Sales and Use Tax TAA 17A-020 Public Works Contract
October 10, 2017
TAX: Sales and Use Tax
TAA NUMBER: 17A-020
ISSUE: Public Works Contract
STATUTE CITE(S): Section(s) 212.08(6), F.S.
RULE CITE(S): Rule 12A-1.094, F.A.C.
QUESTION: Will Taxpayer’s contract satisfies the criteria for Rule
12A-1.094(4), F.A.C.?
ANSWER: Yes, so long as Taxpayer modifies the contract to require direct
invoicing to Taxpayer.
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Subject: Technical Assistance Advisement (“TAA”)
TAA 17A-020 Sales and Use Tax-Public works
Section(s) 212.08(6), Florida Statutes (“F.S.”)
Rule(s) 12A-1.094, Florida Administrative Code (“F.A.C.”)
XXXXXX (“Taxpayer”)(“Owner”)(“Petitioner”)
Exemption Certificate Number: XXXXXXXXXXXXXX
Dear XXXXXXXXXXXX:
This letter is a response to your petition dated August 10, 2017, for the
Department’s issuance of a Technical Assistance Advisement (“TAA”)
to Petitioner, regarding public works project requirements. Your petition
has been carefully examined, and the Department finds it to be in compliance
with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. 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 proposed contract provisions will enable Taxpayer to directly
purchase materials from suppliers without sales tax when the materials
are used in a public works contract?
Facts
Taxpayer will be purchasing materials, supplies, and equipment directly
from suppliers for use in a project at the XXXXXXXXXXXXXXXXX. The project
is a “public works” for purposes of Rule 12A-1.094(1)(b),
F.A.C. The project is for an expansion and upgrade to existing structures
XXXXXXXXXXXXXXXX. The completion of the project will allow the XXXXXXXXXX
XXXXXXXXXXXX.
The owner direct purchase procedure will be used exclusively for supplies,
goods, equipment, appliances, and other materials from third party suppliers,
and not from contractors, or subcontractors providing construction services
for the project. The proposed contract language for the owner direct purchase
procedure has been provided.
The proposed contract language requires Taxpayer to issue a direct purchase
order to the vendors and suppliers from whom Taxpayer will make direct
purchases. Taxpayer will obtain title upon delivery of the items to the
job site location designated by Taxpayer. The items will be approved for
acceptance by Taxpayer or Taxpayer’s agents prior to installation.
Taxpayer will assume risk of loss for the items delivered, and Taxpayer
will be required to be the insured party for these items.
The proposed bid and contract language do not require direct invoicing
from the supplier and vendors to the Taxpayer. Your request provides that
Taxpayer will amend the proposal as needed to comply with the requirements
provided for by s. 212.08(6)(c), F.S. Taxpayer will make payment directly
to the vendor and not to the contractor. Taxpayer will issue the Consumer’s
Certificate of Exemption and Certificate of Entitlement to each vendor
and supplier.
Applicable Law
Sales to governmental units are exempt from sales tax, pursuant to Section
212.08(6), F.S., which states, 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. This exemption shall not inure to any
transaction otherwise taxable under this chapter when payment is made
by a government employee by any means, including, but not limited to,
cash, check, or credit card when that employee is subsequently reimbursed
by the governmental entity….
Page 3 of 3 Technical Assistance Advisement
(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. (c) The department shall adopt rules for
determining whether a particular transaction is properly characterized
as an exempt sale to a governmental entity or a taxable sale to a contractor
which give special consideration to factors that govern the status of
the tangible personal property before being affixed to real property.
In developing such rules, assumption of the risk of damage or loss is
of paramount consideration in the determination. The department shall
also adopt, by rule, a certificate of entitlement to exemption for use
as provided in paragraph (b). The certificate shall require the governmental
entity to affirm that it will comply with the requirements of this subsection
and the rules adopted under paragraph (b) in order to qualify for the
exemption and that it acknowledges its liability for any tax, penalty,
or interest later determined by the department to be owed on such transactions.
Rule 12A-1.094, F.A.C., provides the guidelines for purchasing materials
tax-exempt for a public works contract. Rule 12A-1.094, F.A.C., states,
in relevant part:
(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,
Page 4 of 4 Technical Assistance Advisement
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. ****
If the contract or actions of the parties contradict the owner direct purchases
procedures set forth, Taxpayer may not take advantage of its tax-exempt
status on the purchase of materials for use in the public work. Also,
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
Page 5 of 5 Technical Assistance Advisement
direct purchase programs. In such an instance, 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), F.A.C.
Here, Taxpayer will be required to assume the risk of loss for the items
purchased upon delivery to the jobsite. Taxpayer will acquire title to
the materials upon delivery to the jobsite. Taxpayer will issue its own
purchase orders directly to the suppliers prior to delivery. Taxpayer
will issue the Consumer’s Certificate of Exemption and Certificate
of Entitlement to each supplier when submitting the purchase orders. Taxpayer
will issue a check for the items purchased directly to the supplier. However,
Taxpayer’s proposal does not require direct invoicing to Taxpayer
by the supplier. This must be included in the proposal and contract. If
it is not included in the contract, or if direct invoicing from the supplier
to Taxpayer does not happen, then Taxpayer’s direct purchase procedures
to not satisfy all required conditions, and the exemption provided for
by s. 212.08(6)(c), F.S., does not apply.
Concluding Statement
Taxpayer’s direct purchase procedures currently do not meet the requirements
of the abovementioned Rule, unless Taxpayer changes the proposed contract
language to include for direct invoicing to Taxpayer from the suppliers,
and the suppliers actually provide a direct invoice to Taxpayer. Then,
once the changes are made, Taxpayer may purchase the materials tax-exempt
for use in a public works contract.
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 on 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 than 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.
Respectfully,
Chuck Wallace
Page 6 of 6 Technical Assistance Advisement
Chuck Wallace Technical Assistance & Dispute Resolution (850) 717-7541
AMS ID: 7000018599