Could a public sports authority buy furnishings and equipment tax-free for a facility leased to a professional team?

Subject

Exemption for Purchases by Public Entities

Plain-English summary

The public sports authority's direct purchases of furnishings, fixtures, and equipment were exempt when paid with authority funds under the specified procedures. The authority issued its own purchase orders, received vendor invoices, paid from the project fund, took title at delivery, and was responsible for insured risk of loss.

The exemption applied only to items purchased with authority funds, not items funded by the team or its related partnership. The Department also rejected the separate claim that the authority bought the items for resale: the facility rent did not allocate separate consideration to the furnishings, so they were incidental to the real-property rental.

What this means for you

A public entity can preserve its direct-purchase exemption on a privately used project when the documents and money trail make it the genuine buyer. Merely allowing a tenant to use the property does not make the public entity's acquisition a resale.

Common questions

Q: Were authority-funded direct purchases exempt? Yes.

Q: Were team-funded items covered? No.

Q: Could the authority issue a resale certificate for the furnishings? No.

Citations and references

• Fla. Stat. § 212.08(6) — governmental sales-tax exemption
• Fla. Admin. Code rr. 12A-1.039 and 12A-1.094 — exemption certificates and public-works purchases
• Fla. Admin. Code r. 12A-1.051(10) — contractor-manufactured or fabricated property
• Florida Hotel & Motel Association, Inc. v. Department of Revenue, 635 So. 2d 1044 (Fla. 1st DCA 1994)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-004

Original ruling text

SUMMARY

QUESTION: Do purchases of furnishings, fixtures, and
equipment by a public sports authority for a sports team
facility qualify for exemption from sales tax under s.
212.08(6), F.S.?

ANSWER - Based on Facts Below: Furnishings, fixtures, and

equipment purchased by a public sports authority for use in
a facility to be leased to a professional sports team can

be purchased tax exempt where the purchases are made with
public funds and under the terms of the controlling
documents: (1) the authority issues its purchase orders
directly to the vendors; (2) the purchase orders include

the authority's consumer's certificate of exemption number
and the authority will provide the vendor with a

certificate of exemption; (3) the vendors invoice the
authority directly; (4) the authority issues its checks

directly to the vendors in payment of the invoices; (5) the
authority takes title to the materials from the vendor and
assumes liability for the materials upon their delivery to

the facility; (6) the authority assumes the risk of loss of

the materials upon delivery, which is clearly established

by the authority bearing the economic burden of the
purchase of insurance against loss or damage; and (7) the
remaining terms of the documents do not prevent concluding
that the authority rather than the contractor or the sports
team is in substance as well as form the purchaser of the

materials.

Jan 08, 2001

Re: Technical Assistance Advisement 01A-004
Sales and Use Tax -- Exemption for Purchases by Public
Entities

Section 212.08(6), F.S.

Dear:

This is in response to your letter to the Florida Department of
Revenue dated November 29, 2000, in which you request a
technical assistance advisement ("TAA") indicating that certain
purchases described in your letter will be exempt from Florida

sales and use tax.

Facts

XXX ("Authority") was created by Chapter 65-2307, Laws of
Florida (1965), as amended by Chapter 96-520, Laws of Florida
(1996)(the "Act"), to plan, develop, promote, and maintain

sports and recreation facilities for "the use and enjoyment of

the citizens of XXX and XXX County." Authority is empowered to
purchase, construct, reconstruct, equip, maintain, and operate
any stadium or other sports facility. Authority may lease,

license, or contract out the operation of its facilities.

Authority holds both a consumer's certificate of exemption as a

governmental entity and a dealer's certificate of registration.

XXX ("LP") is a limited partnership formed to enter into
agreements with Authority concerning the construction and
operation of a football stadium and related facilities. LP is

owned and controlled by the same persons as the XXX ("Team"), a
limited partnership that owns the XXX franchise. On August 28,
1996, Authority and LP entered into a Stadium Agreement pursuant
to which Authority undertook the construction of XXX (the
"Stadium") and licensed the Stadium to Team for exhibition of

its games and related events. Construction of the Stadium was
funded with proceeds of bonds issued by Authority and backed by
local option sales surtaxes, tourist development taxes, and an

allocation of state sales taxes.

Team agreed to exhibit its games and other events at the
Stadium. Team pays $3,500,000 annually under the Stadium
Agreement, plus a surcharge on sales of tickets to Team games
and 50 percent of the revenue from non-Team events in excess of
$2,000,000. The $3,500,000 fixed payment is allocated
$2,000,000 to rental of the Stadium, $1,000,000 to rental of a
Practice Area to be used for certain Team activities, and

$500,000 as compensation for certain Development Rights. LP

agreed to unconditionally guarantee Team's obligations as
described in the Stadium Agreement. The initial term of the
Stadium Agreement ends in 2028. Team has the right to extend
the Agreement for a total of 20 additional years. Other than an
increase in the fixed amount to be paid annually to the
Authority, all extensions will be on the same terms and

conditions as in the original Stadium Agreement.

Several other agreements were executed contemporaneously with
the Stadium Agreement. One of these, the Stadium Parcel
Development Agreement, granted LP the right to develop certain
Stadium-related facilities on a parcel of land adjacent to the
Stadium and owned by Authority. The Practice Area Development
and Lease Agreement (the "1996 Agreement") provided that
Authority would provide $12,000,000 that was reserved from the
bond proceeds (the "Project Fund") to acquire and develop a
Practice Area facility to be leased to Team for the same

duration as Team leased the Stadium. The only rent to be paid
for the Practice Area was the $1,000,000 annually provided for
in the Stadium Agreement. The Practice Area facility was to be
used for practice and training areas, administrative offices,

retail merchandise sales, preparation and sale of food and
beverages, sales of tickets to practices held at the Practice
Area, and hosting public functions and meetings. Any costs in
excess of $12,000,000 must be paid by Team. Team would hold
title and have the right to remove personal property and trade
fixtures purchased with Team funds. All real property
improvements and any personal property, fixtures, furniture, and
equipment paid for with Authority funds would be and remain the

property of Authority.

The 1996 Agreement provided that a Disbursement Agreement would
be entered into to provide procedures for making expenditures

from the Project Fund. The Disbursement Agreement was required
to "include such provisions for direct payment by the Authority

to the contractor, subcontractors or suppliers providing goods

or services to the construction of the Improvements, together

with such provisions regarding risk of loss and theft,

acceptance of title and such other matters as may be reasonably
necessary to allow the Team to take advantage of the tax exempt

status of the Authority in connection with the purchasing of

goods and services to be incorporated into the Improvements."

On September 20, 1999, LP and the Authority entered into a
Project Development Agreement (the "1999 Agreement") concerning
the Stadium Parcel and the Practice Area. The 1999 Agreement
states that it replaces the Disbursement Agreement otherwise
required by the 1996 Agreement. Pursuant to the 1999 Agreement,
the parties agreed that the Practice Area would be constructed

on the Stadium Parcel. Authority was required to engage and pay
an architect to develop a design criteria package for approval

by Authority and LP. Authority would then prepare and distribute
requests for proposals for a prime contractor to design and
construct the Practice Area. Selection of the prime contractor

and negotiation of contract terms would be by a committee
composed of both Authority and LP representatives, with
Authority's Board to have final review and approval authority.

LP would serve as Project Manager.

The design/build contract was to be on a cost plus fixed fee
basis and could contain a guaranteed maximum price provision.
In addition, the contract must require the general contractor to
"segregate building materials and equipment for direct purchase
by the Authority to ensure that the Authority's sales tax exempt
status is utilized for the Project to the greatest extent

legally permissible,....". Section 12 of the 1999 Agreement

provides as follows:

Section 12. Purchase of FF&E. After the design build

contract is executed, [LP] shall provide the Design Builder
with a list of all furniture, fixtures and equipment to be
acquired for the Project and funded from the Authority's
Project Fund and the Design Builder shall submit to the
Authority drafts of purchase orders to be issued by the
Authority for their acquisition. All such purchase orders
shall be in increments of not less than One Thousand
Dollars ($1,000). The Authority shall be reimbursed from
the Authority's Project Fund for all reasonable
administrative costs incurred by the Authority to issue

such purchase orders.

Taxpayer's letter explains that this section refers to items

such as lockers, benches, furniture, and exercise equipment.
That letter also states that the purchase orders will include
Authority's consumer's certificate of exemption number. In
addition, the letter states that vendors will be instructed to
directly invoice Authority. (The 1999 Agreement does not
explicitly state that such instructions will be given, but it

would be customary for vendors to address invoices to the
purchaser identified on the purchase orders.) Payment will be

made by Authority from the Project Fund.

Section 24 of the 1999 Agreement addresses insurance during the
construction period. It provides that "Authority shall purchase

and continuously maintain (or shall require the Design Builder

to purchase and continuously maintain) builder's risk insurance

on acompleted value basis." If Authority purchases the
insurance, LP must be named as an additional insured. If
Authority causes the Design Builder to purchase the insurance,
Authority, LP, and LP's general partner must all be named as
additional insured parties. (Section 31 of the 1999 Agreement
requires LP to indemnify Authority against any loss, including
injury to or destruction of the Stadium and tangible personal
property. That requirement does not apply, however, to work on
the Practice Area project that is otherwise adequately insured.)
Authority's letter also states that Authority's existing

property insurance on the Stadium, on which Authority pays the
premiums with its own funds, would apply to tangible personal
property purchased pursuant to Section 12 of the 1999 Agreement

at the point in time when it is delivered.

Requested Advisement

You have requested an advisement on whether purchases of
furniture, fixtures, and equipment (the "Furnishings") pursuant
to Section 12 of the 1999 Agreement will be exempt from Florida

sales and use taxes.

Taxpayer Position

Taxpayer believes the purchases of the Furnishings are exempt

under section 212.08(6), F.S., and Rule 12A-1.094, F.A.C., as

direct purchases of tangible personal property by a governmental

entity. In addition, Taxpayer asserts the purchases should be
exempt as purchases for resale on the basis that Authority will

lease the Furnishings to Team.

Law and Analysis

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. A determination 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 department
shall adopt rules that give special consideration to

factors that govern the status of the tangible personal
property before its affixation to real property. In

developing these rules, assumption of the risk of damage or

loss is of paramount consideration in the determination....

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 the governmental entity,
purchases tangible personal property which is to be incorporated

into public works owned by the entity.
Administrative guidelines governing the taxability of materials
purchased for public works contracts, 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)....

(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....

(4) The exemption in 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...

Rule 12A-1.001(9), F.A.C., states that in order fora sale toa
state or local governmental entity to be tax exempt, "payment
must be made directly to the dealer by... the political
subdivision of a state." Subsections (2) and (3) of Rule
12A-1.094, 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 a
public facility, 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 tangible personal

property.

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 into the public facility;

3. Vendors must directly invoice the governmental entity

for the tangible personal property;

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 those

materials.

The provisions of the 1996 and 1999 Agreements appear to satisfy
the foregoing requirements for exemption of transactions as

sales to a governmental entity. Authority will make direct
purchases of the Furnishings. After receiving drafts from the
contractor, Authority will prepare its own purchase orders for

the Furnishings. After receiving the invoices from the vendors,
Authority will pay the vendors directly from the Project Fund.
Authority will take title to the Furnishings upon delivery and

retain title to them while they are used by Team under its lease

of the Practice Area facility. Authority will be responsible

for obtaining or having the contractor obtain builder's risk
insurance to cover any Furnishings during the construction phase
and will be a named insured party on such insurance. (If the
contractor purchases the insurance under a cost reimbursement
plus fee contract, the cost of the insurance will be borne by
Authority if that cost is paid from the $12,000,000 in the

Project Fund but could be reimbursed by LP if the Project Fund
is exhausted before all insurance premiums are paid.) In
addition, the Furnishings will be covered by Authority's

property insurance on the Stadium, which Authority pays for with
public funds. Authority would receive any insurance proceeds

related to the loss or destruction of the Furnishings.

Based upon the conclusion that Authority is the purchaser, all
purchases of Furnishings which are made in accordance with the
provisions of the 1996 and 1999 Agreements discussed above will
be exempt from sales tax. It is necessary, however, that a
properly completed exemption certificate be extended at the time
of purchase to each of the vendors. Please see Rule 12A-1.039,

F.A.C., for a suggested format for an exemption certificate.

Please note that this response does not apply to a contractor
that both manufactures or fabricates its own materials and also
installs those materials so that they become a part of the
Practice Area facility in terms of being attached or affixed to

the facility. As specified in Rule 12A-1.094(5), F.A.C.,
contractors and subcontractors who perform such contracts, 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 subsection of the rule is not
applicable to items that are not attached in any way, such as

free-standing furniture and equipment.)

The request for advisement also argues that Authority's
purchases of the Furnishings are tax exempt because Authority is
purchasing those items for the exclusive purpose of leasing them
to Team. This is not the case. Authority is renting real

property, the Practice Area facility, to Team for the $1,000,000

annual rental provided in the Stadium Agreement. That rental
will not be increased because of any improvements or tangible
personal property, including the Furnishings, added to the
Practice Area facility. No part of the annual rental payment is
allocated to the Furnishings. They are tangible personal
property that Taxpayer is using in the activity of leasing real
property to Team and that is provided to Team as an incidental

part of the real property rental.

Review of similar cases where a taxpayer acquires tangible
personal property that taxpayer will permit another to use in
the course of taxpayer carrying on its own business activity
supports denying resale treatment to Authority for the
furnishings. For example, a landlord must pay sales or use tax
on the furniture purchased to be provided with a furnished
apartment where there is no separate consideration for the
furniture. A hotel operator must pay tax on purchases of
furniture, bedding, and towels furnished to guests as part of

the amenities included in the rental of the room. See Florida

Hotel and Motel Association, Inc. v. Department of Revenue, 635

So.2d 1044 (Fla. 1st DCA 1994)("We conclude... that tangible

personal property purchased by hotels and motels for use in
guest rooms incident to their business is not purchased for
‘resale’ and, therefore, that there is no entitlement to a sales
tax exemption on that ground; and that imposition of a sales or
use tax upon the purchase of such property and upon rental of
guest rooms does not constitute duplicate taxation."). In

American Video Corp. v. Lewis, 389 So.2d 1059 (Fla. 1st DCA

1980), the court held converter boxes, cable, and similar items
used in providing taxable cable television services were not
purchased for resale by the taxpayer where they were provided to
customers at no itemized charge to enable customers to receive
cable signals. In Air Jamaica, Ltd. v. State, Department of

Revenue, 374 So.2d 575 (Fla. 3rd DCA 1979), cert. den., 392

So.2d 1371 (Fla. 1980), the taxpayer airline was denied resale
treatment on meals provided to taxpayers as part of the price of
a ticket.

Advisements

Except as otherwise provided above, the purchase of the

Furnishings pursuant to the 1996 and 1999 Agreements will be
exempt from taxes under s. 212.08(6), F.S., as direct purchases
by Authority. This advisement applies only to those items
purchased with Authority funds and not to any item purchased
with funds provided by LP or Team. Authority's purchases of the
Furnishings are not purchases for resale within the meaning of
Chapter 212, F.S., and Authority should not provide a resale

certificate when making those purchases.

Closing Statement

This response constitutes a Technical Assistance Advisement
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 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,

Linda W. Bridges

Senior Attorney

Technical Assistance and Dispute Resolution
(850) 922-9412

LWB/
Control #: 43261