Sales and Use Tax TAA 13A-025 Improvement to Real Property/Plantation Shutters
QUESTION: Should Taxpayer have been charged sales tax on the sale and installation
of plantation shutters?
ANSWER: A lump sum contract for the sale and installation of plantation
shutters is a contract for the improvement to real property. Vendor should
not have separately stated the tax on the plantation shutters; rather,
the tax should be included in the price of the materials used to complete
the contract.
November 7, 2013
Re: Technical Assistance Advisement – TAA 13A-025 Sales and Use
Tax – Plantation Shutters Sections: 212.05, 212.06, Florida Statutes (F.S.)
Rule: 12A-1.051, Florida Administrative Code (F.A.C.) Petitioner: XXX [hereinafter
“Taxpayer”]
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 s. 213.22, F.S.
Issue
Whether Taxpayer should have been charged sales tax on the sale and installation
of plantation shutters.
Presented Facts
Taxpayer entered into a contract with XXX (“Vendor”), for
the purchase and installation of plantation shutters for one dining room
window, a sliding blind for lanai doors and venetian blinds for three
bedroom windows. Vendor provided Taxpayer with an invoice listing the
quantity and price of each item ordered. Sales tax was charged as a separate
line item for all items on the invoice.
Taxpayer does not dispute that tax was due on the sales price of the blinds
and understands that the vendor can include sales tax in the cost of the
plantation shutters when issuing the invoice; however, Taxpayer does not
agree with the vendor adding sales tax as a separate line item on the invoice.
Taxpayer and Vendor are currently in a dispute over the amount of refund
Taxpayer is due based on the return of defective merchandise and sales
tax Taxpayer was charged as a separate line item. Taxpayer has provided
copies of correspondence between Vendor and himself attempting to resolve
the refund issue. However, Vendor asserts that the sales tax it charged
Taxpayer cannot be refunded since Vendor is required to pay taxes on its sales.
Law and Discussion
Section 212.05, F.S. provides that anyone involved in the business of
selling tangible personal property at retail is engaged in a taxable privilege
and tax is due on each taxable transaction or incident. The tax is calculated
on the “sales price” of the item(s) sold. Section 212.02(16),
F.S. defines “sales price” to mean the total amount paid for
tangible personal property, including any services that are a part of
the sale… In order to determine whether the tax rules relating
to tangible personal property or those related to real property apply
to this transaction, it is necessary to determine whether the installation
of the property at issue, namely the plantation shutters, becomes part
of real property or retains the characteristics of tangible personal property.
“Tangible personal property” means and includes personal property
which may be seen, weighed, measured, or touched or is in any manner perceptible
to the senses…1 “Real property” is defined in section 212.06(14)(a), F.S.,
as “the land and improvements thereto and fixtures…”
“Fixtures” mean items that are an accessory to a building,
other structure, or land and that do not lose their identity as accessories
when installed but that do become permanently attached to realty…2 Rule 12A-1.051(3) provides the criteria for determining whether an item
is a fixture. “Improvements to real property” includes the
activities of building, erecting, constructing, altering, improving, repairing,
or maintaining real property.3 Section 212.05(1), F.S., provides that sales and repairs of tangible personal
property are taxable. However, the charge for a real property improvement
or repair is not taxable.
In addition, the courts have provided some additional guidance in determining
when property attached to realty is considered a fixture rather than retaining
its character as tangible personal property. In Commercial Finance Co.
v. Brooksville Hotel Co., 123 So. 814, 816 (Fla. 1929), the Florida Supreme
Court set out a three-part test for determining whether an object is a
fixture or personalty: 1) Is there actual annexation to the realty or
something appurtenant thereto?; 2) Is the item in question appropriately
applied to the use or purpose of that part of the realty to which it is
connected?; 3) Did the party making the annexation intend the item to
be a permanent accession to the freehold? If the answer to these three
questions is yes, the object is a fixture.
In this case, there is an actual annexation to realty since the plantation
shutters were either screwed or bolted to the windows of Taxpayer’s
home. Next, the plantation shutters are appropriately applied to the use
and purpose of the part of the realty to which they are connected since
they are being used for the purpose that one uses shutters for namely,
controlling the amount of sunlight that enters a room, to provide privacy,
security, enhancement of the home’s aesthetics, etc. Based on the
information provided in Taxpayer’s request it can be assumed that
by entering into a contract with Vendor and paying for the cost and installation
of custom shutters, in addition to the significant changes to the window
seals necessary to install the shutters, that it was Taxpayer’s
intention that the shutters would become a permanent accession to his
home. Therefore, the plantation shutters would be considered a fixture
for purposes of determining that the tax rules relating to real property
would apply to this transaction. Pursuant to Rule 12A-1.016(b)(2), F.A.C.,
draperies, shades and blinds have been determined to be tangible personal
property. Rule 12A-1.051 (g), F.A.C., emphasizes this position by excluding
the items listed in Rule 12A-1.016, F.A.C., from treatment as real property
improvements. Rule 12A1.051, F.A.C., provides further guidance to persons
making improvements to real property. Rule 12A1.051(18), F.A.C., specifically
excludes blinds and shades from being classed as improvements to real
property. However, blinds and shades differ from plantation shutters in
one significant aspect: blinds and shades are not attached in any manner
to the real property. They rest in brackets; even though the brackets
are screwed or bolted into the wall or window frame, the minimal value
of the bracket does not make the blinds and shades into improvements to
real property. Plantation shutters, on the other hand, are usually directly
screwed or bolted into the wall or window frame, and when they are attached
as such, they are properly classified as improvements to real property.
The appropriate taxation of plantation shutters and materials incorporated
in their installation depends upon the type of contract vendor has with
its customers. According to the information provided by Taxpayer, Vendor
both provides and installs the blinds and shutters. Rule 12A-1.051(4),
Florida Administrative Code, outlines the tax requirements of lump sum
and similar contracts for the improvement to real property and it states
as follows:
(4) General rule of taxability of real property contractors. Contractors
are the ultimate consumers of materials and supplies they use to perform
real property contracts and must pay tax on their costs of those materials
and supplies, unless the contractor has entered a retail sale plus installation
contract. Contractors performing only [lump sum] contracts . . . do not
resell the tangible personal property used to the real property owner
but instead use the property themselves to provide the completed real
property improvement. Such contractors should pay tax to their suppliers
on all purchases. They should also pay tax on all materials they fabricate
for their own use in performing such contracts, as discussed in subsection
(10). They should charge no tax to their customers, regardless of whether
they itemize charges for materials and labor in their proposals or invoices,
because they are not engaged in selling tangible personal property. Such
contractors should not register as dealers unless they are required to
remit tax on the fabricated cost of items they fabricate to use in performing
contracts. (Emphasis Supplied)
Charges for improvements to real property made by the contractor to the
customer are generally not subject to tax. Instead, the contractor pays
tax to its supplier on its purchase of materials and supplies used in
the performance of the job. The contractor recoups the tax it pays on
the materials by including it as a cost of the job; the tax should not
be separately stated to the customer. In this case, Vendor should not
have separately stated the tax on the plantation shutters; rather it should
have been included in the price of the shutters, which likely would have
resulted in a higher cost to Taxpayer.
Regardless whether it performed the installation, Vendor was correct to
charge you tax on the plantation shutters, however, Taxpayer should not
have been charged tax as a separate line item.
Conclusion
A lump sum contract for the sale and installation of plantation shutters
is a contract for the improvement to real property. Vendor should not
have separately stated the tax on the plantation shutters; rather it should
be included in the price of the materials used to complete the contract.
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 # 144509
End Notes:
1. Sec. 212.02(9), F.S.
2. Sec. 212.06(14)(b), F.S.
3. Sec. 212.06(14)(c)