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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