Did one purchase order combining five quotes for all doors and millwork on a building job receive one $5,000 discretionary surtax cap?

Subject

Discretionary Sales Surtax Limitation

Plain-English summary

The doors and millwork could receive one $5,000 discretionary surtax limitation if the purchase order stated specific quantities and a definite final delivery date. One order could combine the vendor's five separate proposals and still constitute one sale, even if deliveries occurred in installments.

The items also met the bulk-sale test because contractors normally bought multiple doors and millwork together for one job. A single order alone was not enough for unrelated items not normally sold in bulk or assembled into a working unit.

What this means for you

Both the transaction and the goods had to qualify: one documented buyer-seller agreement with a delivery deadline, plus items commonly bought in bulk or as a working unit.

Common questions

Q: Did five quotes create five separate sales? No, when accepted through the one qualifying purchase order.

Q: Could deliveries occur in installments? Yes, if the order set a definite final delivery date.

Q: Did all items on one order automatically aggregate? No.

Citations and references

• Fla. Stat. § 212.054(2)(a) and (b) — discretionary sales surtax and $5,000 limitation
• Fla. Admin. Code r. 12A-15.004(2)(b) and (d) — bulk items and single sales
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-042

Original ruling text

SUMMARY

QUESTION: Does the $5,000 discretionary sales surtax
limitation apply to a single purchase order for multiple
quantities of items?

ANSWER - Based on Facts Below: Taxpayer presented a
building plan to a vendor for the vendor to make a proposal
for all interior and exterior doors, baseboard, window and
door casings and hardware. The vendor presented 5 separate
proposals. Taxpayer issued a single purchase order
covering all the items in all 5 of the proposals. Purchase
orders that combine multiple quotes, and which specify a
specific quantity of items to be delivered by a certain
time, meet the single sale test for purposes of the $5,000
discretionary sales surtax limitation. Likewise, purchases
of all of the doors and millwork needed for a single job
meet the bulk sale test for purposes of the $5,000
discretionary sales surtax limitation. The purchase order
that you provided and described in your request would
qualify for a single $5,000 discretionary sales surtax
limitation if it specifies a date certain by which delivery
would occur

Jul 25, 2001

Re: Technical Assistance Advisement 01A-042
Sales and Use Tax - Discretionary Sales Surtax Limitation
Section: 212.054, F.S.Rule: 12A-15.004, F.A.C.
Petitioner: XX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated June 21, 2001,
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, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.

FACTS

Your letter provides the following relevant information:

In May[,] we presented a set of building plans to [vendor] for
them to do a take off on all interior and exterior doors,
baseboard, [window] and door casings and hardware. [Vendor]
presented us with (5) different proposals... for the different
areas priced (plus sales tax). We did not request separate
proposals[; Vendor] chose to present their pricing in this
fashion. We accepted their net pricing and issued a purchase
order (#162) as our acceptance. They are arguing the surtax
cap, which we feel should apply to this order.

REQUESTED ADVISEMENT

You request advice on the applicability of the $5,000
discretionary sales surtax limitation to your purchase order.

LAW AND DISCUSSION

Under section 212.054(2)(a), F.S., the basic principle in
applying discretionary surtaxes is that they piggyback the state
sales and use tax. If a transaction is subject to sales tax and
occurs at a location where surtax is imposed, the surtax also
applies. The surtax is imposed on all transactions that are
subject to sales tax, and it is not limited to sales of tangible
personal property. Section 212.054(2)(b), F.S., limits
application of that principle when there is a sale of an item of
tangible personal property for over $5,000. The surtax in that
case applies only to the first $5,000. Subparagraph (b)1. of
the statute then sets out very specific circumstances in which
more than one item can be aggregated for purposes of application
of the surtax. That provision reads:

... For purposes of administering the $5,000 limitation on

an item of tangible personal property, if two or more
taxable items of tangible personal property are sold to the
same purchaser at the same time and, under generally
accepted business practice or industry standards or usage,
are normally sold in bulk or are items that, when
assembled, comprise a working unit or part of a working
unit, such items must be considered a single item for
purposes of the $5,000 limitation when supported by a
charge ticket, sales slip, invoice, or other tangible
evidence of a single sale or rental....

The statute requires application of the $5,000 limitation on an
item-by-item basis, except for very specific circumstances when
multiple items will be viewed as a single item. In order for
the exception to apply, two tests must be satisfied. There must
be a single sale in which one purchaser buys all the items at
the same time, with a purchase order or other documentary
evidence that there has been such a single transaction. Second,
the multiple items reflected on that documentation will be
aggregated for purposes of applying the $5,000 limitation only
if they fall into one of two categories. They must either be
items that are normally sold in bulk, or they must be items that
will be assembled into a working unit or a part of one.

Single Sale Test

Items that meet the bulk sale/working unit standard cannot be
aggregated if they are not purchased in a single sale. A
roofing contractor may not aggregate shingles purchased in June
with shingles purchased in July, even if that contractor
ordinarily purchases shingles in bulk. The single sale
requirement addresses the character of the transaction itself,
whether there has been one discrete transaction to which the
limitation can be applied or multiple sales that are separately
subject to the limitation. Meeting this requirement is a matter
of documenting that there was one buyer, one seller, and that
the agreement to buy and sell occurred at the same time as to
all of the items involved.

Rule 12A-15.004(2)(d), F.A.C., is concerned with the single sale
requirement. It provides as follows:

Where a purchase order is issued by the purchaser to
the selling dealer, or an agreement is made between the
selling dealer and the purchaser which is reduced to
writing, that provides for the purchase of a specific
quantity of tangible personal property which, according to
the terms and conditions set out in the purchase order or
agreement, is to be delivered to the purchaser within a
definite specified time, such transaction constitutes one
sale for purposes of the $5000 limitation. Delivery of the
tangible personal property so ordered within the time
specified in the purchase order or agreement will
constitute one sale notwithstanding that due to the nature
of the property it must be delivered in installments or
that multiple deliveries may be necessary to consummate
delivery to the purchaser. In the absence of a written
purchase order or written agreement reflecting the above
conditions, each individual delivery of tangible personal
property is to be considered one sale. Each individual
delivery of tangible personal property on purchase orders
for indefinite quantities or open-end purchase orders is
considered to be one sale. (Emphasis Supplied)

The rule is intended to apply to situations where a total
quantity of items that could otherwise be aggregated is not
delivered and invoiced at a single time, usually because of the
nature of the property or the project for which it is needed.
For example, a road contractor knows that he will need a certain
number of tons of asphalt delivered over the next three months
for a project. He places an order for the total amount now to
fix the price per ton and assure availability, with delivery to
occur as needed to the location where his crew is operating at
any given time and final delivery no later than a specified
date. The rule would permit viewing the transaction as a single
sale so the separate deliveries of asphalt could be aggregated
and tax would be owed only on the first $5,000.

The rule does not state that all the items on a qualifying
purchase order will be aggregated, only that they will be
treated as sold in a single sale. This provision of the rule is
not concerned with what types of items can be aggregated and

viewed as a single item and does not address that issue.

Your company issued a single purchase order to vendor for the
purchase of multiple items of tangible personal property. All
items purchased pursuant to a single purchase order, when a
specific quantity of items are ordered, and which items are to
be delivered by a specific time, qualify as a single sale. The
fact that the single purchase order combines several proposals
does not affect the purchase order's qualification as a single
sale. It should be noted that if the items are to be delivered
in installments or multiple deliveries are necessary to
consummate delivery, your purchase order needs to include a time
certain by which the items ordered should be delivered in order
to be in complete compliance with the single sale test.

Bulk Sale/Working Unit Test

Items cannot be aggregated solely because they are purchased in
a single sale. The bulk sale/working unit test must also be
met. This requirement addresses the character of the items
purchased. Items may be viewed as a single item only if they are
items that fall within one of two categories. The category of
items usually sold in bulk encompasses multiple quantities of
items ordinarily sold in such quantities rather than one at a
time. This applies, for example, to wall studs purchased by a
carpenter or circuit breakers purchased by an electrician. The
category of items usually assembled into a working unit
addresses items that are commonly purchased together because
their utility is dependent upon their assembly into some larger
unit. An example of the working unit concept would be a
purchase of sheet metal, screws, tape, and sealant by an air
conditioning contractor to construct a ductwork system.

The relevant provision for guidance in application of the bulk
sale/working unit standard is Rule 12A-15.004(2)(b), F.A.C.,
which reads in part as follows:

1. For purposes of administering the $5,000 limitation on
   any item of tangible personal property, if two or more
   taxable items of tangible personal property are sold to the
   same purchaser at the same time and, under generally

accepted business practice or industry standards or usage,
are normally sold in bulk or are items which, when
assembled, comprise a working unit or part of a working
unit, such items shall be considered a single item for
purposes of the $5,000 limitation when supported by a
charge ticket, sales slip, invoice, or other tangible
evidence of a single sale or rental.... (Emphasis Supplied)

f. Example: When a lumber and supply dealer sells lumber of
various kinds and sizes, nails of different sizes, rolls of
felt, squares of shingles, or other building materials
normally sold in bulk and the sale is on one invoice, the
sale will be considered to be a single item and the surtax
applies to the first $5,000 of the total invoice. If,
however, the invoice contains items not normally sold in
bulk (e.g., hammers, saws, shovels, power drills,
refrigerators, stoves, washing machines, dryers and other
appliances, ceiling fans) the surtax will apply to the
first $5,000 for each item not usually sold in bulk.

You routinely purchase all of the doors and millwork needed for
a project in bulk. Purchases of these items are similar to the
example where a contractor purchases multiple quantities of the
various materials and supplies needed to build a roof. The
items involved are typically purchased by contractors in
multiple quantities, and the items are all used in conjunction
with each other in constructing buildings. They may be
aggregated for purposes of the $5,000 surtax limitation.

CONCLUSION

Purchase orders that combine multiple quotes, and which specify
a specific quantity of items to be delivered by a certain time,
meet the single sale test for purposes of the $5,000
discretionary sales surtax limitation. Likewise, purchases of
all of the doors and millwork needed for a single job meet the
bulk sale test for purposes of the $5,000 discretionary sales
surtax limitation. The purchase order that you provided and
described in your request would qualify for a single $5,000
discretionary sales surtax limitation if it specifies a date
certain by which delivery would occur.

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 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,

Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/414-9838

Control #45740