Who owed Florida sales or use tax on carpet under government and private flooring contracts?

Subject

Tax on Government and Private Flooring Contracts

Plain-English summary

For the government installation contracts reviewed, the flooring provider was the taxable ultimate consumer of the carpet and other materials. The glued wall-to-wall carpet became a real-property improvement, and the public owner's documents did not establish an exempt direct purchase.

The purchase orders lacked the government's exemption number, the provider bore risk of loss and insurance duties, the documents did not establish government title and direct purchase of all materials before installation, and the specifications expressly required the contractor to pay sales tax. Separately invoicing carpet and labor did not change the public-works result.

For private installation contracts, the contract form controlled. Under lump-sum, cost-plus, fixed-fee, guaranteed-price, and other non-itemized contracts, the provider was the ultimate consumer: it paid tax when buying materials and did not collect tax from the customer. Under a specifically itemized contract, it sold tangible personal property and collected tax on the itemized material price, excluding installation charges if separately stated.

Uninstalled government-purchase ambiguity: the ruling says carpet sold without installation remains tangible personal property and that the provider could give its vendor a resale certificate. But the same paragraph also says the carpet “would not qualify” for the section 212.08(6) government exemption. Those statements do not clearly establish whether the provider should collect tax from the government customer, so this page does not supply an answer the source itself leaves inconsistent.

What this means for you

Government ownership of the finished project did not exempt a contractor's material purchases. The government had to be the real purchaser before installation, including issuing compliant purchase orders, taking title, paying vendors directly, and bearing the risk of loss.

For private work, merely showing labor and materials on an invoice was not always enough. The underlying agreement had to be a specifically itemized contract under the cited rule for separately stated installation to be excluded from the taxable customer charge.

Common questions

Q: Did glued wall-to-wall carpet become real property? Yes, under the facts and rules cited, where it was affixed without a retained-title provision and became the finished floor.

Q: Why were the government-installation materials taxable to the provider? The documents failed the direct-government-purchase factors and required the provider to bear risk and pay the material tax.

Q: Did separate carpet and labor invoices create an exemption? No. Public-works Rule 12A-1.094 controlled the government installation transaction.

Q: How were ordinary private lump-sum flooring contracts treated? The provider paid tax on materials as the ultimate consumer and did not collect tax from its customer.

Q: How were specifically itemized private contracts treated? The provider collected tax on the itemized material charges; separately stated installation charges were excluded.

Q: What was the result when a government bought carpet without installation? The ruling's text is internally inconsistent on the downstream exemption, although it clearly states that the provider could buy the carpet for resale using a resale certificate.

Citations and references

• Fla. Stat. § 212.02(14)(a) — retail sale
• Fla. Stat. § 212.08(6) — direct government sales and the public-works contractor exception
• Fla. Admin. Code rr. 12A-1.016, 12A-1.051(2), (40) — installed carpet and real-property contract classes
• Fla. Admin. Code r. 12A-1.094 — public-works material purchases
• Fla. Admin. Code rr. 12A-1.001(9), 12A-1.038 — government exemption and resale certificates
• Housing by Vogue, Inc. v. Department of Revenue, 422 So. 2d 3 (Fla. 1982) — cited in the uninstalled-carpet discussion
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-007

Original ruling text

SUMMARY

Taxpayer seeks advice regarding the tax consequences of
three separate scenarios: (1) the Flooring Provider in a
contract with a nongovernmental entity to install floor
coverings; (2) the Flooring Provider in a contract with a
governmental entity to install floor coverings; and (3) the
Flooring Provider in a contract with a governmental entity
to provide, but not install, floor coverings.

Determination was made that in fulfilling all contracts
except itemized contracts, the Flooring Provider would be
the ultimate consumer of all materials and supplies used,
would pay tax to the seller of such materials, and would
not collect tax from its customers. In fulfilling
specifically itemized contracts, the Flooring Provider
would be selling tangible personal property and would
collect tax from its customers based on the itemized
charges for materials, excluding installation charges, if
these charges are separately stated.

Feb 27, 1998

Re: Technical Assistance Advisement # 98A-007
XXX ("Flooring Provider")
Sales and Use Tax -- Contracts with Governmental and
Nongovernmental Entities for Sale and Installation of Floor
Coverings
Fla Admin. Code rules 12A-1.001, 12A-1.016, 12A-1.051 &
12A-1.094
Fla. Stat. ss. 212.02 & 212.08 (1997)

Dear :

This is a response to your letters dated September 18, 1996,(FN
1) and November 28, 1997, for the Department's issuance of a
Technical Assistance Advisement ("TAA"), concerning the above
referenced party and matter. Your petition has been carefully

examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, Fla. Admin.
Code. This response to your request constitutes a TAA and is
issued to you under the authority of Fla. Stat. s. 213.22
(1997).

FACTS

You recount the following facts in your letter:

The [Flooring Provider] is a full service floor covering
installation company which contracts for installation of
floor coverings at various governmental facilities... and
also for individuals.
...
Pursuant to the [governmental entity's] proposals the
[Flooring Provider] is obligated to submit a bid which must
include the information specified in Exhibit "A." This
proposal requires base bid unit charges to be submitted,
including floor covering per square yard, labor and
adhesive, [and] stripping of existing carpet on a square
yard basis. Particular dollar amounts are required to
arrive at a total bid price.

On [the governmental entity's] contracts the [Flooring
Provider] submits an invoice for the floor covering when
ordered, to be installed by the [governmental entity], and
submits a separate invoice for the installation charges
when the coverings are installed.

For retail customers (non-governmental) the [Flooring
Provider] submits an invoice with an itemized per square
foot charge for floor covering as well as an itemized per
square foot installation charge. Items are included on the
same invoice.

September 18, 1996 Letter at 1-2. In your second letter, you
add:

The sales to customers who are not exempt are made for a
lump sum amount per yard including the floor covering and

installation. Use tax is determined upon the cost price to
[the Flooring Provider] of the floor covering included
within that sale.

Exempt purchasers are invoiced separately for carpet and
labor transactions. It is these transactions which may or
may not be subject to a use sales [sic] tax dependent upon
the Department's interpretation. The exempt sales identify
in one invoice a per square foot sales price for the floor
covering and in a separate invoice a per square foot
installation charge.

November 28, 1997 Letter at 1.

Exhibit A of your September 18, 1996 letter is a blank form
entitled "Subcontractor/Manufacturer List," which requires
attachment to the bidder's proposal. This form provides a space
to be completed regarding the nature of the project, and
provides blanks to be filled in with the names and locations of
subcontractors and manufacturers.

You later submitted a copy of the 1994 Specifications for
Installation of Floor Coverings, applicable to various
facilities district-wide on a one year contract basis, and which
contains a number of blank forms. The Specifications provide
for the furnishing and installation of floor coverings for
various facilities of the governmental entity, and for the
furnishing of all labor, tools, and services required for work
related to the furnishing and installing of floor and wall
covering, based on an itemized cost estimate approved by the
contractor and the governmental entity.

In the Bid Proposal, specific price information is requested:
Regarding base bid, carpet per square yard, labor and adhesive,
and stripping of existing carpet; regarding unit prices for
carpet, roll price (for 200 yards and more), labor and adhesive
for direct glue-down carpet per yard (for less than 200 yards),
stripping existing carpet, patching the sub-floor, vinyl base
per lineal foot, and metal or vinyl carpet terminating strip;
regarding unit prices for tile, for vinyl composition tile,
labor and materials for enumerated square footage; for 4" by

1/8" vinyl based tile, labor and materials for enumerated lineal
footage; for sheet vinyl flooring, labor and materials for
enumerated square footage; and for all tile, stripping existing
tile, patching the sub-floor, and removing and replacing
furniture.

The "Standard Form of Agreement Between Owner and Contractor"
provides that the contractor will provide all labor, materials,
tools, equipment, and services required to perform all work in
accordance with the contractor's proposal letter. The "Standard
General Conditions" provide that the contractor will indemnify
the governmental entity from all claims, damages, losses and
expenses and make allowance for specified combined overhead and
profit. These conditions also specify: "Materials, equipment and
sub-contractor work in this contract are subject to State sales
tax. The Contractor shall pay this sales tax."

You also submitted copies of a 1993 requisition purchase order,
proposal, and invoice, and a 1989 proposal and purchase order
between the Flooring Provider and a governmental entity. The
1993 requisition purchase order between the Flooring Provider
and the governmental entity provides that the Flooring Provider
will provide all labor, tools, equipment and services required
to carpet a media center and lists a total cost of $10,103.86.
The 1993 proposal and invoice reflect that the carpet was
furnished, installed, and directly glued to the floor, that
existing glued-down carpet was removed, and that a vinyl base
was installed. The 1989 documents reflect a contract between
the Flooring Provider and the governmental entity, and indicate
that the Flooring Provider was responsible for the furnishing of
all labor, materials, supervision, and clean-up.

REQUESTED ADVISEMENT

You state that "[t]he [Flooring Provider] is uncertain as to its
obligations for collecting and remitting tax in that the members
of the industry have had varying interpretations and
applications as to the appropriate method for collecting and
remitting tax," and seek advice regarding the tax consequences
of three separate scenarios: (1) the Flooring Provider in a
contract with a nongovernmental entity to install floor

coverings; (2) the Flooring Provider in a contract with a
governmental entity to install floor coverings; and (3) the
Flooring Provider in a contract with a governmental entity to
provide, but not install, floor coverings. September 18, 1996
Letter at 1-2.

LAW

Section 212.02(14)(a), Fla. Stat. (1997), defines a "retail
sale" as "a sale to a consumer or to any person for any purpose
other than for resale in the form of tangible personal property
or services taxable under this chapter...." See also Rule 12A1.038(1), Fla. Admin. Code ("Unless the dealer shall have taken
from the purchaser a certificate signed by the dealer... to the
effect that the property or service was purchased for resale and
bearing the date, the name and address of the purchaser, the
effective date of the certificate, and the number of the
dealer's certificate of registration... the sale shall be deemed
to be a taxable sale at retail...."); Rule 12A-1.038(3)(a), Fla.
Admin. Code ("A resale certificate is required from every
purchaser who purchases tangible personal property or service
for resale.... Otherwise, the dealer will be required to collect
and remit the tax to the Department of Revenue.").

Section 212.08(6), Fla. Stat. (1997), 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....

Rule 12A-1.001(9)(a), Fla. Admin. Code, provides:

All sales made directly to the United States Government, a

state, or any county, municipality, or political
subdivision of a state are exempt.... Payment must be made
directly to the dealer by the governmental entity of a
state, or any county, municipality, or political
subdivision of a state.... Such governmental entities
desiring to qualify for the exemption must obtain from the
Department of Revenue a consumer's certificate of exemption
(see Rules 12A-1.038 and 12A-1.039, F.A.C.). The exemption
provided in this subsection shall be strictly defined,
limited, and applied to each entity as provided herein.

Rule 12A-1.051, Fla. Admin. Code, provides that contractors who
perform non-public works contracts for repair, alteration,
improvement and construction of real property may use one of the
following methods in arriving at the total contract price:

(2)(a) Contracts in which the contractor or subcontractor
agrees to furnish materials and supplies and necessary
services for a lump sum;

(b) Contracts in which the contractor or subcontractor
agrees to furnish the materials and supplies and necessary
services on a cost plus or fixed fee basis;

(c) Contracts in which the contractor or subcontractor
agrees to furnish materials and supplies and necessary
services with an upset or guaranteed price which may not be
exceeded; and
(d) Contracts in which the contractor or subcontractor
repairs, alters, improves or constructs real property and
wherein he agrees to sell specifically described and
itemized materials and supplies at an agreed price or at
the regular retail price and to complete the work either
for an additional agreed price or on the basis of time
consumed.
(e) When a contractor or subcontractor uses materials and
supplies in fulfilling either a lump sum, cost plus, fixed
fee, guaranteed price or any kind of contract except one
falling in class (d) above, he becomes the ultimate
consumer thereof. The person or dealer who sells such

materials and supplies to such contractor or subcontractor
is making sales at retail and is required to collect the
tax from him based upon the receipts from such sales.

(f) In cases falling in class (d) above, the contractor or
subcontractor is deemed to be selling tangible personal
property at an agreed retail price and shall collect tax
from his purchaser based upon the amount of the receipts
from such sales, excluding installation charges if
separately stated. A dealer selling to such contractor or
subcontractor must obtain a resale certificate in lieu of
tax.

(g) Contractors, manufacturers or dealers who sell and
install items of tangible personal property enumerated in
Rule 12A-1.016 must collect tax on the full selling price,
including installation or other charges, even though such
charges may be separately stated.
....
(40) A contractor or subcontractor is construed to be
improving real property and owes the tax on all materials
and supplies that he uses in fulfilling the contract when
he furnishes and installs wall-to-wall carpeting pursuant
to a lump sum, cost plus, fixed fee, or guaranteed price
contract when:
(a) There is no retained title provision in the agreement;
and

(b) The carpeting is affixed to the floor by nails, glue or
in some other manner and becomes the finished floor.(FN 2)

Rule 12A-1.094, Fla. Admin. Code, 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.

DISCUSSION, ANALYSIS AND CONCLUSION

Contracts with Governmental Entities to Install Floor Covering

Pursuant to Rules 12A-1.016(3)(b)1. and 12A-1.051(40), Fla.
Admin. Code, wall-to-wall carpet installed with nails or glue,
with no retained title provision, is a fixture of real property.
Because the documents you provided refer to the carpeting of a
governmental entity's media center, with the carpet to be glued
to the flooring, this carpet would constitute a real property
improvement for a governmental entity, a public works project,
under Rule 12A-1.094, Fla. Admin. Code.

Rule 12A-1.094(2) and (3), Fla. Admin. Code, provide that the
purchase of materials is taxable to the contractor as the
ultimate consumer where the contractor is deemed to be the
purchaser. On the other hand, both Fla. Stat. s. 212.08(6)
(1997) and Rule 12A-1.001(9), Fla. Admin. Code, provide that a
sale to a state or local governmental entity is tax exempt,
where payment is made directly to the dealer by the governmental
entity, which must obtain a consumer's certificate of exemption.
Accordingly, for there to be an exempt transaction, the
governmental entity must directly purchase, hold title to,
assume the risk of loss of the tangible personal property prior
to its incorporation into realty, and comply with various
factors listed in Rule 12A-1.094, Fla. Admin. Code.
Specifically:

1. The governmental entity must execute the purchase orders
   for the tangible personal property involved in the
   contract, which must include the governmental entity's
   consumer's certificate of exemption number. The contractor
   may present the governmental entity's purchase orders to
   the vendors of the tangible personal property;

2. The governmental entity must acquire title to and assume
   liability for the tangible personal property at the point
   in time when it is delivered to the job site up until the
   time it is incorporated as real property;

3. Vendors must directly invoice the governmental entity
   for supplies;

4. The governmental entity must directly pay the vendors
for the tangible personal property; and

5. The governmental entity must assume all risk of loss or
   damage for the tangible personal property involved in the
   contract. The governmental entity should acquire, or be
   the insured party under, liability insurance on the
   building materials.

Under the terms of the documents you provided, several of these
requirements are not met. First, although the governmental
entity executed Requisition Purchase Orders for the purchase of
floor coverings, these purchase orders did not include a
consumer's certificate of exemption number. Second, the
specifications provided that the Flooring Provider as the
contractor will assume all risk of loss and must provide
liability insurance. Additionally, the documents are silent as
to the governmental entity's making direct purchases of all
materials to be used in the project and taking title and
possession of all materials prior to their incorporation into
the project. Finally, the specifications explicitly require
that the Flooring Provider pay all state sales tax on materials,
equipment and subcontractor work.

Accordingly, the purchases of materials made in accordance with
these documents would not be exempt from sales tax under Rule
12A-1.094, Fla. Admin. Code. Pursuant to Rule 12A-1.094(2) the
purchase or manufacture of supplies or material incorporated
into a public works project is taxable to the contractor as the
ultimate consumer.

Your position that the Flooring Provider is not obligated to
collect tax on sales of carpeting that it installs for
governmental entities where it separately invoices labor and the
carpet is incorrect. The separate statement of labor and
tangible personal property is of significance only where
specifically itemized contracts under Rule 12A-1.051(2)(d) and
(f), Fla. Admin. Code, are at issue, such that installation
charges are excluded from tax if they are separately stated. In
this instance, however, Rule 12A-1.094 governs because the

transactions involve a public works project.

Contracts with Governmental Entities to Purchase Floor Covering

Although you provided no contracts between a governmental entity
and the Flooring Provider for the purchase of carpet which the
governmental entity would install, you seek guidance on the tax
ramifications of such a purchase. Under Rules 12A-1.016(3)(b)
and 12A-1.051(40), Fla. Admin. Code, carpet purchased without
installation constitutes tangible personal property and would
not qualify for the exemption enunciated in Fla. Stat. s.
212.08(6) (1997). See Housing by Vogue, Inc. v. Department of
Revenue, 422 So.2d 3, 4-5 (Fla. 1982). Pursuant to Fla. Stat.
s. 212.02(14)(a) (1997) and Rule 12A-1.038, Fla. Admin. Code,
however, the Flooring Provider could present a resale
certificate to its vendor at the time of purchase, which would
exempt the transaction from sales tax.

Contracts with Nongovernmental Entities to Install Floor
Covering

Although you have not provided copies of any contracts between
the Flooring Provider and nongovernmental entities, you seek
guidance on the tax ramifications of the installation of carpet
for such entities. Rule 12A-1.051, Fla. Admin. Code, permits
the Flooring Provider to perform lump sum, cost plus, fixed fee,
guaranteed price or specifically itemized contracts. In
fulfilling all contracts except itemized contracts, the Flooring
Provider would be the ultimate consumer of all materials and
supplies used, would pay tax to the seller of such materials,
and would not collect tax from its customers. In fulfilling
specifically itemized contracts, the Flooring Provider would be
selling tangible personal property and would collect tax from
its customers based on the itemized charges for materials,
excluding installation charges, if these charges are separately
stated.

This response constitutes a Technical Assistance Advisement
under Fla. Stat. s. 213.22 (1997), 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. 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 Fla. Stat. ch. 119 (1997), which are
subject to disclosure to the public under the conditions of Fla.
Stat. s. 213.22 (1997). 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.

Should you have any further questions concerning this matter,
please do not hesitate to contact me.

Sincerely,

Gypsy Bailey
Senior Attorney
Technical Assistance & Dispute Resolution
(904) 922-9411

Control #: 32065
/gcb

NOTICE UNDER THE AMERICANS WITH DISABILITIES ACT

Persons needing an accommodation to participate in any
proceeding before the Department of Revenue should contact the
Department at (904)488-0717 (voice) or 1-800-DOR-8331 (TDD), at
least five (5) working days before such proceeding. You may
also call via the Florida Relay System at 1-800-955-8770.

FOOTNOTE 1 This letter was assigned Control #26531, which was

closed upon discovery that the Department and the Flooring
Provider were involved in litigation over the issues presented
in the TAA request.

FOOTNOTE 2 Rule 12A-1.016(3), Fla. Admin. Code, provides:
(b) Contractors and manufacturers who furnish and install
the following items are considered to be retail dealers and
are required to charge sales tax on the full price,
including installation and any other charges:

1. Carpets, except those that become real property (See
   Rule 12A-1.051)....