FLORIDA SALES TAX FOR CABINET COMPANIES: Labor is Taxable!

If you (or your client) own a cabinet company in Florida, there is a very good chance you have been handling your Florida sales and use tax obligations incorrectly — and you may not even know it. That is not an accusation. It is the reality we see over and over again in our practice. Cabinet companies sit at a uniquely complicated intersection of Florida sales tax law: they manufacture tangible personal property, they contract to improve real property, and they sometimes sell product at retail. Each of those activities is taxed differently, and the rules are not intuitive. What seems like common sense — to simply pay tax on what you buy — turns out to be only part of what you are supposed to be paying sales tax on for most companies in this industry.

The Florida Department of Revenue ("FDOR") knows this. Cabinet companies have been audit targets for years, and the FDOR's auditors walk into these engagements knowing exactly what they are looking for. If you are reading this article because you just received a Form DR-840 (Notice of Intent to Audit Books and Records), you are in the right place. If you are reading this before the auditor arrives, you are in an even better place. Either way, what follows is an honest breakdown of Florida sales and use tax as it applies to your industry — and where the landmines are buried.

The Foundational Rule: Cabinet Installation Is a Real Property Improvement Contract

The single most important concept for any cabinet company to understand is this: installing cabinets into real property is not a sale of tangible personal property. It is a real property improvement contract. It is important to note that these are the answers in Florida ONLY. Each state has their own rules, many of which can be different. For example, installed cabinets are considered tangible personal property subject to sales tax on the full installed price in Georgia.

Under Section 212.06(14), Florida Statutes, when a contractor fabricates and installs tangible personal property into real property, the transaction is treated as a real property improvement. The result is that the contractor, not the customer, is considered the end consumer of the materials. That has profound consequences for how tax is collected, remitted, and accounted for.

What this means in plain English: you should not be charging Florida sales tax to your customers on installed cabinet jobs. Customers cannot give you a resale certificate or an exemption certificate to avoid tax on an installation contract — because there is no retail sale happening at the customer level. The transaction is not taxable at the point of the customer. The tax obligation belongs to you, the contractor, on the cost side. Cost does NOT just mean cost of materials and that is where most cabinet companies get it badly wrong.

The governing administrative rule for these transactions is Florida Administrative Code Rule 12A-1.051, which addresses sales to or by contractors. This rule is the heart of the issue for any fabrication and installation business in Florida, and it is worth understanding in detail.

Use Tax on Materials: The Rule You Probably Know

Because installed cabinets are treated as a real property improvement, the cabinet contractor owes Florida use tax on the cost price of all materials used in the installation. This is the part of the rule that most cabinet companies in our practice have at least partially understood. If you are purchasing plywood, hardwood, hardware, and other materials from a Florida supplier who charges you sales tax at the point of purchase, you have generally satisfied this obligation — as long as you keep your purchase receipts to prove it.

Where problems arise:

Out-of-state material purchases. If you buy materials from a vendor in another state and that vendor does not charge you Florida sales tax, you owe Florida use tax on those purchases. Under Section 212.05(1), Florida Statutes, use tax applies to tangible personal property brought into Florida for use here, regardless of where it was purchased. Most cabinet companies that source materials online or directly from out-of-state manufacturers have a use tax exposure they have never addressed.
No records to prove tax was paid. Even if you actually paid sales tax on every purchase, if you cannot prove it with documentation, the auditor will presume the tax was not paid. Credit card statements do not show line-item sales tax. You need vendor invoices that show tax was charged. A three-year audit for a company with $3 million annually in material costs, assuming a 7% rate, represents $210,000 per year in potential use tax exposure — over $600,000 for the full three year audit period — if you cannot document that the tax was already paid. Records are important.

Use Tax on Shop Fabrication Labor: The Overlooked Rule

Here is where the real surprise usually comes. Florida use tax is due not just on the cost of materials, but also on the cost of shop fabrication labor — wages paid to employees who fabricate cabinet components in your shop before they are taken to a job site for installation are subject to Florida sales tax.

This rule flows from Florida Administrative Code Rule 12A-1.051(3), which provides that the "cost price" on which use tax is calculated includes the cost of fabrication labor when a contractor manufactures goods that will be incorporated into real property. In other words, if you pay an employee $60,000 a year to build cabinet boxes in your shop, you owe use tax on that $60,000 — roughly $4,200 per year per worker at a 7% combined state and local rate. This tax is supposed to be remitted to Florida on your sales tax returns, which might be required monthly, quarterly, or annually.

For a cabinet company with five shop employees earning an average of $50,000 each, that is a $17,500 annual use tax liability on labor alone that most companies have never thought about, never filed for, and never paid. Over a three-year audit period, that is $52,500 in tax — before penalties and interest. If you have never filed a sales tax return with the state of Florida, then a sales tax audit could go back to the start of your company because the 3 year statute of limitations only begins to run when you file a sales tax return.

This is, without question, the single most common and most costly surprise we see in cabinet company audits. The auditor will ask for payroll records. They will identify shop fabrication labor versus installation labor. They will calculate what you owe on every dollar of shop labor for the entire audit period. If your company has never accrued and remitted use tax on shop fabrication labor, your first audit will be an extremely expensive lesson. Worse yet, I’ve seen auditors simply try to tax the full cost of goods sold, which includes materials you already paid tax on as well as field labor that is not taxable.

The Two Groups of Cabinet Companies We Most Commonly See — And Their Problems

In our experience, cabinet companies that have been handling sales tax incorrectly typically fall into one of two groups.

Group One: Companies That Charge Sales Tax to Customers

Some cabinet companies have been charging sales tax to their customers on the full retail price of installed cabinet jobs. On the surface, the math may roughly work out — retail price includes materials, fabrication, and markup, and the tax collected at retail may approximate what use tax on cost would have been. But the problem is significant: you are not supposed to be collecting sales tax from your customers on an installation contract. I have personally been involved with more than one sales tax audit on a cabinet company where the auditor accused the company of illegally collecting tax from the customers, suggest that all that money needed to be refunded to the customers, then went on with charging use tax to the company on the full cost price of the manufactured cabinets. We have overcome the auditor’s arguments, getting credit for taxes already remitted each of those times, but it was a battle each time.

The even more dangerous version of this scenario plays out when you do jobs for tax-exempt customers. If you have been charging sales tax to retail customers (and presuming that exemption certificates relieve you of the obligation on tax-exempt jobs), you have likely not been remitting use tax on your materials and fabrication labor for those tax-exempt jobs. The Florida Department of Revenue auditor will assess use tax plus penalties and interest on every dollar of materials and shop labor used on those exempt jobs. For companies with significant tax-exempt customers — municipalities, schools, hospitals, churches — this exposure can be massive. Yes – there is a way for government jobs (Public Works Contracts) to be tax exempt, but only if you jump through the exact hoops to make them exempt (which you can’t do after the fact).

Group Two: Companies That Pay Sales Tax to Suppliers But Never Remit Use Tax on Labor

The second group correctly understands that they are making real property improvements and does not charge their customers sales tax. They purchase materials from Florida suppliers and pay sales tax on those purchases. This is the right approach for materials — but they have never accrued or remitted use tax on shop fabrication labor.

If your company falls into this group and has never filed Florida sales and use tax returns, the situation is even more serious. Filing sales tax returns establishes the statute of limitations at three years under Section 95.091, Florida Statutes. If you have never registered and never filed, the FDOR can go back to the day your company opened its doors. A Voluntary Disclosure to the FDOR is often the best solution for this group — it limits your liability to three years, eliminates most or all penalties, and puts you in compliance going forward before an auditor finds you.

Mixed Businesses: Installation and Retail Sales of Uninstalled Cabinets

Some cabinet companies both install cabinets as real property improvements and also sell uninstalled cabinets off the floor or from inventory. These two activities are taxed completely differently, and many companies in this position have been applying the same rule to both — usually incorrectly.

For retail sales of uninstalled cabinets, you are selling tangible personal property. You should collect Florida sales tax from your customer at the point of sale on the full retail price. You may purchase those cabinets or the materials to build them using a resale certificate, buying them tax-free for resale under Section 212.07(1), Florida Statutes.

For installation jobs, the rules described above apply: you owe use tax on the cost price of materials and fabrication labor; you do not charge your customer sales tax.

If materials are purchased and you are not yet sure whether they will be sold at retail or used in an installation, you may purchase them tax-free on a resale certificate. When you later determine the use — retail sale or real property improvement — you either collect tax from your retail customer or self-accrue and remit use tax on the cost price, in the month of use. Keeping clean records of which materials go to which purpose is critical, and this is an area auditors scrutinize carefully.

Out-of-State Installation: A Trap Unique to Florida

There is one more issue that catches Florida cabinet fabricators off guard, and it is worth understanding. The FDOR has taken the position that if a cabinet company fabricates cabinets in Florida and then installs them into real property outside of Florida — in Georgia, the Bahamas, or anywhere else — Florida use tax is still owed on the fabrication, because the fabrication occurred in Florida. The state where installation occurs may also assert use tax. This double-taxation issue has been actively contested, but until resolved, it remains a live audit issue for any company that fabricates in Florida and ships or installs product out of state.

If your company does any out-of-state installation work, this should be on your radar before the FDOR auditor raises it.

What to Do If You Are Already Under Audit — Or Realize You Have a Problem

If you have received a DR-840 or are currently in a cabinet company audit, the most important thing you can do is retain experienced Florida sales tax counsel immediately and stop talking to the auditor without representation. The opening interview, the records you produce, and the way you describe your operations will shape the entire audit assessment. Getting these things wrong in the first 60 days can cost you tens or hundreds of thousands of dollars.

If you are reading this before any audit notice has arrived and recognize that your company has been handling use tax on fabrication labor incorrectly, or has never filed Florida sales and use tax returns at all, a proactive Voluntary Disclosure to the FDOR is almost always the better path. The benefits — limited lookback period, penalty abatement, and certainty going forward — far outweigh the risks of waiting for the auditor to find you first.

For many cabinet companies in Florida, this is not a question of intentional non-compliance. It is a question of not knowing what the law requires. Unfortunately, the FDOR does not give credit for good intentions. The use tax owed on years of shop fabrication labor will be assessed whether you knew about it or not. What matters is how you respond when you learn about it — and whether you have the right advocate in your corner.

Contact our office today for a FREE INITIAL CONSULTATION. We handle Florida sales tax audits, voluntary disclosures, protests, and litigation for cabinet companies and fabrication/installation businesses throughout Florida.

About the Author: James Sutton is a Florida licensed CPA and attorney as well as a shareholder in Moffa, Sutton, & Donnini, PA. Mr. Sutton is in charge of the Tampa office of the firm and practices almost exclusively in the area of Florida Sales & Use Tax Controversy. Mr. Sutton handles audits, protests, litigation, criminal cases, revocations, collections, and consulting engagements all in the area of sales tax. Mr. Sutton is an active member in the FICPA and Florida Bar Tax Section. Mr. Sutton is also the State and Local Tax Chairman for the AAA-CPA and past president of the Florida AAA-CPA. For 2022 to 2024, Mr. Sutton was the Chairman for the State Tax Committee for the FICPA. You can learn more about Mr. Sutton in his firm bio and reach him directly at 813-775-2131.

About the Firm: 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 even have former sales tax auditors on staff. We represent taxpayers and business owners from the entire state of Florida. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.

Authority and Resources

Additional Resources

FL CABINET COMPANIES WITH SALES TAX PROBLEMS, published October 5, 2013, by James Sutton, CPA, Esq. & Gerald Donnini, Esq.

FL COUNTER-TOP COMPANIES WITH FL SALES TAX PROBLEMS, published October 5, 2013, by James Sutton, CPA, Esq. & Gerald Donnini, Esq.

FLORIDA SALES TAX ON PUBLIC WORKS CONTRACTORS – A TRAP FOR CONTRACTORS, published January 25, 2016, by Moffa, Sutton, & Donnini, PA

FLORIDA SALES TAX AUDIT: CONSTRUCTION CONTRACTORS, published November 8, 2025, by James Sutton, CPA, Esq.

FL SALES TAX: REAL PROPERTY CONTRACTORS – FABRICATION AND INSTALLATION, published October 27, 2020, by James Sutton, CPA, Esq.

FLORIDA SALES TAX HANDBOOK: CONSTRUCTION CONTRACTORS, published October 2, 2019, by James Sutton, CPA, Esq.

FL TAX — VOLUNTARY DISCLOSURE CAN BE THE PERFECT SOLUTION, published October 5, 2012, by Gerald Donnini, Esq.

FL TAX ALERT: USE TAX ON MANUFACTURERS/FABRICATORS INSTALLING TPP OUT OF STATE, published April 19, 2012, by James Sutton, CPA, Esq.

HELP! — FLORIDA SALES TAX AUDIT, published January 26, 2026, by James Sutton, CPA, Esq.