Were materials and equipment rentals for a city stadium renovation exempt as direct government purchases?

Plain-English summary

Building materials purchased directly by the city were exempt, but equipment rented to contractors was not.

The city used its own purchase orders and exemption number, was billed directly, paid vendors directly, received immediate title, and bore risk of loss through insurance. Those facts placed the legal incidence of tax on the exempt city. The exemption did not extend to contractor or subcontractor equipment rentals.

What this means for you

Government funding or ultimate economic burden alone did not make a public-works purchase exempt. The government had to be the substantive purchaser.

Common questions

Q: Who had to issue the purchase order?
A: The city.

Q: Who had to pay the vendor?
A: The city, after being invoiced directly.

Q: Were contractor equipment rentals exempt?
A: No.

Citations and references

• Fla. Stat. § 212.08(6) — government purchases
• Fla. Admin. Code r. 12A-1.094 — public-works contracts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-007

Original ruling text

Feb 15, 1995

RE: TAA 95A-007
Public Works Contract
s. 212.08(6), F.S.
Rule 12A-1.094, F.A.C.

Dear :

This is in response to your letter dated March 28, 1994, in
which you request a Technical Assistance Advisement on whether
purchases of materials for incorporation into a public works
project and rental of equipment used under a public works
contract meet the exemption provisions of s. 212.08(6), F.S., as
purchases made directly by a governmental entity. In response to
our letter dated April 8, 1994, and subsequent telephone
conversations, you had submitted additional documentation on
April 21, 1994; June 10, 1994; July 6, 1994; July 14, 1994;
December 8, 1994; December 15, 1994; and January 11, 1995.

FACTS PRESENTED

XXX [hereinafter Lessee], formerly XXX, entered into a
lease agreement with the XXX [hereinafter City] for the lease of
the City-owned Municipal Stadium [hereinafter Stadium] which is
commonly known as the XXX Stadium.

Condition 33. of Exhibit D of the lease agreement
encompasses the obligation of the Lessee to act as project
manager for the City for the renovation of the Stadium and the
obligations of the City to fund all costs for the renovation
project. Lessee has the exclusive and unconditional right to
control the project site and to select and enter into contracts
with any and all contractors, subcontractors, suppliers, and all
others for the renovation project for the Stadium.

Condition 33.H.(vii), Exhibit D, of the lease agreement
specifically provides:

"Sales Tax Exemption. Only for the purposes of obtaining
Sales Tax Exemption for the purchase of equipment and
materials, [Lessee] shall have the right to contract in the
name of the City. This provision shall not create any
contractual relationship between the City and any
contractor or any subcontractor. The City shall cooperate
with [Lessee] to make full use of the sales tax exemption
provisions set forth in Section 212, Florida Statutes, and
Rule 12A-1.094, Florida Administrative Code. The City will
designate a City purchasing agent to the project to
facilitate the purchase of project materials free from the
payment of sales tax."

Lessee entered into a guaranteed maximum price contract
with XXX [hereinafter Contractor], to perform the work required
for the renovation of the Stadium. Article 6.2 C. of Exhibit
"H" of the contract provides that Contractor agrees to comply
with all procedures and requirements imposed by the City, the
Florida Department of Revenue, and the Lessee in order to take
advantage of a Florida sales tax exemption for the renovation
project.

You have also provided a copy of the procedures (your
Exhibit A) under which the City will purchase materials. These
procedures specifically provide that:

"The subcontractor prepares a request for purchase order
(PO) which is submitted to the [Contractor]. The
contractor sends requests for purchase order (PO) together
with attached quote from the supplying vendor to [the
Public Works Department of the City] to prepare a purchase
requisition utilizing the City purchasing system. The
quote must include vendor's Federal ID number and must be
addressed to the City....

"A purchase requisition/order is sent by [the City Director
of Public Works] to [the Chief Purchasing Officer of the
City] for processing. The PO is signed by [City Chief
Purchasing Officer] and forwarded to [City Director of
Public Works] for distribution.

"The vendor delivers the material to the jobsite. On site,
the subcontractor inspects the materials and signs the
proof of delivery....

"Invoices are forwarded to the [Contractor]. Upon receipt
of materials, [Contractor] will match PO, Proof of Delivery
and Invoice, checking for accuracy and compliance.... Two
copies of this invoice package will be sent to [City's
audit company] for review and approval. [City's audit
company] will forward one copy of the approved package to
the City [Director of Public Works] for payment processing.

"A Receiving Report is prepared by [City Public Works
Department] and forwarded by [City Director of Public
Works] to ... [City Treasury Department] for check creation
and signing. Checks will be forwarded to [City Director of
Public Works] for distribution. Contractor will make
copies of the checks to attach to the Contractor's copy of
the package for support of payment.

"The above procedure is to be used for all material
purchases in excess of $5,000. Vendors should be provided
with a copy of the following City Sales and Use Tax
Exemption No:...."

On December 8, 1994; the City and Lessee entered into an
agreement to formalize the procedures on the direct purchase of
materials, supplies and other items by City for incorporation
into the Stadium renovation project. The agreement specifically
provides that City's chief purchasing officer and director of
public works will determine which items will be purchased
directly by the City and further provides:

"(a) The purchase shall be in the City's name with
ownership of the item upon receipt vested in the City; and,
"(b) The purchase shall be by a City Purchase Order
directly funded by the City; and,
"(c) Vendor/Supplier shall invoice the City directly for
payment which shall be made directly by the City to the
Vendor/Supplier; and,
"(d) The City's Purchase Order shall clearly state the

purchase is exempt from Sales Tax pursuant to the City's
Sales and Use Tax Exemption Certificate; and,
"(e) The City shall provide Builders Risk Insurance to
protect against the loss of the item and to evidence the
City's liability therefor; and
"(f) Acknowledgment of receipt of the item and approval for
payment shall be documented by an official of the City or
an authorized agent of the City."

A copy of the City's builder's risk policy for the
renovation project has been provided.

STATUTORY/REGULATORY AUTHORITY

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

"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 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...."

Rule 12A-1.094, F.A.C., provides in part:

"(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....
"(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 [the Executive Director's] 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 [the Executive Director's] 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 [the
Executive Director's] 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 [the Executive Director's] designee in the
responsible division that such sales are, in substance, tax
exempt sales to the government."

DETERMINATION

After reviewing the terms of the documents supplied by you
and the City, including the rights and obligations of the City
and Lessee under their lease agreement and Contractor and Lessee
under their construction agreement, the Department has
determined that in those cases where the City delegates its
authority to the trade contractors in coordination with the
Lessee to make purchases of equipment or materials in the City's
own name and using the City's purchase orders and using the
City's credit where the City is invoiced directly for the
purchases, the legal incidence of the sales tax is directly upon
the City.
It is determined that building material purchases by the
City for the renovation project may be made exempt from sales
tax in that:

1. City will issue its own purchase orders, which contain the
   City's consumer's certificate of exemption number, directly
   to the materials vendors; and

2. The "Agreement" between City and Lessee on direct purchases
of building materials provides that the City is the
purchaser in whom title to the building materials vests
immediately upon receipt from the selling vendor; and

3. City is billed directly by the selling vendor for purchases
   of building materials; and
4. Payment for the building materials is made directly to the
   selling vendor by the City; and
5. City assumes all risks of loss or damage for the building
   materials as evidenced by an insurance policy issued in the
   name of the City for builders' risk for the stadium
   renovation project.

This tax exemption does not apply to equipment rentals to
contractors or subcontractors that provide construction services
for the renovation project, even though the economic burden of
the tax, by contract or otherwise, may ultimately be borne by
the City.

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 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,

Sharon Gallops
Technical Assistant

/sg
Cont. #15220