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