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