Sales and Use Tax TAA 12A-024 Public Works Contract
QUESTION: Are the provisions contained in an amendment to a public works contract provided
sufficient to allow the County to use its tax-exempt status to purchase materials for use in the
construction of a courthouse?
ANSWER: The County’s procedures do satisfy the foregoing requirements for exemption of
transactions as sales to a governmental entity. The County will issue its own purchase orders
directly to the vendor of the materials, and it will issue payment for the materials directly to the
vendor. The vendor is required to issue its invoices directly to County. The County also
assumes title to the materials at the time they are delivered to the job site. County assumes risk
of loss of county purchased materials, and County will issue a Certificate of Entitlement to the
vendors.
Under the terms of the Amendment, purchases must be in excess of $10,000 and must be made
after the date of this TAA in order to be exempt. Purchases that were not made in accordance
with the Amendment do not qualify for exemption, and the terms of such purchases cannot be
amended in an attempt to cause them to qualify for exemption after the fact.
Please also note that if original Contract contradicts the Owner Direct Purchases Procedures set
forth in the Amendment, and the terms of the original Contract are controlling, the County may
not take advantage of its tax-exempt status on the purchase of materials for use in the public
work.
Finally, please note a contractor that manufactures or fabricates its own materials, as specified in
Rule 12A-1.094(5), Florida Administrative Code, does not qualify for inclusion in direct
purchase programs. Under the rule, the contractor and subcontractors, not the government entity,
are deemed to be the ultimate consumers of the articles of tangible personal property they
manufacture or fabricate to perform their contracts. As such, the contractor and subcontractors
are subject to use tax on the full cost of the manufactured or fabricated articles, as detailed in
Rule 12A-1.051(10), Florida Administrative Code.
October 19, 2012
Re: Technical Assistance Advisement – TAA 12A-024
Sales and Use Tax – Public Works Contracts
Subsection: 212.08(6), Florida Statutes
Rules: 12A-1.038, 12A-1.094, Florida Administrative Code
Petitioner: XXX [hereinafter “County”]
Dear XXX:
This letter is a response to your petition dated XXX, for the Department's issuance of a Technical
Assistance Advisement ("TAA") concerning the above referenced party and matter. 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, Florida Administrative Code. This response to your
request constitutes a TAA and is issued to you under the authority of Section 213.22, F.S.
Issue
Whether the provisions contained in an amendment to a public works contract provided are
sufficient to allow the County to use its tax-exempt status to purchase of materials for use in the
construction of a courthouse.
Presented Facts
County entered into a contract for the construction of a XXX (the “Contract”), the construction
of which commenced in XXX; and the scheduled completion is set for XXX.
County wishes to amend the contract in order to purchase the remaining materials to take
advantage of its tax exempt status. As such, it has drafted Amendment 1 to the Contract (the
“Amendment”), Article 14 of which is entitled “Owner Direct Purchases Procedures.” Article 14
contains the following relevant provisions:
1. Part 3.01 D of the procedures provides that the County will prepare its own purchase
orders for the purchase of materials. The Purchase Order will be issued to the supplier(s)
or vendor(s) of the materials. The purchase order will contain or be accompanied by the
County’s “exemption certificate.”
2. Parts 3.01 G and R of the procedures state that County is responsible for payment of
invoices issued by the suppliers. Part 3.01 H of the procedures states that the invoices
will be processed and paid in the same manner as all other County invoices. F and M of
the procedures provide that County will remit payment directly to the supplier(s) of the
materials.
3. Parts 3.01 E and N of the procedures state that County will retain title to any “Owner
Purchased Materials” from the time of delivery and acceptance of the materials.
4. Part 3.01 E of the procedures states that the “County shall be liable for all loss or damage
to equipment and materials purchased pursuant to the Purchase Order.” Part 3.01 N of
the procedures requires the County to “purchase and maintain builder’s risk insurance . . .
in an amount sufficient to cover the replacement cost of Owner Purchased Materials.”
5. Part 3.01 P of the procedures requires that the invoices show the County as the entity
being invoiced.
6. Part 3.01 D of the procedures provides that County will issue a Certificate of Entitlement
with each Purchase Order.
The original contract was not provided with the petition, and the Amendment does not contain a
statement to the effect that the Amendments are controlling to the extent there is a conflict
between the Amendment and its procedures and other parts of the Contract. The Amendment
also provides that it “shall not be effective nor operative until the issuance” of this TAA and that
any purchases made under the tax-exempt process must be at least $10,000.
Applicable Authority
Sales to governmental units are exempt from sales tax pursuant to Section 212.08(6), Florida
Statutes, which provides in pertinent part:
(a) There are also exempt from the tax imposed by this chapter sales made to the United
States Government, a state, or any county, municipality, or political subdivision of a state
when payment is made directly to the dealer by the governmental entity. . . .
(b) The exemption provided under this subsection does not include sales of tangible
personal property made to contractors employed directly to or as agents of any such
government or political subdivision when such tangible personal property goes into or
becomes a part of public works owned by such government or political subdivision. A
determination of whether a particular transaction is properly characterized as an exempt
sale to a government entity or a taxable sale to a contractor shall be based upon the
substance of the transaction rather than the form in which the transaction is cast.
However, for sales of tangible personal property that go into or become a part of public
works owned by a governmental entity, other than the Federal Government, a
governmental entity claiming the exemption provided under this subsection shall certify
to the dealer and the contractor the entity’s claim to the exemption by providing the
dealer and the contractor a certificate of entitlement to the exemption for such sales. If the
department later determines that such sales, in which the governmental entity provided
the dealer and the contractor with a certificate of entitlement to the exemption, were not
exempt sales to the governmental entity, the governmental entity shall be liable for any
tax, penalty, and interest determined to be owed on such transactions. Possession by a
dealer or contractor of a certificate of entitlement to the exemption from the
governmental entity relieves the dealer from the responsibility of collecting tax on the
sale and the contractor for any liability for tax, penalty, or interest related to the sale, and
the department shall look solely to the governmental entity for recovery of tax, penalty,
and interest if the department determines that the transaction was not an exempt sale to
the governmental entity. The governmental entity may not transfer liability for such tax,
penalty, and interest to another party by contract or agreement. . . . (Emphasis Supplied)
Rule 12A-1.038(4), Florida Administrative Code, contains guidelines for claiming and
documenting the exemption. Governmental entities must obtain a consumer's certificate of
exemption from the Department of Revenue. Vendors are required to obtain for their records
proper documentation of the exempt status of the sale.
By its terms, Section 212.08(6), Florida Statutes, exempts only direct purchases by governmental
entities. The exemption does not apply when a contractor, employed by a governmental entity,
purchases tangible personal property that is to be incorporated into public works owned by the
entity. Administrative guidelines governing the taxability of materials purchased for public
works contracts, such as those involved in the instant situation, are contained in Rule 12A-1.094,
Florida Administrative Code, which provides in pertinent part:
(1) This rule shall govern the taxability of transactions in which contractors manufacture
or purchase supplies and materials for use in public works contracts . . . .
(2) The purchase or manufacture of supplies or materials by a public works contractor,
when such supplies or materials are purchased for the purpose of going into or becoming
part of public works, whether the purchase or manufacture occurs inside or outside
Florida, is taxable to the public works contractor if the public works contractor also
installs such supplies or materials, since the public works contractor is the ultimate
consumer of such supplies or materials. Public works contractors that purchase or
manufacture such supplies and materials in Florida are liable for sales tax or use tax on
such purchases and manufacturing costs. A public works contractor that purchases
supplies or materials that may be sold as tangible personal property or may be
incorporated into a public works project may purchase such supplies or materials without
tax by issuing a copy of the contractor’s Annual Resale Certificate and accrue and remit
tax upon withdrawing such supplies or materials from inventory to go into or become a
part of public works. Public works contractors that purchase or manufacture such
materials outside the State of Florida are liable for use tax, subject to credit for any sales
or use tax lawfully imposed and paid in the state of purchase or manufacture.
(3) The purchase or manufacture of tangible personal property for resale to a
governmental entity is exempt from tax, provided this exemption shall not include sales
of tangible personal property made to, or the manufacture of tangible personal property
by, public works contractors when such tangible personal property goes into or becomes
a part of public works.
(4)(a) The exemption in Section 212.08(6), F.S., is a general exemption for sales made
directly to the government. A determination whether a particular transaction is properly
characterized as an exempt sale to a governmental entity or a taxable sale to or use by a
contractor shall be based on the substance of the transaction, rather than the form in
which the transaction is cast. The Executive Director or the Executive Director’s
designee in the responsible program will determine whether the substance of a particular
transaction is a taxable sale to or use by a contractor or an exempt direct sale to a
governmental entity based on all of the facts and circumstances surrounding the
transaction as a whole.
(b) The following criteria that govern the status of the tangible personal property prior to
its affixation to real property will be considered in determining whether a governmental
entity rather than a contractor is the purchaser of materials:
1. Direct Purchase Order. The governmental entity must issue its purchase order directly
to the vendor supplying the materials the contractor will use and provide the vendor with
a copy of the governmental entity’s Florida Consumer’s [Certificate] of Exemption.
2. Direct Invoice. The vendor's invoice must be issued to the governmental entity, rather
than to the contractor.
3. Direct Payment. The governmental entity must make payment directly to the vendor
from public funds.
4. Passage of Title. The governmental entity must take title to the tangible personal
property from the vendor at the time of purchase or delivery by the vendor.
5. Assumption of the Risk of Loss. Assumption of the risk of damage or loss by the
governmental entity at the time of purchase is a paramount consideration. A
governmental entity will be deemed to have assumed the risk of loss if the governmental
entity bears the economic burden of obtaining insurance covering damage or loss or
directly enjoys the economic benefit of the proceeds of such insurance.
(c)1. To be entitled to purchase materials tax exempt for a public works project, a
governmental entity is required to issue a Certificate of Entitlement to each vendor and to
the governmental entity’s contractor to affirm that the tangible personal property
purchased from that vendor will go into or become a part of a public work. This
requirement does not apply to any agency or branch of the United States government.
2. The governmental entity’s purchase order for tangible personal property to be
incorporated into the public works project must be attached to the Certificate of
Entitlement. The governmental entity must issue a separate Certificate of Entitlement for
each purchase order. Copies of the Certificate may be issued.
3. The governmental entity will also affirm that if the Department determines that
tangible personal property sold by a vendor tax-exempt pursuant to a Certificate of
Entitlement does not qualify for the exemption under Section 212.08(6), F.S., and this
rule, the governmental entity will be liable for any tax, penalty, and interest determined to
be due.
4. The following is the format of the Certificate of Entitlement to be issued by the
governmental entity:
CERTIFICATE OF ENTITLEMENT
The undersigned authorized representative of_________________ (hereinafter
“Governmental Entity”), Florida Consumer’s Certificate of Exemption Number ______,
affirms that the tangible personal property purchased pursuant to Purchase Order
Number______ from ___________ (Vendor) on or after _______ (date) will be
incorporated into or become a part of a public facility as part of a public works contract
Technical Assistance Advisement
Page 6
pursuant to contract # ___________ with ______________ (Name of Contractor) for the
construction of _____________________________.
Governmental Entity affirms that the purchase of the tangible personal property
contained in the attached Purchase Order meets the following exemption requirements
contained in Section 212.08(6), F.S., and Rule 12A-1.094, F.A.C.:
You must initial each of the following requirements.
____ 1. The attached Purchase Order is issued directly to the vendor supplying the
tangible personal property the Contractor will use in the identified public works.
____ 2. The vendor’s invoice will be issued directly to Governmental Entity.
____ 3. Payment of the vendor’s invoice will be made directly by Governmental Entity to
the vendor from public funds.
____ 4. Governmental Entity will take title to the tangible personal property from the
vendor at the time of purchase or of delivery by the vendor.
____ 5. Governmental Entity assumes the risk of damage or loss at the time of purchase
or delivery by the vendor.
Governmental Entity affirms that if the tangible personal property identified in the
attached Purchase Order does not qualify for the exemption provided in Section
212.08(6), F.S., and Rule 12A-1.094, F.A.C., Governmental Entity will be subject to the
tax, interest, and penalties due on the tangible personal property purchased. If the Florida
Department of Revenue determines that the tangible personal property purchased taxexempt by issuing this Certificate does not qualify for the exemption, Governmental
Entity will be liable for any tax, penalty, and interest determined to be due.
I understand that if I fraudulently issue this certificate to evade the payment of sales tax I
will be liable for payment of the sales tax plus a penalty of 200% of the tax and may be
subject to conviction of a third degree felony.
Under the penalties of perjury, I declare that I have read the foregoing Certificate of
Entitlement and the facts stated in it are true.
________________________________ _______________
Signature of Authorized Representative Title
________________________________ _______________
Purchaser’s Name (Print or Type) Date
Federal Employer Identification Number: __________________________
Telephone Number: ____________________
Technical Assistance Advisement
Page 7
You must attach a copy of the Purchase Order to this Certificate of Entitlement.
Do not send to the Florida Department of Revenue. This Certificate of Entitlement must
be retained in the vendor’s and the contractor’s books and records.
(d) Sales to contractors, including subcontractors, are subject to tax.
(e) The governmental entity may not transfer liability for such tax, penalty, and interest to
another party by contract or agreement. . . .
(5) Contractors, including subcontractors, that manufacture, fabricate, or furnish tangible
personal property that the contractor incorporates into public works are liable for tax in
the manner provided in subsection (10) of Rule 12A-1.051, F.A.C. The contractor and
subcontractors, not the governmental entity, are deemed to be the ultimate consumers of
the articles of tangible personal property they manufacture, fabricate, or furnish to
perform their contracts and may not accept a Certificate of Entitlement for these
articles. . . . (Emphasis Supplied)
Determination
Rule 12A-1.038(4)(b), Florida Administrative Code, states that in order for a sale to a state or
local governmental entity to be tax exempt, "[p]ayment for tax exempt purchases . . . must be
made directly to the selling dealer by the . . . political subdivision of a state. . . ." Rule 12A1.094(2) and (3), Florida Administrative Code, state that the purchase of materials for public
works contracts is taxable to the contractor as the ultimate consumer where the contractor is
deemed to be the purchaser. If the purchaser of the materials is the governmental entity,
however, the transaction is exempt. For there to be an exempt transaction, the governmental
entity must directly purchase, hold title to, and assume the risk of loss of the tangible personal
property from the time of delivery to the jobsite, and satisfy various factors contained in Rule
12A-1.094, Florida Administrative Code.
Rule 12A-1.094(4), Florida Administrative Code, which sets forth the criteria that govern the
status of the tangible personal property prior to its affixation to real property, will be considered
in determining whether a governmental entity rather than a contractor is the purchaser of
materials. These criteria include direct purchase order, direct invoice, direct payment, passage of
title, and assumption of risk of loss. However, the assumption of risk of damage or loss from the
time that the building materials are physically delivered to the job site is a paramount
consideration. The governmental entity must assume all risk of loss or damage for the tangible
personal property from the moment of acceptance of title to the materials. To establish that it has
assumed that risk, the governmental entity should purchase, or be the insured party under,
insurance on the building materials.
To establish that the governmental entity is entitled to the exemption, it must issue a Certificate
of Entitlement to the vendors, and to the contractors, with each purchase order. A copy of the
governmental entity’s Consumer’s Certificate of Exemption must be attached to the Certificate
of Entitlement. The Certificate of Entitlement sets forth the requirements for making tax-exempt
direct purchases and notes the governmental entity’s acknowledgement that it is responsible for
tax, penalty, and interest on material purchases that do not meet the exemption criteria. By
statute, the governmental entity is prohibited from assigning liability for the tax, penalty, and
interest to another party by contract or agreement. A suggested format of the certificate is found
in Rule 12A-1.094(4)(c), Florida Administrative Code.
To summarize, the conditions that must be met to satisfy the requirements of Rule 12A-1.094,
Florida Administrative Code, and establish that the governmental entity rather than the
contractor is the purchaser of materials, include:
1. The governmental entity must execute the purchase orders for the tangible personal
property involved in the contract to the materials vendors. The contractor may present the
governmental entity's purchase orders to the vendors of the tangible personal property;
2. The governmental entity must acquire title to and assume liability for the tangible
personal property at the point in time when it is delivered to the job site;
3. Vendors must directly invoice the governmental entity for supplies;
4. The governmental entity must directly pay the vendors for the tangible personal
property;
5. The governmental entity must assume all risk of loss or damage for the tangible
personal property involved in the contract, as indicated by the entity's acquisition of, or
inclusion as the insured party under, insurance on the building materials; and
6. The governmental entity must issue a Certificate of Entitlement with each purchase
order, along with a copy of its Consumer’s Certificate of Exemption, to each vendor, as
well as to the contractor. The governmental entity is responsible for payment of tax,
penalty, and interest on any purchases that are not found to be in compliance with the
procedures for tax-exempt direct purchase of materials.
The County’s procedures do satisfy the foregoing requirements for exemption of transactions as
sales to a governmental entity. The County will issue its own purchase orders directly to the
vendor of the materials, and it will issue payment for the materials directly to the vendor. The
vendor is required to issue its invoices directly to County. The County also assumes title to the
materials at the time they are delivered to the job site. County assumes risk of loss of county
purchased materials, and County will issue a Certificate of Entitlement to the vendors.
Under the terms of the Amendment, purchases must be in excess of $10,000 and must be made
after the date of this TAA in order to be exempt. Purchases that were not made in accordance
with the Amendment do not qualify for exemption, and the terms of such purchases cannot be
amended in an attempt to cause them to qualify for exemption after the fact.
Please also note that if original Contract contradicts the Owner Direct Purchases Procedures set
forth in the Amendment, and the terms of the original Contract are controlling, the County may
not take advantage of its tax-exempt status on the purchase of materials for use in the public
work.
Finally, please note a contractor that manufactures or fabricates its own materials, as specified in
Rule 12A-1.094(5), Florida Administrative Code, does not qualify for inclusion in direct
purchase programs. Under the rule, the contractor and subcontractors, not the government entity,
are deemed to be the ultimate consumers of the articles of tangible personal property they
manufacture or fabricate to perform their contracts. As such, the contractor and subcontractors
are subject to use tax on the full cost of the manufactured or fabricated articles, as detailed in
Rule 12A-1.051(10), Florida Administrative Code.
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 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, your request, and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request you provide the undersigned with an edited copy of
your request for Technical Assistance Advisement, the backup material and this response,
deleting names, addresses, and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department within 10 days of the date of this
letter.
Sincerely,
Sara D. Faulkenberry
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Control # 131420
