How did Florida tax lump-sum fuel-station installations and repairs to the electronic control console?

Subject

Real Property vs. Tangible Personal Property

Plain-English summary

Florida treated the lump-sum installation of fuel-station tanks, pumps, canopies, and related controls as a real-property improvement when the overall contract was primarily for improving realty. In that setting, the contractor was the ultimate consumer and paid tax on the materials and supplies used in the work rather than collecting tax on the lump-sum charge to the customer.

The electronic control console retained its identity as tangible personal property after installation. Even so, when it was installed as an incidental part of the predominantly real-property lump-sum project, the contractor still paid tax as the consumer of that console.

A separate repair to the electronic console received different treatment. The contractor had to collect and remit sales tax on the entire repair charge, including labor, whether or not labor was separately stated.

What this means for you

The tax result depended on both the type of property and the contract as a whole. A control console can remain tangible personal property while its installation is still treated as part of a larger real-property contract; later stand-alone repair work can be taxable to the customer.

Common questions

Q: Were underground tanks and connected pumps treated as real property? Yes. The ruling says the Department had long treated them as realty.

Q: What about aboveground pumps and canopies? Under the described lump-sum installation, the Department treated them as parts of the real-property improvement.

Q: Who paid tax on materials in the lump-sum installation? The contractor, as the ultimate consumer.

Q: Was a repair to the electronic control console taxable? Yes. Tax applied to the total repair charge, including labor.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, and 212.06(1)(a) — sales-and-use-tax provisions identified in the ruling
• Fla. Admin. Code r. 12A-1.051 — contractor treatment for real-property improvements
• Fla. Admin. Code rr. 12A-1.016 and 12A-1.006 — provisions applied to control-console sales and repairs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-037

Original ruling text

SUMMARY

The Department has long taken the position that underground
gasoline storage tanks and pumps connected to such tanks
would be treated as realty. Thus, applying the principal
found in Kings Bay Yacht and Country Club, Inc. v. Green,
173 So.2d 509 (1st DCA Fla. 1965), to lump sum contracts
for the installation of underground storage tanks, pumps,
and electronic control consoles, where the contract is
primarily and predominantly for the improvement to realty,
the contractor would be treated as the ultimate consumer
when installing the electronic control console and would be
subject to the tax on such. However, where a contractor is
making repairs to an electronic control console, contractor
is repairing tangible personal property and must collect
and remit sales tax on the total charge of such repair.

Jun 02, 1997

Re: TAA 97A-037
XXX (Taxpayer)
Real Property vs. Tangible Personal Property
Section 212.02(10)(h),(20),(21), 212.05, 212.06(1)(a), F.S.
Rule 12A-1.051, F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter dated January 15, 1997, in which you asked whether
the installation of underground gas tanks, underground pumps,
above ground pumps, and canopies are an improvement to real
property, or a sale of tangible personal property. Your letter
provided the Department with the following FACTS, DESCRIPTION of
BUSINESS ACTIVITIES, and DEFINITION of TERMS:

FACTS

All work completed is done so as a "proposal of Lump Sum"

wherein (Taxpayer), agrees to provide the materials along
with the man power necessary to complete the job.
(Taxpayer) will issue a billing to the customer which
indicates a "contract amount"..., which is the Lump Sum due
for the project. (Taxpayer) will also keep records in its
offices that provide a listing of all materials and there
(sic) cost, along with all of the labor cost that went into
the job....

DESCRIPTION of BUSINESS ACTIVITIES

(Taxpayer) is in the business of supplying the needs of the
motor fuel industry. Most commonly the C-stores that sell
gasoline, and gas stations in general. (Taxpayer) sells
and installs (t)he canopies, gas pumps (above ground), the
underground pumps, the underground tanks, and the
electronic brain th(at) runs the entire system. (Taxpayer)
also does repairs to the same, providing both materials and
labor.

DEFINITION of TERMS

Tanks - these are the big underground storage tanks that
hold the inventory of fuel. As specified by DEP, these
tanks must be at least three (3) feet underground. They
must be anchored down. They must have clean fill. They
must be covered with concrete.

Underground Pumps - These allow the fuel to be moved from
the underground tanks to the above ground tanks for
consumer consumption. These are run electrically by the
electronic brain. (T)he pumps are hardwired directly into
the brain.

Canopies - Are constructed on site, and are such that
th(ey) are constructed as any other improvement to real
property, in that the construction must meet the building
requirements of the State law. They are bolted down to
rebar that is formed in concrete. The canopies serve the
two fold purpose of protecting the customer and the
equipment from the elements.

Electronic Brain - Allows the equipment to operate as
designed. This is hardwire(d) directly into the
building(')s electrical panel box, and operates on a
sep(a)rate breaker, as specified by the manufacturer. This
piece of equipment is directly attached to all other
equipment except the canopy via electrical wiring.

DEPARTMENT RESPONSE

Regarding the construction, installation, and/or repairs to
gasoline filling stations and related equipment, specific
reference is not found in either Florida Statutes or the Florida
Administrative Code. However, the Department has long taken the
position that underground gasoline storage tanks and pumps
connected to such tanks would be treated as realty.

In Outdoor Advertising Art. Inc. v. Florida Department of
Transportation, 366 So.2d 114, (Fla. 1st DCA 1979), the Court
held that a long-standing practice constituted an administrative
construction of statutes which is persuasive with the court.

Generally, the Department treats underground fuel storage tanks,
along with piping, pumps, dispensers, and electrical wiring as
an improvement to real property, whether installed on fee or
leasehold property. Persons installing, maintaining, repairing,
altering, or modifying such tanks, pumps and dispensers are
deemed contractors and, as such, are governed by the provisions
of Rule 12A-1.051, F.A.C. Under that rule, contractors are
subject to tax on the materials and supplies they purchase or
produce to perform such construction work pursuant to either,
i.) a class 2 (a), lump sum contract; ii.) a class 2(b), cost
plus or fixed fee basis contract; or, iii.) a class 2(c),
contract with a guaranteed price which may not be exceeded.
Contractors performing contracts classed as 2(d), wherein
specifically described and itemized materials and supplies are
sold at an agreed or regular retail price, and, in addition, the
contractor agrees to complete the work at a separately stated
agreed price or on the basis of time consumed, are deemed to be
selling tangible personal property and must collect tax on the
retail price, excluding the separately stated labor, from their

customers.

Control consoles (electronic brain) which remotely control the
operation of dispensers, or card readers that control the
operation of dispensers, retain their identity as tangible
personal property following installation. Therefore, the sale
and installation or repair of control consoles and card readers
are taxable under the provisions of Rules 12A-1.016 and 12A1.006, F.A.C., respectively.

In the instant (Taxpayer's) situation, as described by you, the
installation, under a "lump sum" contract, of the underground
tanks, underground pumps, aboveground pumps and canopies are
deemed to be improvements to realty, and, as such, (Taxpayer) is
the ultimate consumer of and subject to the tax on such
materials and supplies utilized in said contracts.

The court held in Kings Bay Yacht and Country Club, Inc. v.
Green, 173 So.2d 509 (1st DCA Fla. 1965), that: "If examination
of contract establishes from standpoint of dollar value of labor
and materials to be furnished that it is primarily and
predominantly for purpose of repairing, altering, improving, or
constructing real property, then contractor is consumer and
subject to payment of sales tax on any items of tangible
personal property furnished and supplied by him as an incidental
obligation of contract." Applying this principal to
(Taxpayer's) installation of tanks, pumps, and electronic brain
under a lump sum contract that is primarily and predominantly
for the improvement to real property, the contractor would be
treated as the ultimate consumer when installing the electronic
brain and (Taxpayer) would be subject to tax on such. Where
(Taxpayer) is making repairs on the electronic brain, (Taxpayer)
is repairing tangible personal property and must collect and
remit sales tax on the total charge of such repair, including
labor, regardless of whether such labor is separately stated on
the invoice to (Taxpayer's) customer.

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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