Should a hotel pay sales tax on a vendor's labor and material charges for repairing a large neon sign permanently attached to the building?

Plain-English summary

The hotel should not have been charged sales tax on either labor or materials for the neon-sign repairs. The large sign, attached across several floors of the building, was an improvement to real property, so repairing it was real-property work.

The vendor separately listed labor and materials only after completing the jobs. Because there was no advance contract specifically describing and pricing each material, those invoices were time-and-material billings rather than retail sales of parts.

The vendor was therefore the ultimate consumer. It had to pay tax when buying the materials and supplies but should not collect tax from the hotel on the total repair charge.

What this means for you

Separate line items on an invoice do not automatically make a real-property contractor a reseller of parts. Florida required the detailed material sale to be agreed in advance under the cited contract rule.

Classification of the sign also mattered. This ruling covered a large, permanently attached building sign, not a portable sign or other tangible personal property.

Common questions

Q: Why was the neon sign treated as real property? Its framework and neon components were permanently attached to the building and ran across several floors.

Q: Did listing materials separately on the invoice make them taxable to the hotel? No. The itemization came after the work and there was no qualifying advance contract.

Q: Who owed tax on the repair materials? The vendor, as the ultimate consumer.

Q: Should the hotel have paid tax on labor? No. The ruling said no tax should be collected on the total amount of either submitted invoice.

Citations and references

• Fla. Stat. § 212.06(1) — collection of tax on taxable sales and use
• Fla. Admin. Code r. 12A-1.051(2) — real-property contractor contract classifications
• Fla. Admin. Code r. 12A-1.051(23) — specified building-mounted signs as improvements to real property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-053

Original ruling text

SUMMARY

The Hotel has a large neon sign that runs for several floors of the building. The Department determined that the sign met the definition of an improvement to real property upon installation, and that repairs to the neon constituted repairs to real property. The contractor separately stated labor and materials on its invoices and charged tax on the total amount of the invoice. However, the contractor was deemed to be the ultimate consumer of materials and supplies used, since no contract was entered into in advance of the work being performed. Therefore, no tax was due on the total amount charged to the hotel, for either labor or materials.

Aug 14, 1997

Re: TAA 97A-053
Repairs to Neon Signs
Sections 212.02 and 212.06, F.S.
Rule 12A-1.051, F.A.C.
Taxpayer: XXX (the "Hotel")

Dear :

Your letters of April 16, 1997, and May 5, 1997, requested a Technical Assistance Advisement concerning the above referenced matter. This response constitutes a Technical Assistance Advisement (TAA) under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

DISCUSSION OF FACTS

Pursuant to your letter of April 16, 1997, Hotel has a large neon sign with the name of the hotel that runs for several floors of the building. When the neon needs to be repaired, the Hotel calls XXX (hereinafter the "Vendor"). The Vendor invoices

the Hotel an hourly fee for installation, as well as a separate charge for materials consumed. The Hotel and the Vendor do not enter into a formal contract.

REQUESTED ADVISEMENT

You request advice as to the application of Sales and Use Tax to charges made for repairs to the sign. With your request, you submitted copies of two invoices for our consideration.

1. Invoice dated October 24, 1996, for Job Number 5906,
   describes labor and materials to check signage and neon lighting, in the amount of $2,180.91.

2. Invoice dated March 28, 1997, for Job Number 6713,
   describes labor and materials to check neon stripes going down the building between the 11th and 14th floors, in the amount of $886.08.

DISCUSSION OF LAW

Section 212.06(1), F.S., provides in significant part the following:

Sales, storage, use tax; collectible from dealers; "dealer" defined; dealers to collect from purchasers; legislative intent as to scope of tax. (1)(a) The aforesaid tax at the rate of 6 percent of the retail sales price as of the moment of sale, 6 percent of the cost price as of the moment of purchase, or 6 percent of the cost price as of the moment of commingling with the general mass of property in this state, as the case may be, shall be collectible from all dealers as herein defined on the sale at retail, the use, the consumption, the distribution, and the storage for use or consumption in this state of tangible personal property or services taxable under this part....

Rule 12A-1.051, F.A.C., provides the implementing administrative rule for s. 212.06(1), F.S., above, relative to contractors who repair, alter, improve, or construct real property. 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.

Black's Law Dictionary, Sixth Edition, defines "Fixture" in pertinent part as follows:

Fixture. An article in the nature of personal property which has been so annexed to the realty that it is regarded as a part of the real property. Leawood Nat. Bank of Kansas City v. City Nat. Bank & Trust Co. of Kansas City, Mo. App., 474 S.W.2d 641, 644. That which is fixed or attached to something permanently as an appendage, and not removable.

A thing is deemed to be affixed to land when it is attached to it by roots, imbedded in it, permanently resting upon it, or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws....

Rule 12A-1.051(23), F.A.C., provides in part that "[S]igns wherein framework is erected on top of a building to which is affixed individual wood, metal, neon or similar type letters and/or panels, with necessary illuminations, in such a manner as to compose a sign..." are considered improvements to real property. The type of large sign described in your letter, which "runs for several floors of our building," would be considered an improvement to real property upon being installed upon the building, i.e., "permanently attached to that which is thus permanent, as by means of cement, plaster, nails, bolts, or screws...." Therefore, repairs to such signs would be considered repairs to real property.

As Vendor is in the business of repairing signs which constitute improvements to real property, the Vendor is, thus, governed by the provisions of Rule 12A-1.051, F.A.C. Pursuant to the provisions of Rule 12A-1.051(2)(e), F.A.C., the contractor is the ultimate consumer of materials and supplies it uses to perform a lump sum, cost plus, fixed fee, guaranteed price or any other kind of contract except an itemized contract as described in paragraph (2)(d) of the rule ("class (2)(d) contract"). As we have already established this would include sign contractors.

As described in paragraph (f) of subsection (2), if a contractor enters into a contract to sell specifically described and itemized materials and supplies for an agreed price and to complete the work for an additional agreed price, or on the basis of time consumed, then tax should be collected from the customer, based on the selling price of the materials and supplies, excluding the installation charge if separately stated. This type of contract is commonly referred to as a "class (2)(d)" contract. In order to qualify for this type of contract, the contractor must specifically describe and itemize the sales price of each item sold, in the same manner as if the items were purchased from a building supply dealer.

A real property contractor may enter into a contract for a lump sum, cost plus, fixed fee, or guaranteed price, and use another common method of billing. The contractor will itemize on the customer's invoice the cost of all materials used, as well as a separate amount for labor. This method is known as the "Time and Materials" method, and is used simply to justify the contractor's charge to the customer. This method is not classified as a "class (2)(d)" contract, and all of the materials and supplies purchased by the contractor are taxable to the contractor at the time of purchase, and are not taxable to the contractor's customer.

DETERMINATION

Pursuant to your letter, the Hotel and the Vendor do not enter into formal contracts for repair of the neon signs. Inasmuch as the Vendor has not entered into a contract to furnish and

install specifically described and itemized materials for an agreed price and to complete the installation for an additional agreed price, in advance of the work being performed, the Vendor is the ultimate consumer of materials and supplies used. The two invoices furnished with your request represent the method of billing described above as the "Time and Materials" method. Since the Vendor is not selling tangible personal property, but is using tangible personal property in the performance of a contract to repair real property, the Vendor should pay tax on all materials and supplies used. Therefore no tax should be collected on the total amount charged on either invoice.

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,

Delores Overcash
Senior Tax Specialist

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