Which natural-gas generating-plant equipment and reclaimed-water or wastewater-treatment purchases qualified for Florida sales-tax exemptions?
Apply this to your situation
This page answers the general question as of 2001. Ezel answers yours, under current Florida tax law, with citations.
Plain-English summary
The natural-gas electricity-and-steam facility and qualifying production machinery and equipment were exempt. Under the integrated-plant approach, items used in generation—including legally necessary supporting and pollution-control systems—could qualify, while equipment used only for electricity distribution did not.
The owner and contractor could make qualifying purchases exempt at the transaction when they followed the affidavit procedures and kept supporting records. Actual exempt use, not the affidavit alone, established the exemption.
Equipment treating reclaimed water for use in production qualified. Chemicals used in that process were not machinery and did not qualify under the generation-equipment exemption. Once the water became wastewater, treatment equipment qualified, and treatment chemicals could qualify under section 212.051 when required by a Department of Environmental Protection law or permit and supported by the proper certificate.
What this means for you
One generating project can contain exempt production equipment, taxable distribution equipment, exempt water-treatment machinery, and chemicals governed by a separate pollution-control rule. Each item needs a documented function.
Common questions
Q: Did qualifying generation equipment receive exemption? Yes.
Q: Did distribution-only equipment qualify? No.
Q: Was reclaimed-water treatment equipment exempt? Yes.
Q: When were wastewater chemicals exempt? When used for the required pollution-control purpose and properly certified.
Citations and references
- Fla. Stat. § 212.08(5)(c) — machinery and equipment used to produce electricity or steam
- Fla. Stat. § 212.051 — pollution-control equipment and specialty chemicals
- Jacksonville Electric Authority v. Department of Revenue, 486 So. 2d 1350 (Fla. 1st DCA 1986)
- Fla. Stat. § 213.22 — Technical Assistance Advisements
Source
- Landing page: Florida Tax Law Library
- Advisement: TAA 01A-066
Original ruling text
SUMMARY
QUESTION 1.: Taxpayer will be constructing an electricity
and steam generating facility that will be fueled by
natural gas. The first issue is whether the equipment and
systems as enumerated in an exhibit provided by the
Taxpayer constitute machinery and equipment necessary in
the production of electrical or steam energy and,
therefore, qualify for exemption from Florida sales and use
tax pursuant to Section 212.08(5)(c), Florida Statutes.
ANSWER 1. - Based on Facts Below: Those items that are
consistent with the findings of the JEA/FPL Declaratory
Statement and prior technical assistance advisements as
issued by the Department will qualify for exemption,
provided the proper affidavit procedures are followed.
QUESTION 2.: The second issue is whether the equipment and
chemicals used to treat process wastewater prior to
discharge at a municipal spray field will qualify for
exemption from Florida sales and use tax pursuant to
Section 212.051, Florida Statutes.
ANSWER 2. - Based on Facts Below: Provided the wastewater
is treated for the purposes of meeting a law implemented
by, or a condition of a permit issued by, the Department of
Environmental Protection, and the proper certificate
procedures are followed, the chemicals and equipment used
to treat the wastewater will qualify for exemption.
Oct 30, 2001
Re: Technical Assistance Advisement 01A-066
Sales and Use Tax
Construction of Electricity and Steam Generating Facility
Sections 212.08(5)(c) and 212.051, F.S.
Dear :
This is in response to your request for a Technical
Assistance Advisement (TAA) regarding the construction of a XXX
(megawatt) electricity and steam generating facility referred to
as the XXX (hereinafter "Facility") by XXX (hereinafter
"Contractor") for XXX (hereinafter "Owner"). Based on your
letter and supplementary information, the following is
understood.
The Contractor and the Owner are entering into a contract
(hereinafter "Agreement") for the construction of the Facility.
The Facility will be fueled by natural gas. The electricity
produced by the Facility will be supplied to the Owner's energy
company for wholesale distribution to the Florida market. The
Agreement between the Owner and the Contractor specifies the
amount to be paid for the Facility. The Agreement divides that
amount into three categories: an amount in payment of the
combustion turbine; an amount in payment for the balance of the
materials, equipment, and supplies listed in "Exhibit A" of the
Agreement which are necessary to construct the Facility; and an
amount for the work applicable to the design, construction, and
start-up of the Facility. The Agreement generally provides that
the Contractor will purchase the items listed in Exhibit A and
sell those items to the Owner.
The Owner has also entered into a reclaimed water agreement
with the XXX (hereinafter "City") whereby the Owner will use
reclaimed water in the Facility's cooling towers. The water is
subsequently returned to the City for discharge in the City's
spray fields. Prior to returning the water, the Owner will be
required to treat the reclaimed water with chemicals.
ISSUES
-
Whether the items listed in Exhibit A of the Agreement
constitute machinery and equipment necessary in the production
of electrical or steam energy and, therefore, qualify for
exemption from Florida sales and use tax pursuant to s.
212.08(5)(c), Florida Statutes. -
Whether the equipment and chemicals used to treat the
reclaimed water, which subsequently becomes wastewater, are
taxable or exempt from sales and use tax.
RELEVANT AUTHORITY
The following passages from the Florida Statutes (F.S.) are
pertinent to your request for a Technical Assistance Advisement.
Section 212.08(5)(c), F.S., provides:
(c) Machinery and equipment used in production of
electrical or steam energy.--
-
The purchase of machinery and equipment for use at a
fixed location which machinery and equipment are necessary
in the production of electrical or steam energy resulting
from the burning of boiler fuels other than residual oil is
exempt from the tax imposed by this chapter. Such
electrical or steam energy must be primarily for use in
manufacturing, processing, compounding, or producing for
sale items of tangible personal property in this state.
Use of a de minimis amount of residual fuel to facilitate
the burning of nonresidual fuel shall not reduce the
exemption otherwise available under this paragraph. -
In facilities where machinery and equipment are
necessary to burn both residual and nonresidual fuels, the
exemption shall be prorated. Such proration shall be based
upon the production of electrical or steam energy from
nonresidual fuels as a percentage of electrical or steam
energy from all fuels. Purchasers claiming a partial
exemption shall obtain such exemption by refund of taxes
paid, or as otherwise provided in the department's rules. -
The department may adopt rules that provide for
implementation of this exemption. Purchasers of machinery
and equipment qualifying for the exemption provided in this
paragraph shall furnish the department with an affidavit
stating that the item or items to be exempted are for the
use designated herein. Any person furnishing a false
affidavit to the vendor for the purpose of evading payment
of any tax imposed under this chapter shall be subject to
the penalty set forth in s. 212.085 and as otherwise
provided by law. Purchasers with self-accrual authority
shall maintain all documentation necessary to prove the
exempt status of purchases.
Section 212.051, F.S., provides in part:
212.051 Equipment, machinery, and other materials for
pollution control; not subject to sales or use tax. --
(1) Notwithstanding any provision to the contrary, sales,
use, or privilege taxes shall not be collected with respect
to any facility, device, fixture, equipment, machinery,
specialty chemical, or bioaugmentation product used
primarily for the control or abatement of pollution or
contaminants in manufacturing, processing, compounding, or
producing for sale items of tangible personal property at a
fixed location, or any structure, machinery, or equipment
installed in the reconstruction or replacement of such
facility, device, fixture, equipment, or machinery. To
qualify, such facility, device, fixture, equipment,
structure, specialty chemical, or bioaugmentation product
must be used, installed, or constructed to meet a law
implemented by, or a condition of a permit issued by, the
Department of Environmental Protection; however, such
exemption shall not be allowed unless the purchaser signs a
certificate stating that the facility, device, fixture,
equipment, structure, specialty chemical, or
bioaugmentation product to be exempted is required to meet
such law or condition.
...
(3) For the purposes of this section, "specialty chemicals"
means those chemicals used to enhance or further treat
wastewater, including, but not limited to, defoamers,
nutrients, and polymers, and "bioaugmentation products"
means the microorganisms used in waste treatment plants to
break down solids and consume organic matter.
DETERMINATION
Exemption of the Facility
The exemption provided under s. 212.08(5)(c), F.S., is
applicable to those facilities that produce electrical or steam
energy from the burning of fuels other than residual oil. The
natural gas to be burned at the Facility is not a residual oil
fuel. The exemption further requires that such electrical or
steam energy must be primarily used in manufacturing,
processing, compounding, or producing tangible personal property
for sale. It is the established position of the Department that
electrical energy and steam energy are forms of tangible
personal property that are produced for sale. Accordingly,
since the Facility does not burn residual oil and electrical
energy is produced for sale, the Facility qualifies for
exemption. Further, since residual oil is not a fuel source,
the Contractor and the Owner are not obligated under the
provisions of subparagraph 2. of the exemption statute to pay
tax on the purchases of machinery and equipment and seek a
subsequent refund of the exempt portion. The Contractor's and
Owner's purchases of qualifying machinery and equipment will be
exempt at the time of the purchase transaction.
Qualifying Purchases
The scope of s. 212.08(5)(c), F.S., was reviewed by the
First District Court of Appeal of Florida in Jacksonville
Electric Authority v. Department of Revenue, 486 So.2d 1350
(Fla. 1st DCA 1986). That case involved the taxable status of
certain machinery and equipment purchased by the Jacksonville
Electric Authority to be used in the burning of coal to produce
electrical energy.
The District Court of Appeal determined that it was the
legislative intent, based on the tape recorded proceedings of
the Florida Senate Committee on Ways and Means, to embrace the
"integrated plant theory" as a basis for interpreting the
exemption for machinery and equipment provided in s.
212.08(5)(c), F.S. Under the "integrated plant theory,"
machinery and equipment used in the process of generating
electrical energy, regardless of the fact that such machinery
and equipment was not intrinsically necessary to generate
electrical energy or the sole purpose of such machinery and
equipment was to make the plant function more practically, would
be considered a component part of the manufacturing process.
Therefore, the machinery and equipment used in the process of
generating electrical energy, but not distribution, would
qualify for exemption.
The Court further construed s. 212.08(5)(c), F.S., to
include pollution control equipment as "necessary in the
production of steam or electrical energy," notwithstanding that
a plant could theoretically produce electrical or steam energy
without the legally mandated pollution control equipment. The
Court stated:
"No matter how theoretical the physics of producing steam
or electrical energy, in reality, no equipment or machinery
in Florida is going to produce electricity without the
mandated pollution control equipment." Id. at 1355
The Department implemented the Court's instructions by
amending "Exhibit B" of the JEA/FPL Declaratory Statement.
"Exhibit B" continues to serve as a guide for the Department
when embracing the "Integrated Plant Theory." Therefore, based
on "Exhibit B" of the JEA/FPL Declaratory Statement and
consistent with prior TAAs issued by the Department, which
interpret that exhibit, the Department now expresses the
following opinions with respect to the items enumerated in
Exhibit A of the Agreement between the Contractor and the Owner.
The equipment classifications or categories and their
corresponding 53 item numbers shown are the same as those that
appear in Exhibit A of the Agreement.
With exceptions as noted, the machinery, equipment, and
materials utilized or installed in the following categories
fully qualify for exemption.
- Two Siemens Westinghouse 501FD2 gas turbine generators
- Two Nooter-Ericksen Heat recovery steam generators
- One Siemens Westinghouse steam turbine
- Water treatment systems
- Feedwater systems
- Circulating water systems
7. Cooling water systems
- Heat exchangers
- Compressors and compressed air system
- Electrical systems and protection, switchyard to UPS
- Distributed control system
- Fuel supply system
- Fire protection system
- Condenser and vacuum system
- Chemical feed systems
- Continuous emission monitoring system
- HVAC system - HVAC systems directly related to the
operation of machinery and equipment in categories 36, 37,
38, and 39 will qualify for exemption. The HVAC system for
category 35 is a real property improvement and will not
qualify for exemption. - Cranes and monorail
- Boiler feed pumps
- Tanks
- SCR catalysts
- Condensate pumps
- BOP batteries
- Equipment foundations and structures
- Spill containment structures
- Utility racks and pipe bridges
- Structural steel
- Steel grating and steel stair treads
- Stairs and ladders
- Structural concrete
- Reinforcing steel
- Fire pumphouse building - Although referred to as a
"building," the only purpose of this structure is to
enclose the subject machinery and equipment. The design
and size specifications of this structure preclude it from
being used for any other purpose. Accordingly, it is
considered an integral part of the machinery and equipment
in this category. - Cooling tower treatment building - See comments for
category 36. - Generator building - See comments for category 36.
- CEM/DPU/MCC buildings - See comments for category 36.
- Piping
41. Conduit
- Electrical cable and raceway
- Grounding, cathodic protection, and lightning
protection - Transformers - The exemption is applicable to that
machinery and equipment used in the generation of
electricity, not to machinery and equipment used in the
distribution of electricity. Accordingly, only those
transformers that are needed to raise the electrical energy
to a power level sufficient to be placed on the electrical
grid (the electrical transmission system) will qualify for
exemption. Generally, it has previously been found in TAAs
that electrical energy can be placed on the electrical grid
following the first step-up transformers. - Valves
- Switchgear
- Standby generator and UPS
- Electrical bus - Again, the exemption is applicable to
that machinery and equipment used in the generation of
electricity, not to machinery and equipment used in the
distribution of electricity. Accordingly, only those
electrical buses that are used in the generation of
electricity, not the distribution of electricity, will
qualify for exemption. - Electric meters
- Control systems
- High voltage interconnect facility
The machinery, equipment, and materials utilized or
installed in the following categories do not qualify for
exemption.
- Storm water and sewage treatment system
- Service water and potable water system
- Landscaping and fencing
- Administration/maintenance/warehouse and control
building - Lighting systems
- Communications and security systems
Affidavit Procedures
The benefit of the exemption inures to the Owner, the
Contractor, and to the Contractor's subcontractors. The
exemption is implemented by extending an affidavit to the
machinery and equipment or materials vendor at the time of the
purchase transaction. At no time when extending an affidavit
for the exemption provided in s. 212.08(5)(c), F.S., should
anyone include another business entity's Certificate of
Registration number (sales tax number) or Direct Pay Certificate
number. Either of those numbers may only be used by the
business entity to which it was assigned.
Procedurally, the Owner must give an affidavit to the
Contractor. The Contractor will then issue its own affidavit to
its material suppliers or vendors along with a copy of the
affidavit provided by the Owner. If the Contractor is
registered for sales and use tax purposes, the Contractor may
alternatively issue a resale certificate to its vendors, since
pursuant to the Agreement, the Contractor will be selling the
materials to the Owner.
If the Contractor utilizes subcontractors, then it would
issue its own affidavit to the subcontractors along with a copy
of the affidavit provided by the Owner. This process continues
from subcontractors to sub-subcontractors until the actual
purchase order is issued to the vendor or supplier for the
qualifying machinery and equipment or materials.
The affidavit may be a separate document attached to
purchase orders or it may be incorporated within the purchase
order itself. If the affidavit is incorporated within the
purchase order, a statement that would have the same effect as
the statement regarding a false affidavit, as provided in the
sample affidavit, must be incorporated within the purchase
order. Further, it is the position of the Department that the
affidavit must be notarized regardless of whether the affidavit
is incorporated within the purchase order or is an independent
affidavit attached to the purchase order. (See Attachment 1. for
a suggested format for the affidavit.)
It is important to understand that the exemption is not
established by the issuance of the affidavit. The exemption is
established when the item or items are used for the express
purposes designated by the exemption statute. The affidavit
simply provides documentation to all parties as to the reason
why tax is not due on particular purchase transactions. If the
Owner has self-accrual authority and directly purchases
machinery and equipment, then the Owner does not have to issue a
certificate to itself. However, all documentation necessary to
prove the exempt status of the purchases must be maintained.
Reclaimed Water/Wastewater
As stated previously, s. 212.08(5)(c), F.S., provides an
exemption on machinery and equipment, which are necessary in the
production of electrical or steam energy. It is clearly evident
that an electrical and steam energy facility cannot operate
without water. If the Facility did not utilize the City's
reclaimed water, the Facility would have to utilize river water,
well water, or some other source of water for the production
process. No matter what the source of the water is, the
Facility will have to treat the water in some manner so that the
water functions optimally in the production process.
Accordingly, the machinery and equipment necessary to treat the
reclaimed water for use in the production process will qualify
for exemption under the provisions of s. 212.08(5)(c), F.S. The
chemicals used in this treatment process are not machinery and
equipment. Therefore, these chemicals do not qualify for
exemption under s. 212.08(5)(c), F.S.
When the reclaimed water is no longer useable at the
Facility, it becomes wastewater. It is the obligation of the
Facility to treat the wastewater before returning it to the City
where the water will be discharged on the City's spray fields.
Until the wastewater is treated, it is a source of pollution.
As previously discussed, pollution control equipment comes under
the purview of the exemption provided by s. 212.08(5)(c), F.S.
Accordingly, the machinery and equipment necessary to treat the
wastewater before it is returned to the City will qualify for
exemption.
Again, chemicals are not machinery and equipment and will
not qualify for exemption pursuant to s. 212.08(5)(c), F.S.
However, provided that the water is treated for the purposes of
meeting a law implemented by, or a condition of a permit issued
by, the Department of Environmental Protection, the chemicals
used to treat the water will be exempt from tax pursuant to s.
212.051, F.S., after the appropriate certificate has been
submitted to the vendor. (See Attachment 2. for a suggested
format for this certificate.)
As with the previously discussed affidavit used for
machinery and equipment purchases, the pollution control
exemption is not established by the issuance of the certificate
to the vendor. The exemption is established when the chemicals
are used for the express purposes designated by the exemption
statute. The certificate simply provides documentation to the
vendor as support for the reason why tax is not due on the sale
of the chemicals.
In conclusion, it should be mentioned that a system of
pipes or conduits will obviously be necessary to transport the
reclaimed water from the City to the Facility and a similar
system will be needed to transport the treated wastewater back
to the City for discharge at the spray fields. The scope and
size of such systems are unknown. Since the request for a TAA
did not specifically raise the issue of water carrying systems,
no opinion is being expressed within this advisement as to the
taxability of such systems.
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 documents are public records under Chapter 119,
F.S., which are subject to disclosure to the public under the
conditions of Section 213.22, F.S. Your name, address, and any
other details, which might lead to identification of the
taxpayer, must be deleted before disclosure. In an effort to
protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for
Technical Assistance Advisement, backup material and response
within fifteen days of the date of this advisement.
Sincerely,
Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution
encl.
ctrl# 46628
Attachment 1. to TAA 01A-066
AFFIDAVIT
STATE OF FLORIDA
COUNTY OF ____.
On this day, personally appeared the undersigned who, being
first duly sworn, deposes and says:
That all machinery and equipment purchased from
__ will be incorporated into and/or become a component
part of the __ located in
____, Florida, County of _____.
Further that said machinery and equipment is necessary for the
production of electric or steam energy resulting from the
burning of boiler fuels other than residual oil and is exempt
from the tax imposed by Chapter 212, Florida Statutes, Sales and
Use Tax Act, pursuant to Section 212.08(5)(c), Florida Statutes.
I understand any person furnishing a false affidavit to a
vendor for the purpose of evading payment of any tax imposed
under Chapter 212, Florida Statutes, shall be subject to the
penalty set forth in Section 212.085, Florida Statutes, and as
otherwise provided by law.
Purchaser's Name
Signature
Sworn to and
subscribed before me
this _ day of
__, A.D., 20__.
__________.
Notary Public
(Seal)
__________.
My Commission Expires
Attachment 2. to TAA 01A-066
SUGGESTED MANUFACTURING FACILITY CERTIFICATE
[Note: This certificate may be a separate document attached to
purchase order(s) or may be incorporated within the purchase
order(s) itself.]
The undersigned hereby declares that all devices, fixtures,
machinery, equipment, structures, specialty chemicals, or
bioaugmentation products purchased (or leased) from
_____ (Contractor's or Vendor's Name) will
be installed, constructed, or used at the fixed location at
_____ (Address and City), Florida, County of
__, primarily for the control or abatement of
pollution or contaminants in the manufacturing, processing,
compounding, or production of tangible personal property for
sale. Further, the undersigned declares that said items are
required pursuant to a law implemented by the Florida Department
of Environmental Protection (DEP) or required under the
condition of a permit issued by DEP.
I understand any person furnishing a false certificate to a
vendor for the purpose of evading payment of any tax imposed
under Chapter 212, Florida Statutes, shall be subject to the
penalty set forth in Section 212.085, Florida Statutes, and as
otherwise provided by law.
This certification relieves the vendor from the responsibility
of collecting tax on exempt sales amounts. The Department looks
solely to the purchaser for recovery of tax if the purchaser was
not entitled to the exemption.
Purchaser's Name (Print or Type)
Signature
Date
Florida Sales Tax Number
Title
Federal Employer Identification
Telephone Number
Number or Social Security Number
Form to be retained in seller's records.
Do not send to the Department of Revenue.
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