give special consideration to factors which govern the status of the tangible personal property prior to its affixation to real property. Such factors include provisions which govern bidding, indemnification, inspection, acceptance, delivery, payment, storage, and assumption of the risk of damage or loss for the tangible personal property prior to its affixation to real property. Assumption of the risk of damage or loss is a paramount consideration. A party may be deemed to have assumed the risk of loss if the party either: bears the economic burden of posting a bond or obtaining insurance covering damage or loss; or enjoys the economic benefit of the proceeds of such bond or insurance. Other factors that may be

considered by the Executive Director or... designee in the responsible division include whether: the contractor is authorized to make purchases in its own name; the contractor is jointly or severally liable to the vendor for payment: purchases are not subject to prior approval by the government; vendors are not informed that the government is the only party with an independent interest in the purchase; and whether the contractors are formally denominated as purchasing agents for the government. Sales made pursuant to so called cost-plus',fixed-fee, lump sum', andguaranteed price' contracts are taxable sales to the contractor unless it can be demonstrated to the satisfaction of the Executive Director or... designee in the responsible division that such sales are, in substance, tax exempt sales to the government. "(5) Contractors who manufacture materials for incorporation into public works shall be liable for tax in the manner provided in Rule 12A-1.051(5) or (6), F.A.C.... (Emphasis Supplied)

An agency's administrative interpretation of a statute by rule has been accorded great deference by the courts, and will not be overturned unless the agency's interpretation of the statutes is clearly erroneous; reviewing court will defer to any interpretation within the range of possible interpretation. See Pershing Industries v. Department of Banking, 591 So.2d 991, 993 (Fla. 1 DCA 1991); Eager v. Florida Keys Aqueduct Authority, 580 So.2d 771 (Fla. 3 DCA 1991); Natelson v. Department of Ins.; 454 So.2d 31 (Fla. 1 DCA 1984); State ex rel. Szabo Food Serv., Inc. of N.C. v. Dickinson, 286 So.2d 529 (Fla. 1973), reh. den. Jan. 9, 1974.

CASE LAW

The issue of the application of sales and use tax relative to the performance of a contract for a governmental entity involving the furnishing and installation of articles which do not necessarily become fixed improvements to realty following installation was specifically addressed by the Florida Supreme Court in the matter of Housing by Vogue, Inc. v. Department of Revenue, 422 So.2d 3 (Fla. 1982). In this case, the Florida

Supreme Court held that relocatable classrooms capable of being moved from site to site without damage to the structure, which the parties agreed were tangible personal property, did nonetheless constitute public works within the meaning of the sales tax law. In reaching this conclusion, the court collectively considered and relied on the following elements: (i) the similarity of the relocatable classrooms to a fixed building or structure; (ii) the construction type nature of the project which was bid, administered, and bonded in the same manner as a fixed building or project; (iii) the similarity of the relocatable classrooms to realty inasmuch as they were set on footings and anchored to the ground so as to operate in much the same manner as a fixed structure would; and (iv) the fact the work was authorized by statute for public purposes. Therefore, as the court found the contract to be a public works contract by the presence of the above elements, it held that materials purchased by the builders and used in performance of the contract with the Florida Department of Education for construction and installation of the units were taxable to the contractor.

The Department's Rule 12A-1.094, F.A.C., above, conforms to the case law established by Housing by Vogue, supra. Recall that Rule 12A-1.094(1)(b), F.A.C., in defining the term public works states that: "The term 'public works' is not restricted to the repair, alteration, improvement, or construction of real property and fixed works.... [e.s.]" Further, recall that Rule 12A-1.094(2), F.A.C., above, mandates that the contractor is the ultimate consumer and is subject to tax on the purchase and/or manufacture of materials for incorporation into public works.

CONCLUSIONS OF LAW

The subject contract manifests all the elements which lead the Florida Supreme Court in Housing by Vogue, supra, to rule that the contract covering the relocatable classrooms was a public works contract. First, the construction of bus stop shelters is authorized by state law for public purposes. Second, the work under the contract is construction like in nature inasmuch as it was bid, let, administered, and bonded in the same manner as a standard building project. Based on the terms and conditions

set forth in the sample contract, the Contractor must satisfy bonding and insurance requirements substantially equivalent to those of a standard construction contract with a governmental body. The Contractor and not the state bears the burden of risk of loss, damage, theft, etc., of the bus stop shelters and other materials up until the point that delivery, installation and start up or turnover procedures are completed. Lastly, like the portable classrooms in Housing by Vogue, the bus stop shelters are undeniably similar to realty inasmuch as they are anchored and affixed to a poured concrete foundation by means of bolts so as to serve the same purpose as would a similar fixed structure installed in a more permanent manner. Under the contract, the contractor is not just manufacturing and furnishing materials like a materialman, but additionally carries out the installation of the bus stop shelters by fulfilling its contractual obligation to pour a foundation (unless one already exists), to set such components of the shelters in place on the foundation support structure according to plans, to true and plumb the components of the shelters as necessary, and anchor the shelters to the foundation by means of bolting. Therefore, the notion that the manufacturer should somehow just be considered a materialman making retail sales of prefabricated bus stop shelters to the Authority is not supported by the evidentiary matter.

Therefore, as the Florida Supreme-Court did in Housing by Vogue, we are compelled to conclude that the subject contract does fall squarely into the classification of a "public works" contract as contemplated by the above statutory, administrative, and case law. Accordingly, pursuant to the provisions of Rule 12A1.094(2) and (5), F.A.C., we are compelled to conclude that the Contractor under the subject Contract is the ultimate consumer of and is subject to use tax on the bus stop shelters and other materials it manufactures or fabricates to perform the Contract based on the full manufactured cost of such items (See Rule 12A1.051(5), F.A.C. (enclosed), for guidance on fabricated cost elements). If the Contractor is not itself manufacturing or fabricating the bus stop shelters, the Contractor should be paying sales tax to its supplier(s) when purchasing the shelters and other materials and supplies necessary to perform the Contract with the Authority. Since the Contractor is the

ultimate consumer of and owes sales or use tax on the noted items in performance of a public works contract, the charges by the Contractor to the Authority pursuant to the Contract are not subject to sales or use tax.

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 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 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 confidential information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or this response.

Sincerely,

Daniel M. Wagner, Jr.
Tax Law Specialist

DW/
Control No. 14765
Enclosures