TAA 25A-003 Exemptions

QUESTION 1: Whether Taxpayer should issue [its] Annual Resale Certificate (Form DR-13) to vendors to purchase raw materials tax exempt. 

ANSWER 1: Based on the facts provided, Taxpayer’s purchases of raw materials for lump-sum contracts are exempt. However, Taxpayer should accrue use tax on all raw materials used in its performance of any lump sum contracts 

QUESTION 2: Whether Taxpayer should collect and remit sales tax on sales sold at retail. 

ANSWER 2: Based on the facts provided, Taxpayer should collect and remit sales tax on sales at retail. 

QUESTION 3: Whether Taxpayer should accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site for installation of lump-sum real property contracts at a job site. 

ANSWER 3: Based on the facts provided, Taxpayer should accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site for installation pursuant to lump-sum real property contracts at a job site 

QUESTION 4: Whether the accrual and remittance of use tax on the fabricated cost of [building components] that are manufactured at the plant site and installed as a lump-sum real property contract at the job site, is the accrual of tax based on location of plant site or job site for surtax purposes? 

ANSWER 4: Based on the facts provided, Taxpayer should accrue and remit both the use tax and the discretionary sales surtax on fabrication cost at the rate of the county where the plant site is located. 

QUESTION 5: Whether Taxpayer should collect and remit sales tax from its customers on lumpsum real property contracts. 

ANSWER 5: Based on the facts provided, Taxpayer should not collect and remit sales tax from its customers on lump-sum real property contracts 

QUESTION 6: Whether Taxpayer should qualify to purchase its new machinery and equipment tax exempt at its expanding manufacturing plant in Florida. 

ANSWER 6: Based on the facts provided, Taxpayer should qualify for machinery and equipment exemption for an expanding business on property that has a depreciable life of three (3) years or more that is used as an integral part in the manufacturing process and where productive output of such expanded facility is not less than 5%.

May 2, 2025

Via email to: ________________________________ 

Re: Technical Assistance Advisement – TAA #: 25A-003 

Florida Sales and Use Tax – Exemptions, Manufacturing 

________________  (“Taxpayer”) S

ections 212.02, 212.05, 212.06, 212.07, 212.08(5)(b), 212.08(7)(jjj) and 212.12(12), Florida Statutes (F.S.) Rules 12A-1.043, 12A-1.051, 12A-1.091(7), and 12A-1.096, Florida Administrative Code (F.A.C.) 

FEIN: ________________ 

BP#: ________________ 

Dear ________________ 

This letter is a response to your petition dated for the Florida Department of Revenue’s (the “Department’s”) issuance of a Technical Assistance Advisement ("TAA"). 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. 

ISSUES PRESENTED 

Taxpayer is seeking guidance on the purchase of raw materials, sales of tangible personal property at retail, lump-sum real property contracts and purchase of industrial machinery and equipment on an expanding business in Florida. Specifically, Taxpayer is requesting clarification concerning the following items:

1. Should Taxpayer issue Annual Resale Certificate (Form DR-13) to vendors to purchase raw materials tax exempt? 

2. Should Taxpayer collect and remit sales tax on sales sold at retail? 

3. Should Taxpayer accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site for installation of lump-sum real property contracts at a job site? 

4. If Taxpayer should accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site and installed as a lump-sum real property contract at the job site, is that accrual of tax based on location of plant site or job site for surtax purposes? 

5. Should Taxpayer collect and remit sales tax from it's customers on lump-sum real property contracts? 

6. Should Taxpayer qualify to purchase its new machinery and equipment tax excempt at its expanding manufacturing plant in Florida? 

FACTS AS PROVIDED

Taxpayer has presented the following information regarding its lump-sum real property contracts at its three locations in Florida along with several sample contracts: 

Taxpayer provides ________________ services which include design services, wall panels, trusses and ________________ providing a seamless and fully integrated shell construction process, hereinafter referred to collectively as building components or ("BC") both for sale and for installation in fulfilling lump-sum real property contracts at its ________________________________.

Taxpayer is a single member limited liability company ________________________________ ________________________________ ________________________________ ________________________________ 

Taxpayer sells building components to ________________, other affiliated entities and third parties predominantly under lump-sum real property contracts for materials and installation. Those contracts include BC which are either delivered to the jobsite by Taxpayer's owned trucks or via third-party freight contractors. Taxpayer also engages in retail sales of BC to third parties.

Taxpayer purchases raw materials from third party vendors and utilizes an Annual Resale Certificate to purchase raw materials tax exempt. Taxpayer collects and pays tax to the Department on the retail selling price to third parties on direct sales of BC. Taxpayer accrues and remits use tax on the fabricated cost, including raw materials purchased tax exempt, on BC that are manufactured for lump-sum real property contracts. The lump-sum real property contracts make up the majority of the revenue of the business and the fulfillment of which account for the majority of the utilization of the machinery and equipment in the plant. 

Taxpayer is expanding its existing Florida manufacturing plant location in ________________ and purchasing industrial machinery and equipment having more than a three-year life and increasing production output by 5% or more. To receive the temporary exemption on the machinery and equipment Taxpayer will apply to the Department for a temporary tax exemption permit. To the best of our knowledge, Taxpayer, ________________ nor any of its affiliated subsidiaries are currently not under audit by the Department.

LEGAL AUTHORITY AND DISCUSSION 

Sales and Use Tax 

Unless a specific exemption applies, s. 212.05, F.S., provides it is the legislative intent that every person is exercising a taxable privilege that engages in the business of selling tangible personal property¹ in this state. For exercising such privilege, a tax is levied on each taxable transaction or incident. The tax is due and payable at the rate of 6 percent, plus any applicable discretionary surtaxes imposed under s. 212.055, F.S., on the total consideration received for each item or article of tangible personal property when sold at retail in this state. 

Complementary to the sales tax, use tax is imposed upon tangible personal property that is not sold at retail in this state but is instead “used, consumed, distributed, or stored for use or consumption in this state.” The tax is imposed on the “cost price” of the item as of the moment of commingling with the general mass of property in this state. See ss. 212.05(1)(b) and 212.06(1)(a), F.S., and Rule 12A-1.091(7), F.A.C.

Real Property Contractors 

In its communication, Taxpayer declares that it is a real property contractor, and that it does not engage in retail sale plus installation contracts. Generally, real property contractors are considered the ultimate consumers or users of the tangible personal property they purchase to perform a real property contract—they are not reselling tangible personal property. See Rule 12A-1.051(4), F.A.C. Sales tax is imposed on the purchaser or ultimate consumer/user of tangible personal property. Therefore, real property contractors, as the ultimate consumers, must pay tax on the cost of the materials and supplies they use to perform real property contracts. Real property contractors who, like Taxpayer, do not engage in retail sale plus installation contracts, should not charge tax to or collect tax from their customers because they are not engaged in the activity of selling tangible personal property.

Fabrication Cost 

Real property contractors are required to be registered and to remit use tax on certain costs of fabrication when they fabricate items for their own use in performing real property contracts. The elements of fabricated cost are set forth in Rule 12A-1.043, F.A.C. Materials, labor, service, or transportation costs that are attributable to manufacturing, producing, compounding, processing, or fabricating an article of tangible personal property for one's own use, and which are properly chargeable to the cost of the product under generally accepted cost accounting standards, are the use tax base to the fabricator/real property contractor. 

Furthermore, Rule 12A-1.043(1)(b), F.A.C., clarifies what each broad category of costs comprises:

1. Material costs include: 

a) all direct materials and their related freight, 

b) handling and warehousing costs, 

c) manufacturer’s excise tax on such materials. 

2. Labor costs include: 

a) direct labor cost for employees, and/or contract labor allocable to the production of the finished property, including, payroll burden, overtime premium, vacation and holiday pay, sick leave pay, shift differential, payroll taxes, payments to a supplemental benefit plan, and employee fringe benefits, among others, 

b) compensation of officers—only such portion allocable to production, 

c) cost of service, engineering, design and other support employees allocated to production. 

3. Service costs include non-employee services allocated to the production—engineering, design, and/or similar consultation or professional services.

However, when calculating the fabricated cost, the following costs should not be included: 

1. cost of direct materials for which sales tax was paid when purchased, 

2. cost of labor that is performed at the job site where the installation occurs, and 

3. cost of transporting the finished product from the manufacturers plant to the job site. 

Machinery and Equipment Exemptions 

Section 212.08(7)(jjj)1., F.S., provides that “industrial machinery and equipment² purchased by eligible manufacturing businesses which is used at a fixed location in this state for the manufacture, processing, compounding, or production of items of tangible personal property for sale is exempt from the tax. If, at the time of purchase, the purchaser furnishes the seller with a signed certificate certifying the purchaser’s entitlement to exemption pursuant to this paragraph, the seller is not required to collect the tax on the sale of such items, and the department shall look solely to the purchaser for recovery of the tax if it determines that the purchaser was not entitled to the exemption.” 

Section 212.08(7)(jjj)2., F.S., defines the term, “eligible manufacturing business” as “any business whose primary business activity³ at the location where the industrial machinery and equipment is located is within the industries classified under NAICS codes 31, 32, 33, 112511, and 423930.”

Tax Information Publication 16A01-07 provides the method to purchase qualified machinery and equipment tax exempt under the provisions of s. 212.08(7)(jjj), F.S. 

Based on the above, purchases of machinery and equipment that meet all the eligibility requirements of s. 212.08(7)(jjj), F.S., are exempt from Florida sales and use tax. Otherwise, the purchase of machinery and equipment is subject to Florida sales and use tax. 

Additionally, s. 212.08(5)(b), F.S., and Rule 12A-1.096, F.A.C., provide an exemption from tax on qualifying industrial machinery and equipment purchased or leased by an eligible new or expanding business. Such machinery and equipment must be at least 3-year depreciable property that is used as an integral⁴ part in the manufacturing, processing, compounding, or production of tangible personal property for sale at a fixed location in this state. This exemption requires the filing of an Application for Temporary Tax Exemption Permit, form DR-1214. There is no exemption until the required application has been filed.

CONCLUSIONS 

1. Should Taxpayer issue [its] Annual Resale Certificate (Form DR-13) to vendors to purchase raw materials tax exempt? 

• Based on the facts provided, Taxpayer’s purchases of raw materials for lump-sum contracts are exempt. However, Taxpayer should accrue use tax on all raw materials used in its performance of any lump sum contracts under the provisions of s. 212.07(1)(b), F.S. and Rule 12A-1.039, F.A.C. 

2. Should Taxpayer collect and remit sales tax on sales sold at retail? 

• Based on the facts provided, Taxpayer should collect and remit sales tax on sales at retail under the provisions of s. 212.12(12), F.S. 

3. Should Taxpayer accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site for installation of lump-sum real property contracts at a job site?

• Based on the facts provided, Taxpayer should accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site for installation pursuant to lump-sum real property contracts at a job site under the provisions of Rule 12A-1.043, F.A.C.

4. If Taxpayer should accrue and remit use tax on the fabricated cost of [building components] that are manufactured at the plant site and installed as a lump-sum real property contract at the job site, is that accrual of tax based on location of plant site or job site for surtax purposes? 

• Based on the facts provided, Taxpayer should accrue and remit both the use tax and the discretionary sales surtax on fabrication costs at the rate of the county where the plant site is located under the provisions of Rule 12A-1.043, F.A.C. 

5. Should Taxpayer collect and remit sales tax from its customers on lump-sum real property contracts? 

• Based on the facts provided, Taxpayer should not collect and remit sales tax from its customers on lump-sum real property contracts under the provisions of Rule 12A-1.051(4), F.A.C. 

6. Should Taxpayer qualify to purchase its new machinery and equipment tax exempt at its expanding manufacturing plant in Florida? 

• Based on the facts provided, Taxpayer should qualify for machinery and equipment exemption for an expanding business on property that has a depreciable life of three (3) years or more that is used as an integral part in the manufacturing process and where productive output of such expanded facility not less than 5% under the provisions of ss. 212.08(5)(b) and 212.08(7)(jjj), F.S. and Rule 12A-1.096, F.A.C.

This response constitutes a TAA under s. 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 s. 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 s. 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 TAA, 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 ten (10) days of the date of this letter.

Denise L. Smith, MPM 

Tax Law Specialist 

Office of Technical Assistance

^{1) 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. See s. 212.02(19), F.S.} 

^{2) “Industrial machinery and equipment” means, in part, tangible personal property or other property that has a depreciable life of 3 years or more and that is used as an integral part in the manufacturing, processing, compounding, or production of tangible personal property for sale. See s. 212.08(7)(jjj)2.e., F.S.} 

^{3) “Primary business activity” means an activity representing more than 50 percent of the activities conducted at the location where the industrial machinery and equipment or postharvest machinery and equipment is located. See s. 212.08(7)(jjj)2.d., F.S.} 

^{4) Integral to means that the machinery and equipment provides a significant function within the production process, such that the production process could not be complete without that machinery and equipment. See Rule 12A-1.096(1)(c), F.A.C.}