FL SALES TAX: Real Property Contractors/Fabrication

A real property contractor is defined as someone who supply and affix, or install, goods that become part of real property.  As a real property contactor in the state of Florida you do not charge sales tax on the invoice to your customer, but you are required to pay tax on all of your materials as you are seen as the “end user” of these materials.  This is true even if the purchase is for a tax exempt or government agency.

Most contractor are aware of this and realize they should be paying tax on their materials as well as any supplies, tools or equipment used to complete the contract.  What many do not know is that any fabrication done by a contractor is also subject to sales tax.  Fabrication is defined as any work performed to get the materials ready to install off the jobsite.  A good example is a cabinet maker who buys materials, wood, handles, etc. and then puts them together in their shop before transporting the finished cabinets to the job site for installation.  This cost of fabricating the cabinets is subject to sales tax.  The states logic is that if you did not build the cabinets yourself you would have had to buy the completed cabinets from someone and pay sales tax on the completed cost. 

Fabrication includes the cost of the labor to complete the work as well as any “burden” associated with the cost of the labor.  This burden is usually made up of anything that is calculated as a percentage of payroll such as payroll taxes, work comp, etc.  Some auditors may try and include other items into fabrication but normally only items that are directly related to payroll are included.

Installation is not subject to tax while fabrication is.  It is very important that a contractor be able to differentiate between the two.  Installation is considered any work that is done on the customer’s jobsite, while fabrication is any work done in the contractor’s facilities or off the jobsite.  If a cabinet maker were to build the cabinets from scratch, but do it on the jobsite, it would be considered installation not fabrication.  Contractors should be sure to track these costs so that if audited the can defend their practices.  Work comp rates are sometimes different for fabrication and installation for contractors and can be a good way to track these costs.

The Florida Department of revenue is always on the lookout for contractors they suspect may have unreported fabrication costs and If audited they may be subject not only to the back taxes, but also interest and penalties.

If you suspect that you may have an unreported fabrication issue, you may want to consider a voluntary disclosure with the department of revenue.  A voluntary disclosure is exactly what it sounds like.  It allows you to voluntarily disclose any past sales tax liability.

The main benefits of a voluntary disclosure are;

  1. Penalties automatically waived
  2. Look back period normally limited to three years
  3. You don’t have to go through the costs and pain associated with an audit

If you think you may have a fabrication issue or have any questions or concerns on anything contained within this article or on Florida sales and use tax audits in general feel free to contact me at your convenience.

Florida sales tax audit; Florida sales tax audit help; Florida sales tax audit defense; Tampa sales tax audit; Orlando Sales Tax Audit; Miami sales tax audit; Florida sales tax attorney; Florida state and local tax attorneyAbout the author: Steven C. Middel is a senior auditor who joined the Law Offices of Moffa, Sutton, & Donnini, P.A. in 2015. Mr. Middel concentrates in the following areas of Florida sales and use tax: Audit, protest, collections, and criminal defense. Mr. Middel joined the firm after spending almost 5 years as a multi tax auditor for the Florida Department of Revenue. You can learn more about Mr. Middel in his BIO HERE.

At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.

ADDITIONAL RESOURCES

Florida Sales Tax Audit Help, published August 24, 2020, by James Sutton, CPA, Esq.

FL Sales and Use Tax Audits – Audit Notices Are Coming, published September 15, 2020, by Matthew Parker, Esq.

Protest a FL Sales and Use Tax Audit, published August 8, 2019, by Matthew Parker, Esq.

FL Sales Tax Audit - Understanding Auditor's Perspective, published September 3, 2020, By Steve Middel

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