When could a cabinet manufacturer buy natural gas under Florida's boiler-fuels exemption?

Plain-English summary

The natural gas qualified only if every bit of it was used as combustible fuel in manufacturing. The cabinet maker burned gas to create the heat needed to cure its wood sealer and top coat, an integral production step.

Florida's exemption did not allow proration. If any gas heated offices, the facility, hot water, or served another nonmanufacturing purpose, none of the purchase was exempt. For qualifying purchases, the manufacturer could give its vendor the prescribed exemption certificate and had to obtain any refund of overpaid tax from that vendor, not directly from the Department.

What this means for you

Confirm exclusive manufacturing use before claiming this exemption and give the vendor the prescribed certificate. Even partial nonmanufacturing use defeated the exemption under this ruling.

Common questions

Q: Could the manufacturer exempt only the percentage used in production? No. The ruling said the statute did not permit proration between exempt and nonexempt uses.

Q: Did the conclusion cover every charge on the gas invoice? No. It addressed sales and use tax and applicable discretionary surtax, not the listed franchise fee, local tax, or gross receipts tax.

Q: Who had to refund tax already paid? The vendor.

Citations and references

• Fla. Stat. § 212.08(7)(b) — boiler-fuels exemption
• Fla. Admin. Code r. 12A-1.059(2) — qualifying fuels and certificate
• Fla. Admin. Code r. 12A-1.014(4) — dealer refund procedure
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-053

Original ruling text

SUMMARY

QUESTION: Is Taxpayer's use of natural gas exempt from tax,
and if so, is Taxpayer due a refund of tax paid on its
purchase of natural gas?

ANSWER - Based on Facts Below: If Taxpayer's fuel use is
exclusively as a combustible fuel in the manufacturing
process, then Taxpayer is entitled to purchase its fuel
exempt from sales and use tax, and discretionary sales
surtax, if applicable. Taxpayer may issue a copy of the
suggested format of the exemption certificate found in Rule
12A-1.059(2)(a), Florida Administrative Code, to its vendor
in order to purchase the fuel exempt from tax. Refunds of
taxes overpaid must be secured from Taxpayer's vendor.

Dec 02, 2002

Re: Technical Assistance Advisement 02A-053
Sales and Use Tax - Boiler Fuels Exemption
Section: 212.08, F.S.
Rules: 12A-1.014, 12A-1.059, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated October 25,
2002, 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

The petition sets forth the following facts:

[Taxpayer] is a subsidiary of [Parent] Corporation, a
publicly traded company incorporated in the State [other
than Florida].

Taxpayer manufactures and sells more cabinetry for the home
than any other manufacturer.

Selection and quality are key to [Taxpayer's] leadership
position. Its cabinets are available in a wide range of
styles. Options and upgrades such as roll-out trays and
drawer boxes allow customers excellent flexibility.

Taxpayer operates a production facility in [] Florida.
This plant began production during 2000.

An integral factor in the high quality of [Taxpayer's]
cabinets is their flawless finish. This finish requires
the application and proper curing of a Wood Sealer/Top
Coat.... Taxpayer currently purchases this product from
[vendor].

Curing of the Wood Sealer/Top Coat involves a chemical
reaction [that] changes the composition of the Wood
Sealer/Top Coat from liquid to solid. Curing requires the
presence of a prescribed heat environment.... The
production line provides temperatures of up to 154 degrees
[Fahrenheit] for this purpose....

Heat for the curing process is provided through the burning
of natural gas purchased from [gas utility company].
Invoices for these purchases include sales taxes....

Due to the nature of the Wood Sealer/Top Coat used by the
Taxpayer, curing in the absence of the prescribed heat
environment would result in an unsalable product....

Provided with the petition was a memorandum by the vendor, which
states that if the Wood Sealer/Top Coat is not baked until the
board surface temperature reaches 130ø Fahrenheit, the following

consequences may occur:

The danger of post-cure cracking increases as cure
temperatures decrease.

More formaldehyde and volatile compounds... may be released
in storage and assembly areas because of incomplete cure.

Print resistance decreases because the film has not
achieved maximum hardness.

Water and chemical resistance will be less than optimum.

Scratch resistance will decrease if coating is undercured.

This memorandum also states consequences of inadequately drying
the wood stain:

The stain will "bleed" or "spew" into the sealer coat which
makes sanding more difficult.

The intercoat adhesion between wood, stain, and sealer may
be harmed.

Solvents in the stain may be trapped under the sealer coat.
This can result in a blush or "whitening" of the finish
because the sealer is not compatible with residual stain
solvents.

A wet stain may cause the sealer to blister, especially
around deep pores of open-grained woods such as oak,
hickory, ash, walnut, or mahogany.

No information was provided as to whether any of the natural gas
is used for any other purpose, such as to heat the building, to
heat hot water, or for other non-manufacturing related purpose.

REQUESTED ADVISEMENT

Advice is requested whether Taxpayer's use of natural gas is
exempt from tax, and whether Taxpayer is due a refund of tax

paid on its purchases of natural gas.

LAW AND DISCUSSION

Section 212.08(7)(b), Florida Statutes, provides:

(b) Boiler fuels.--When purchased for use as a combustible
fuel, purchases of natural gas, residual oil, recycled oil,
waste oil, solid waste material, coal, sulfur, wood, wood
residues or wood bark used in an industrial manufacturing,
processing, compounding, or production process at a fixed
location in this state are exempt from the taxes imposed by
this chapter; however, such exemption shall not be allowed
unless the purchaser signs a certificate stating that the
fuel to be exempted is for the exclusive use designated
herein. This exemption does not apply to the use of boiler
fuels that are not used in manufacturing, processing,
compounding, or producing items of tangible personal
property for sale, or to the use of boiler fuels used by
any firm subject to regulation by the Division of Hotels
and Restaurants of the Department of Business and
Professional Regulation. (Emphasis Supplied)

Rule 12A-1.059(2), Florida Administrative Code, provides in
pertinent part:

(a) "Boiler" fuels. When purchased as a combustible fuel,
purchases of natural gas, residual oil, recycled oil, waste
oil, solid waste material as defined in s. 403.703(13),
F.S., coal, sulfur, wood, wood residues, or wood bark used
in an industrial manufacturing, processing, compounding, or
production process at a fixed location in this state [are]
exempt. For the purpose of this exemption, the term
"residual oil" means ASTM Grades No. 5 and No. 6, heavy
diesel, and bunker C. This exemption does not apply to any
type of liquefied petroleum gases, naphtha, kerosene, or
distillate fuel oil, such as diesel fuels, No. 1 and No. 2
heating oils, and No. 4 fuel oil. The term "fixed location"
means being permanently affixed to one location or plant
site, or any portable plant which may be set up for a
period of not less than six months in a stationary manner

so as to perform the same industrial manufacturing,
processing, compounding, or production process that could
be performed at a permanent location or plant site. To be
entitled to this exemption at the time of purchase, the
purchaser must issue the seller a certificate stating that
the combustible fuel is used in an industrial
manufacturing, processing, compounding, or production
process. The following is a suggested format of a
certificate to be used for this purpose:

EXEMPTION CERTIFICATE
BOILER FUELS USED TO PRODUCE TANGIBLE
PERSONAL PROPERTY FOR SALE
_, incorporated in the State of _, its undersigned
officer who is duly authorized, hereby certifies to _
that purchases of natural gas, residual oil, recycled oil, waste
oil, solid waste material as defined in s. 403.703(13), F.S.,
coal, sulfur, wood, wood residues, or wood bark under account
number _ will be exclusively used as a combustible fuel
in the manufacturing, processing, compounding, or production of
tangible personal property for sale. This industrial process is
located at _ in _, Florida, County of _.
Further, it is certified that _ is not subject to
regulation by the Division of Hotels and Restaurants of the
Department of Business and Professional Regulation. The purchase
of the combustible fuel pursuant to this certification is exempt
from tax, pursuant to s. 212.08(7)(b), F.S.
Dated at __, Florida, this _ day of _,
_.
AUTHORIZED OFFICER OF COMPANY
BY: ____
TITLE: ____

(b) The sale of boiler fuels that are not used in
manufacturing, processing, compounding, or producing items
of tangible personal property for sale is subject to tax.
The sale of boiler fuels used by any firm subject to
regulation by the Division of Hotels and Restaurants of the
Department of Business and Professional Regulation is
subject to tax....

The statutes and the rule require that the boiler fuel be
purchased for exclusive use in the manufacturing process as a
combustible fuel. The language of the exemption statute does
not permit proration of the fuel purchase between that used for
exempt purposes and that used for nonexempt purposes. If
Taxpayer's fuel use is exclusively as a combustible fuel in the
manufacturing process, then Taxpayer is entitled to purchase its
fuel exempt from sales and use tax, and discretionary sales
surtax, if applicable. This amount is identified as "State Tax"
on the sample invoice provided with the petition; it does not
include "Franchise Fee", "Local Tax", or "Gross Receipts Tax".
If Taxpayer uses any portion of the fuel for any other purpose,
such as hot water heating or generally heating the facility or
offices, then none of the fuel purchase is exempt from tax.

If Taxpayer uses the fuel exclusively as a combustible fuel in
the manufacturing process, then Taxpayer may issue a copy of the
suggested format of the exemption certificate found in Rule 12A1.059(2)(a), Florida Administrative Code, to its vendor.

Rule 12A-1.014(4), Florida Administrative Code, provides that
"[a] taxpayer who has overpaid tax to a dealer, or who has paid
tax to a dealer when no tax is due, must secure a refund of the
tax from the dealer and not from the Department of Revenue". If
Taxpayer uses the fuel exclusively as a combustible fuel in the
manufacturing process, then Taxpayer must secure a refund of
taxes overpaid from its vendor.

CONCLUSION

If Taxpayer's fuel use is exclusively as a combustible fuel in
the manufacturing process, then Taxpayer is entitled to purchase
its fuel exempt from sales and use tax, and discretionary sales
surtax, if applicable. Taxpayer may issue a copy of the
suggested format of the exemption certificate found in Rule 12A1.059(2)(a), Florida Administrative Code, to its vendor in order
to purchase the fuel exempt from tax. Refunds of taxes overpaid
must be secured from Taxpayer's vendor.

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 #52503