Could a Florida county directly buy building materials for a public facility without paying sales tax under its revised purchasing procedures?

Plain-English summary

The county's direct purchases of construction materials for its public facility could be exempt from Florida sales tax. The county's revised procedures, made part of the construction agreement by an addendum, placed the purchases in the county's own name and on its credit.

The county would issue its own purchase orders, receive direct vendor invoices, pay vendors directly, take title when materials were delivered to the county-owned job site, and bear the insured risk of damage or loss. Subcontractors could prepare requisitions and handle receipt and inspection, but deductive change orders removed the directly purchased materials and related tax savings from their contracts.

The Department drew a clear limit: the exemption did not cover equipment rented to contractors or subcontractors providing construction services, even if the county ultimately bore the economic cost of the tax.

What this means for you

A public-works direct-purchase program must make the government the purchaser in substance. Purchase orders, vendor billing, direct payment, title, insurance, and risk of loss all mattered here, and the procedures had to be incorporated into the construction agreement.

Common questions

Q: Were the county's direct purchases of building materials exempt?
A: Yes, under the revised procedures and contract addendum described in the ruling.

Q: Could subcontractors help select and receive the materials?
A: Yes. They could prepare requisitions and handle delivery, inspection, and acceptance while the county remained the purchaser.

Q: Did the exemption cover rented construction equipment?
A: No. Equipment rentals to contractors or subcontractors remained taxable.

Citations and references

• Fla. Stat. § 212.08(6) — government purchases and the public-works contractor exception
• 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 96A-012

Original ruling text

Jan 29, 1996

Re: TAA 96A-012
Sales Tax - Public Works Contract
Section 212.08(6), F.S.
Rule 12A-1.094, F.A.C.

Dear:

This response is in reply to your revised October 10, 1995,
petition for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., and Rule 12A-11,
F.A.C. Your petition regards the referenced matter. The
Department has carefully examined your revised petition and
finds it to meet the criteria set forth in Chapter 12-11,

F.A.C., requisite to issuance of a TAA. Therefore, the

Department is by this response issuing the requested TAA.

FACTS

The initial request for a TAA was submitted in May, 1995,
regarding a sales tax exemption on direct purchase of materials,
supplies, and equipment by XXXX (hereinafter "County") for the
construction of the XXXX (hereinafter "Facility"). In response

to that request, we advised you, in our letter dated May 25,
1995, that the County Purchased Materials Procedures
(hereinafter "Procedures") did not conclusively demonstrate that
the building materials purchased by County would qualify for the
exemption provided in Rule 12A-1.094, F.A.C., so as to exempt
the materials purchased under the agreement entered into on
April 18, 1994, between the contractor, XXXX, and the County.
With your revised request dated October 10, 1995, you have
provided revised Procedures in which sections 4.13.1, 4.13.8,
4.13.12, 4.13.14, 4.13.15, and 4.13.19 have been amended to
resolve concerns expressed in our letter of May 25, 1995. We
subsequently expressed that while these Procedures were good,
there was nothing in the contract to bind the contractor or

subcontractor to these Procedures. On January 9, 1996, you

provided us with an addendum to the agreement that specifically

makes the Procedures a part of the agreement.

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 term

‘public 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’, and ‘guaranteed

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

Pursuant to section 212.08(6), F.S., sales tax does not apply to
sales of tangible personal property, including construction
materials to be incorporated in the Facility, where payment for
such purchases will be made directly to the vendors by the

County.

After reviewing the terms of the revised Procedures supplied by
County, the Department has determined that in those cases where
the County delegates its authority to the subcontractors in
coordination with the Construction Manager to make purchases of
equipment or materials in the County's own name and using the
County's purchase orders and using the County's credit where the
County is invoiced directly for the purchases, the legal

incidence of the sales tax would be directly upon the County.

It is determined that building material purchases by the County
for the construction of the Facility may be made exempt from

sales tax in that:

1. A Purchase Order Requisition Form in a form acceptable to
   County and Construction Manager shall be prepared by
   subcontractors and submitted to County prior to ordering County
   purchased materials. The requisition form will provide the name,
   address, telephone number and contact person for the materials

supplier; a list of required items, the quantity needed, the

price and sales tax associated with the materials, and delivery

dates established by the subcontractor.

2. The County will prepare and issue standard County purchase

order forms to the vendors.

3. In conjunction with the execution of the County's Purchase
   Orders by the suppliers, the Subcontractor shall execute and
   deliver to the County, through the Construction Manager,
   deductive change orders reflecting the full value of all
   materials directly purchased by County, plus all sales tax

savings associated with the materials.

4. Subcontractors will be responsible for all matters relating
   to the receipt of materials purchased by County including
   verifying correct quantities, inspection and acceptance of the
   goods at the time of delivery. The Subcontractor will forward
   the invoice to County through the Construction Manager for

payment.

5. Title to County purchased materials will vest in County at
   the time the materials are delivered to County owned

construction site (F.O.B. job site)

6. County is billed directly by the selling vendor for purchases

of building materials.

7. Payment for the building materials is made directly to the

selling vendor by the County.

8. County will bear the costs of all Payment and Performance
   Bonds and Owner's Insurance including Builder's Risk Insurance
   as a reimbursable expense to the Construction Manager. The
   County is an additional named insured on the Contractor's
   Builder's Risk insurance and, in the event of damage or
   destruction to the County purchased materials, the County will
   receive all proceeds derived from all claims against insurers or
   others to pay for repair or reconstruction as a result of damage

or destruction.

Due to these facts, direct purchases of construction materials

by County that will be incorporated into Facility are exempt

from sales tax.

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

the County.

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 confidential
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,

Edith Sapp
Tax Law Specialist
Tax Policy and Dispute

Resolution

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