Could a governmental credit union buy construction materials tax-free through a supply-house vendor?

Subject

Sale of Construction Materials to Governmental Entity

Plain-English summary

The governmental credit union could purchase construction materials tax-free through the supply-house vendor because the materials were sold directly to the exempt governmental entity. The vendor could buy for resale using a resale certificate, then transfer the materials directly to the credit union.

The credit union 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 extend to purchases by the general contractor or subcontractors.

What this means for you

Government ownership of a construction project did not automatically exempt contractor purchases. The transaction had to establish the governmental entity as the actual purchaser through orders, payment, title, possession, risk, and insurance.

Common questions

Could the contractor purchase the materials under the exemption? No. The governmental entity had to purchase directly.

Could the contractor receive materials at the site? Yes on the owner's behalf, but title could not pass to the contractor.

Could the supply house purchase for resale? Yes, with the required resale certificate.

Citations and references

• Fla. Stat. §§ 212.08(6) and 213.22
• Fla. Admin. Code rr. 12A-1.001(9)(a), 12A-1.038(1) and (3), and 12A-1.039

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-062

Original ruling text

Nov 29, 1994

Re: TAA 94A-062
Sales and Use Tax - Sale of Construction Materials to
Governmental Entity
s. 212.08(6), F.S.
Rules 12A-1.001(9)(a), and 12A-1.038(1), (3), F.A.C.

Dear :

This is in response to your letter of March 9, 1994, and
supplementary letters dated June 27, 1994, September 18, 1994
and October 14, 1994, in which you request, on behalf of your
client, XXX (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 governmental entity, the XXX
(hereinafter, "Union" or "the Union").

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, 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 Union to place all orders for construction
materials.
-

Union is the "Owner" of the construction site. Union

is a governmental entity, which holds a valid Consumer's
Certificate of Exemption. Union will enter into the
proposed contract with Taxpayer to purchase all
construction materials from Taxpayer, as requested by
Union, using the Union's purchase order.
-

Contractor or General Contractor is the entity which

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

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

The contract will also require Union to designate Taxpayer
as its authorized vendor of materials, thereby requiring Union
to order the construction materials for the project from
Taxpayer. Taxpayer will provide Union with specifications
relating to the purchase and payment of materials that it will
furnish to Union, and Union 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 blanket resale certificate. Taxpayer will be
invoiced by the material vendor(s), and will remit to the
vendor(s) payment due upon receipt of the Union'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 Union upon delivery of those materials
to the construction site. Although the Contractor may accept
the materials on behalf of Union, 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 manufacturer defects in workmanship; however, this bond
will not protect against theft or risk of loss of the materials.
Therefore the risk of loss regarding the materials is on
Taxpayer or Union at all times, never on Contractor.

RELEVANT PROVISIONS

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

Section 212.08, F.S., provides:

"(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 country,
municipality, or political subdivision of a state when
payment is made directly to the dealer by the governmental
entity..."

In light of this statute, the Department has promulgated
Rule 12A-1.001, F.A.C., which provides, in pertinent part, as
follows:

"(9) GOVERNMENTAL UNITS.
"(a) All sales made directly to the United States
Government, a state, or any county, municipality, or
political subdivision of a state are exempt,... Payment
must be made directly to the dealer by the governmental
entity of a state, or county, municipality, or political
subdivision of a state.... Such governmental entities
desiring to qualify for the exemption, must obtain from the
Department of Revenue a consumer's certificate of

exemption..."

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 includes a credit
union, which is a governmental entity; therefore, the Department
must look to s. 212.08(6), F.S., and Rule 12A-1.001(9)(a),
F.A.C. These provisions state that sales made directly to the
United States government, a state, or any county, municipality,
or political subdivision of a state are exempt, when payment is
made directly to the dealer (i.e., Taxpayer) by the governmental
entity.

Therefore, in compliance with s. 212.08(6), F.S., and Rule
12A-1.001, F.A.C., when Taxpayer, the "supply house" dealer of
the construction materials, sells these materials directly to
Union, a governmental entity, such sales are exempt from sales
tax. However, Taxpayer is required to obtain from Union 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 Union tax exempt.

Therefore, Union qualifies to purchase materials to be used
in construction directly from Taxpayer tax exempt, provided
Union 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. Union must comply with
the following provisions in order to maintain this sales tax
exemption for such material purchases:

1. Union must issue its own purchase orders directly to
   Taxpayer, which must contain or must be accompanied by
   Union's Consumer's Certificate of Exemption.
2. All materials purchased under the exemption must be sold
   directly to Union.
3. Union must take title and possession of all materials
   purchased from Taxpayer before they are incorporated into
   real property.
4. Union must assume all risk of loss on all materials
   purchased.
5. Union must bear cost of all insurance on all materials
   purchased.
6. Union must make direct payment to Taxpayer for all

purchases of construction materials.

If all the above provisions are met, the purchase of
construction materials by Union from Taxpayer is exempt from
sales tax.

With regard to Taxpayer's purchase of the construction
materials, 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 the Union, exempt from sales tax liability,
insofar as Taxpayer complies with the requirements of Rule 12A1.038, 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. 14186