Which generating-plant, reclaimed-water, wastewater-treatment equipment, and chemicals 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 most listed production machinery and equipment qualified for exemption. The plant produced electrical and steam energy for sale without residual oil. Under the integrated-plant rule, machinery used in generation—including legally required pollution-control equipment—could qualify even when it did not physically create electricity by itself.
The exemption stopped at distribution. Equipment used to generate electricity or raise it to the level needed for the transmission grid qualified; equipment used only to distribute electricity did not. The owner and contractor could claim qualifying purchases at the transaction with the required affidavit and supporting records.
Machinery and equipment used to treat reclaimed water for the production process also qualified, as did equipment used to treat the resulting wastewater before return to the city. Chemicals used to condition reclaimed process water were not exempt as machinery. Chemicals used to treat wastewater could qualify under the separate pollution-control statute when required by a Department of Environmental Protection law or permit and supported by the proper certificate.
What this means for you
Power-plant exemptions require item-by-item functional classification. Production, legally necessary pollution control, distribution, process-water treatment, wastewater equipment, and chemicals can follow different rules even within one facility.
Common questions
Q: Did qualifying natural-gas generation equipment receive exemption? Yes.
Q: Did electricity-distribution equipment qualify? No, except to the extent an item still performed the identified generation function.
Q: Was reclaimed-water treatment equipment exempt? Yes.
Q: Were all water-treatment chemicals exempt? No. Wastewater chemicals required the separate statutory purpose and certificate; process-water chemicals did not qualify as machinery.
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-068
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 s. 212.08(5)(c), Florida Statutes.
ANSWER 1. - Based on Facts Below: Those items that are
consistent with the findings of the First District Court of
Appeal of Florida in Jacksonville Electric Authority v.
Department of Revenue 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.
ANSWER 2. - Based on Facts Below: The machinery and
equipment used to treat the wastewater would be exempt
under the provisions of s. 212.08(5)(c), F.S. 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 used to
treat the wastewater will qualify for exemption under the
provisions of s. 212.051, Florida Statutes.
Nov 08, 2001
Re: Technical Assistance Advisement 01A-068
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 115
MW (megawatt) electricity and steam generating facility referred
to as the XXX (hereinafter "Facility") for XXX (hereinafter
"Owner"). Based on your letter and supplementary information,
the following is understood.
The Owner and a contractor (hereinafter "Contractor") will
enter 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 will specify the amount to be paid for
the Facility. The Agreement will divide 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 will generally provide that the
Contractor will purchase the items listed in Exhibit A and sell
those items to the Owner.
The Owner may enter into a reclaimed water agreement with
the XXX (hereinafter "City") whereby the Owner would use
reclaimed water in the Facility's cooling towers. The water
would be subsequently returned to the City for discharge in the
City's spray fields. Prior to returning the water, the Owner
would 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.
2. 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.1. 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. 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. 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, parenthetical descriptions, and their corresponding
29 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.
-
One XXX gas turbine generator for outdoor installation
(directly produces electricity) -
Electrical systems and protection, switchyard to UPS
(equipment involved in delivery of electrical production
and protection of electrical production equipment) - 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 items that are integral to the
generation of electricity will qualify for exemption.
Machinery and equipment used in the distribution of
electricity will not qualify for exemption.
-
Distributed control system (control of electrical
production plant) -
Fuel supply system (used to supply raw material for
production of electricity) -
Fire protection system (protects electrical production
plant) -
Continuous emission monitoring system (monitors air
emissions from the electrical production equipment) -
BOP batteries (protects electrical production equipment
in the event of a loss in electrical power) -
Equipment foundations and structures (supports all of
the equipment in the electrical production plant) -
Spill containment structures (environmental protection
for chemicals used in the electrical production plant) -
Structural steel (supports equipment used in the
production of electricity) -
Steel grating and steel stair treads (provides
personnel access to electrical production equipment) -
Stairs and ladders (provides personnel access to
electrical production equipment) -
Structural concrete (used in foundations used to
support equipment used in the production of electricity) -
Reinforcing steel (used in foundations used to support
equipment used in the production of electricity)
16. MCC building (houses auxiliary equipment to control the
production of electricity) - Although referred to as a
"building," it is the Department's understanding that the
only purpose of this structure is to enclose the subject
machinery and equipment. Accordingly, it is considered an
integral part of the machinery and equipment in this
category.
-
Piping (conveys water, fuel, and gases between various
pieces of equipment used in the generation of electricity) -
Conduit (conveys electrical cables and wires between
various pieces of equipment used in the generation of
electricity) -
Electrical cable and raceway (provides electricity to
operate various equipment used in the production of
electricity) -
Grounding, cathodic protection, and lightning
protection (protects various equipment used in the
production of electricity) -
Transformers (converts electricity to a form usable in
the electrical transmission grid for Florida) - 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 transmission grid will qualify
for exemption. Generally, it has previously been found in
TAAs that electrical energy can be placed on the electrical
transmission grid following the first step-up transformers. -
Valves (used for various functions involved in the
production of electricity) -
Switchgear (provides electricity for operation of
various equipment involved in the generation of
electricity)
25. Standby generator and UPS (provides protection of
equipment involved in the production of electricity)
-
Electrical bus (transmits electricity from the
electrical generators to the transformers and ultimately to
the transmission system of Florida) - 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 (meters the production and use of
electricity in the electrical production plant) -
Control systems (controls the electrical production
facility) -
High voltage interconnect facility (transmits
electrical power to the Florida transmission grid)
The machinery, equipment, and materials utilized or
installed in the following categories do not qualify for
exemption.
-
Landscaping and fencing (aesthetics and security for the
electrical production plant) -
Lighting systems (provides lighting of equipment areas
for plant personnel)
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 does 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
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 would be the obligation of
the Facility to treat the wastewater before returning it to the
City where the water would 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 if reclaimed
water is used at the Facility, a system of pipes or conduits
would obviously be necessary to transport the reclaimed water
from the City to the Facility and a similar system would be
needed to transport the treated wastewater back to the City for
discharge at the spray fields. The scope and size of such
potential 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# 47007
Attachment 1.
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.
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.
Get today's answer for your situation
You just read a 2001 ruling on this question. Ezel checks current Florida tax law and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.