Could a county buy stadium construction materials tax-free when its development consultant and contractor identified what the project needed?

Subject

Local Government Contract to Construct Baseball Stadium and Spring Training Facilities

Plain-English summary

The Department concluded that materials purchased under the county's proposed owner-furnished-material procedure would be exempt direct government purchases. The county planned to build a baseball stadium and spring-training facilities for two major-league teams while a development consultant administered design and construction.

The contractor would identify material needs, but the county would remain the actual purchaser. It would issue purchase orders directly to vendors, attach its exemption certificate, pay vendors directly, take title and possession before incorporation, assume risk of loss, reduce the contractor's bond coverage for those goods, and obtain its own insurance.

Those facts placed the county in the purchaser's role rather than merely giving a private contractor government funds or title. The Department approved purchases made in accordance with the submitted contract exhibits, provided a properly completed exemption certificate was given to each vendor at purchase.

The ruling did not exempt contractor-manufactured or fabricated materials. For those items, the contractor or subcontractor remained the ultimate consumer and owed use tax on full manufactured cost under the separate rule.

What this means for you

For public-works materials, the exemption depended on substance rather than labels. Government title and payment alone were insufficient unless the government also controlled the purchase and bore the economic risk before the materials became part of the project.

Purchase orders and bid documents needed to preserve the county's direct role and include the required exemption-certificate information.

Common questions

Q: Could the contractor specify which materials were needed? Yes. The contractor could compile requirements, but the county had to issue and control the actual purchase order.

Q: Who paid the vendors? The county paid them directly.

Q: Who bore risk if materials were lost before installation? The county assumed the risk and maintained insurance for county-furnished materials.

Q: Were materials fabricated by the contractor also exempt? No. The contractor remained taxable on the manufactured cost of its own fabricated items.

Citations and references

• Fla. Stat. § 212.08(6) — direct government-sales exemption and contractor exception for public works
• Fla. Admin. Code R. 12A-1.001(9) — direct payment and government exemption documentation
• Fla. Admin. Code R. 12A-1.094(1)-(5) — public-works purchasing factors, including title, possession, payment, and risk of loss
• Fla. Admin. Code R. 12A-1.039 — exemption-certificate format referenced by the Department
• Fla. Admin. Code R. 12A-1.051(5) — contractor-manufactured property tax base
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-012

Original ruling text

Mar 03, 1997

Re: Technical Assistance Advisement (97A-012)
XXX ("County")
XXX ("Development Consultant")
Sales and Use Tax -- Local Government Contract to Construct
Baseball Stadium and Spring Training Facilities
Fla. Admin. Code rules 12A-1.001(9) & 12A-1.094
Fla. Stat. s. 212.08(6) (1995)

Dear :

This is in response to your letter to the Florida Department of
Revenue dated November 21, 1996, in which you asked for a
technical assistance advisement indicating that the procedures
proposed in your letter would provide for a tax exempt
transaction. On September 10, 1996, you requested a letter of
technical assistance on this identical issue, and were provided
with same on October 14, 1996.

Facts

As recounted in your letter, the County

is preparing to build a new major league spring training
baseball facility. This project will include the
construction of a baseball stadium as well as training
facilities for two major league baseball teams. [The]
County has entered contracts with entities representing
[two such teams] to use those spring training facilities.

We have structured the construction of this facility to
create a quicker design and construction process than is
normal. [The County] has hired a Development Consultant []
to administer the design and construction of the
project.... [The Development Consultant] will hire the
Designer and Contractor for the construction of the
project. The Designer and Contractor will submit their
invoices and statements to [the Development Consultant] who

will certify them and pass them on to the County. Upon
receipt the County will pay [the Development Consultant]
for the services rendered by [the Development Consultant],
the Designer, and the Contractor.

....

The contract between the County and [the Development
Consultant] provides that the County will purchase certain
major systems or elements of the construction directly and
will supply these to [the Development Consultant] and the
Contractor for use in the project. The terms of this
provision are contained in Exhibit "K" to the County/
[Development Consultant] agreement [a]nd are attached to
this letter. The proposed construction agreement between
[the Development Consultant] and the Contractor
incorporates these same provisions as Exhibit "R" to that
agreement condition.

As you can see from reviewing the attached copy of Exhibit
"K", the Contractor will designate the materials to be
purchased and [the] County will, then, issue its own
purchase order for those materials. The County will
insure, take delivery of, and take title to those
materials. The vendor of the materials will be paid
directly by the County. The County understands that this
procedure will result in a tax exempt transaction.

Letter at 1-2.

Exhibit K, entitled "Provisions Governing State of Florida Sales
and Use Tax Exemption Owner-Furnished Materials,"(FN 1) and
Exhibit R, entitled "Provisions Governing State of Florida Sales
and Use Tax Exemption County-Furnished Materials," provide,
among other things, that: (1) the County shall make direct
purchases of all materials and equipment purchased for, or to be
incorporated into, the facility; (2) after the Contractor
compiles the itemized requirements for materials and submits
same to the Project Representative, the Project Representative
will forward same to the County, which will issue a purchase
order directly to the vendor of the materials; the County will

include with such purchase orders a copy of its sales and use
tax exemption certificate; (3) after the Contractor verifies the
conformity of the materials, the County will take title and
possession of same prior to their being incorporated in the
facility; (4) the County will assume all risk of loss on all
materials and equipment; (5) the Contractor will reduce the
penal sum of its public construction bond by the cost of the
materials purchased directly by the County, and will modify its
insurance provision to reflect that loss of the materials
purchased directly by the County shall be excluded from coverage
under the Contractor's policies of insurance; and (6) the County
will purchase and maintain insurance sufficient to protect
against any loss to County-furnished materials.

Law

Section 212.08(6), Fla. Stat. (1995), 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....

Rule 12A-1.001(9), Fla. Admin. Code, entitled "Governmental
Units," provides:

(a) All sales made directly to the United States
Government, a state, or any county, municipality, or
political subdivision of a state are exempt.... Payment
must be made directly to the dealer by the governmental
entity of a state, or any county, municipality, or
political subdivision of a state.... Such governmental
entities desiring to qualify for the exemption must obtain
from the Department of Revenue a consumer's certificate of

exemption (see Rules 12A-1.038 and 12A-1.039, F.A.C.). The
exemption provided in this subsection shall be strictly
defined, limited, and applied to each entity as provided
herein....

(d) Vendors are required to document exempt sales. Federal
employees, other government employees, and employees of
nonprofit organizations described in subsection (3) of this
rule shall provide the vendor with proper documentation of
the exempt nature of the sale....

2. A suggested format of the document to be provided by
   other government employees or employees of nonprofit
   organizations to their vendors is the following:

EMPLOYER'S AUTHORIZATION TO MAKE
PURCHASES ON BEHALF OF AN EXEMPT
GOVERNMENTAL OR NONPROFIT
ORGANIZATION

DATE
TO: ______
SELLING DEALER'S NAME

SELLING DEALER'S ADDRESS

I, the undersigned, am a representative of the exempt
governmental or nonprofit organization identified below.
The purchase or lease of tangible personal property or
services or the rental of living accommodations made on
______ (DATE[S]) from the business identified above
is for use by the exempt governmental or nonprofit
organization identified below.

The charges for the purchase or lease of tangible personal
property or services or the rental of living accommodations
from the dealer identified above will be billed to and paid
directly by the exempt governmental or nonprofit
organization.

Under penalties of perjury, I declare that I have read the

foregoing and that the facts stated in it are true.

AUTHORIZED SIGNATURE ON
BEHALF OF EXEMPT ENTITY

NAME OF EXEMPT ENTITY

ADDRESS OF EXEMPT ENTITY

CONSUMER'S CERTIFICATE
OF EXEMPTION NUMBER

THIS CERTIFICATE MAY NOT BE USED TO MAKE
PURCHASES OR LEASES OF TANGIBLE PERSONAL
PROPERTY OR SERVICES OR RENTAL OF LIVING
ACCOMMODATIONS FOR THE PERSONAL USE OF
ANY INDIVIDUAL REPRESENTING THE EXEMPT
ENTITY IDENTIFIED ABOVE.

Rule 12A-1.094, Fla. Admin. Code, which provides the
administrative guidelines for public works contracts, states:

(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....

(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. The applicable tax rate shall be
determined on the basis of the invoice date, not the date
of the contract, as follows:...

(b) If invoiced on or after February 1, 1988, the tax rate
shall be 6 percent.

(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... 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... 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... 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... that such sales are, in substance, tax exempt
sales to the government.

(5) Contractors who manufacture materials for incorporation
into public works shall be liable for tax in the manner
provided in Rule 12A-1.051(5) or (6), F.A.C....

Discussion, Analysis and Conclusion
Rule 12A-1.001(9), Fla. Admin. Code, states that, for a sale
to a state or local governmental entity to be tax exempt,
"payment must be made directly to the dealer by... the political
subdivision of a state...." Rule 12A-1.094(2) and (3), Fla.
Admin. Code, state that the purchase of materials is taxable to
the contractor as the ultimate consumer where the contractor is
deemed to be the purchaser. However, if the purchaser of the
materials is the governmental entity, the transaction is exempt.

For there to be an exempt transaction, the government entity
must directly purchase, hold title to, assume the risk of loss
of the tangible personal property prior to its incorporation
into realty, and satisfy various factors contained in Rule
12A-1.094, Fla. Admin. Code.

Other factors of Rule 12A-1.094, F.A.C., which must be satisfied
to insure the exempt status of the contract, include:

1. The government entity must execute the purchase orders
   for the tangible personal property involved in the contract,
   which must include the government entity's consumer's
   certificate of exemption number. The contractor may present the
   government entity's purchase orders to the vendors of the
   tangible personal property;
2. The government entity must acquire title to and assume
   liability for the tangible personal property at the point in
   time when it is delivered to the job site up until the time it
   is incorporated as real property;
3. Vendors must directly invoice the government entity for
   supplies;
4. The government entity must directly pay the vendors for
   the tangible personal property; and
5. The government entity must assume all risk of loss or
   damage for the tangible personal property involved in the
   contract. The government entity should acquire, or be the
   insured party under, liability insurance on the building
   materials.

The circumstances recounted in your letter and Exhibits "K" and
"R" appear to satisfy the requirements for exemption of the
transaction as a sale to a governmental entity: The County will
make direct purchases of all materials to be used in the
project; the County will pay vendors directly and include a copy
of its sales and use tax exemption certificate; the County will
take title and possession of all materials prior to their
incorporation into the project; the County will assume all risk
of loss for materials; and the County will purchase and maintain
insurance to protect against loss and damage of County-furnished
materials. Thus, all purchases of materials which are made in
accordance with this exhibit will be exempt from sales tax.

However, it is necessary that a properly completed exemption
certificate be extended at the time of purchase to each of the
vendors. A suggested format for an exemption certificate is
provided in Rule 12A-1.039, Fla. Admin. Code, a copy of which is
enclosed. It is recommended that all of the required elements
of the exemption certificate specified in this rule be
incorporated in both the purchase orders and the request for
bids.

Please note that this response does not apply to a contractor
who manufactures or fabricates its own materials as specified in
Rule 12A-1.094(5), Fla. Admin. Code. Under this rule provision,
the contractor and subcontractors, not the government entity,
are deemed to be the ultimate consumers of the articles of
tangible personal property they manufacture or fabricate to
perform the contract. As such, the contractor and subcontractors
are subject to use tax on the full cost of the manufactured or
fabricated articles as detailed in Rule 12A-1.051(5), Fla.
Admin. Code.

This response constitutes a Technical Assistance Advisement
under Fla. Stat. s. 213.22 (1995), which is binding on the
Department only under the facts and circumstances described in
the request for this advice, as specified in section 213.22.
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, Fla. Stat. (1995), which are
subject to disclosure to the public under the conditions of Fla.
Stat. s. 213.22 (1995). 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,

Gypsy Bailey
Senior Attorney
Tax Policy and Dispute Resolution
(904) 922-9411

Control #: 27113
/gcb
Encl.: Rule 12A-1.039

NOTICE UNDER THE AMERICANS WITH DISABILITIES ACT

Persons needing accommodations to participate in any proceeding
before the Department of Revenue should contact the Department
at (904)488-0717 or 1-800-DOR-8331 (TDD), at least five (5)
working days before such proceeding. You may also call via the
Florida Relay System at 1-800-955-8770.

FOOTNOTE 1 Also referred to as "Developer Agreement" in a
footer.