Did a contractor owe Florida tax on materials for a turnkey automated transit subsystem sold to a government authority?

Subject

Public Works Contract

Plain-English summary

The contractor owed Florida sales or use tax on the materials and components used to deliver the government authority's automated transit subsystem. The authority's government exemption did not pass through to a contractor buying property for incorporation into public works.

The agreement was a publicly bid, publicly funded turnkey contract. The contractor had to design, fabricate, ship, install, erect, debug, test, demonstrate, and deliver a fully operational system of automated passenger vehicles, guidebeam equipment, power, control, and communications. It supplied the necessary property at its own cost, maintained insurance, bore the risk of damage until final acceptance, received progress payments, and had to restore damaged work.

Florida said the controlling question was whether the agreement was a public-works contract—not whether more than half its value was tangible personal property or real-property improvements. Even movable portable classrooms had previously been treated as public works, and the transit vehicles here functioned only with the fixed guideway and integrated support systems.

Because the authority did not directly purchase the materials, the contractor was the ultimate consumer. Accepting the authority's exemption certificate would not relieve the contractor's tax liability.

What this means for you

A government customer does not automatically make a contractor's inputs exempt. A turnkey obligation to deliver a completed public system, combined with contractor-paid materials, insurance, risk of loss, testing, and acceptance, strongly supports public-works treatment.

The ruling acknowledged that a public entity could create a compliant direct-purchase program or enter a contract that was simply a sale of tangible personal property. Neither feature existed in this agreement.

Common questions

Q: Did it matter whether most contract value was vehicles and other tangible property? No. The Department said the public-works classification controlled regardless of the real-property-versus-personal-property ratio.

Q: Could the contractor rely on the authority's exemption certificate? No. Tax arose when the contractor acquired or used the materials, before transfer of the completed subsystem.

Q: Why was the agreement treated as public works? It was publicly bid and funded, covered an integrated public transit system, required turnkey completion, placed risk with the contractor until acceptance, and used construction-style insurance and progress payments.

Q: Could direct government purchases have changed the result? Potentially. The ruling noted that a compliant direct-purchase program could shift some tax incidence, but this contract had none.

Citations and references

• Fla. Stat. §§ 212.02(13)-(14), 212.06(1)(b) — dealer, retail sale, and contractor use of materials
• Fla. Stat. § 212.08(6) — government exemption and exclusion for contractor purchases incorporated into public works
• Fla. Admin. Code r. 12A-1.051 — real-property contractors
• Fla. Admin. Code r. 12A-1.094 — public-works contracts and direct government purchases
• Housing by Vogue, Inc. v. Department of Revenue, 422 So. 2d 3 (Fla. 1982) — public works can include movable tangible personal property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-038

Original ruling text

SUMMARY

Materials and components for a public transit system
subsystem are taxable to the contractor where the contract
requires the contractor to deliver the subsystem on a
turnkey basis and to supply all materials and components
required to perform the contract. Based on the bidding
procedures, contract terms, and nature of the project, the
contract is a public works contract and contractor is
subject to tax on materials and components used without
regard to whether the majority of the contract involves
tangible personal property or real property improvements.

May 15, 1998

Re: Technical Assistance Advisement (98A-038)
Sales and Use Tax -- Public Works Contract
Section 212.08(6), F.S.
Rule 12A-1.094, F.A.C.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated April 7, 1998, in which you asked for a technical
assistance advisement concerning the taxability of items
furnished pursuant to a contract between XXX ("Contractor") and
the YYY ("Authority"). That correspondence superseded and
replaced your letter of March 10, 1998, concerning the same
topic.

FACTS

Authority is a government agency. Authority and Contractor
executed Agreement Between [Authority] and [Contractor]
Regarding Vehicles and Subsystems for the [Project] (the
"Agreement") on October 31, 1994. The recitals to the Agreement
describe the steps in the requests for proposals and public
bidding procedures that led up to the Authority awarding the

contract to Contractor. The Agreement provides that Contractor
is to provide at its own cost completion of all work, "including
furnishing all the services, materials, equipment, supplies and
labor necessary therefore (sic), and in the manner and to the
full extent set forth" in the Conformed Request for Proposal
(the "Proposal") and Contractor's Best and Final Offer (the
"Offer"). In exchange, the Authority is to pay Contractor $XX
as sole compensation for those services and products. The
Agreement then repeats that all work is to be performed at
Contractor's expense.

The terms of the Proposal are incorporated by reference into the
Agreement. The objective is to complete Phase I of the
Authority's [transit system] ("System"). The System consists of
elevated, dual guideways of reinforced concrete or steel beams.
Vehicles run on guidebeams that are attached to the guideway
structures with inserts and bolts. Phase I is XX miles long
with XXX stations and a Control, Maintenance and Storage Area
("CMSA"). Stations are unattended, barrier free, and are not
heated or air conditioned. Vehicles are driverless and
controlled by an automatic vehicle control system. The CMSA is
manned during hours of operation and consists of monitoring and
surveillance, maintenance, and storage facilities. The Base
Contract for completion of Phase I includes replacing the
control system for the existing XXX mile line, completing XXX
additional lines, and providing vehicles. There is a Completion
Option available to the Authority for five years for completing
certain line extensions and the addition of a permanent new
CMSA. There are two additional Vehicle Options. Bids for the
Base Contract and all Options are to be submitted as part of a
single package, although work related to the Options is to be
distinguished from that relating to the Base Contract. A
progress payment schedule is to be provided. Detailed, line
item cost and price information is required in the bids. The
successful bidder will be required to sign a statement
acknowledging the applicability of special laws because the
contract is with a public entity or agency. The Proposal
requires the successful bidder to maintain various forms of
insurance, including an "all risk" property insurance policy
covering construction, additions, machinery, and equipment in an
amount equal to estimated replacement value.

Contractor is required to obtain all permits and licenses, pay
all fees and taxes, and give all required notices in regard to
the project. Contractor remains liable for the charge and care
of the project until there is substantial completion.
Contractor is required to rebuild or restore any injured or
damaged portions of the project at its own expense up until
final acceptance. Section 3.1.1 of the Proposal described
Contractor's responsibilities as all "project management,
design, analysis, documentation, fabrication, shipping,
installation, erection, debugging, testing , and demonstration
of materials and equipment required in retrofitting and
extending the System in the XXX, such that it is fully operable,
safe, and reliable in accordance with the Contract documents."
Section 4.2 of the Proposal provides that Authority is
responsible for providing System fixed facilities, including
real estate, station building structures, guideway footings,
guideway pier, guideway girders, the maintenance building, space
for CMSA equipment, the primary power distribution system
feeders, some station communications, and closed circuit
television. Contractor is required to coordinate its work with
that of other contractors providing other elements of the
System, including certain fixed facilities, walkways, sidewalls,
fare collection equipment, communication equipment, street
improvements and private utility relocation.

The Offer provides that Contractor's Vice President of Project
Management, Turnkey Systems, will have overall management
authority. The detailed pricing schedule in the offer provides
the following breakdown of the elements and costs comprising the
project:

1. Trackway Equipment and Switches. Furnish and install all
   secondary guideway-mounted equipment, guidance mechanisms,
   running surfaces, and related equipment to be installed on
   Authority-provided primary guideway structure. Price $XX.

2. Vehicles - Furnish and install the complete passenger
   vehicles, including onboard equipment. Price - $XX.

3. Traction Power System. Furnish and install all electrical
equipment and installations to operate the System,
substation equipment and controls, wayside power rails,
power distribution equipment and wiring, and central
control equipment at the CMSA. Price - $XX.

4. Command and Control System. Furnish and install all
   furniture, supplies, equipment and installations related to
   vehicle protection, operation, and supervision required for
   wayside controls and the central control facility. Price $XX.

5. Communications System. Furnish and install all equipment,
   supplies, and installations related to data transmission
   between central control and the stations for control and
   monitoring of vehicles, traction power equipment, fire
   protection equipment, alarms and passenger information;
   furnish equipment and supplies for audio transmission for
   vehicle intercoms. Price - $XX.

6. Maintenance Equipment and Tools - Furnish and install all
   equipment, supplies, tools, and furniture required for
   vehicle and subsystem testing and maintenance. Price $XX.

7. Project Management and Engineering. Includes management,
   administration, design, engineering, quality assurance,
   construction supervision, testing, training, demonstration
   and similar services and other soft costs such as bonds,
   insurance, permits, licenses, warranties, and royalties.
   Price - $XX.

Within each category, there is a more detailed breakdown of
materials, supplies, costs, and pricing.
Separate schedules of pricing are provided for the Completion
and Vehicle Options.

Contractor's request for technical advice states that Contractor
has determined that approximately 80 percent of the total
contract is for the sale of tangible personal property and
provides a different breakdown of costs than that contained in
the Offer. According to the request, the tangible personal

property portion of the project is divisible into four
components: i) automated vehicles at $XX; ii) related equipment
characterized as "stand alone" equipment needed to operate the
vehicles and not built into the guideway or structure at $XX;
iii) electrical equipment including power supply and traction,
disconnect panels, conductor rail and electrical boxes, all of
which Contractor also characterized as "stand alone" even though
some of it is "attached mechanically" at $XX; and iv)
communications equipment fabricated and installed in the
vehicles, transit areas, and the control room at $XX.
Contractor asserts that none of the communications equipment
becomes a permanent part of the guideway or any building.

The Agreement has already been considered by the Department in
two previous technical advisements. First, the Department
issued RTA 95A-001 on January 25, 1995. In that RTA, the
Department, in response to an internal request by Department
personnel, advised that Contractor would be liable for use tax
on all materials it purchased or manufactured for performance of
the Agreement because it is a public works contract. RTA 95A001 was based on review of the Agreement, including the
underlying request for bids and the final proposal by
Contractor. The conclusion in RTA 95A-001 relied on Housing by
Vogue, Inc. v. Department of Revenue, 422 So.2d 3 (Fla. 1982).
Kings Bay Yacht Club, Inc. v. Green, 173 So.2d 509 (Fla. 1st DCA
1965), which would have based a determination upon the relative
value of real property and personal property portions of the
contract was discussed and rejected as a controlling authority.
The Department personnel who requested RTA 95A-001 state that
copies were provided to Contractor's representatives.

On January 13, 1997, Contractor's representatives submitted a
request for a nonbinding letter of technical advice ("LTA")for a
fact pattern based on the Agreement. As with the current
request, that submission concludes that the passenger vehicles,
"stand alone" related equipment, electrical equipment, and
communications equipment are all tangible personal property.
Because that represents over 80 percent of the total contract
price, the request argues that under the rationale of Kings Bay,
the entire Agreement must be viewed as a contract for the sale
and installation of tangible personal property. The Department

responded with an LTA dated March 10, 1997. That LTA accepted
without discussion that the vehicles were tangible personal
property. The LTA noted that according to the figures provided
in the request, the contract was primarily for tangible personal
property and tax should be collected from the owner of the
system. This conclusion was, however, subject to limitations.
It was based on the stated assumption without independent
determination that certain equipment would not in fact be
classified as fixtures rather than as tangible personal property
as asserted in the request. In addition, and more
significantly, the LTA noted that the result would be different
if the contract involved a governmental entity. If that were
the case, the LTA concluded that "Housing by Vogue, not Kings
Bay, would be the operative and controlling case law."

TAXPAYER POSITION

Contractor addresses its arguments to whether the Agreement is
one for the sale of tangible personal property or for the
improvement of real property. Contractor relies on Kings Bay
for the proposition that if a contract involves both real
property work and the sale of tangible personal property,
taxation of the entire contract should be based on which is the
predominant element. Contractor therefore focuses its discussion
on why the guidebeam, vehicles, and various functional systems
that deliver power and otherwise make operation, monitoring, and
control of the vehicles possible should not be viewed as
improvements or additions to real property. Contractor finds it
to be a compelling fact that the System is already in existence
and is not being originally constructed as part of the
Agreement. Contractor points out that part of the current
project involves retrofitting existing System system components,
indicating that they can be removed and replaced. Since that is
being done under the Agreement, Contractor argues that it must
be contemplated that even the guidebeam it provides that is
attached with inserts and bolts to the concrete guideway
structure may be removed and replaced at some future date.
Taxpayer also asserts that other unspecified components must be
viewed as tangible personal property despite being "mechanically
attached," because it is possible to remove them. Having thus
concluded that approximately 80 percent of the contract involves

tangible personal property, Taxpayer argues that under Kings Bay
the entire contract must be viewed as a sale of tangible
personal property.

Contractor goes on to discuss judicial precedents that address
when personal property has become a fixture that is part of real
estate and loses its character as tangible personal property.
Those decisions set forth a three-part test: i) actual
annexation to the realty, ii) appropriateness to the use of
realty, and iii) the intention of the person making the
attachment that the item be a permanent addition. Contractor
argues that the work under the Agreement cannot be viewed as
becoming part of realty because transit systems and the
subsystems thereof need to be replaced and modified as they age
and as technical advances are made. Therefore, Contractor
concludes the Authority cannot intend for the work to be viewed
as a permanent improvement.

Contractor also cites Department regulations and advisements it
considers relevant. For example, Contractor apparently
anticipates an assertion that simply because of their size and
weight, the vehicles must be viewed as permanently attached once
placed on the guidebeam. Contractor argues that the size of the
vehicles in this case is not sufficient in and of itself to
justify treatment as realty since railroad cars are treated as
personal property under Rule 12A-1.071, F.A.C. Contractor also
addresses technical assistance advisements issued to other
taxpayers concerning car wash systems and kiosks and argues the
results in those advisements support its classification of the
Agreement as a sale of tangible personal property.

REQUESTED ADVISEMENTS

Based on its analysis and arguments, Contractor concludes its
request as follows:

1. We have concluded that the project, described above,
   is that of making sales of tangible personal property
   which makes the owner of the real property
   ([Authority]) liable for the sales tax. Please
   provide us with a written confirmation as to our

conclusion.

2. Would [Contractor] be relieved of any tax liability if
   they (sic) were to accept an exemption certificate
   from the [Authority]?

3. Public works contracts are differentiated from sales
   of tangible personal property (TPP) to governmental
   entities by the fact that the project involves a
   certain amount of improvements to real property.
   Governmental entities are still able to issue
   exemption certificates on purchases of TPP in nonpublic works contracts. If you find our contract is a
   public works contract, explain why you view it as a
   public works contract and what basis you used to
   decide that it is not simply a sale of TPP to a
   governmental entity.

RELEVANT AUTHORITIES AND ANALYSIS

The issue in this case is whether the components of the project
that the Contractor will install and furnish to Authority under
the Agreement are taxable. If Contractor is viewed as a dealer
of tangible personal property, Contractor can acquire those
components tax exempt on the basis they will either be resold
directly or incorporated into tangible personal property that
will be sold. See section 212.02(13), (14), F.S. If, on the
other hand, Contractor is acquiring those components for its own
use in satisfying contractual obligations that go beyond merely
selling and installing tangible personal property, Contractor is
the taxable consumer of those items under section 212.06(1)(b),
F.S.

One scenario in which this issue often arises is the performance
of contracts for the repair, alteration, improvement and
construction of real property. Real property contractors are
engaged in providing completed repairs, alterations,
improvements, or additions to realty, not in selling all the
tangible personal property that is incorporated into the realty
in the course of fulfilling their contracts. See Rule 12A1.051, F.A.C. Contractor's argument is addressed entirely to

whether or not the Agreement is a real property contract. In
this regard, Contractor's arguments are not entirely convincing.
The work done by Contractor involves many items that are bolted,
screwed, anchored in cement footings, or otherwise attached to
the land or structural elements of the System. The entire
subsystem that comprises the work is an essential, integrated
element of the System. It is not analogous to a car wash at a
service center or a kiosk for an ATM machine in a shopping mall.
Removal of those items would have no effect on the utility of
the underlying property as a service center or shopping mall.
They could be set up and used elsewhere just as well. Without
the passenger vehicles and the subsystems that make them
operational, the System cannot serve its only function. Those
vehicles and subsystems cannot be used anywhere except in
connection with the System (or another transit system that is
similarly configured). Similarly, comparing driverless,
automated cars that move back and forth within the confines of a
municipal transit system with self-propelled, operatorcontrolled railroad rolling stock that can travel all over the
continent is unconvincing, even though both are limited to a
track or guideway system.

From an examination of the scope of the work to be performed
under the Agreement, the work appears to consist of a
combination of real property improvements as well as the
installation of items retaining the identity of personal
property following installation. Review of the breakdown of
costs in the Offer itself indicates that much more than 20
percent and, perhaps, much more than 50 percent of the
components appear likely to be attached by screws, bolts,
anchors, concrete foundations and other methods that support
finding that they have become affixed to realty. Finally, the
argument that components of an existing system are being
replaced, or that the new components will in time wear out or
become obsolete because of technical advances, does not indicate
that these components are not properly classified as real
property improvements. Roofs, walls, and floors of a building
eventually wear out and must be replaced. They are still viewed
as real property. In short, it is not clear that Contractor has
correctly characterized the Agreement as one primarily for the
sale of tangible personal property rather than realty.

In this case, however, it is not necessary to resolve that
issue. The controlling statute for resolving the taxability of
the materials used in performing the Agreement is section
212.08(6), F.S., the provision that deals specifically with
sales of tangible personal property to contractors for public
works contracts with governmental entities. That section
provides that sales made to a governmental entity are exempt
from tax so long as payment is made directly to the dealer by
the governmental entity. It is not limited to sales of tangible
personal property. It applies to all sales otherwise taxable
under chapter 212, F.S., including taxable services.

Section 212.08(6), F.S., goes on to state, however, that the
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." Therefore, the fact that no tax is due from the
entity does not mean that the materials used by Taxpayer are not
subject to tax. In fact, the statute specifically states that
sales of materials to contractors are taxable even though the
materials will be incorporated into public works. The obvious
intent of this provision is to prevent contractors from claiming
that tangible personal property they purchase and use is not
taxable because their customer could have purchased the property
on an exempt basis. In order for tangible personal property
that goes into or becomes a part of a public work to be exempt
under section 212.08(6), F.S., it must be purchased directly by
the governmental entity.

In determining how to construe section 212.08(6), F.S., in any
situation, the Department is limited by a longstanding rule of
statutory construction, established by the Florida Supreme
Court, which mandates that exemptions from taxing statutes must
be strictly construed against the taxpayer. See Asphalt Pavers
v. Department of Revenue, 584 So.2d 57 (Fla. 1st DCA 1991);
Straughn v. Camp, 293 So.2d 689 (Fla. 1974); United States
Gypsum Company v. Green, 110 So.2d 409 (Fla. 1959). The clear
intent of the statute is to deny exemption for tangible personal

property that a contractor supplies and incorporates into a
public works project, and judicial precedent mandates strictly
construing the statute to fulfill that intent.

The statute does not define the term "public work." Under
regulatory and judicial precedents, however, it is not necessary
that a contract involve a real property improvement for it to be
a public works contract. Rule 12A-1.094(1), F.A.C., which
provides guidelines for determining whether the contractor or
the public entity is the consumer in a public works contract
setting, defines the term in part as follows:

(b) "Public works" are defined as construction projects for
public use or enjoyment, financed and owned by the
government, in which private persons undertake the
obligation to do a specific piece of work. The term
"public works" is not restricted to the repair, alteration,
improvement, or construction of real property and fixed
works where the sale of tangible personal property is made
to or by contractors involved in public works contracts.
Such contracts shall include, but not be limited to,
building, electrical,.... (emphasis added)

Factors cited in that rule that indicate that a contractor
(rather than the governmental entity) is the consumer of
materials are also relevant to this case. The burden of risk of
damage or loss for the materials prior to their installation is
of paramount consideration in the determination whether a
contractor is the ultimate consumer of the materials, or is
reselling them to the government. The insurance requirements
set forth in the Proposals clearly place those risks with
Contractor rather than Authority until final acceptance of the
fully operable system. The turnkey nature of the Agreement,
when viewed in light of the requirement for cooperation with
other suppliers, indicates that Authority is contracting for a
completed system, not purchasing all the various items that make
up the system individually. Another indication that the
Agreement is for the construction of the complete project is the
payment provisions. Contractor is paid in monthly draws with
Authority holding back a retainage pending testing and
acceptance of the finished work. While not in itself

determinative, the use of progress payments is more typical of a
construction-type contract than a simple sale of tangible
personal property.

It is clear that under the definition of "public works" and
other provisions of Rule 12A-1.094, F.A.C., the Agreement is a
public works contract within the meaning of section 212.08(6),
F.S., and Contractor is responsible for tax on the purchase or
use of tangible personal property it incorporates into the work.
Contractor's project is part of the completion of Phase I of the
System, a transit system for use by the public. It involves
retrofitting the existing line and providing subsystems for
extensions of that line. Based on the breakdown in the
Agreement, the majority of the costs are related to providing
track, power, control, and communication systems, involving
wiring, power plants and conduits, cabling, signals and other
nonmoving components similar to those an electrician would
install. In this case, the cars, even though they move, are
actually a fixed element of the system as well. They cannot
move except within the confines of the section of the System in
which they run. They are automated and driverless, controlled
from a central point and unable to be used except in conjunction
with the power rails, power distribution wiring and cables,
centralized control center, and communications subsystem
Contractor is also designing and installing under the Agreement.

The Department's position that the determination of whether a
contract is a public works contract is a distinct and
controlling issue without regard to whether the transit system
components are tangible personal property is further supported
by the opinion in Housing by Vogue, supra. In that case, the
Florida Supreme Court considered whether sales of tangible
personal property to a governmental entity, rather than
performance of a public works contract, was involved. The
taxpayer contracted to provide the Florida Department of
Education with portable classroom buildings capable of being
moved from site to site without damage to the structure. The
taxpayer did not pay any use tax on the materials used to
construct the units. The Department argued that taxpayer's
purchases of materials were not exempt from sales tax because
they "went into or became a part of" a public work. The

Department did not dispute the classification of the units as
tangible personal property.

The taxpayer in Housing by Vogue argued that "the term public
works applies only to improvements to, alteration of, or
construction of real property" and that personal property could
not be a public work. The taxpayer cited authorities that held
that public works were "fixed works constructed for public use,
as railways, docks, canals, water works, roads, etc.," and that
section 212.08(6), F.S., was meant to reach only "contracts akin
to building contracts."

The court agreed that the case depended on the meaning of the
term "public works" as used in section 212.08(6) F.S. In so
stating, the Florida Supreme Court concurred with the decision
of the lower court that classification of the units as real or
personal property was "not determinative" because the "sole
issue" was whether they were public works. The court stated
that pursuant to traditional interpretation and judicial
precedent "all fixed works constructed for public use are public
works." The court then acknowledged that its decision would
have the effect of broadening that interpretation. Although the
portable classrooms were movable and were therefore not fixed
real property improvements that fit within the traditional
meaning of the term, the court found they should be treated as
public works. Several factors were cited. They were built
pursuant to a state statute. The contract was bid and
administered in the same manner as a contract for a fixed
facility would have been. The court also noted that the
definition of "public works" at 64 Am. Jur. 2d, Public Works and
Contracts, supported inclusion of the classrooms when it stated:
"Such buildings, structures, and other works which by statute
are authorized to be constructed for public purposes by the
state or public agencies therein are generally to be regarded as
public works."

The court did note that the portable units were similar to
realty and, once in place, were used in the same manner as a
permanent structure even though the Department of Education
could detach and move them without harming the underlying
realty. The vehicle subsystem at issue here is similar. Many

components of the support systems (track, power, control,
communications) Contractor is providing to make the vehicles
operable are anchored, screwed, bolted, cemented, or otherwise
attached and will remain in place while used by Authority,
although they could be detached and moved. Similarly, once the
vehicles themselves are placed on the guidebeam, they will
remain there unless removed for maintenance or repair. They
will be used to move within a limited area along the guidebeam
to transport the public. Unlike buses or trains, the cars are
driverless and automated and cannot operate unless placed on the
guidebeams and propelled and controlled by the support systems
Contractor is also providing. Although the space in which the
vehicles are used may be extended linearly, it is limited to the
fixed concrete guideway structure on which the guidebeam rests.
The structure, the guidebeam, and the vehicles are all essential
parts of a fixed public work, the System.

Pursuant to Housing by Vogue, it is clear that the appropriate
inquiry is not whether various items comprising the System
subsystem installed by Contractor for Authority are real
property or tangible personal property, but whether the
Agreement as a whole is a public works contract. In this case
of a turnkey contract where the Authority has contracted for
design, engineering, demonstration, testing and delivery of
fully operational transit system track, cars, power system,
command and control system and communications system,
classification as a public work under the guidelines set forth
by the Florida Supreme Court is appropriate. Although it may be
possible to remove the cars from the guidebeam or to remove and
replace other components installed or provided by Contractor,
the Agreement indicates an intention that the vehicle subsystem
is a fixed improvement and has become a part of the public
structure. Public funds were expended on the Agreement pursuant
to the Authority's statutory powers. The Agreement was entered
into only after an involved bidding procedure. It contains
bonding, insurance, and progress payment provisions similar to
turnkey construction contracts for fixed public facilities.

It should be noted that Contractor and public entities could
enter into contracts that do not rise to the level of public
works, but are simply sales of tangible personal property.

Alternatively, a public entity could establish a direct purchase
program within the guidelines of Rule 12A-1.094, F.A.C., and
assume some of the incidence of tax that would otherwise fall on
Contractor even in a public works contract. In this case
involving a turnkey contract for a public transit subsystem
awarded after a public bidding process and paid for with public
funds, however, the Agreement is a public works contract. There
is no provision for direct purchases by the Authority of any of
the materials used in fulfilling the contract, and the incidence
of taxation falls on Contractor as the ultimate consumer.

ADVISEMENTS

1. The Department does not concur that the project described
   above is that of making sales of tangible personal property
   which makes the owner of the real property liable for the
   sales tax. The Department finds it is not necessary to
   make any determination as to whether the Agreement involves
   primarily tangible personal property or real property.
   Under Housing by Vogue, the "sole issue" is whether or not
   the Agreement is a public works contract.

2. Contractor will not be relieved of its liability for tax on
   materials incorporated into the project by accepting an
   exemption certificate from Authority. The incidence of tax
   is upon Contractor's acquisition or use of those materials,
   not upon their subsequent transfer to Authority as a
   completed subsystem of the System.

3. Pursuant to both Rule 12A-1.094, F.A.C., and Housing by
   Vogue, public works contracts are not differentiated from
   sales of tangible personal property by the fact that the
   project involves a certain amount of improvements to
   realty, as Contractor asserts. The Agreement is a public
   works contract regardless of whether or not the property
   involved is tangible personal property or real property
   improvements. The reasons for that determination are set
   forth above. (This advisement does not address whether or
   to what extent that Agreement actually does involve
   improvements, maintenance, or repairs to real property.)

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,

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

LWB/
Control # 33345