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)....