Should a fire-alarm contractor charge Florida sales tax on an itemized life-safety system upgrade and its installation?

Plain-English summary

The contractor had to collect Florida sales tax on the separately itemized fire-alarm materials, but not on the separately stated installation charge.

The life-safety system would become an improvement to real property after installation. Florida's contractor rule generally makes a contractor the taxable consumer of materials used under lump-sum, cost-plus, fixed-fee, or guaranteed-price contracts. For an itemized contract, however, the contractor is treated as selling the specifically described materials at retail and collects tax from the property owner on those material charges.

The Department concluded that the parties intended an itemized contract. The contractor's invoices listed individual materials and prices, the agreement added sales tax to the stated contract price, and the taxpayer said title passed after inspection but before installation. Because installation was separately stated, it was not taxed.

What this means for you

For Florida real-property work, the contract's billing structure and the parties' title terms can determine who pays tax and on what amount. Detailed material invoices, a separate installation charge, and title passing before installation supported retail-sale treatment here. A lump-sum or other non-itemized arrangement would place the contractor in the role of ultimate consumer under the rule quoted in the ruling.

Common questions

Q: Was the entire life-safety-system contract taxable? A: No. Tax applied to the separately itemized materials, while the separately stated installation charge was not taxable.

Q: Why did the Department treat the contractor as selling materials at retail? A: The invoices itemized the materials and prices, the contract price was stated as an amount plus sales tax, and title passed to the taxpayer before installation.

Q: Would a lump-sum contract receive the same treatment? A: Not under the rule quoted in the advisement. For lump-sum and other non-itemized real-property contracts, the contractor is treated as the ultimate consumer of materials.

Citations and references

• Fla. Admin. Code r. 12A-1.051 — contractor purchases and itemized contracts for real-property improvements
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-002

Original ruling text

Jan 12, 1996

Re: Technical Assistance Advisement 96A-002 Sales and Use Tax - Fire Alarm System Upgrade Rule: 12A-1.051, F.A.C. Petitioner: XXX ("Taxpayer") FEI: XXX

Dear :

This is a response to your petition received November 9, 1995, for the Department's issuance of a Technical Assistance Advisement ("TAA") concerning the above referenced party and matter. Your petition has been carefully examined and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.

DISCUSSION OF FACTS

Your letter imparts the following discussion concerning the matter under advisement:

XXX (hereafter Contractor) has contracted to provide Taxpayer with a life safety system consisting of the following subsystems: (1) Fire alarm subsystem; (2) Emergency paging and voice alarms subsystem; (3) Emergency telephone subsystem; and (4) Existing manual smoke control subsystem. The life safety system is built and wired into the wall and would appear to be an improvement to real property once installed. Contractor has submitted the following price breakdown of the life safety system:

"XXX Equipment

"Outside Vendor Equipment

"Certification, Programming,

$225,772.00

$ 37,912.00

Inspection & Testing

$ 54,812.00

"Labor

$227,846.00

"Freight

$ 2,800.00

"Sub-total

$509,142.00

"Florida Sales Tax

$ 30,573.52

"Total Installation Price:

$539,715.52"

Contractor also provided Taxpayer with thirteen (13) pages of contract detail. Pages 11-12 provided a "Bill of Material" in conjunction with the materials listed above in the price breakdown. There are no itemized prices for the materials. The only categories provided are: (1) Quantity, (2) Model, and (3) Description.

On November 15, 1995, you faxed copies of actual invoices issued to Taxpayer from Contractor. The Contractor has itemized in detail all materials on these invoices. For example, on page one of invoice number XXX, the following itemization of materials occurred:

"CXE-1 Enclosure Pkg

1

388.850

$388.85

"EDX-1 XL3 Door Pkg

1

304.320

$304.32

2

228.580

$457.16

...

"MDR-2 Enclosure Door

"MBR-2 Encl Pkg

2

262.390

$524.78

. . ."

This same detailed itemization of the materials continued through page four. Per our conversation, you stated that pursuant to an oral agreement between Taxpayer and Contractor, the F.O.B. terms were that title to all materials passed to

Taxpayer upon receipt of the materials. You stated that upon receipt of the materials Taxpayer is granted an inspection of the materials. After the inspection, if the quantity and quality of the materials are satisfactory, title to the materials passes to Taxpayer prior to the installation of the materials.

REQUESTED ADVISEMENT

Should contractor charge Taxpayer tax on the abovedescribed life safety system upgrade?

DISCUSSION, ANALYSIS AND CONCLUSION OF LAW

Rule 12A-1.051, F.A.C., provides in part:

"(1) This rule shall govern the taxability of purchases or use of tangible personal property by contractors who purchase or manufacture materials and supplies for use in the performance of non public works contracts.... "(2) Such contractors may... use one of the following methods in arriving at the total contract price: "(a) Contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services for a lump sum; "(b) Contracts in which the contractor or subcontractor agrees to furnish the materials and supplies and necessary services on a cost plus or fixed fee basis; "(c) Contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services with an upset or guaranteed price which may not be exceeded; and "(d) Contracts in which the contractor or subcontractor repairs, alters, improves or constructs real property and wherein he agrees to sell specifically described and itemized materials and supplies at an agreed price or at the regular retail price and to complete the work either for an additional agreed price or on the basis of time consumed. "(e) When a contractor or subcontractor uses materials and supplies in fulfilling either a lump sum, cost plus, fixed fee, guaranteed price or any kind of contract except one

falling in class (d) above, he becomes the ultimate consumer thereof. The person or dealer who sells such materials and supplies to such contractor or subcontractor is making sales at retail and is required to collect the tax from him based upon the receipts from such sales. "(f) In cases falling in class (d) above, the contractor or subcontractor is deemed to be selling tangible personal property at an agreed retail price and shall collect tax from his purchaser based upon the amount of the receipts from such sales, excluding installation charges if separately stated. A dealer selling to such contractor or subcontractor must obtain a resale certificate in lieu of tax.... "(16) Materials purchased for use in the performance of lump sum, cost plus, fixed fee or guaranteed price contracts for the improvement of real property are taxable to all contractors, including but not limited to the following contractors... Burglar and fire alarm system..."

Pursuant to Rule 12A-1.051, F.A.C., a contractor may elect to perform either a lump sum, cost plus, fixed fee, guaranteed price or itemized contract. In fulfilling all contracts except itemized contracts, the contractor becomes the ultimate consumer of all materials and supplies used. In fulfilling itemized contracts, the contractor is deemed to be selling tangible personal property and must collect tax from his purchaser based on the itemized charges for materials, excluding installation charges if separately stated.

Based on the information presented, it appears that the intent of both parties was to enter into a itemized contract. The invoices are clearly described and itemized, and title to the materials passes prior to installation. Furthermore, the price breakdown provides a line item for tax, and although the actual contract is not itemized, the contract does state, "Total price for the above shall be $509,142.00 plus sales tax." Therefore, pursuant to Rule 12A-1.051, F.A.C., the contractor is agreeing to sell specifically described and itemized materials and must collect tax from Taxpayer based upon the amount of the materials. Because this is a real property contract and

installation was separately stated, tax is not due on the installation charge.

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 upon 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 from that which is 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 that 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 this response.

Sincerely,

Leigh L. Ceci
Senior Tax Specialist

/LLC
Control #23895