Was the full lump-sum price for turnkey school communication and sound systems taxable in Florida?

Subject

Integrated Communication Systems

Plain-English summary

The installer had to collect sales tax on the full lump-sum price of the turnkey school communication and sound systems. The systems integrated telephones, paging, alarms, bells, video conferencing, audiovisual content, cable or satellite reception, intercoms, classroom monitors, and other functions controlled through school telephones.

Florida specifically taxed installation of telecommunications and wired-television equipment. Although structural cabling and wiring could be a real-property improvement, the submitted contract promised one completed turnkey system for one lump sum. With no separate consideration for the wiring and telecommunications as the system's essential nature, the Department would not split the contract into taxable and nontaxable portions.

The public-school setting did not create an exemption. The installer contracted with and was paid by a general contractor, not directly by the school board. A different contract separately pricing structural wiring could treat that work as a real-property improvement, with the installer paying tax on materials rather than charging tax on the wiring contract price.

What this means for you

Allocations in bid materials did not overcome the final contract's single lump sum. Businesses combining taxable equipment installation with real-property work should establish genuinely separate contract consideration before work begins if they expect separate tax treatment.

Common questions

Q: Why was the entire contract taxable? Telecommunications and wired television were central to the integrated system, their installation was taxable, and the contract supplied the whole system for one inseparable price.

Q: Was structural wiring itself always taxable? No. The ruling said separately contracted structural wiring could be a real-property improvement.

Q: Did the school board's government status exempt the subcontract? No. The general contractor, rather than the school board, made the payment.

Citations and references

• Fla. Stat. § 212.02(15)-(16) — sale and total sales price
• Fla. Stat. § 212.05(1)(e) — telecommunications and television-system equipment installation
• Fla. Admin. Code rr. 12A-1.016(3), 12A-1.046 — installed property and telecommunications equipment
• Fla. Admin. Code r. 12A-1.051 — real-property contractors and structural wiring
• Sears, Roebuck & Co. v. Florida Department of Revenue, Case No. 92-1080 (Fla. 2d Cir. Ct. 1994)
• Fla. Stat. § 212.08(6) — direct government purchases
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-071

Original ruling text

SUMMARY

Total price for turnkey contracts to provide and install
integrated communications and sound system in schools is
subject to sales tax because of specific statutory
provision taxing installation of telecommunications
equipment. The portion of the contract involving
structural cabling and wiring could not be separately taxed
as a real property improvement because the contract called
for completion of the entire job for a single lump sum.
Although the systems were often installed in public
schools, the contract payments were not exempt because they
were made by a general contractor rather than made directly
by the school board.

Sep 14, 1998

Re: Technical Assistance Advisement (98A-071)
XXX ("Company")
Sales and Use Tax -- Integrated Communication Systems
Sections 203.012, 212.05, 212.06, 212.08, F.S.
Rules 12A-1.016, 12A-1.046, 12A-1.051, F.A.C.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated March 23, 1998, as supplemented on April 29, 1998,
in which you asked for a technical assistance advisement on
behalf of Company concerning the sales tax consequences of
contracts to install integrated communications systems. The
facts stated below are based upon your letters and the
brochures, form Purchase Agreement, and representative contract
you have provided.

FACTS

Company designs and installs integrated communications systems
and sound systems. An integrated communications system includes

the equipment and wiring required to integrate telephones,
paging, alarm systems, bells, video-conferencing, audiovisual
materials, sound systems, and all the other communications
functions at a school facility into a single system marketed
under the name YYYY ("System"). The brochure states, "In new
school buildings, [System] offers the flexibility to create an
integrated system that utilizes any mix of standard telephones,
televisions, media and computer equipment." The System provides
media retrieval via telephone or computer, cable television or
satellite reception for special programming, video conferencing
and messaging, a public address system, an intercom system,
computer-based bells and clocks, digital telephone services to
the classroom, alarms, video distribution, LAN media scheduling
and access, an electronic bulletin board, and other standard
features. Options include voice mail, teleconferencing, and
distance learning. Each classroom is equipped with a video
monitor and telephone. Using the telephone, teachers can make
calls inside or outside the school, dial up instructional
materials in video or disk format from a centralized audio
visual center, or tap into cable or satellite television
programming.

A transaction usually includes providing and installing System
equipment, as well as wiring the structure. Some contracts may
involve a sound system, which involves providing and installing
sound equipment as well as wiring for that equipment. On some
occasions, Company may provide and install the entire telephone
system for the school as well.

The installations under consideration generally occur as part of
the construction of a school. Company makes a bid to the
general contractor. The bid contains a purchase agreement that
breaks out the total price into System equipment, System
equipment installation, wiring materials, wiring installation,
telephone system, telephone system installation, sound system
equipment, sound system wiring, and sound system installation.
In the representative contract you supplied, Company agrees to
provide all "labor, materials, equipment, services and other
items required to complete" the following:

1. A "turnkey" Premise Distribution Wiring System -

Information Management Outlet (IMO) System in
accordance with Specification Section XX, included in
the Prime Contract.

2. A "turnkey" Integrated Telecommunications System in
   accordance with Specification Section XX, included in
   the Prime Contract.
3. A "turnkey" Instructional Television System in
   accordance with Specification Section XX, included in
   the Prime Contract.

Some equipment that will become part of the System is to be
furnished by the school board. Among the tasks to be completed
is the provision of cable to carry television signals from the
local cable television provider.

Although the bid materials contained an allocation of the
proposed price to various components of the job, the contract
does not provide for any breakdown in price. Instead, it states
that Company will receive a single lump sum for fulfilling all
of its obligations under the contract. It specifically provides
that there are no alternative pricing arrangements and no unit
pricing.

School boards do not contract with Company themselves because
they prefer to deal with a single general contractor or
construction manager on each project. They request a turnkey
system rather than contracting for various elements separately
to simplify bidding and insure that a single subcontractor is
responsible for all aspects of the system.

Company has been charging sales tax on the entire contract
price. Contractors have informed Company that some competitors
are charging tax only on equipment prices and the installation
of telephone systems. Unlike Company, those competitors do not
charge sales tax on structural wiring, sound systems, or
installation of equipment.

TAXPAYER POSITION

Company has collected tax on the full contract price based on
Rule 12A-1.016(3)(b)14., 17., F.A.C., which provides that

persons who furnish and install telephonic equipment and wired
television are installing tangible personal property and should
collect and remit tax on the total price.

REQUESTED ADVISEMENT

Company requests the Department's advice concerning the proper
treatment of Company's contracts under Florida's sales and use
tax laws.

RELEVANT AUTHORITIES AND ANALYSIS

Section 212.05(1), F.S., imposes tax on the sales price for
retail sales of tangible personal property. "Sale" is defined
in section 212.02(15), F.S., to include any "transfer of title
or possession, or both, exchange, barter, license, lease, or
rental, conditional or otherwise, in any manner or by any means
whatsoever, of tangible personal property for a consideration."
Section 212.02(16), F.S., defines "sales price" as "the total
amount paid for tangible personal property, including any
services that are a part of the sale,...." Rule 12A-1.016
(3)(a), F.A.C., states, "The total consideration received for
labor or services used in installing tangible personal property
which is sold and does not become a part of realty, is taxable
even though such charge may be separately stated." Rule 12A1.016(3)(b), F.A.C., provides that those who furnish and install
telephonic equipment or wired television are "considered to be
retail dealers and are required to charge sales tax on the full
price, including installation...."

Section 212.05(1)(e)1.c., F.S., specifically provides that
charges for the installation of telecommunication and
telegraphic equipment are taxable. In addition, section
212.05(1)(e)1.b., F.S., provides that any television system
program service is taxable. "Television system program service"
is defined in section 212.05(1)(e)2., F.S., to include
"installing, connecting, reconnecting, disconnecting, or
changing" any equipment related to transmitting audio or visual
signals to subscribers for purposes other than retransmission.
Rule 12A-1.046, F.A.C., provides guidance on the application of

section 212.05(1)(e), F.S. It provides, in relevant part, as
follows:

12A-1.046 Telephone, Telegraph and Other Telecommunication
Services.
...
(1)(b) The term telecommunication service as used in s.
203.012, F.S., includes, but is not limited to, services
described or defined therein as local telephone service,
toll telephone service, telegram or telegraph service,
teletypewriter or computer exchange service, private
communication service, cellular mobile telephone,
specialized mobile radio, and paging services....

(5) Charges for cable or wired television service and its
installation are taxable.

(6)(a) The sale or rental of machines, equipment, parts and
accessories therefor used directly in furnishing
communication services are taxable.

(b)1. Charges to customers or subscribers of
telecommunication service, including charges to residential
households, for the sale or rental of equipment used in
providing such services are taxable.

2. Charges for the installation of equipment used in
   providing telecommunication services are taxable....

Under its contracts, Company provides and installs some
equipment that would be classified as telecommunications or
wired/cable television equipment. The remaining equipment to be
furnished by Company would be classified as tangible personal
property. In any case, the charges for all such equipment and
its installation would be taxable under the statutes and rules
cited above.

It appears that some of Company's competitors have taken the
position that installation charges for equipment other than
telecommunications equipment and charges related to structural
wiring are not taxable, on the basis that those are charges

related to real property improvements, rather than for
installation of tangible personal property or equipment related
to telecommunications or wired/cable television. Section
212.05(1), F.S., provides that sales of tangible personal
property, not real property, are taxable. Rule 12A-1.051,
F.A.C., discusses real property contractors. Unless they enter
contracts in advance of beginning work that specifically list
and price each and every item of tangible personal property that
will be used, such contractors are deemed to be the consumers of
that property and must pay tax on their purchase price or cost.
The property owners owe no tax on the charges for either
materials or installation labor. See Rule 12A-1.051(2), (3),
F.A.C.; Sears Roebuck & Co. v. Florida Department of Revenue,
Case No. 92-1080 (Fla. 2nd Cir. Ct. 1994). The Department's
long-standing position is that equipment is generally considered
to be tangible personal property.(FN 1) Structural wiring, on
the other hand, is considered to be a real property improvement
rather than tangible personal property or telecommunications
equipment. Electrical contractors are listed among those to
whom the rule applies in Rule 12A-1.051(2), (16), F.A.C.
Structural wiring would include cabling that carries
telecommuncations signals as well as wiring that carries
electrical current.

Although it appears that the portion of the contract involving
structural wiring involves real property improvements, there is
no separate consideration for that portion of the work. The
contract is for turnkey systems with a lump sum payment. A
major portion of the System involves telecommunications
equipment and wired/cable television equipment. A major purpose
of the System is to integrate numerous functions (bells, alarms,
audio visual capabilities, classroom television monitors, public
announcements, paging, video conferencing, teleconferencing) so
that they are all accessible and controlled by a school's
telephones. The result is a sophisticated telephone and
wired/cable television system that also controls numerous
peripheral functions that would otherwise be separately wired
and operated. Because the essential nature of the System
involves telecommunications and wired/cable television, the
charges for its installation are completely taxable under these
circumstances.

This response addresses only turnkey contracts similar to the
one submitted with your request for technical advice. Company
may enter other forms of contracts that would have different tax
results. For example, if Company contracted to provide
structural wiring for a specified consideration rather than as
part of a turnkey system for a lump sum covering all components
of the system, the strucutral wiring would be a separable real
property improvement. Company would pay tax on the materials it
used in installing the structural wiring but charge no tax on
its contract price for that wiring.

As a final note, Company has not argued that the taxability of
its contracts is affected by the possible status of local school
boards as exempt entities under section 212.08(6), F.S., which
exempts governmental entities on purchases they make directly.
Company's contracts are made with general contractors, and that
exemption is not applicable to any payments made by a general
contractor as opposed to payments made directly by a school
board. The decision of a school board to acquire turnkey
systems under lump sum contracts that do not separate real
property transactions, tangible personal property purchases, and
telecommunications/cable or wired television system equipment
purchases precludes Company from applying different sales and
use tax treatment to various portions of its activities. The
decision of a school board to contract only with a single
general contractor and not to make any direct purchases from
suppliers precludes consideration of its status as a
governmental entity in resolving the issue presented in this
case. Unless a school board is willing to structure its
contracts differently from those under review, Company is
correct in collecting tax on the full contract price.

ADVISEMENT

Based upon the facts presented and the legal authorities and
analysis set forth above, Company should collect tax on the full
contract price it charges for furnishing and installing
integrated communication systems and sound systems.

CLOSING STATEMENT

This response constitutes a technical assistance advisement
under section 213.22, F.S., which is binding on the department
only under the facts and circumstances described in the request
for this advice as specified in section 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative Rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of section 213.22,
F.S. Your name, address, and any other details which might lead
to identification of the taxpayer must be deleted by the
department before disclosure. In an effort to protect
confidential information, we request you notify the undersigned
in writing within 15 days of any deletions you wish made to the
request or this response.

Sincerely,

Linda W. Bridges
Tax Law Specialist
850-922-9412

Control #: 33586

FOOTNOTE 1 Effective July 1, 1998, the Legislature added a
definition of "fixture" to section 212.06, F.S. This definition
recognizes the existing case law pertaining to fixtures. The
addition of this definition in the statute may serve as a means
of clarifying legislative intent and of adopting existing
construction of the terms. The definition provides that a
fixture is an accessory to land or a structure, which retains
its character as an accessory when installed and which is
permanently attached to realty. Machinery and equipment are
specifically excluded from the definition of fixture. See

chapter 98-141, Section 5, Laws of Florida.