Could an exempt Florida church buy a laminated truss roof system directly from a subcontractor without paying sales tax?

Plain-English summary

The church's direct purchase of the laminated truss roof system was exempt from Florida sales tax. The church held a consumer's certificate of exemption and amended its prime contract so it could buy project materials directly. A deductive change order removed the materials and associated sales tax from the subcontract, leaving the subcontractor's contract with the general contractor for installation only.

The church issued the purchase order in its own name and included its exemption number. It took title when the materials reached the job site, was named as an additional insured, received invoices directly from the subcontractor, and paid those invoices directly. On that complete set of facts, the Department treated the church—not the contractor—as the buyer.

What this means for you

Separating material purchases from installation requires more than a paper label. The exempt organization must actually purchase and pay for the materials, and the construction contracts must consistently remove those materials from the contractor's price.

Common questions

Q: Was the truss roof system purchase exempt?
A: Yes, under the submitted contracts, purchase order, invoices, payments, title terms, and exemption certificate.

Q: Could the subcontractor still install the system?
A: Yes. After the deductive change order, its contract with the general contractor covered installation only.

Q: What facts showed the church was the purchaser?
A: Its purchase order, exemption number, title at job-site delivery, additional-insured status, direct invoices, and direct payments.

Citations and references

• Fla. Stat. § 212.08(7)(o) — direct sales and leases to churches
• Fla. Admin. Code r. 12A-1.001(3)(a) — exempt organizations and direct payment
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-011

Original ruling text

Jan 22, 1996

Re: TAA 96A-011
Sales and Use Tax; Construction Contract with Tax Exempt
Organization
Section 212.08(7)(o), F.S.
Rule 12A-1.001(3)(a), F.A.C.

Dear :

This responds to your request dated July 21, 199[5] for a
Technical Assistance Advisement regarding an exemption from
sales tax on direct purchases of construction materials by an
exempt entity. This response to your request constitutes a
Technical Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under the authority of
s. 213.22, Florida Statutes.

FACTS

XXXX (hereinafter "Church") entered into a contract with XXXX
(hereinafter "Contractor") for construction of a chapel and
administrative building. Church has been issued Consumer's
Certificate of Exemption number XXXX which expires July 26,
1998. XXXX (hereinafter "Taxpayer") entered into a subcontract
with Contractor for a portion of the work. Taxpayer provided
the following description of the transaction:

"Taxpayer' has purchased laminated raw beams and decking from a manufacturer.Taxpayer' manufactures the laminated
truss system and sells it to Church.' TheChurch' has
issued their Order to Purchase a complete Glu Laminated
Truss Roof System to Taxpayer.'Taxpayer' has a contract
with `Contractor' to unload and install the Glu Laminated
Truss Roof System....

"Taxpayer,' as a subcontractor, submitted its quote on this project toContractor'... for supplying the material

and erecting the complete Glu Laminated Truss Roof System.
Taxpayer' was the low bidding subcontractor for the Glu Laminated Truss Roof System and was awarded a contract byContractor.' Subsequent to that, Church' decided to exercise its option to purchase the material direct fromTaxpayer' and the following transactions took place:
Contractor' issued a Change Order Deduct to its contract withTaxpayer' for the material portion of the contract
and Church' issued its Purchase Order toTaxpayer' for
the material. Taxpayer's' contract withContractor' is
now for installation only. In a previous ruling (TAA 93A058), Taxpayer was notified that the church could purchase
its material from Taxpayer by using their Sales Tax
exemption number."

Submitted for examination were copies of: the prime
contract between Contractor and Church, a standard AIA document,
dated November 11, 1994; the contract amendment dated April 18,
1995; the subcontract between Contractor and Taxpayer, a
standard AIA document dated February 6, 1995; the purchase order
issued by Church to Taxpayer dated April 19, 1995; the deductive
change order reducing the subcontract amount between Taxpayer
and Contractor dated April 19, 1995; Taxpayer's invoices issued
to Church dated May 16 and June 8, 1995; and Church's checks
made payable to Taxpayer dated May 16 and June 12, 1995;

The prime contract amendment provides that "The `Church'
shall have the right, at its sole option, to exercise its option
to purchase any and all materials for the Project for the
purposes of saving sales taxes" and that the Church shall issue
a purchase order directly to the material supplier identified by
the Contractor for each type of material purchased. The
amendment further provides that the direct purchase shall be
accomplished by the execution of a deductive change order to
reduce the contract by an amount equal to the amount that would
have been paid by Contractor for materials, including sales tax.

The Church issued its purchase order to Taxpayer to provide
and deliver the roofing truss and decking system with materials
to include beams, specific decking, insulation, hardware, and
fasteners. The purchase order contained the Church's consumer's

certificate of exemption number and provided that title to the
materials passes to church upon delivery to the job site by
noting "F.O.B. Jobsite" on the purchase order.

The subcontract between Taxpayer and Contractor was reduced
by a "Subcontractor Change Order Document" which provided that
"`Church' has exercised its right to purchase all materials
associated with this scope of work directly from manufacturer
[Taxpayer]." The deductive change order reduced the original
subcontract amount by an amount representing the cost of
materials supplied by Taxpayer and associated sales tax on the
cost of the materials.

Taxpayer issued two invoices directly to Church and Church
issued two checks directly to Taxpayer in payment of the
invoices.

STATUTORY/REGULATORY AUTHORITY

Section 212.08(7)(o), F.S., provides in part:

"1. There are exempt from the tax imposed by this part
transactions involving:...
"a. Sales or leases directly to churches....

Rule 12A-1.001(3)(a), F.A.C., provides in part:

"A sale or lease directly to... churches... [is] exempt
from the tax imposed by Part I, Chapter 212, F.S....
However, such institutions... 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...."

DETERMINATION

Pursuant to section 212.08(7)(o), F.S., and Rule 12A1.001(3)(a), F.A.C., sales tax does not apply to the direct
purchases of tangible personal property, including construction
materials, by an exempt organization where payment is made by
the exempt organization directly to the selling vendor and such

purchases will be used to carry out the exempt organizations's
customary nonprofit activities.

It is the Department of Revenue's position that the Church
made direct purchases of construction materials directly from
Taxpayer for the following reasons:

1. By amendment, the contract between Contractor and the Church
   provided that the Church had an option to purchase construction
   materials directly from vendors for the purpose of saving sales
   tax;

2. The prime contract sum was reduced in an amount equal to the
   purchase price, including sales tax, of the construction
   materials Church directly purchased from Taxpayer;

3. Church executed purchase orders for the construction
   materials it purchased directly from Taxpayer;

4. Church acquired title to the construction materials at the
   point in time they were delivered to the job site;

5. Church was named as an additional insured party on all
   liability insurance required of Taxpayer;

6. Church was directly invoiced by Taxpayer for the construction
   materials it has purchased in its own name;

7. Church made payment directly to Taxpayer;

8. Church holds a consumer's certificate of exemption from the
   Department of Revenue which exemption number is incorporated
   into the language of the purchase order issued to Taxpayer.

Due to the facts as presented in this advisement, the
direct purchase of the Glu Laminated Truss Roof System by the
Church from Taxpayer is exempt from sales tax as provided under
section 212.08(7)(o), F.S., and Rule 12A-1.001(3)(a), F.A.C.

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
Senior Tax Specialist

/sg
Cont. #22495