Did Florida treat a permanently installed marina security system as tangible personal property or a real-property fixture?

Plain-English summary

Florida treated a permanently affixed marina security system as an improvement to real property, not as tangible personal property sold to the customer.

The components were bolted or screwed to a stump, piling, or concrete wall and the installation contracts did not retain title. The Department compared the system to permanently affixed burglar and fire alarms and found the same contractor-tax treatment applied.

Under lump-sum, cost-plus, fixed-fee, or guaranteed-price contracts, the installer paid tax to suppliers on materials used to install, repair, or maintain the system and did not charge sales tax to the customer. If the installer manufactured or fabricated the system from raw materials, tax was measured by the full fabricated or manufactured cost, not merely raw-material cost.

What this means for you

• Permanent affixation and contract language controlled the fixture analysis.
• Retained-title or personal-property-until-paid terms could change the result.
• A real-property contractor was the consumer of installation and maintenance materials.
• In-house manufacturing brought the full fabricated-cost rule into play.

Common questions

Q: Was the installed marina system tangible personal property?
A: No. It was treated as a real-property fixture on the stated facts.

Q: Did the installer charge the customer sales tax?
A: No, under the listed lump-sum, cost-plus, fixed-fee, or guaranteed-price contracts.

Q: What tax did the installer pay?
A: Tax on purchased materials, or on full fabricated cost when it manufactured the system.

Citations and references

• Fla. Admin. Code r. 12A-1.051(5) — fabricated property used by contractors
• Fla. Admin. Code r. 12A-1.051(16) — real-property improvement contracts
• Fla. Admin. Code r. 12A-1.056 — remittance provision referenced by the rule
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-018

Original ruling text

Feb 16, 1996

Re: Technical Assistance Advisement 96(A)-018
Sales And Use Tax - Installation and Maintenance of Marina
Security System
Petitioner: XXX (herein the "Taxpayer")
Rule 12A-1.051, F.A.C.

Dear :

This response is in reply to your September 21, 1995, petition
for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., and Rule 12-11,
F.A.C. Your petition regards the referenced matter and
Taxpayer. The Department has carefully examined your 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 hereby issuing the requested TAA.

DISCUSSION OF FACTS

Your petition and supporting documents impart the following
significant information regarding the issues under advisement
herein:

The following quotations are taken from the fact sheet you
furnished from the Taxpayer describing the marina security
system (the "System"):

"The [System] starts with the Marina Blockaide mounted
at the head of an entrance channel facing the open
water. An alarm set of photo-eyes span the channel
entrance to monitor any boat movement into the
protected area. An alarm receiver, either a pocket
pager or an alarm panel at security head[q]uarters,
completes the basic [System]. With additional
equipment, the progress and direction of the intruder
can be monitored by your security personnel.

"The instrument is a self-contained cube,
approximately 2'x 2'x 2', of weatherproof fiberglass
with a ¬" colored Plexiglass window. The weight is
approximately 60 pounds.

"The power to operate the [System] is unique and
versatile. Since the Marina Blockaide is often of the
most value in remote locations, both the photo-eyes
and the unit [itself is] designed to be powered by a
self-contained solar system requiring no external
power source and eliminating both the cost and the
inherent hazards of 120 VAC power. The alternate
option is the normal plug-in household 120 VAC
power...."

The following statement is quoted from your August 23,
1995, letter to the Department:

"The [System] is permanently affixed at a channel
entrance and may be programmed to send radio signals
to a security station elsewhere on the property...."

The photographs of the System furnished with your petition
depict the manner of affixation of the solar powered eye(s) and
marina blockade components making up the System. These
photographs show the different components bolted or screwed to a
tree stump, a piling, and directly to a concrete retaining wall.

Additionally, you advised in our telephone conversation of
December 29, 1995, that the Systems are not installed under
retain title provisions.

REQUESTED ADVISEMENT

You endeavor to receive the Department's advice on whether the
System constitutes a fixture to real property when installed or
retains the identity of tangible personal property and,
consequently, how to properly collect and/or pay sales tax on
the System.

DISCUSSION OF LAW

The following administrative and case law is relevant to
addressing the issue under advisement herein:

Rule 12A-1.051(16), F.A.C., states:

"(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:
Block and brick masons
Burglar and fire alarm system
Carpets (See subsection (40) of this rule)
Cement workers
Door
Electrical
Elevator and escalator
Fencing
Flooring
Glazers
Heating, ventilating and air conditioning
Insulating
Iron workers
Jalousies
Landscaping
Lathing
Lawn and fire prevention sprinkler system
Lot clearing and grading
Mirrors (See subsection (41) of this rule)
Painting
Paper hanging
Paving
Pier and dock building
Plastering
Plumbing
Roofing
Septic tank; taxable on fabricated cost of 60 percent of
installed price acceptable
Sheet metal workers
Sign; when signs become a part of real property
Solar systems

Steel erecting
Steel sash
Stucco
Swimming pool
Tile
Waterproofing
Well drilling"
(Emphasis Supplied)

An agency's administrative interpretation of a statute by rule
has been accorded great deference by the courts, and will not be
overturned unless the agency's interpretation of the statutes is
clearly erroneous; reviewing court will defer to any
interpretation within the range of possible interpretation. See
Pershing Industries v. Department of Banking, 591 So.2d 991, 993
(Fla. 1 DCA 1991); Eager v. Florida Keys Aqueduct Authority, 580
So.2d 771 (Fla. 3 DCA 1991); Natelson v. Department of Ins., 454
So.2d 31 (Fla. 1 DCA 1984); State ex rel. Szabo Food Serv., Inc.
of N.C. v. Dickinson, 286 So.2d 529 (Fla. 1973), reh. den. Jan.
9, 1974.

Also relevant to your point of inquiry are the provisions of
Rule 12A-1.051(5), F.A.C., which relate to contractors involved
in the fabrication or manufacture of items to fulfill contracts
they perform to improve real property. This subsection
provides:

"(5)(a) Contractors, except asphalt contractors, who
operate fabricating or manufacturing plants which make
items of tangible personal property for their own
consumption and use in the performance of contracts for the
construction or improvement of real property are subject to
tax upon the fabricated or manufactured cost of such items.
"(b) The tax is based upon the cost price of the product
manufactured, produced, compounded, or processed or
fabricated. Elements of cost price will include those costs
that are directly or indirectly attributable to the
manufacturing, producing, compounding, processing, or
fabricating of an article of tangible personal property for
one's own use and which is properly chargeable to a capital
account or to the cost of the product under generally

accepted cost accounting standards. Major elements to be
included in the manufactured cost price of tangible
personal property for one's own use include direct
materials, direct labor, and indirect manufacturing costs.
"1. Direct material costs include all materials and related
freight costs, that are physically observable as being
identified to the finished tangible personal property, that
are consumed in producing the property, or that become a
component or ingredient of the finished property. See
paragraphs (c) and (d), below, for calculating the tax on
the cost of the finished product when sales tax has or has
not been paid on direct materials.
"2. Direct labor includes labor costs that are traceable to
the production of the finished property.
"3. Indirect manufacturing costs refer to all costs other
than direct materials and direct labor that are associated
with the manufacturing process and include both variable
and fixed factory overhead. Other terms describing this
category include factory overhead,'factory burden,' and
`manufacturing overhead.' Such indirect manufacturing
costs include, but are not limited to the following,
notwithstanding the fact that sales tax has been paid:
"a. Indirect labor and all direct and indirect labor
overhead including overtime premium, vacation and holiday
pay, sick leave pay, shift differential, payroll taxes,
payments to a supplemental unemployment benefit plan, and
employee fringe benefits and supervisory personnel;
"b. Compensation of officers, to the extent it is related
to production and not administrative functions;
"c. Indirect materials and supplies;
"d. Rework labor, scrap, and spoilage;
"e. Tools and equipment, to the extent not capitalized;
"f. Depreciation;
"g. Amortization;
"h. Depletion;
"i. Insurance;
"j. Rent of equipment, facilities, or land;
"k. Interest expense attributable to production costs;
"l. Costs of administrative, service, or support
departments allocable to production;
"m. General and administrative expenses incurred in

production activities (for example, security services,
factory accounting, and data processing);
"n. Material handling and warehousing of direct materials
and goods in process;
"o. Repairs and maintenance related to production
facilities;
"p. Taxes, other than taxes based on or measured by income;
"q. Freight costs of direct materials (freight-in);
"r. Expenses incurred in implementing quality control;
"s. Utilities, including electricity, water, telephone,
etc.;
"t. Waste disposal; and/or
"u. Any other indirect costs allocable to production,
however described or classified.
"(c) Direct materials on which the tax has been
paid shall not be included when computing the tax on
the cost price of items of tangible personal property
manufactured, produced, compounded, processed, or
fabricated.
"(d) Persons who manufacture, produce, compound, process,
or fabricate items of tangible personal property for resale
or for their own use or consumption may purchase direct
materials tax exempt but shall include the cost of the
direct materials when computing tax on the cost price of
the items so manufactured, produced, compounded, processed,
or fabricated for such persons' own use or consumption. If
tax has been paid on the direct materials, the method
described in paragraph (c) should be used when computing
the tax on the cost price of the items so manufactured,
produced, compounded, processed, or fabricated.
"(e) The tax is due at the moment the contractor
manufactures an item of tangible personal property for his
own use, and such tax shall be remitted to the Department
of Revenue in accordance with Rule 12A-1.056, F.A.C.
"(f) Fabrication labor incurred at the job site in the
performance of repairing, altering, improving, or
constructing real property is not subject to tax. For the
purpose of this rule, `job site' means a temporary site
where fabrication is performed for a specific job. This
site becomes a permanent manufacturing plant site when
fabrication is performed for any job other than the

specific job for which the site was selected."

CONCLUSIONS OF LAW

By way of the above rule quotation, we already have in existence
established administrative law on the sales and use tax
treatment of permanently affixed burglar and fire alarm systems.
Such systems are treated as improvements to real property.
Inasmuch as such systems are strongly analogous to the instant
System, we, therefore, find no rational basis for applying a
different sales and use tax treatment to the System than that
already given to burglar and fire alarm systems. In short, the
Systems should be treated as fixtures to real property for sales
and use tax purposes so long as the contracts to install the
Systems do not contain retained title provisions and, further,
do not contain any other terms or conditions by which the
Taxpayer and the customers agree that the Systems shall remain
tangible personal property until paid for in full.

Accordingly, the Taxpayer should comply with the provisions of
Rule 12A-1.051(16), F.A.C., above, by paying tax to its
suppliers on the materials the Taxpayer purchases for use to
furnish and install a System as well as materials it uses to
repair or maintain a System pursuant to a lump sum, cost plus,
fixed fee, or guaranteed price contract. Sales tax would not be
charged to the customer by the Taxpayer under such contract
methods since the installed System constitutes a fixture to real
property.

Moreover, if the Taxpayer is fabricating or manufacturing the
System from raw materials, the Taxpayer's liability is not
limited merely to tax on the cost of the raw materials, but
would be measured on the full fabricated or manufactured cost to
the Taxpayer for a System (not yet installed) as provided in
Rule 12A-1.051(5), F.A.C., above.

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,

Daniel M. Wagner, Jr.
Tax Law Specialist

DW/
Control No. 23461