Was an FDOT contract for a statewide electronic toll-collection system a public-works construction contract or a tax-exempt sale of equipment to the state?

Subject

Public Works Contract vs. Sale of Tangible Personal Property

Plain-English summary

The Department concluded that FDOT's toll-system request for proposals produced a public-works construction contract, not a tax-exempt retail sale of equipment to the state. The project combined software and design, computers and roadside peripherals, signs and pavement markings, radio-frequency tags, civil work, installation, training, documentation, and maintenance.

Florida exempted direct sales to government, but excluded property sold to contractors when it went into or became part of government-owned public works. For this project, the contractor was the ultimate consumer and owed sales or use tax on the tangible personal property incorporated into or used in performing the state-owned toll system contract.

The Department rejected the contractor's argument that the project was primarily a sale of tangible personal property with only minor installation work. It relied instead on a Florida Supreme Court decision treating relocatable classroom buildings as public works because the contractor fabricated, transported, and installed them for state ownership.

What this means for you

Government ownership and government funds did not automatically make a contractor's purchases exempt. The public-works rule looked at the substance of the transaction and whether the contractor had an independent purchasing and performance role.

Relevant factors included bidding, delivery, inspection, acceptance, payment, storage, indemnification, risk of loss, insurance or bonding, purchasing authority, and vendor relationships. The rule described risk of loss as especially important.

Common questions

Q: Did title passing to FDOT make the contractor's purchases exempt? Not by itself. The rule said government title and payment alone could not establish an exempt government purchase.

Q: Why was this project considered public works? It was a state-authorized, bonded project for public purposes that implemented and installed a statewide toll-collection system owned by Florida.

Q: Who was responsible for tax on incorporated materials? The contractor, as ultimate consumer.

Q: Did the Department apply the case about a mostly tangible-property private contract? No. It distinguished that case because it did not involve a government contract and relied on the public-works precedent instead.

Citations and references

• Fla. Stat. § 212.08(6) — government-sales exemption and exception for contractor property entering public works
• Fla. Admin. Code R. 12A-1.094(1)-(5) and (7) — public-works taxation, transaction-substance factors, manufactured materials, and use tax
• Fla. Admin. Code R. 12A-1.051(5)-(6) — contractor-manufactured materials referenced by the public-works rule
• Housing by Vogue, Inc. v. Department of Revenue, 422 So. 2d 3 (Fla. 1982) — state-owned relocatable classrooms treated as public works
• Kings Bay Yacht Club, Inc. v. Green, 173 So. 2d 509 (Fla. 1st DCA 1965) — private-contract decision distinguished by the Department
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-014

Original ruling text

SUMMARY

Tangible personal property, going into and becoming a part
of public works owned by the State of Florida, under the
completion of a contract, issued pursuant to a Request for
Proposal (RFP) by the Florida Department of Transportation
for the implementation of a sophisticated system to collect
tolls at sites throughout Florida, is taxable under Chapter
212, F.S., for sales or use tax to the contractor, as the
ultimate consumer of such Tangible personal property.
Contractor asserted that the decision in Kings Bay Yacht
Club, Inc. v. Green, 173 So.2d 509 (Fla. 1 DCA 1965), was
controlling. Department determined that Kings Bay Yacht,
supra, was not controlling, as that decision did not
involve a contract with a governmental agency, and other
factors relative to the contract under review in that case
were not pertinent to the contract provisions under the
RFP. Rather, the Department determined that the Supreme
Court decision in Housing by Vogue, Inc. v. Department of
Revenue, 422 So.2d 3 (Fla. 1982) is dispositive, which held
that relocatable classroom buildings were "public works"
within meaning of the sales and use tax statute, and thus
materials purchased by builders for the fabrication,
transportation and installation of the portable classroom
units were taxable to the builders as tangible personal
property which went into or became part of public works
owned by the state.

Mar 04, 1997

Re: TAA 97A-014
Sales and Use Tax; Public Works Contract vs. Sale of
Tangible Personal Property
Section 212.08(6), F.S.
Rule 12A-1.094, F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to

your letter dated September 18, 1996, in which you asked whether
the XXX, Florida Department of Transportation, Request for
Proposal (RFP) (submitted with your request for review), is a
construction contract or one involving primarily the sale of
tangible personal property.

Your letter of request provided the following information and
estimates for consideration in this matter:

XXX ["Contractor"] is submitting the [RFP] proposal to the
Florida Department of Transportation (FDOT) for the
implementation of a sophisticated system to collect tolls
at sites throughout Florida. Outlined below are
descriptions of the major categories of work involved in
the project references to the RFP technical descriptions,
and the approximation of percent of the total project they
each comprise.

1. Software, Design, Management -28%...

Comprises the project management and completion of the
software development and hardware design, training,
documentation, and one-year maintenance. This also
includes Civil Inspection and Design.

2. Furnish and Install Computers and Peripherals -37%...

More than 90% of this area is involved with supplying
ruggedized PC's in toll booths, cameras above the roadway,
and microwave transmitters above the roadway, and PC
workstations in FDOT offices. Approximately 10% of this is
related to the civil and electrical work to place conduit
and cable between the devices. In essence this is a
sophisticated and ruggedized outdoor PC network.

3. Furnish and Install Signs and Pavement Marking -6%...

Supply and mount roadway signs in and around the plaza.
Approximately 50% material.

4. Supply Radio Frequency ID Tags - 29%...

These tags are sold or given away by the FDOT and placed on
motorist windshields. They allow the car to pass through
the toll plaza non-stop, be identified via microwave radio
and charge their credit card for the toll. No services are
provided by the contractor other than shipping to a FDOT
site.

The taxpayer believes that the decision in Kings Bay Yacht
Club, Inc. v. Green, 173 So.2d 509 (Fla 1 DCA 1965), is
applicable to the instant RFP. In that decision, the court
held that where a contract is one primarily involving the
sale of tangible personal property, the owner and not the
contractor is the ultimate consumer obligated for payment
of sales tax, even though the contract requires the
contractor to furnish labor and materials necessary to do
minor amounts of repairs, alterations, improvements, or
construction on real property in which the tangible
personal property is to be located.

In reviewing the above facts and the attached RFP, please
advise if the contractor is the ultimate consumer of and as
such responsible for the sales or use tax, or the RFP is
considered the sale of tangible personal property whereby
the owner and not the contractor is the ultimate consumer
obligated for payment of sales tax. Also, please advise
the statutory authority.
LAW

Definitions contained within Section 212.02, F.S., ascribe the
meaning of "Use" as the exercise of any right or power over
tangible personal property incident to the ownership thereof, or
interest therein, except that it does not include the sale at
retail of that tangible personal property in the regular course
of business. The term "use tax" includes the use, the
consumption, the distribution, and the storage as those terms
are so defined.

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.... (Emphasis supplied)

Rule 12A-1.094, F.A.C., 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....

(7) Contractors who purchase tangible personal property
outside the State of Florida, or inside the State but fail
to pay sales tax, and use such property in a public works
project shall be presumed to have the beneficial use of
such property because the property is being used in
furtherance of the contractor's essentially independent
commercial enterprise. Accordingly, such contractors shall
be liable for the use tax.

DISCUSSION, ANALYSIS AND CONCLUSION

The Department disagrees with your conclusion that Kings Bay
Yacht, supra, is controlling under the facts and circumstances
applicable to the RFP. Kings Bay Yacht did not involve a
contract with a governmental agency, and other factors relative

to the contract under review in that case are not pertinent to
the contract provisions under the RFP. Rather, the Department
considers the decision reached by the Florida Supreme Court in
Housing by Vogue, Inc. v. Department of Revenue, 422 So.2d 3
(Fla. 1982) as dispositive.

In Housing by Vogue, the Court held that the relocatable
classroom buildings were "public works" within meaning of the
sales tax statute, and thus materials purchased by builders for
the fabrication, transportation, and installation of the
portable classroom units were taxable under Chapter 212, F.S.,
as tangible personal property which went into or became part of
public works owned by the state. In that case, the Court cited
a definition of public works contained in American
Jurisprudence, Second Edition: "... Such buildings, structures,
and other works which by statute are authorized to be
constructed for public purposes by the state or public agencies
therein are generally to be regarded as public works." 64
Am.Jur.2d, Public Works and Contracts, s. 1. The RFP and
subsequent contract issued by FDOT, pursuant to successful bid,
is authorized by state law for public purposes, administered,
and bonded as any fixed works constructed for public use. Thus,
the exclusion from the exemption of tax on sales made to
governmental entities or political subdivisions, for the sale of
tangible personal property made to contractors when such
tangible personal property goes into or becomes a part of public
works, found in s. 212.08(6), F.S., and the Department's
interpretation of the statute found Rule 12A-1.094, F.A.C., are
controlling in this instant case. Therefore, the XXX RFP is for
a construction contract which becomes a part of public works.
Accordingly, the contractor is the ultimate consumer and is
responsible for the sales or use tax on the tangible personal
property going into or becoming a part of the performance of
that contract as public works owned by the State of Florida.

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,

Horace Royals
Tax Law Specialist

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