Who owed Florida sales or use tax when a skylight seller installed units under fixed-price contracts using unitemized sealant and fasteners?

Plain-English summary

Florida treated the installed skylight systems as real-property improvements under fixed-price contracts. The installer always used roof sealant and sometimes used extra fasteners, but those materials were not separately described, itemized, or priced in the customer contract.

That prevented the contracts from receiving the special treatment for separately priced materials under Rule 12A-1.051(2)(d). Instead, the contracting company was the ultimate consumer of the skylights and installation materials and had to bear Florida sales or use tax on the purchased or fabricated property.

The ruling distinguished installed units from over-the-counter kits. A kit sold without installation was a taxable retail sale on the entire sales price. Delivery to a customer outside Florida could avoid Florida sales tax under the export rule, but Florida pickup remained taxable, and a Florida contractor installing outside the state still owed Florida use tax on property purchased or fabricated in Florida.

What this means for you

Real-property contractors

Using job-specific sealant, fasteners, or other supplies that are not specifically itemized and priced can make a contract a lump-sum or fixed-fee real-property improvement contract. Under this ruling, the contractor—not the property owner—was the taxable consumer of those materials.

Sellers offering installation

Tax treatment can differ between a retail kit sale and an installed improvement. The ruling taxed the full retail price of an over-the-counter skylight kit, while treating the installed transaction through the contractor-consumer rules.

Common questions

Did the installer charge the customer sales tax on the installed skylight as an itemized retail sale? No. The unitemized installation materials kept the contract outside Rule 12A-1.051(2)(d), so the contractor bore tax as the ultimate consumer.

Were over-the-counter skylight kits taxable? Yes. The Department said the entire sales price was taxable when the kit was sold without installation.

Were out-of-state transactions automatically exempt? No. Delivery outside Florida could qualify under the export rule, but Florida pickup was taxable, and Florida-purchased or fabricated property used by the contractor for an out-of-state installation remained subject to Florida use tax.

Citations and references

• Fla. Stat. § 212.06
• Fla. Admin. Code r. 12A-1.051(2)(a)-(e)
• Fla. Admin. Code r. 12A-1.064
• Sears, Roebuck & Company v. Florida Department of Revenue, Case No. 92-1080 (Fla. 2d Cir. Ct. 1994)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-005

Original ruling text

SUMMARY

A manufacturer of external fixture systems for installation
to buildings and real property sells units with
installation based on a price list. Their installer goes
to their customer's home installs the system and charges
based on the size of the system installed. In installation,
roof sealant is always used, but never listed on the bill,
and is not a part of the kit. Depending on roof type,
sometimes-extra fasteners are used. These contracts are
considered real property improvements. The sales tax is
imposed on the cost price as of the moment of purchase
collectible from all dealers on the use or consumption of
tangible personal property per Section 212.06, Florida
Statutes. Rule 12A-1.051, F.A.C., provides that real
property improvement contractors as the ultimate consumers
of tangible personal property when fabricated or otherwise
incorporated into real property must pay the use tax.

Rule 12A-1.051(2)(d), F.A.C. allows for the sales tax on
specific articles of tangible personal property to be
charged to real property owners when the contract is for
"specifically described and itemized materials and supplies
at an agreed price, plus an agreement to repair, alter
construct or improve real property at an agreed price or on
the basis of time spent". The usage of any additional
materials by the contractor that are not specifically
itemized, described and priced in the contract makes the
contract either lump sum or a fixed fee contract as
provided in paragraphs (2)(a) or (2)(b) of the rule, thus
requiring the contractor to accrue and remit the use tax.
Because in the instant situation, additional materials are
used in the installation of the systems, the materials are
not separately itemized or priced. Therefore the
installation charges are either a fixed charge or based on
the time required. See Sears, Roebuck & Company v. Florida
Department of Revenue, Case No. 92-1080 (Fla. 2nd Cir. Ct.
1994)

Feb 11, 1999

Re: Technical Assistance Advisement 99A-005
Sales and Use Tax - Real Property Improvements
Section 212.06, F.S.
Rule: 12A-1.051, F.A.C.

Dear :

This letter is a response to your submission of information
dated November 24, 1998, seeking the Department's issuance of a
Technical Assistance Advisement ("TAA") concerning the above
company's sale of skylights. Your petition has been carefully
examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C. This
response to your request constitutes a TAA and is issued to you
under the authority of s. 213.22, F.S.

DISCUSSION OF FACTS

The relevant facts were previously provided in your letter
requesting technical assistance dated October 22, 1998. From
that letter it was determined:

XXX is considered a manufacturer of a building product
called XXX. Although we are considered a manufacturer, we don't
fabricate all of the component parts of our product. Our XXX
units are sold installed, or not installed, retail or wholesale,
in box kits.

On installed units a customer is given a price list. We set
the appointment. At that time the contractor goes out to
the house and checks the length needed for the correct
amount of tubing, he explains the difference in pricing,
answers any questions, then installs our unit. The bill is
supposed to be filled out and signed by the customer, prior
to the work being done. Sometimes it is written after the
work is complete. Roof sealant is always used, but never
listed on the bill, and is not a part of the kit. Depending
on roof type, sometimes-extra fasteners are used.

On in-state kit sales, it is our understanding tax should
be collected on sales price unless we have a tax-exempt
card on file. On out of state kit sales, it is our
understanding no tax is due.

You also submitted additional documentation of the specific
contracts. They indicate that the skylights may be sold over
the counter or with installation services. It is understood
that the over the counter sale of the skylights with no
installation services is a sale of tangible personal property.
The entire sales price is subject to tax.

REQUESTED ADVISEMENT

You seek advice on the taxability of the contracts for
installation services under these circumstances.

DISCUSSION, ANALYSIS, AND CONCLUSION OF LAW

Section 212.06, Florida Statutes, titled "Sales, storage, use
tax; collectible from dealers; `dealer' defined; dealers to
collect from purchasers; legislative intent as to scope of tax,"
states in part:

(1)(a) The aforesaid tax at the rate of 6 percent of the
retail sales price as of the moment of sale, 6 percent of
the cost price as of the moment of purchase, or 6 percent
of the cost price as of the moment of commingling with the
general mass of property in this state, as the case may be,
shall be collectible from all dealers as herein defined on
the sale at retail, the use, the consumption, the
distribution, and the storage for use or consumption in
this state of tangible personal property or services
taxable under this chapter. The full amount of the tax on a
credit sale, installment sale, or sale made on any kind of
deferred payment plan shall be due at the moment of the
transaction in the same manner as on a cash sale.

(b) Except as otherwise provided, any person who
manufactures, produces, compounds, processes, or fabricates

in any manner tangible personal property for his or her own
use shall pay a tax upon the cost of the product
manufactured, produced, compounded, processed, or
fabricated without any deduction therefrom on account of
the cost of material used, labor or service costs, or
transportation charges, notwithstanding the provisions of
s. 212.02 defining "cost price."...

Rule 12A-1.051, F.A.C., governs the taxability of purchases or
use of tangible personal property by contractors who purchase or
manufacture materials and supplies for use in the performance of
non public works contracts for the repair, construction,
alteration or improvement of real property. (A copy is attached
hereto for your reference.)

Rule 12A-1.051(2)(d), F.A.C. contracts involve real estate
improvements with the sale of specifically described and
itemized materials and supplies at an agreed price, plus an
agreement to repair, alter construct or improve real property at
an agreed price or on the basis of time spent. The usage of any
additional materials by the contractor that are not specifically
itemized, described and priced in the contract makes the
contract either lump sum or a fixed fee contract as provided in
paragraphs (2)(a) or (2)(b) of the rule. In the instant
situation, materials used in the installation of skylights
varies from job to job. These materials are not separately
itemized or priced. The installation charges are either a fixed
charge or based on the time required. Rule 12A-1.051(2)(e),
F.A.C. provides that:

When a contractor or subcontractor uses materials and
supplies in fulfilling either a lump sum, cost plus, fixed
fee, guaranteed price or any kind of contract except one
falling in class (d) above, he becomes the ultimate
consumer thereof. The person or dealer who sells such
materials and supplies to such contractor or subcontractor
is making sales at retail and is required to collect the
tax from him based upon the receipts from such sales.

See also, Sears, Roebuck & Company v. Florida Department of
Revenue, Case No. 92-1080 (Fla. 2nd Cir. Ct. 1994). In that case

the court found that the use of additional materials and
tangible personal property in the installation of appliances as
fixtures disqualified the contracts from the special itemized
contract treatment. The items were never listed on the sales
receipt, since Sears had no knowledge of what specific materials
would be used by the installer to complete the installation.
The installation charges were simply billed as a flat sum by the
installer. Sears contended that it was not performing class
(2)(d) contracts since its receipt did not specifically itemize
and describe the unknown materials furnished by the independent
installer. Given these facts, the court agreed with Sears and
ruled that Sears had not performed class (2)(d) contracts.

Rule 12A-1.064, F.A.C., governs export transactions. (A copy is
attached hereto for your reference.)

In summary of the facts you presented, the skylights are sold
and installed as permanent improvements to real property. The
installation charges are made as part of a fixed price
transaction. The actual materials used for the installations
vary by the job, but the installation charge from $100.00 to
$160.00 for pre-set sizes to $27.50 per square foot for custom
sizes, does not itemize the materials used in the initial
contract. Nor does it appear to be practical to do this.
Sealant, fasteners, or other supplies are used as needed by the
installer. The precise usage depends on conditions at the site
that may vary. This method of contracting conforms with Rule
12A-1.051(2)(a) or (b), F.A.C. and thus the sales and use tax of
this real property improvement should be imposed on you, the
contracting company, as the ultimate consumer of the fabricated
items of tangible personal property to be installed into real
estate.

Sales where delivery is made to the customer outside the State
of Florida in compliance with Rule 12A-1.064, F.A.C., would not
be subject to Florida sales tax. If your out of state customer
accepts possession of the skylight in Florida, then the item
will be taxable here in Florida. If your company installs the
skylights to the out of state locations, then with respect to
the tangible personal property purchased or fabricated in this
state, your company, as the contractor, is obliged to pay the

Florida use tax as the ultimate consumer of the tangible
personal property. Please see Rule 12A-1.064, F.A.C., and Rule
12A-1.051(2)(e), F.A.C.

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 upon 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 from that which is 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 that might lead
to identification of the taxpayer must be deleted by the
Department before disclosure. In an effort to protect the
confidentiality of such 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,

Michael C. Gold
Senior Attorney
Technical Assistance & Dispute Resolution

Control #35883
Enclosures