Could a Florida seawater desalination plant buy electricity tax-free for machinery that converted seawater into potable water?

Plain-English summary

The partnership could claim the electricity exemption for power used directly and exclusively in the desalination production process. The plant would use chemical treatment, filtering, and reverse osmosis to turn seawater into potable water for sale. The Department treated that activity as manufacturing or processing tangible personal property at a fixed Florida location.

The exemption also covered qualified pollution-control, recycling, maintenance, monitoring, and control equipment related to production. It did not cover the entire facility: administrative offices, parking and exterior lighting, employee areas, cafeterias, washrooms, and storage areas were examples of nonqualifying uses.

Metering controlled the amount. A meter serving both exempt and nonexempt uses qualified for only a 50% exemption. A separate meter measuring qualified electricity could receive the full exemption then available under the statute's phase-in schedule. The partnership also had to register with the WAGES program and remain within an eligible SIC industry group.

What this means for you

The source treated potable water as tangible personal property even though Florida separately exempted water sales. Converting raw seawater into saleable potable water was the qualifying production process.

Facilities with both production and general-building loads need reliable electrical separation. The ruling did not allow estimates to turn mixed-use electricity into a blanket plant-wide exemption.

Common questions

Q: Did all electricity used at the desalination facility qualify? No. Only electricity used directly and exclusively for the listed production and related equipment qualified.

Q: Did office and employee-area electricity qualify? No. The Department listed administrative offices, exterior lighting, locker rooms, lounges, cafeterias, washrooms, and storage areas as nonqualifying examples.

Q: What happened if one meter served both qualifying and nonqualifying uses? The exemption was limited to 50% of the electricity charge on that meter.

Q: What additional eligibility conditions applied? The partnership had to register with the WAGES program, fall within an eligible SIC major industry group, and use the electricity at a fixed Florida location.

Citations and references

• Fla. Stat. § 212.08(7)(ii) — qualifying electricity uses, industry groups, metering, registration, and phase-in
• Fla. Stat. § 212.02(19) — tangible personal property
• Fla. Stat. § 212.08(4)(a)1. — water exemption
• Fla. Admin. Code r. 12A-1.096 — fixed location, process, and production-process definitions used by analogy
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97A-070

Original ruling text

SUMMARY

Electricity can be purchased tax exempt by partnership
where: (1) the partnership will register with the WAGES
program; (2) the partnership's SIC major industry group
number is one of those specified in section 212.08(7)(ii),
F.S.; (3) the electricity will be used at a fixed location
in Florida; and (4) the electricity will be used directly
and exclusively to operate machinery and equipment that is
used to process seawater into potable water through
chemical, filtering and desalination operations or is
pollution control, recycling, maintenance, monitoring or
control equipment related to such operations. The extent
of the exemption will depend upon whether electricity used
for qualified purposes is separately metered and upon the
phase-in limitation in the statute.

Nov 04, 1997

Re: Technical Assistance Advisement 97A-070
Electricity Exemption - Desalination Plant
Section 212.08(7)(ii), F.S.
Rule 12A-1.096, F.A.C.
Taxpayer: XXX
FEI#: XXX

Dear :

This response is to your letter dated October 6, 1997,
requesting the Department's issuance of a Technical Assistance
Advisement (TAA) pursuant to section 213.22, F.S., and Chapter
12-11, F.A.C., regarding the referenced matter. Your letter and
supporting documents provided the following pertinent
information.

FACTS PRESENTED

XXX (the "General Partner") is forming a new Florida limited

partnership (the "Partnership") with an affiliate of YYY. The
Partnership will register with the Department as a dealer under
Florida's sales and use tax laws and will register with the
appropriate WAGES (Work and Gain Economic Self-sufficiency Act)
Program business registry. The Partnership will submit a
proposal to ZZZ (the "Authority") to design, construct, and
operate a seawater desalination facility. Seawater would be
drawn into the facility and be processed into potable water,
using chemical and filtering processes and reverse osmosis
technology. This will require desalination and other processing
equipment as well as equipment to serve pollution control,
maintenance, monitoring and control functions. The General
Partner has determined that the The Partnership will be
classified under Standard Industry Classification Number 3999,
"Manufacturing Industries, Not Elsewhere Classified."

The facility will be designed to produce XXX gallons of
desalinated water daily. The water would be delivered through a
pipeline to a distribution center owned and operated by the
Authority, which would purchase the entire output of the
facility. The Authority would resell the water to governmental
units, which would in turn sell the water to the ultimate
consumers.

REQUESTED ADVISEMENT

The General Partner has requested an advisement that the
Partnership will qualify for an exemption from sales tax on
electricity pursuant to section 212.08(7)(ii), F.S.

RELEVANT AUTHORITIES

Section 212.08(7)(ii), F.S., was enacted in 1996 to provide an
exemption for electricity used by certain taxpayers. The
relevant portion of the statute reads as follows:

(ii) Certain electricity uses.--Charges for electricity
used directly and exclusively at a fixed location in this
state to operate machinery and equipment that is used to
manufacture, process, compound, or produce items of
tangible personal property for sale, or to operate

pollution control equipment, recycling equipment,
maintenance equipment, or monitoring or control equipment
used in such operations are exempt from the tax imposed by
this part as provided in subparagraph 2. The exemption
provided for herein is applicable if the electricity that
is used for the exempt purposes is separately metered, or
if it is not separately metered, it is irrevocably presumed
that 50 percent of the charge for electricity is for
nonexempt purposes. This exemption only applies to
industries classified under SIC Industry Major Group
Numbers 10, 12, 13, 14, 20, 21, 22, 23, 24, 25, 26, 27, 28,
29, 30, 31, 32, 33, 34, 35, 36, 37, 38, and 39. As used in
this paragraph, "SIC" means those classifications contained
in the Standard Industrial Classification Manual, 1987, as
published by the Office of Management and Budget, Executive
Office of the President....

Notwithstanding any other provision in this paragraph to
the contrary, in order to receive the exemption provided in
this paragraph a taxpayer must register with the WAGES
Program Business Registry established by the local WAGES
coalition for the area in which the taxpayer is located....

The exemption is to be phased in at 20 percent per year on July
1, 1996, 1997, 1998, 1999, and 2000. Currently, the exemption
applies to 40 percent of the electricity a taxpayer uses for the
purposes specified in the statute.

The Department has not yet issued any regulatory interpretation
of section 212.08(7)(ii), F.S. There is, however, another
exemption with similar wording in section 212.08(5)(b), F.S.
That provision exempts certain purchases of machinery and
equipment by "businesses which manufacture, process, compound,
or produce for sale,... items of tangible personal property at
fixed locations." There are distinctions between the two
exemptions that preclude a conclusion that a taxpayer who
qualifies for one will always qualify for the other. They are
similar, however, in that they apply only to taxpayers who
"manufacture, process, compound, or produce" tangible personal
property for sale at "fixed locations." It is reasonable,
therefore, to look to the definitional portions of Rule 12A-

1.096, F.A.C., which provides guidance on section 212.08(5)(b),
F.S., in interpreting those terms for purposes of section
212.08(7)(ii), F.S. In that regard, Rule 12A-1.096, F.A.C.,
provides as follows:

12A-1.096 Industrial Machinery and Equipment for Use in a
New or Expanding Business.

(1) Definitions - The following terms and phrases when used
in this rule shall have the meaning ascribed to them except
where the context clearly indicates a different meaning:

(a) "Fixed location" means being permanently affixed to one
location or plant site, or any portable plant which is set
up for a period of not less than six months in a stationary
manner so as to perform the same industrial manufacturing,
processing, compounding or production process that could be
performed at a permanent location or plant site. The
geographical limits of the "fixed location" for purposes of
this rule are limited to the immediate permanent location
or plant site....

(d) "Process" means a series of operations conducing to an
end which is an item of tangible personal property for
sale....

(e) "Production process" means production activities
beginning when raw materials are delivered at the fixed
location of the... facility and generally ending when the
items of tangible personal property have been packaged for
sale, or are in saleable form if packaging is not done....

"Tangible personal property" is defined in section 212.02 (19),
F.S., as "personal property which may be seen, weighed,
measured, or touched or is in any manner perceptible to the
senses...." Section 212.08(4)1., F.S., specifically exempts
water, except mineral water and carbonated water, from sales and
use tax.

ADVISEMENT

Section 212.08(7)(ii), F.S., contains the following restrictions
and requirements in regard to the exemption for electricity:

1. A taxpayer must register with the WAGES Program.

2. A taxpayer's activities must fall within the specified SIC
   Industry Major Group Numbers.

3. The electricity must be used at a fixed location in Florida.

4. The electricity must be used "directly and exclusively to
   operate machinery and equipment" that is used to "manufacture,
   process, compound, or produce items of tangible personal
   property for sale "or is pollution control, recycling,
   maintenance, monitoring or control equipment related to
   manufacturing, processing, compounding or production operations.

5. The exempt electricity must be separately metered; if not,
   the statute limits the exemption to 50 percent of the charges
   for electricity.

The Partnership will satisfy the first three requirements. The
General Partner has stated that the Partnership will register
with the WAGES Program and it is assumed that will occur prior
to the facility being put into operation. The General Partner
has determined that the Partnership's activities will be
classified under SIC Major Industry Group Number 39,
Miscellaneous Manufacturing Industries. A review of the SIC
code system confirms the General Partner's conclusion that there
is no other category into which operation of a desalination
facility as described herein would fit. The facility will be a
fixed location in Florida.

The two remaining items listed above deal with restrictions on
the exemption. The exemption extends only to electricity used
directly and exclusively to operate machinery and equipment that
is described in the statute. It is not a blanket exemption for
an entire facility. For example, electricity used for
administrative or management office areas (including office
equipment in those areas), parking lot or other exterior
lighting, employee locker rooms or lounges, cafeterias,

washrooms, storage rooms or closets would not qualify.

The Partnership will, however, use various types of machinery
and equipment in the conversion of unusable seawater into
potable water that will be sold and ultimately used by
residential and commercial consumers just as water drawn from
other sources is used. Water is tangible personal property
within the meaning of section 212.02(19), F.S. It can be seen,
touched, weighed, measured and is perceptible to the senses. If
this were not the case, it would not be necessary to create an
exemption from Chapter 212 for water in section 212.08(4)(a)1.,
F.S. In addition, the desalination activities to be carried on
at the facility are included in the terms "manufacture, process,
compound, or produce" as interpreted in Rule 12A-1.096, F.A.C.
A raw material (seawater) will be subjected to a series of
chemical, filtering and reverse osmosis operations that will
alter its composition and convert it into a finished item of
tangible personal property (potable water suitable for human
consumption) which will be sold. Electricity that is used
directly and exclusively to operate machinery and equipment
involved in that process or to operate pollution control,
maintenance, monitoring or control equipment related to that
process is exempt under section 212.08(7)(ii), F.S.

No information has been provided concerning how electricity for
the facility will be metered. The Partnership will be limited
to a 50 percent exemption for electricity that flows through any
meter that handles both exempt and non-exempt electricity. If
electricity used for exempt purposes is separately metered, the
Partnership will be entitled to total exemption of electricity
measured by that meter. Any exemption to which the Partnership
is entitled will be subject to the phase-in limitations set
forth in the statute.

In summary, the Partnership will produce potable water, which is
tangible personal property, for sale. This will be done through
a series of operations constituting a manufacturing or
production process. The Partnership's SIC Major Industry Group
Number is within the list set forth in the statute, and the
Partnership will register with the WAGES Program. The
Partnership will qualify for the exemption on electricity set

forth in section 212.08(7)(ii), F.S., subject to the limitations
and four-year phase-in schedule contained in that statute.

This response constitutes a technical assistance advisement
under section 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 section 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 section 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,

Linda W. Bridges
Tax Law Specialist
Technical Assistance and Dispute Resolution

LWB/
Control # 31072