Could a religious institution buy construction materials tax-free through a supply-house vendor?

Subject

Sale of Construction Materials to Tax Exempt Entity

Plain-English summary

The church could purchase construction materials tax-free through the supply-house vendor because the sale was structured as a direct sale to the exempt religious institution. The vendor could buy the materials for resale using a resale certificate, then transfer them directly to the church.

The church had to issue its own purchase orders and exemption certificate, take title and possession before incorporation into real property, bear risk of loss and insurance costs, and pay the vendor directly. The exemption did not cover purchases made by the general contractor or subcontractors.

What this means for you

An exempt owner's construction project did not automatically exempt contractor purchases. The documents and actual flow of title, possession, risk, insurance, orders, and payment had to show a genuine direct purchase by the exempt entity.

Common questions

Could the contractor buy the materials tax-free for the church? No under this ruling; the church itself had to be the purchaser.

Could the contractor accept delivery? Yes as the church's agent, but title could never vest in the contractor.

Could the supply house buy the materials without tax? Yes, with a valid resale certificate and compliance with the resale rules.

Citations and references

• Fla. Admin. Code rr. 12A-1.001(3)(a), 12A-1.038(1) and (3), and 12A-1.039
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-061

Original ruling text

Nov 29, 1994

Re: TAA 94A-061
Sales and Use Tax - Sale of Construction Materials to Tax
Exempt Entity
Rules 12A-1.001(3)(a), and 12A-1.038(1), (3), F.A.C.

Dear :

This is in response to your letter of April 20, 1994, and
supplementary letters dated June 27, 1994, September 18, 1994
and October 14, 1994, in which you request, on behalf of your
client, XXXXX (hereinafter, Taxpayer) the issuance of a
Technical Assistance Advisement, regarding the application of
sales and use tax to construction materials purchased by
Taxpayer for resale to a religious institution, XXXX as Bishop
of the XXXX, a Corporation Sole (hereinafter, Church).

This response to your request constitutes a Technical
Assistance Advisement under Chapter 12-11, F.A.C., and is issued
to you under the authority of s. 213.22, F.S.

FACTS

As ascertained from your letters, the unexecuted proposed
documents, as revised by the October 14, 1994 letter, entitled
"Materials Purchase Agreement," the "Special Conditions to
Material Purchase/Payment" (hereinafter, Special Conditions),
and the "Materials Request Form," submitted for review with your
letter of June 27, 1994, the following conclusions of fact have
been reached.

The parties in this proposed transaction are:

-

Taxpayer, who will act as the "supply house" vendor

through which contractors and subcontractors will be
required by the Church to place all orders for construction
materials.

-

Church is the "Owner" of the construction site.

Church is a religious entity, which holds a valid
Consumer's Certificate of Exemption. Church will enter
into the proposed contract with Taxpayer to purchase all
construction materials from Taxpayer, as requested by
Church, using the Church's purchase order. Church, will
issue the specified purchase orders directly to Taxpayer.

-

Contractor or General Contractor is the entity which

has contracted with the Church to undertake the
construction project for the Church. Contractor will not
be the vendor of any of the materials purchased by Taxpayer
to be used in the Owner's (i.e., Church's) construction
project.

• Subcontractor is a contractor who takes a portion of the
  contract for the (general) contractor. Subcontractor will
  not be the vendor of any of the materials purchased by
  Taxpayer to be used in the Owner's (i.e., Church's)
  construction project.

Taxpayer will enter into a contract with Church to act as a
supply house for purchasing and selling construction materials
for Church's construction project. The contract will require
Taxpayer to purchase construction materials and sell these
materials directly to Church, as instructed by Church.

The contract will also require Church to designate Taxpayer
as its authorized vendor of materials, thereby requiring Church
to order certain construction materials for the project from
Taxpayer. Taxpayer will provide Church with specifications
relating to the purchase and payment of materials that it will
furnish to Church, and Church will be required to include these
specifications in the supplementary conditions of its contract
with the General Contractor.

At the time of purchase, Taxpayer will provide the material
vendor(s) with a valid resale certificate. Taxpayer will be
invoiced by the material vendor(s), and will remit to the
vendor(s) payment due upon receipt of the Church's payment for
such construction materials. Taxpayer will obtain title and

possession of the materials from the vendor(s) and will be
responsible for the delivery of these materials to the
construction site.

Title to and possession of the materials will transfer
directly from Taxpayer to Church upon delivery of those
materials to the construction site. Although the contractor may
accept the materials on behalf of Church, at no time will title
to these materials vest in the Contractor, nor will the
Contractor provide any consideration to Taxpayer or to the
vendor(s) for these materials. The Contractor will obtain a
warranty bond to protect against manufacturers defects in
workmanship; however, this bond will not protect against theft
or risk of loss of the materials. Therefore, risk of loss
regarding the materials is on Taxpayer or Church at all times,
never on Contractor.

RELEVANT PROVISIONS

The following provisions of the Florida Administrative Code
(F.A.C.), are pertinent to the issues presented by the
aforementioned transaction.

Rule 12A-1.001, F.A.C., provides:

"(3) RELIGIOUS, EDUCATIONAL, CHARITABLE, VETERANS' AND
SCIENTIFIC ORGANIZATIONS, FEDERAL AND STATE CHARTERED
CREDIT UNIONS, FLORIDA RETIRED EDUCATORS ASSOCIATION AND
LOCAL CHAPTERS, AND ORGANIZATIONS PROVIDING SPECIAL
EDUCATIONAL AND SOCIAL BENEFITS TO MINORS.
"(a) A sale or lease directly to... nonprofit religious...
institutions,... for use in the course of their
customary... nonprofit... religious... activities, ... are
exempt from the tax imposed by Part I, Chapter 212, F.S....
However, such institutions or organizations desiring to
qualify for the exemption must obtain from the Department
of Revenue a consumer's certificate of exemption, and
payment must be made directly to the dealer by the exempt
entity.... This exemption shall not inure to any
transaction otherwise taxable when payment is made by an
exempt entity's employee by any means, including but not

limited to, cash, check, or credit card, when that employee
is subsequently reimbursed by the exempt entity...."

Rule 12A-1.038, F.A.C., provides, in pertinent part, as
follows:

"(1) It is the specific legislative intent that every
sale,... is taxable under Chapter 212, F.S., unless such
sale, admission, use, storage, consumption or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate to the effect
that the property or service was purchased for resale and
bearing the name and address of the purchaser, the
effective date of the certificate and the number of his
dealer's certificate of registration, or a certificate
bearing the number of his consumer's exemption certificate,
and the effective date of the certificate, the sale shall
be deemed to be a taxable sale at retail...."

"(3) A resale certificate is required from every purchaser
who purchases tangible personal property or service for
resale,... Otherwise, the dealer will be required to
collect and remit the tax to the Department of Revenue...."

DISCUSSION

Florida sales and use tax is an excise tax, levied in the
chain of manufacture and distribution, imposed for exercising
the privilege of selling, using, consuming or renting items of
tangible personal property or services that are taxable in this
state. When tangible personal property is sold at retail, tax
is due and payable based on the sales price and is collectible
by the dealer from the purchaser. However, when such items are
not purchased for sale but are used, consumed, distributed or
stored for use or consumption in this state, tax is due and
payable based on the cost price by such user or consumer. Since
the sale or purchase of real property is not subject to Florida

sales or use tax, tangible personal property which becomes real
property is taxed at the last transaction prior to being
converted into real property.

A party to this proposed transaction is a religious
institution; therefore, the Department must look to Rule 12A1.001(3), F.A.C., supra. This Rule states that sales made
directly to a religious institution are exempt, when payment is
made directly to the dealer (i.e., Taxpayer) by that religious
institution.

Therefore, pursuant to Rule 12A-1.001(3), F.A.C., when
Taxpayer, the "supply house" dealer of the construction
materials, sells these materials directly to Church, a religious
institution, such sales are exempt from sales tax. However,
Taxpayer is required to obtain from Church its valid Consumer's
Certificate of Exemption, as provided in Rule 12A-1.039, F.A.C.,
in order to make sales of the construction materials to Church
tax exempt.

Therefore, Church qualifies to purchase materials to be
used in construction directly from Taxpayer tax exempt, provided
Church extends its Consumer's Certificate of Exemption to
Taxpayer at the time the sale of the materials takes place.
However, this tax exemption does not apply to purchases made by
contractors or subcontractors which will also be providing
construction services for the project. Church must comply with
the following provisions in order to maintain this sales tax
exemption for such material purchases:

1. Church must issue its own purchase orders directly to
   Taxpayer, which must contain or must be accompanied by
   Church's Consumer's Certificate of Exemption.

2. All materials purchased under the exemption must be
   sold directly to Church.

3. Church must take title and possession of all materials
   purchased from Taxpayer before they are incorporated into
   real property.

4. Church must assume all risk of loss on all materials
purchased.

5. Church must bear cost of all insurance on all
   materials purchased.

6. Church must make direct payment to Taxpayer for all
   purchases of construction materials.

If all the above provisions are met, the purchase of
supplies, goods, equipment, appliances and other materials by
Church from Taxpayer is exempt from sales tax.

With regard to Taxpayer's purchase of the construction
materials and supplies, Rule 12A-1.038(1), F.A.C., provides that
a sale is exempt from tax if, at the time of purchase, the
dealer (the materials vendor) takes from the purchaser a
certificate to the effect that the property is purchased for
resale. The application of Rule 12A-1.038, F.A.C., to
Taxpayer's case, provides that Taxpayer may purchase the
construction materials for resale to Church, exempt from sales
tax liability, insofar as Taxpayer complies with the
requirements of Rule 12A-1.038, F.A.C.

Rule 12A-1.038(3), F.A.C., provides that a completed resale
certificate is required from every purchaser who purchases
tangible personal property for resale, subject to the provisions
of subsection 12A-1.038(1), F.A.C.; otherwise the selling dealer
will be required to collect and remit the tax to the Department.

The Department does not supply dealers with preprinted
forms which meet the standards of Rule 12A-1.038, F.A.C., and
has therefore promulgated Rule 12A-1.039, F.A.C., providing only
a suggested form for a blanket resale and exemption certificate
that meets the minimum requirements of Rule 12A-1.038, F.A.C.
(A copy of Rules 12A-1.038 and 12A-1.039, F.A.C., is enclosed
for your review).

Please be advised that a blanket resale certificate does
not expire, as this is not a document issued by the Department.
It may continue to be used until the issuer, in this case

Taxpayer, revokes it by written notice to the supplier, or until
such time as the Florida Department of Revenue cancels
Taxpayer's tax registration, should such an event occur.

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
based 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 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,

Nydia Menendez
Tax Law Specialist

NM/

Enclosures:
Control No. 15219