Who owed Florida sales or use tax on materials for a municipal utility's lump-sum public-works contract?

Subject

Public Works Contract

Plain-English summary

The contractor, not the municipal utility, was the taxable ultimate consumer of the construction materials and supplies. That included room air conditioners the contractor furnished and installed under the lump-sum contract.

The project was a government-owned generating facility intended to remain at a fixed location for more than 30 years. The contract placed the risk of loss on the contractor until final acceptance, required the contractor to buy the materials and pay applicable taxes, and included those costs in the lump-sum price. The Department therefore found that the utility did not owe sales or use tax on the contractor-furnished items.

What this means for you

For the public-works analysis described in the ruling, the substance of the purchasing arrangement mattered more than government ownership alone. Risk of loss was a paramount factor, alongside who bought the property, carried insurance, paid vendors, and acted independently before installation.

Common questions

Did the municipality's tax exemption pass through to its contractor? No. The ruling treated purchases made by the contractor for incorporation into the public works as taxable to the contractor.

Why was the contractor the ultimate consumer? The lump-sum contract made it responsible for buying and installing the property and placed the risk of damage or loss on it before acceptance.

Did the municipal utility owe tax on the installed items? No, under the facts described.

Citations and references

• Fla. Stat. §§ 212.08(6) and 213.22
• Fla. Admin. Code r. 12A-1.094(1)-(7)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-048

Original ruling text

Aug 12, 1994

Re: Technical Assistance Advisement 94(A)-048
Sales Tax - Public Works Contract
Taxpayer: XXX (herein the "Taxpayer")
Address: XXX
Location: XXX (herein the "Facility")
Sales Tax Number: XXX
FEI#: XXX
Other Party: XXX (herein the "Contractor")
s. 212.08(6), F.S.
Rule 12A-1.094, 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 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 and supporting documents impart the following
significant information regarding the issues under advisement
herein:

"1. [The Taxpayer] (a municipal electric utility)
contracted with [the Contractor] to perform specific
construction tasks at [the Taxpayer's Facility], which
presently is under construction. Portions of the contract
are attached hereto as Exhibit `A'. [The Taxpayer] intends
to operate the [Facility], including the improvements
described below, at a fixed location in excess of thirty
years.
"2. The contract requires Contractor, either directly or

through subcontractors, to furnish and install the
following:
"a. Cast-in-place concrete
"b. Grouting
"c. Masonry
"d. Structural steel and miscellaneous metals
"e. Prefabricated stairs
"f. Carpentry
"g. Cabinetry
"h. Caulking and sealing
"i. Insulation
"j. Metal doors and frames
"k. Rolling metal doors
"l. Dry wall
"m. Ceramic tile for both floors and ceilings
"n. Resilient floor coverings (vinyl tile and base)
"o. Suspended Acoustical ceilings
"p. Carpeting
"q. Lockers and benches
"r. Toilet room accessories
"s. Metal toilet partitions
"t. Access flooring
"u. Laboratory furniture
"v. Heating, ventilating, and air conditioning including both room and central units
"w. Plumbing
"3. The contract is for a lump sum price.
"4. The risk of loss is on Contractor. See Sections GC.15,
page GC-7 (Work that is not constructed in accordance with
the contract shall be removed and replaced by the Contractor at his own expense.'); GC.30.8, pages GC-18, 20 and 21 (Contractor shall provide Builder's Risk insurance that is payable to the Contractor.'); SC.22, page SC-18 (All losses from natural causesshall be sustained and
borne by the Contractor at his own cost and expense.'); and
SC.35, page SC-23 (`The contractor shall be solely
responsible for the protection of his work until its final
acceptance by the owner.').
"5. The room air conditioners will be furnished and
installed by Contractor.
"6. Pursuant to the contract, the parties intend for [the

Taxpayer] to purchase, and Contractor to provide, an
improvement to real property.
"7. Contractor 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 Contractor for materials, supplies and
equipment are included in the stated lump sum amount to be
paid by [the Taxpayer] to Contractor pursuant to the
contract.
"8. Contractor will not retain title to any of the property
provided pursuant to the contract. Upon completion, the
generating facility will be wholly owned and financed by
municipal governmental entities. Therefore, the contract
is a public works, as defined the Rule 12A-1.094(1)(b),
F.A.C."

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
Contractor is the ultimate consumer of any tangible
personal property that will be purchased to fulfill its
obligation to [the Taxpayer] pursuant to the above
referenced contract. In addition, we request that the
Department's response state that [the Taxpayer] will not be
liable for any sales and use taxes on items provided by
Contractor pursuant to the above referenced contract."

DISCUSSION OF LAW

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

Section 212.08(6), F.S.: "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)

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-1.094, 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.... In applying this rule, the following
definitions are used.
"(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 termpublic
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. Mobile
homes and other mobile buildings are deemed fixtures if
they (1) bear RP license tags, or (2) have the mobile
features (such as wheels and/or axles) removed, and are
placed on blocks or footings and permanently secured with
anchors, tie-down straps or similar devices.
"(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.
"(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)

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 confirm the contract under advisement (the
"Contract") to be a lump sum contract for the construction of
"public works" as defined in Rule 12A-1.094(1)(b), F.A.C.
Moreover, the specific provisions of Sections GC.15, GC.30, and
GC.30.8 of the Contract shows in clear and convincing terms that
the Contractor, not the Taxpayer, assumes the burden of risk of
loss or damage to construction materials during the course of
the contract. Therefore, the Department is compelled to conclude
that pursuant to the provisions of Rule 12A-1.094(2), (4) and
(5), F.A.C., above, the Contractor and, not the Taxpayer, is the
ultimate consumer of all the materials and supplies (including
the room air conditioners) it, the Contractor, purchases or
manufactures for use in performing the Contract. We further
find that the Taxpayer is not subject to sales or use tax on the
materials and supplies purchased or manufactured by the
Contractor for use in performing the Contract.

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. 16539