Did a Florida municipal utility owe sales tax on a lump-sum performance-testing contract and its reports and manuals?

Subject

Performance Testing Contract

Plain-English summary

The municipal utility did not owe sales tax on the lump-sum performance-testing contract or on the reports and manuals supplied to it and its engineer without a separate charge. The Department treated the consultant's testing, fuel analysis, procedures, and related deliverables as an exempt professional service.

The reports were individualized for the utility and its engineer, and their cost was embedded in the lump sum. The consultant nevertheless remained responsible for tax on producing them: it had to pay sales tax to an outside printer or self-accrue use tax on the full in-house printing cost, with credit for tax paid on direct materials.

What this means for you

The result depended on the reports and manuals being incidental, separately unpriced deliverables of an individualized professional engagement. A separate report charge, standardized reports furnished to others, or a transaction centered on selling property could be treated differently.

Common questions

Were the testing reports and manuals taxable to the utility? No, because they were furnished without a separate charge as part of the lump-sum professional service.

Did that make the printed copies tax-free at every stage? No. The consultant owed tax to an outside printer or use tax on its own total printing cost.

Did the utility acquire the consultant's temporary test instruments? No. The ruling states that the utility would not own or control that instrumentation.

Citations and references

• Fla. Stat. §§ 212.08(7)(v) and 213.22
• Fla. Admin. Code rr. 12A-1.001(17), 12A-1.008(2)(c)2, and 12A-1.043

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-047

Original ruling text

Aug 12, 1994

Re: Technical Assistance Advisement 94(A)-047 Sales Tax - Performance Testing Contract Taxpayer: XXX (herein the "Taxpayer") Address: XXX Location: XXX (herein the "Facility") Sales Tax Number: XXX FEI#: XXX s. 212.08(7)(v), F.S. Rule 12A-1.001(17), F.A.C.

Dear:

This response is in reply to your May 25, 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 party. 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 and supporting documents impart the following significant information regarding the issues under advisement herein:

"1. [The Taxpayer] (a municipal electric utility) is in the process of contracting for engineering services related to its [Facility] that is located near XXX, Florida. The vendor [herein the `Consultant'] will be required to develop detailed test procedures, conduct various tests at the plant site, perform gas and oil fuel analyses, and provide reports and manuals to [the Taxpayer] and its consulting engineer.

[The Consultant] will provide any temporary instrumentation

required to perform the analysis, and [the Taxpayer] will not maintain any control or ownership of such instrumentation.

"2. The Contract is for a lump sum price, which includes the cost of generating, copying, and distributing reports to [the Taxpayer] and its engineer.

"3. [The Consultant] will implement a quality assurance program, which shall be documented in a Quality Assurance/Quality Control Manual. See Section 1D.6.1, pages 1D-2 and 3 attached hereto. The cost of the Manual is included in the lump sum price paid by [the Taxpayer].

"4. [The Consultant] will pay all applicable local and state taxes at the time of purchase of such materials, supplies, equipment or other tangible personal property. Furthermore, the cost of any and all applicable local and state taxes paid by [the Consultant] for materials, supplies and equipment are included in the stated lump sum amount to be paid by [the Taxpayer] to the [Consultant] pursuant to the Contract."

The relevant portions of the Contract submitted as supporting documentation to your petition provide the following:

""1D.6 QUALITY ASSURANCE PROGRAM. As a means of assuring that the performance of the work fulfills the requirements of the contract documents, the Contractor and his subcontractors shall implement a quality assurance program for all the work. The program shall be capable of providing assurance that design, purchasing, manufacturing, shipping, storage, testing, and examination of all equipment, materials, and services will comply with the requirements of these contract documents.

"The Contractor shall be responsible for assuring that all quality requirements are passed to his subcontractors and that these requirements are met by the subcontractor.

"1D.6.1 Quality Assurance/Quality Control Manuals. The quality assurance program shall be documented in a quality Assurance/Quality Control Manual. The form and format of the quality assurance manuals are at the discretion of the Contractor and his subcontractors.

The content of the Quality Assurance/Quality Control Manual may be in the form of written descriptions of quality assurance policies and/or quality control procedures, methods, instructions, exhibits, or other quality assurance method descriptions. One controlled copy of the manual shall be submitted as scheduled in section 1A. The Quality Assurance/Quality Control Manual shall be kept current by submittal of revisions as applicable throughout the life of this Contract.

"The Contractor's Quality Assurance/Quality Control Manual shall describe the authority and responsibility of the persons in charge of the quality assurance program and inspection activities. The manual shall also include, as a minimum, control procedures or methods to assure the following:

"Design documents, drawings, specifications, quality assurance procedures, records, inspection procedures, and purchase documents are maintained current, accurate, and under control.

"Purchased materials, equipment, and services conform to the requirements of these documents.

"Receipt inspection, in-process inspection, examination, testing, and checkout.

"Adequate inspection of subcontracted work.

"Procedures for controlling quality of special processes such as welding, heat treating, hot forming, and nondestructive testing.

"1D.6.2 Inspection and Test Outline. Prior to starting any

fabrication/manufacturing of major or critical materials or components, a detailed inspection and test outline for the work shall be submitted as scheduled in Section 1A.

"The inspection and test outline shall list the major/critical components of the work, subassemblies, final assemblies, and each inspection and testing point for each of the items identified. The outline shall include the Contractor's plan for inspecting subcontractor's work, including inspection by the Contractor at his subcontractor's facilities. The Contractor shall inspect the work of subcontractors to the extent necessary to assure that proper materials and equipment are furnished and that fabrication and erection are accomplished in accordance with the contract documents.

"The Contractor shall keep the Engineer informed of the progress of the work and shall notify the Engineer at least 10 working days in advance of the appropriate times for inspections and testing, when such inspection and test points have been designated by the Engineer for witnessing. The work shall not progress past the engineer's designated witness point until the Engineer has inspected work or witnessed the designated test, or the Engineer has waived his right to perform an inspection or the witness a test. Failure to inform the Engineer of the inspection and testing points shall be cause for nonacceptance or repetition of the activity at the Contractor's expense."

REQUESTED ADVISEMENT

You endeavor to elicit the Department's advice regarding the following specific issue:

"... [W]e respectfully request that the Department issue a Technical Assistance Advisement confirming that [the Taxpayer's] purchase pursuant to the above-referenced Performance Testing Contract is the purchase of a professional service that is exempt from Florida's Sales and use tax. In addition, we request that the Department's response state that [the Taxpayer] will not be liable for

any sales and use taxes on reports and manuals provided to
[the Taxpayer] and its engineer pursuant to the Contract."

DISCUSSION OF LAW

The following statutory, administrative, and case law is relevant to addressing the issue under advisement herein:

Section 212.08(7)(v), F.S.: "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. "2. The personal service transactions exempted pursuant to subparagraph 1. do not exempt the sale of information services involving the furnishing of printed, mimeographed, or multigraphed matter, or matter duplicating written or printed matter in any other manner, other than professional services and services of employees, agents, or other persons acting in a representative or fiduciary capacity or information services furnished to newspapers and radio and television stations. As used in this subparagraph, the term `information services' includes the services of collecting, compiling, or analyzing information of any kind or nature and furnishing reports thereof to other persons...." (Emphasis Supplied)

In construing the above statutory exemption, the Department must adhere to and be guided by the long-standing 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).

Rule 12A-1.001(17), F.A.C.: "SERVICE TRANSACTIONS. "(a) Professional, insurance or personal service transactions which involve sales as inconsequential

elements for which no separate charges are made are exempt. "(b) The furnishing of information, including a written report to a person of a personal or individual nature and which is not or may not be substantially incorporated in reports furnished to other persons, is not an information service within the meaning of the law and is exempt. In such cases the person furnishing the information is required to pay the tax on the purchases of tangible personal property used by him in connection therewith.... "(d) When an architect or engineer furnishes his client or customer with a scale, working, or other model, the total amount he charges his customer therefor is taxable. This constitutes the sale of tangible personal property and is not exempt as an inconsequential element of a personal service transaction. "(e) The taking of dictation by a public stenographer and stenographic transcriptions thereof are exempt as professional services. Charges for attendance and the stenographic recordings of proceedings at a trial, hearing, conference, or similar function by a court reporter are exempt as professional services. Charges made by court reporters for transcripts of proceedings are likewise exempt as professional services when furnished to parties to the proceedings. Charges for transcripts to third persons who are not parties to the proceedings for which the reporter was engaged are taxable. (See Rules 12A-1.062 and 12A-1.072.)" (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.

CONCLUSIONS OF LAW

The facts and circumstances as represented in your petition and supporting documents call for the Consultant's rendition of the performance testing and the furnishing of reports and manuals to the Taxpayer and its Engineer in connection with such testing, all for a lump sum. The Performance Testing Contract (the "Contract") being for a lump sum does not make a separate charge for the reports and manuals, but instead contemplates their cost as imbedded within the lump sum. Further, it is the Department's understanding that the reports and manuals are of an individual nature and are not incorporated into reports or other documents furnished to parties other than the Taxpayer and its Engineer. We find this to be substantially analogous to a court reporter providing transcripts of proceedings to parties of the proceedings.

Accordingly, based on the facts and circumstances as represented in your petition and supporting documents, the Department finds that, without infringing on the Florida Supreme Court's mandate to construe exemptions strictly, the Taxpayer is purchasing and the Consultant is selling a professional service as contemplated by s. 212.08(7)(v), F.S., with respect to the Contract under advisement herein. Therefore, the Consultant need not charge and the Taxpayer and its Engineer need not pay sales tax on the reports and manuals provided at no separate charge to the Taxpayer and its Engineer pursuant to the subject lump sum Contract. However, the Consultant shall be obligated to pay sales tax to its printer on the printer's charge to it for printing the reports and manuals; or if the Consultant prints the reports and manuals in-house, it is obligated to self-accrue and remit to the Department use tax on the total cost of the reports and manuals including the materials and overhead. See Rules 12A-1.008(2)(c)2. and 12A-1.043, F.A.C. (enclosed). Where the Consultant prints the reports and manuals in-house and pays tax to its suppliers on the direct materials such as paper, ink, and binding materials, the Consultant will be allowed credit for the tax paid to its supplier on the direct materials when determining the tax owed on the full cost of printing the reports and manuals.

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. 15856