Could a public authority directly buy wastewater-project materials without sales tax?

Subject

City Contract to Design and Construct a Wastewater Collection System and Treatment Facility

Plain-English summary

The authority's direct purchases of materials for wastewater public-works projects were exempt under the proposed design-build documents. The authority had to issue detailed purchase orders with its exemption documentation, receive vendor invoices, pay vendors directly, take legal and equitable title, assume liability, and bear the cost and benefit of insurance on the materials.

A properly completed exemption certificate was required for each vendor. The ruling did not apply to materials manufactured or fabricated by contractors or subcontractors; they remained taxable ultimate consumers of those items.

What this means for you

The owner direct-purchase program worked because the authority—not merely its contractor—was the purchaser in substance before the materials became part of the project.

Common questions

Q: Did the wastewater design-build arrangement prevent exempt purchases? No, when the stated direct-purchase procedures controlled.

Q: Was owner-controlled insurance relevant? Yes, it supported the authority's assumption of risk of loss.

Q: Were contractor-fabricated materials included? No.

Citations and references

• Fla. Stat. § 212.08(6) — government purchases
• Fla. Admin. Code r. 12A-1.001(9) — direct payment by government
• Fla. Admin. Code r. 12A-1.094 — public-works contracts
• Fla. Admin. Code r. 12A-1.039 — government exemption certificate
• Fla. Admin. Code r. 12A-1.051(10) — contractor-fabricated property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-077

Original ruling text

SUMMARY

QUESTION: Do the procedures for purchase of materials set
out in the authority's contract for the construction of a
wastewater collection system and treatment facility meet
legal requirements for the authority to purchase the
materials tax exempt?

ANSWER - Based on Facts Below: As long as the controlling
documents provide: (1) the authority issues its own
purchase orders directly to the vendors; (2) the purchase
orders include the authority's consumer's certificate of
exemption number; (3) the vendors invoice the authority
directly; (4) the authority issues its checks to the
vendors directly; (5) the authority takes title to the
materials from the vendor and assumes liability for the
materials when they are delivered to the job site; (6) the
authority assumes risk of loss for the materials upon
delivery which is clearly established by the requirement in
the controlling documents that the authority reimburse the
contractor for the premiums for purchase of insurance
against loss or damage and the authority is named as the
insured party to receive proceeds in case of loss of the
items purchased tax exempt; and (7) the remaining terms of
the documents do not prevent the conclusion that the
authority rather than the contractor is in substance as
well as form the purchaser of the materials, the procedures
meet legal requirements for the authority to purchase the
materials tax exempt.

Nov 15, 2000

Re: Technical Assistance Advisement (00A-077)
XXX (the "Authority")
Sales and Use Tax -- City Contract to Design and Construct
a Wastewater Collection System and Treatment Facility
Section 212.08(6), F.S.
Rules 12A-1.001(9), 12A-1.094, F.A.C.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated August 24, 2000, supplemented on October 24, 2000
by faxed revisions to your proposed documents. You asked for a
technical assistance advisement confirming that the model
procedures and documents proposed in your letter would provide
for tax-exempt purchases in a variety of contracts for the
construction of public works projects ("Works" or "Projects").

Facts

Your letter of August 24, 2000 states that you represent the
Authority, pursuant to which you submit a model Construction
Agreement (hereafter "Agreement"), with an unnamed generic
contractor (hereafter "Contractor") pursuant to which Contractor
would be engaged to design and construct Works. Copies of the
complete Agreement including General Conditions of the Agreement
("Conditions"), were enclosed with your request for technical
assistance advisement. Thereafter you faxed revisions of the
documents, the Owner Controlled Insurance Program ("OCIP")
Contractual Attachment to Contract General Conditions, and the
Bid Documents Table of Contents.

You state that Article 4.6.2 of the Conditions reads as follows:

The [Taxpayer] (referred to as "Authority" elsewhere
herein) reserves the right to implement a sales tax savings
program with respect to the Project. In such event,
Contractor shall cooperate and assist [Taxpayer], at no
additional cost, with respect to the implementation of that
sales tax savings program. [Taxpayer] and Contractor shall
work together to identify particular pieces of equipment
and material that are suitable for direct purchase by
[Taxpayer]. As such items are identified, [Taxpayer] shall
issue purchase orders, in accordance with a schedule
mutually acceptable to [Taxpayer] and Contractor, directly
to the appropriate Suppliers of such items for direct
purchase of those items by [Taxpayer]. [Taxpayer] shall pay
the Supplier of such items directly and the title for such

items shall pass directly from the Supplier to [Taxpayer].
Notwithstanding the foregoing, Contractor shall remain
responsible for requisitioning the order, scheduling,
coordinating, delivery, unloading, storage, installation,
operation, and warranties of all such direct purchase
items, as if Contractor had purchased the items itself for
incorporation into the Work. In that regard, [Taxpayer]
shall assign to Contractor all contract and warranty rights
[Taxpayer] may have against any such Supplier, so as to
permit Contractor to asset [sic] warranty or other contract
claims for defective or nonconforming materials or
equipment directly against the Supplier. As [Taxpayer]
issues purchase orders to the Suppliers of such items,
[Taxpayer] and Contractor shall execute a Change Order
which deducts from the Contract Price the amount being paid
by [Taxpayer], plus the amount of sales tax that otherwise
would have been paid on such items. As an inducement to
Contractor to more fully cooperate and facilitate this
sales tax savings program Contractor shall receive as a
bonus, at the time final payment is to be made hereunder, a
sum equal to__ percent (____%) of the total amount of
sales tax saved by [Taxpayer] as a result of these direct
purchases.

Pursuant to Article 4.6.2 [of the General Conditions of the
Contract Documents], Taxpayer developed the Owner Direct
Purchase/Sales Tax Program (the "Program"), which is intended to
permit Taxpayer to enjoy sales tax savings by means of an
exemption from sales tax when tangible personal property is
purchased directly by a state governmental entity. The Program
is incorporated into the Contract Documents through the
Conditions of the Contract, Supplementary Conditions, Attachment
II. The terms of the Program, as they are incorporated into the
Contract Documents, are as follows:

In accordance with the provisions of paragraph 4.6.2 of the
General Conditions, [Taxpayer] is exercising its right to
implement an Owner Direct Purchase/Sales Tax Savings
Program, with respect to this project. The following
paragraphs describe the procedures by which this program
will be implemented and administered. Pursuant to these

procedures, [Taxpayer] will order and pay for all such
purchases, as well as take title to all such purchases,
directly from the supplier or manufacturer.

At the time the Contract Price is established, but not
later than concurrently with submission of the required
Schedule of Values, [Taxpayer], [Taxpayer's] Construction
Manager and Contractor shall endeavor to identify the
specific items and the estimated costs of the potential
Owner Direct Purchases (ODP). Contractor shall identify a
separate line item cost for each potential ODP item.
Contractor must clearly and separately identify any
contingency or allowance amount associated with any ODP
line items. The Contract Price must include the total cost
of the Work, including the cost of the ODP items and their
associated sales taxes.

Based upon its review of the Contract Documents, Contractor
shall recommend potential ODP items to [Taxpayer] and
[Taxpayer's] Construction Manager. After reviewing the
Contractor's recommendations and the applicable Contract
Documents, and after consultation with [Taxpayer's]
Construction Manager, [Taxpayer] shall make the final
determination as to which items will be purchased as ODP.

After [Taxpayer] identifies the ODP items, Contractor shall
prepare a standard purchase order requisition [attached as
Exhibit "B"] on [Taxpayer's] form, titled "Attachment A"
[to the Owner Direct Purchase/Sales Tax Savings Program],
to specifically identify the materials which [Taxpayer] has
elected to purchase directly. The purchase order
requisition form shall include the following information:

Project Name;
Contractor Name;
Manufacturer/Supplier Name;
Name, address, telephone number and contact person for
Manufacturer/Supplier;
Manufacturer or brand model or specification number of the
item;
The quantity and unit of measure needed as estimated by

Contractor;
The price quoted by the Manufacturer/Supplier for the
materials or equipment identified;
All sales tax associated with the price quote;
Delivery address;
Delivery dates;
Delivery instructions;
Vendor identification number;
Mailing address for invoices.

All purchase order requisitions prepared by Contractor must
be sent to [Taxpayer's] Construction Management Department,
with a copy to [Taxpayer's] Construction Manager, and
expressly approved by [Taxpayer] before they will be sent
by [Taxpayer] to the applicable Manufacturer/Supplier. In
preparing the standard purchase order requisition, the
Contractor shall include all terms and conditions, which
may have been negotiated by the Contractor with the
Manufacturer/Supplier (e.g., payment terms). To the extent
any such terms or conditions differ from the standard terms
and conditions included in [Taxpayer's] standard purchase
order requisition form attached as "Attachment A", such
differences must be specifically identified to [Taxpayer]
and [Taxpayer's] Construction Manager by Contractor at the
time the Contractor forwards the requisition to them for
their review. All shipping expenses associated with any ODP
item (including all freight insurance) must be included in
the cost of that item and not charged as a separate item.

All purchase order requisitions prepared by Contractor must
be submitted to [Taxpayer] and [Taxpayer's] Construction
Manager no less than 14 calendar days prior to the need for
the ordering of the subject ODP item, in order to provide
sufficient time for their review. Contractor is responsible
for ensuring that all necessary attachments to the purchase
order requisition (e.g., shop drawings, details,
specification sheets, etc.) required to properly place the
order with the Manufacturer/Supplier, have been attached to
the purchase order requisition at the time it is sent to
[Taxpayer and Taxpayer's Construction Manager] for their
review. Once approved by [Taxpayer], [Taxpayer] shall

forward the completed purchase order requisition, with all
attachments, to the Manufacturer/Supplier, with a copy to
the Contractor.

As ODP items are delivered to the job site, the Contractor
shall visually inspect all shipments from
Manufacturer/Suppliers, and approve the vendor's shipping
record for the material delivered. The Contractor shall
assure that each delivery of an ODP item is accompanied by
the appropriate documentation to adequately identify the
purchase order number against which the purchase is made
and to confirm that the correct type and quantity of the
ODP item has been delivered in the appropriate condition.
The Contractor's approval will include a legible signature
(printed) of the person who inspected the delivered items,
dated as of the date of delivery.

All invoices from the Manufacturer/Supplier must be
directed and sent to [Taxpayer's] Construction Management
Department via the Contractor. It is the responsibility of
the contractor to review all such invoices and confirm
their correctness before forwarding them on to [Taxpayer's]
Construction Manager and [Taxpayer] for processing and
payment. The Contractor shall verify in writing to
[Taxpayer] the accuracy of the invoice in relation to the
delivery ticket and the ODP items actually delivered. The
Contractor shall obtain from the Manufacturer/Supplier all
releases and other necessary supporting documentation which
may be required by [Taxpayer] and shall insure that all
such releases and supporting documentation have been
attached to the invoice before forwarding the invoice to
[Taxpayer] for processing and payment. The Contractor also
is responsible for obtaining from the Manufacturer/Supplier
all warranties, operating information and manuals, spare
parts and all other items required to be provided by the
Manufacturer/Supplier. The Contractor shall review all such
items for compliance with the requirements of the Contract
Documents and shall organize and deliver all such items to
[Taxpayer] as part of its requirements for achieving
Substantial Completion of the Work.

Each month the Contractor, [Taxpayer] and [Taxpayer's]
Construction Manager shall review the ODP's, which have
been delivered and paid for during that month. Contractor's
monthly requests for payment will be reduced by an amount
equal to the value of any ODP's, including sales taxes,
incorporated into the [W]ork during the period for which
the monthly progress payment is requested. At a time of its
choosing, but prior to completion of the Work, [Taxpayer]
shall prepare an appropriate Change Order, for Contractor's
execution, which reduces the Contract Price by the total
cost paid by [Taxpayer] for the ODP's, together with the
amount of sales tax savings that have been realized as a
result of [Taxpayer] directly purchasing such items, less
ten percent (10%) of the sale tax savings realized. Further
the Change Order shall deduct from the Contract Price any
remaining contingency or allowance balance associated with
the subject ODP item.

Nothing in these procedures relieves the Contractor from
[its] responsibility for the requisitioning of the order,
scheduling, coordinating, insuring, delivery, unloading,
storage, installation, operation and warranty of all ODP
items, (as set forth in paragraph 4.6.2 of the General
Conditions.)

You represent that the order requisition form described above
will be furnished to the supplier or vendor, attached to the
Authority's order form, which will bear the authority's
exemption number and a signature of the Authority's designated
personnel for ordering.

With respect to the obligation to insure the ODP items, the
Contract provides:

4.5.14 Contractor shall purchase and maintain builder's
risk insurance coverage (on an "all risk", completed value
basis) for physical loss or damage upon the Work at the
Project site, as well as on all purchases made directly by
[Taxpayer] in accordance with any sales tax savings
programs that may be implemented by [Taxpayer] pursuant to
the terms of paragraph 4.6.2 hereafter ("Owner Direct

Purchase") to its full insurable value, whether any such
Work or Owner Direct Purchase is completed or in progress.
This insurance shall list [Taxpayer] as an additional
insured as to both the Work and the Owner Direct
Purchases... If not covered under the "all risk"
insurance, Contractor shall purchase and maintain similar
insurance on parts of the Work and Owner Direct Purchases
that are stored on and off the Project site or in transit
whether or not any such items are included in Payment
Application. The policy shall be endorsed to permit use or
occupancy by [Taxpayer] prior to Final Completion. The
property insurance may have a deductible amount, not
exceeding $25,000.00. Contractor shall be liable and
responsible for all such deductibles; provided, however,
[Taxpayer] shall be liable and responsible for such
deductibles as it may relate to any loss or damage to the
Owner Direct Purchases, so long as such loss or damage is
not due to the fault or neglect of Contractor or any one
for whom Contractor is legally liable. Further, the
schedule of values, to be prepared by Contractor pursuant
to the terms of paragraph 7.1.1 hereafter, shall contain a
separate line item to reflect the premium costs being paid
by [Taxpayer] to Contractor for providing the property
insurance for Owner Direct Purchases. The property
insurance shall comply with the requirements of this
Article.

An additional Supplementary Condition of the Contract is
Attachment I, OCIP. Under Section 1.0 of the OCIP, the insured
parties include the Owner, Construction Manager, Contractor, and
Subcontractors. Section 2.1 provides that the Owner has the
option to insure the Contract under an OCIP. Under Section
3.2.4, the Builder's Risk Insurance is to apply to all
materials, supplies, and equipment used or consumed for the
Project while at the project site. Under Section 3.2.4(f), the
owner is to be given written notice by the Contractor of
materials stored away from the project site. Owner will insure
such materials only if solely dedicated to the project.

Under Section 3.2.4(h), the owner gives the Contractor written
notice if it does not plan to purchase insurance covering its

directly purchased materials and the Contractor, by appropriate
change order, charges the owner for the cost of such insurance
purchased by the Contractor. You represent that it will be
possible for Taxpayer to isolate its costs for insuring owner
direct purchased materials as a separate line item under
"Builder's Risk" and exclude it from the Contractor's
obligations. You further represent that it is your position that
the Attachments to the Contract Documents automatically control
in case of conflict and that you decline to so state expressly.
Section 2.1.1 of the General Conditions, Intent of Contract
Documents, states where relevant:

... When words which have a customary technical or trade
meaning are used to describe work, materials, or equipment,
such words shall be interpreted in accordance with that
meaning, unless a contrary definition appears in the
CONTRACT DOCUMENTS, in which case the CONTRACT DOCUMENTS
shall control.

Section 2.2 of the General Conditions, Priority of the Contract
Documents, states where relevant:

2.2.1 In resolving inconsistencies among two or more
sections of the CONTRACT DOCUMENT, CONTRACTOR shall be
obligated to comply with the more costly or stringent
requirement, as determined by [Taxpayer]. Figure dimensions
on DRAWINGS shall take precedence over scale dimensions.
Detailed DRAWINGS shall take precedence over general
DRAWINGS.

This is consistent with your position that the more specific
controls the general and will do so with respect to the Program
and OCIP.

To summarize:

1. The Authority may elect to purchase materials and
   equipment included in a contractor's bid directly from the
   supplier.

2. Contractor will select the suppliers from whom materials

will be purchased.

3. From the Requisition, Authority prepares a Purchase
   Order containing necessary exemption information and the
   signature of the Authority's authorized personnel and
   issues the purchase order directly to the supplier.

4. Although Authority will take title to Materials
   purchased pursuant to the Program upon delivery to the job
   site, the Contractor will have contractual obligations to
   inspect, accept delivery of, and store the Materials
   pending incorporation into the project. Contractor will
   have the duty to safeguard, store and protect the Materials
   and will be liable to Authority for the performance of
   these duties while the materials are in its possession
   until returned to Authority through incorporation into the
   Project.

5. After verifying that delivery is in accordance with the
   purchase order, Contractor will forward approved invoices
   to Authority with appropriate documentation and Authority
   will process the invoices and issue payment directly to the
   supplier.

6. On behalf of Authority, the contractor will carry
   builders risk insurance sufficient to cover Authority
   purchased materials. Authority will reimburse the
   Contractor for premiums paid to insure the Authority
   purchased materials.

Law

Sales to governmental units are exempt from sales tax pursuant
to Section 212.08(6), F.S., which provides:

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 does not include
sales of tangible personal property made to contractors

employed either directly or as agents of any such
government or political subdivision thereof when such
tangible personal property goes into or becomes a part of
public works owned by such government or political
subdivision....

Rule 12A-1.001(9), F.A.C., entitled "Governmental Units,"
contains guidelines for claiming and documenting the exemption.
Governmental entities must obtain a consumer's certificate of
exemption from the Department. Vendors are required to obtain
for their records proper documentation of the exempt status of
the sale.

By its terms, Section 212.08(6), F.S., 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, F.A.C., which provides:

(1) This rule shall govern the taxability of transactions
in which contractors manufacture or purchase supplies and
materials for use in public works....

(2) The purchase or manufacture of supplies or materials by
the contractor for incorporation into a public works
project is taxable to the contractor since he is the
ultimate consumer....

(3)(a) The purchase or manufacture of tangible personal
property for resale to a governmental body is exempt from
tax provided this exemption shall not include sales of
tangible personal property made to contractors employed
either directly or as agents of the United States
Government, a state, or any county, municipality, or
political subdivision of a state when such tangible
personal property goes into or becomes a part of public
works financed or owned by such governmental bodies or
political subdivisions.

(b) With regard to contracts with government entities, the
exemption in subsection (3)(a) is appropriate only where
the levy would otherwise fall on the government itself, or
on an agency or instrumentality so closely connected with
that government that the two cannot realistically be viewed
as separate entities, at least insofar as the activity
being taxed is concerned. A finding of exempt status,
however, requires something more than the implication of
traditional agency notions, so that to resist a state's
taxing power, a private taxpayer must actually stand in the
government's shoes as a principal, rather than as a
contractor employed either directly or as the government's
agent. A contractor will not be deemed to actually stand
in the government's shoes if the contractor has a
substantial independent role in making purchases.
Accordingly, the fact that title passes directly to the
government and payment is made with government funds, in
and of itself, cannot characterize the transaction as an
exempt purchase if the purchasing entity, in its role as a
purchaser, is sufficiently distinct from the government.

(4) The exemption subsection (3)(a) is a general exemption
for sales made to the government.... 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 on the substance of the
transaction, rather than the form in which the transaction
is cast. The Executive Director... will determine whether
the substance of a particular transaction is governed by
subsection (2)(a) or is a sale to a governmental body as
provided by subsection (3) of this rule based on all of the
facts and circumstances surrounding the transaction as a
whole. The Executive Director... will give special
consideration to factors which govern the status of the
tangible personal property prior to its affixation to real
property. Such factors include provisions which govern
bidding, indemnification, inspection, acceptance, delivery,
payment, storage, and assumption of the risk of damage or
loss for the tangible personal property prior to its
affixation to real property. Assumption of the risk of

damage or loss is a paramount consideration. A party may
be deemed to have assumed the risk of loss if the party
either: bears the economic burden of posting a bond or
obtaining insurance covering damage or loss; or enjoys the
economic benefit of the proceeds of such bond or insurance.
Other factors that may be considered by the Executive
Director... include whether: the contractor is authorized
to make purchases in its own name; the contractor is
jointly or severally liable to the vendor for payment:
purchases are not subject to prior approval by the
government; vendors are not informed that the government is
the only party with an independent interest in the
purchase; and whether the contractors are formally
denominated as purchasing agents for the government. Sales
made pursuant to so called "cost-plus", "fixed-fee", "lump
sum", and "guaranteed price" contracts are taxable sales to
the contractor unless it can be demonstrated to the
satisfaction of the Executive Director... that such sales
are, in substance, tax exempt sales to the government.

(5) Contractors who manufacture materials for incorporation
into public works shall be liable for tax in the manner
provided in Rule 12A-1.051(10), F.A.C....

Discussion, Analysis and Conclusion

Rule 12A-1.001(9), F.A.C., states that, in order for a sale to a
state or local governmental entity to be tax exempt, "payment
must be made directly to the dealer by... the political
subdivision of a state...." Rule 12A-1.094(2) and (3), F.A.C.,
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
prior to its incorporation into realty, and satisfy various
factors contained in Rule 12A-1.094, F.A.C.

Under Rule 12A-1.094, F.A.C., the Department will also give

special consideration to several factors (bidding,
indemnification, inspection, acceptance, delivery, payment, and
storage) which govern the status of tangible personal property
prior to its affixation to real property when determining
whether the sale is to the tax exempt entity or to a contractor.
However, the assumption of risk of damage or loss during the
time that the building materials are physically stored at the
job site prior to their installation or incorporation into the
project is a paramount consideration. The governmental entity
must assume all risk of loss or damage for the tangible personal
property during that period. 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 summarize, the conditions that must be met to satisfy the
requirements of Rule 12A-1.094, F.A.C., 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, which must include the governmental entity's
   consumer's certificate of exemption number. 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 up until the
   time it is incorporated as real property;

3. Vendors must directly invoice the governmental entity
   for supplies;

4. The governmental entity must directly pay the vendors
   for the tangible personal property; and

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.

The CONTRACT DOCUMENTS, Owner Direct Purchase/Sales Tax Savings
Program, and OCIP appear to satisfy the foregoing requirements
for exemption of transactions as sales to a governmental entity.
Authority will make direct purchases of various construction
materials. Contractor will prepare, for Authority approval,
requisitions for direct purchases. Authority will prepare
detailed Purchase Orders, including its exemption documentation,
and forward them to the vendor. After receiving the approved
invoices from Contractor, Authority will pay the vendors
directly. Authority will retain legal, and equitable, title to
all materials it purchases, and it will be responsible for the
cost of insurance on those materials under the Agreement.

Based upon the conclusion that Authority is the purchaser, all
purchases of materials that are made in accordance with the
Agreement will be exempt from sales tax. It is necessary that a
properly completed exemption certificate be extended at the time
of purchase to each of the vendors. A suggested format for an
exemption certificate is provided in Rule 12A-1.039, F.A.C., a
copy of which is enclosed.

Please note that this response does not apply to a contractor
that manufactures or fabricates its own materials as specified
in Rule 12A-1.094(5), F.A.C. 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), F.A.C.

This response constitutes a Technical Assistance Advisement
under Article 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 Article 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 Article 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 15 days of the date of this
letter.

Sincerely,

Karen Kugell
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4834

KK/
Enclosure.: Rule 12A-1.039, F.A.C.
Control #: 42333