Which fuels, machinery, purchases, labor, and engineering charges at a Florida municipal power plant were exempt from sales tax?

Subject

Machinery and Equipment Used in Production of Electrical Energy

Plain-English summary

The described coal and refuse-derived fuel were exempt, and most of the listed machinery and equipment qualified for the electrical-generation exemption under the integrated-plant approach. The Department approved the furnace, boiler, turbine generator, most coal and refuse handling equipment, pollution-control systems, wastewater and process-water systems, condensate polisher, and cooling tower. It rejected the listed bottom-dumping railroad cars, thickener tank, CSI facility, and landfill under that machinery exemption.

Direct municipal purchases of qualifying property could be exempt, but materials bought by a contractor for a public-works project were taxable to the contractor as ultimate consumer. A municipality seeking direct-purchase treatment had to issue its own purchase orders, buy and pay vendors directly, take title and possession before incorporation, bear risk and insurance costs, and adjust contractor bonds and insurance.

The ruling also rejected the idea that every plant repair or replacement automatically became a real-property improvement. Repairs involving furnished parts were taxable unless the property itself qualified for an exemption; labor-only repairs required records proving no property was supplied. Professional engineering services were exempt when they did not include sales of tangible property.

What this means for you

The ruling applies several separate exemptions and cannot be reduced to "municipal power-plant purchases are exempt." Equipment function, who buys the property, whether a contractor is the consumer, the labor-material mix, and the exemption-affidavit procedure all matter.

Common questions

Were coal and refuse-derived fuel exempt? Yes, on the described utility-generation use.

Did every listed plant system qualify under the generation-machinery exemption? No. Four listed categories were rejected.

Were contractor purchases exempt because the project was municipal? No. Public-works materials purchased by the contractor were taxable to the contractor.

Could the municipality buy materials directly without tax? Yes, if it followed the direct-purchase controls described in the ruling.

Were all repair labor charges exempt? No. The answer depended on whether parts were furnished and whether the repaired property independently qualified for exemption.

Citations and references

• Fla. Stat. §§ 212.02(10)(h), 212.08(5)(c), (6), (7)(v)1., 212.085, 213.22, and 403.703(13)
• Fla. Admin. Code rr. 12A-1.001, 12A-1.006, 12A-1.051, 12A-1.059, and 12A-1.094
• Jacksonville Electric Authority v. Department of Revenue, 486 So. 2d 1350 (Fla. 1st DCA 1986)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-041

Original ruling text

Jul 14, 1994

Re: Technical Assistance Advisement 94A-041 Sales and Use Tax; Machinery and Equipment Used in Production of Electrical Energy. Sections: 212.08(5)(c); 212.08(6); 212.08(7)(v)1., F.S. Rules: 12A-1.001; 12A-1.006; 12A-1.051; 12A-1.059; 12A1.094, F.A.C.

Dear :

This is in response to your letter of February 3, 1994, wherein you requested a technical assistance advisement concerning the exemption of pulverized coal and refuse derived fuel used in the generation of electrical power, the replacement and repair of machinery and equipment for an existing electric generating plant, as well as the identification of necessary and qualifying exemptions. Your request is on behalf of the XXX (hereafter "Municipality"), which operates XXX (hereafter "Plant") together with the XXX (hereafter "Utility").

FACTS

Your letter provides the following relevant facts:

"1. [Municipality] (a municipality) and [Utility] (a municipally-owned electric utility) jointly own and operate
[Plant], which is an existing electric generating plant. Pulverized coal is the primary boiler fuel burned by
[Plant] to produce electricity. The secondary fuel is refuse derived fuel. Rule 12A-1.059(10), F.A.C., does not include coal or refuse derived fuel in the list of fuels that are residual oil'. "2. The furnace, boiler and turbine generator equipment for [Plant] are used at a fixed location. (See exhibitA' for a general list of [Plant's] machinery and equipment; see exhibit `B' for a general description of the power plant.) From time to time, this equipment must be replaced or repaired.

"`NECESSARY' MACHINERY AND EQUIPMENT

"Most of the items listed in exhibit A' are machinery and equipment that isnecessary in the production of electric or steam energy resulting from the burning of boiler fuels other than residual oil.' Section 212.08(5)(c), F.S. Therefore, any replacement of, or repair to, the machinery and equipment listed in exhibit A' should be entitled to the sales tax exemption provided by section 212.08(5)(c), F.S. However, some items in exhibitA' are not machinery or equipment, such as the landfill, and these items may not be entitled to the exemption provided by section 212.08(5)(c), F.S. In addition, the Department may determine that some of the machinery and equipment purchased for [Plant] is not `necessary' and therefore does not qualify for the exemption provided by section 212.08(5)(c), F.S.

"OTHER MUNICIPAL PURCHASES

"Most of the machinery and equipment purchased for [Plant] is entitled to the exemption provided by section 212.08(5)(c), F.S. In addition, purchases of tangible personal property other than machines and equipment and parts and accessories therefor used in the generation, transmission or distribution of electrical energy' for [Plant] are exempt from sales taxes by section 212.08(6), F.S., when purchased directly by a governmental entity. Therefore, purchases ofnecessary' machinery and equipment for [Plant] are exempt, and [Municipality's] purchases of items other than machinery and equipment also are exempt.

"We believe that purchases for landscaping, construction facilities, roads and parking lots, certain buildings, site work, and other purchases that are not machines and equipment and parts and accessories therefor' are entitled to the sales tax exemption provided by section 212.08(6), F.S., although the items will be used in conjunction with a power plant. In addition, a portion of the machinery and equipment incorporated into [Plant] is notused in' the

generation of electricity. In Jacksonville Electric Authority v. Department of Revenue, 486 So.2d 1350 (Fla. 1st DCA 1986), and in numerous TAAs, it has been determined that several items purchased for power plants are not
necessary' to produce electricity, such as control buildings. Generally, any item that is notnecessary' also is not used in' the generation of electricity. For example, exhibitB' of the JEA/FPL declaratory statement classifies the control building as machinery and equipment that is not entitled to the exemption provided by section 212.08(5)(c), F.S. We believe purchases of tangible personal property for a control building are nevertheless exempt from sales tax by section 212.08(6), F.S., when purchased directly by a municipal entity. Although some of the equipment housed within a control building is used in' the generation of electricity, and such equipment may not qualify for the governmental exemption, the building itself is used to house people and equipment, and the building is notused in' the generation of electricity. Therefore, the building should qualify for the governmental sales tax exemption. Although there may be cases when machines and equipment are not necessary in,' but they areused in,' the generation of electricity, we believe these cases are the exception.

"LABOR CHARGES

"... We believe that the installation or replacement of any machinery, equipment, parts or accessories for [Plant] constitutes an improvement to real property, and the onsite labor charges are not subject to sales taxes, even if the specified transaction does not qualify for the exemption provided by section 212.08(5)(c) or 212.08(6), F.S. Rule 12A-1.051(2)(f), F.A.C., exempts from sales taxes installation charges for improvements to real property when the installation charges are separately stated and the contract itemizes the parts and materials that will be sold to the purchaser at an agreed price. In addition, rule 12A-1.051(2)(e), F.A.C., exempts the entire contract from sales taxes when a contractor uses materials and supplies to fulfill a lump sum, cost plus, fixed fee or

guaranteed price contract for improvements to real property. Rule 12A-1.051(5)(f), F.A.C., also exempts from sales taxes any expenses for fabrication labor incurred at the job site in the performance of constructing or improving real property. Therefore, we believe that any onsite labor charges are exempt from sales taxes.

"PROFESSIONAL SERVICES

"We believe that charges incurred for engineering services required to repair, replace or upgrade [Plant's] equipment or facilities are professional services that qualify for the sales tax exemption provided by section 212.08(7)(v), F.S.

"... Therefore, we respectfully request that the Department issue a Technical Assistance Advisement confirming the exempt status of the items listed in exhibit `A', and the exempt status of any charges for labor and professional services incurred for [Plant]..."

RELEVANT AUTHORITY

STATUTORY AUTHORITY:

The following passages quoted from the Florida Statutes (F.S.) are particularly germane to the matter under consideration:

Section 212.08, F.S.
"(5)(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.... "(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.... "(7) MISCELLANEOUS EXEMPTIONS. "(v) Professional services. "1. Also exempted are professional, insurance, or personal service transactions that involve sales as inconsequential elements for which no separate charges are made."

REGULATORY AUTHORITY:

The following provisions of the Florida Administrative Code (F.A.C.), are pertinent to the transactions described in your letter:

"12A-1.001 Specific Exemptions.
"(7) FUELS. Fuels used by public or private utilities, including municipal corporations and rural cooperative associations, in generating electric power or energy for sale to the general public are exempt from all taxes imposed under Chapter 212, F.S. (For other exempt and

taxable fuels, see Rule 12A-1.059.)"

"12A-1.006 Charges by Dealers Who Adjust, Apply, Alter, Install, Maintain, Remodel, or Repair Tangible Personal Property. "(1) Where parts are furnished by the repairman, the entire charge he makes to his customer for adjusting, applying, installing, maintaining, remodeling or repairing tangible personal property is taxable.... "(4) Charges for repairs of tangible personal property which require labor or service only are taxable unless the repairman (dealer) can establish by evidence in his records that he furnished no tangible personal property which was incorporated into or attached to the repaired item. It is immaterial that the cost of the material furnished is insignificant when compared to the cost of the labor involved...."

"12A-1.051 Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property. "(1) This rule shall govern the taxability of purchases or use of tangible personal property by contractors who the performance of non public works contracts. This rule shall not apply to contractors who perform public works contracts in view of the fact that those contracts are governed by the provisions of Rule 12A-1.094, F.A.C."(Emphasis supplied.)

12A-1.059 Fuels and Lubricants.
"(10) Boiler' fuels. When purchased as a combustible fuel, purchases of natural gas, residual oil, recycled oil, waste oil, solid waste material as defined in s. 403.703(13), F.S., coal, sulfur, wood, wood residues, or wood bark used in an industrial manufacturing, processing, compounding, or production process at a fixed location in this state shall be exempt from the taxes imposed by this chapter; provided, however, that this exemption shall not apply to such fuels that are not used in manufacturing, processing, compounding, or producing items of tangible personal property for sale,... The termfixed location' shall mean being permanently affixed to one location or plant site, or

any portable plant which may be set up for a period of not less than six months in a stationary manner so as to perform the same industrial manufacturing, processing, compounding, or production process that could be performed at a permanent location or plant site. This exemption shall not be allowed, however, unless the purchaser furnishes the seller a certificate stating that the fuel is used in an industrial manufacturing, processing, compounding, or production process." (Emphasis supplied.)

12A-1.094 Public Works Contracts.
"(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.... "(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. "(c)Real property' within the meaning of this rule includes all fixtures and improvements to real property. The status of a project as an improvement or affixture to real property is determined by the objective and presumed intent of the parties, based on the nature and use of the project and the degree of affixation to realty....

"(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. The applicable tax rate shall be determined on the basis of the invoice date, not the date of the contract, as follows:... "(b) If invoiced on or after February 1, 1988, the tax rate shall be 6 percent. "(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) ... 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) ... 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 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. "(6) Contractors who supply raw materials such as rock, shell, fill dirt and similar materials for incorporation into public works shall be liable for tax in the manner provided in Rule 12A-1.051(11)-(14), F.A.C. "(7) Contractors who purchase tangible personal property outside the State of Florida, or inside the State but fail to pay sales tax, and use such property in a public works project shall be presumed to have the beneficial use of such property because the property is being used in furtherance of the contractor's essentially independent commercial enterprise. Accordingly, such contractors shall be liable for the use tax." (Emphasis supplied.)

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 Appeal of Florida in Jacksonville Electric Authority v. Department of Revenue, 486 So.2d 1350 (Fla. First District Court Appeal, 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 Appeal 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

Rule 12A-1.059(10), F.A.C., provides that boiler fuels, when purchased for use as a combustible fuel, such as purchases of solid waste material and pulverized coal, as defined in s.403.703(13), F.S., used in an industrial manufacturing, processing, compounding, or production process at a fixed location in this state are exempt, provided, however, that this exemption shall not apply to such fuels that are not used in manufacturing, processing, compounding, or producing items of tangible personal property for sale. Rule 12A-1.001(7), F.A.C., provides that fuels used by public or private utilities, including municipal corporations and rural cooperative associations, in generating electric power or energy for sale to the general public are exempt from all taxes imposed under Chapter 212, F.S.

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, supra, 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 general list, ("exhibit A'"), of Plant's machinery and equipment, supported by detailed definitions of the system, ("ExhibitB' "), for examination. The response of this technical assistance advisement is based on these system definitions . 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)

I. BASIC ENERGY PROCESSES AND PERTINENT EQUIPMENT

A. Furnace and related equipment

1. Furnace.

Yes

2. Four pulverizers.

Yes

3. Four primary fans.

Yes

4. Two large TLT Babcock forced draft fans.
5. Two regenerative air heaters.

B. Boiler

Yes

Yes

Yes

C. Turbine Generator

Yes

II. EQUIPMENT NOT DIRECTLY INVOLVED IN POWER GENERATION

A. Coal Handling Facility

1. Open trestle.

Yes

2. Bottom-dumping railroad cars.
3. Rotary plow.

No
Yes

4. Underground conveyor.
5. Crushing mill.

Yes
Yes

6. Crushed coal conveyor.
7. Four storage silos.

Yes
Yes

B. Refuse (Garbage) Processor

1. RDF conveyor.

Yes

2. Hammermill.

Yes

3. Pneumatic conveyor.

C. Precipitator

Yes

Yes

D. Scrubber

1. Scrubber.
2. Calcium carbonate [system].
3. Wet ball mix pulverizer.

Yes
Yes
Yes

E. Stack

1. Stack.

Yes

2. Concrete shell.
3. Liner.

Yes
Yes

F. Thickener Tank

G. CSI Facility

H. Landfill

No

No

No

I. Waste Water Treatment Process (WWTP)

1.[Municipality] wastewater treatment plant.

Yes

J. Process Water Treatment System (PWTS)

K. Condensate Polisher

L. Cooling Tower

Yes

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.

It is also important to note that the exemption provided for in section 212.08(5)(c), F.S., 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, F.S., and as otherwise provided by law.

As provided by section 212.08(5)(c), F.S., and as stated in

your letter, any replacement of, or repair to, the machinery and equipment listed in exhibit `A' and qualified under section 212.08(5)(c), F.S., is entitled to the sales tax exemption.

Your position regarding purchases of tangible personal property, other than "machines and equipment and parts and accessories therefor used in the generation, transmission or distribution of electrical energy" for Plant, which are exempt from sales taxes under section 212.08(6), F.S., when purchased directly by a governmental entity is correct. Therefore, purchases of "necessary" machinery and equipment for Plant are exempt, as noted above, and Municipality's purchases of items other than machinery and equipment, responded to in the negative above under section 212.08(5)(c), F.S., are exempt under section 212.08(6), F.S.

As provided in the above quoted rules, 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. Therefore, your position is correct regarding that the municipal government is not required to pay sales tax on this type of contract. When a contractor purchases materials and supplies to fulfill a public works contract, the contractor should include the sales tax amounts in his bid for the contract. You are also correct in that no tax is due with regards to on-site labor charges for the installation or replacement of parts or accessories which are incorporated into and which become an improvement to real property.

Section 212.02(10)(h), F.S., defines real property to includes all fixtures and improvements to real property. The status of a project as an improvement or affixture to real property is determined by the objective and presumed intent of the parties, based on the nature and use of the project and the degree of affixation to realty. 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, and as such refers to tangible personal property.

Your belief that the installation or replacement of any machinery, equipment, parts or accessories for Plant constitutes an improvement to real property is incorrect. Such items are classified as tangible personal property. Where parts are furnished by the repairman, the entire charge he makes to his customer for adjusting, applying, installing, maintaining, remodeling or repairing tangible personal property is taxable, unless it is an item of machinery and equipment which is exempt under s. 212.08(5)(c), F.S. Charges for repairs of tangible personal property which require labor or service only are taxable unless the repairman (dealer) can establish by evidence in his records that he furnished no tangible personal property which was incorporated into or attached to the repaired item. It is immaterial that the cost of the material furnished is insignificant when compared to the cost of the labor involved. The provisions of section 212.08(6), F.S., provide for the exemption from sales tax of sales made to a municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity.

Your belief that purchases for landscaping, construction facilities, roads and parking lots, certain buildings, and site work, are entitled to the sales tax exemption provided by section 212.08(6), F.S. is incorrect. As provided in the above quoted rules, 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. When a contractor purchases materials and supplies to fulfill a public works contract, the contractor should include these sales tax amounts in his bid for the contract.

This does not preclude a governmental entity from making direct material purchases of supplies, goods, equipment, appliances and other materials directly from third party suppliers, which are incorporated into public works projects tax exempt. The Municipality must comply with the following provisions in order to maintain this sales tax exemption for such material purchases:

1. The Municipality must issue its own purchase orders to

the third party vendor, which contain or are accompanied by the Municipality's exemption certificate.

2. All materials purchased under the exemption must be
   sold directly to the Municipality.
3. The Municipality must take title and possession of all
   materials purchased tax exempt from the seller before they are incorporated into real property.
4. The Municipality must assume all risk of loss on all
   materials purchased tax exempt.
5. The Municipality must bear cost of all insurance on
   all materials purchased tax exempt.
6. The Contractors' bond and insurance provisions must be
   reduced to reflect the Municipality's cost of direct materials purchased tax exempt.
7. The Municipality must make direct payment to the third
   party vendor for all such purchases from the Municipality's checking account.

In summary, pursuant to Section 212.08(5)(c), F.S., machinery and equipment, as described in Appendix "A", purchased for use at the Municipality's electric generating plant facility where such qualifying machinery and equipment will be used to produce electrical energy at a fixed location and is necessary in the production of electrical energy are exempt from Florida Sales and Use Tax, provided that the electrical energy is primarily for use in manufacturing or producing tangible personal property (electrical power or energy) for sale in the State of Florida and the proper affidavit procedures are followed.

Further, pursuant to Section 212.08(7)(v)l., F.S., professional services, such as mechanical and electrical engineering services, are specifically exempt from sales and use tax when there are no sales of tangible personal property. Where such services include charges required to repair, replace or upgrade Plant, and include the sale or use of non qualifying tangible personal property, such services are taxable under rule 12A-1.006, F.A.C., but may be exempt to the Municipality under the provisions of section 212.08(6), F.S.

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,

Aleda J. Marshall
Technical Assistant

AJM/pb
Control #13493