Which parts of a mixed interior and exterior landscape-maintenance contract were taxable?

Plain-English summary

Florida split the contract between taxable interior plant work and nontaxable customer charges for exterior real-property work. Potted interior and cafe plants remained tangible personal property. Exterior landscaping was treated as an improvement to real property.

What this means for you

Mixed landscaping contracts should separately identify indoor movable-plant services and outdoor real-property work.

Common questions

Q: Was the whole contract taxed the same way?
A: No.

Q: Were potted interior plants treated as real property?
A: No.

Citations and references

• Fla. Stat. §§ 212.0506 and 212.06 — cited classification provisions
• Fla. Admin. Code r. 12A-1.051 — real-property contractor treatment
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-009

Original ruling text

SUMMARY

QUESTION: What portion of a maintenance contract for
interior and exterior landscaping is subject to tax?

ANSWER - Based on Facts Below: The contract is a mixed
contract. The interior and cafe landscaping is tangible
personal property. The contractor should charge tax to
Taxpayer on the interior and cafe landscaping charges. The
exterior landscaping is an improvement to real property.
The contractor should not charge tax to Taxpayer on the
exterior landscaping charges.

Mar 07, 2003

Re: Technical Assistance Advisement 03A-009
Sales and Use Tax - Maintenance of Interior and Exterior
Landscaping
Sections: 212.0506, 212.06, F.S.
Rule: 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX

Dear :

This letter is a response to your petition dated January 8,
2003, 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 the managing agent for [owner] in the role of
property management of the [building] located in...
[Florida]. [Taxpayer] contracted with [contractor] to
provide interior and exterior landscape maintenance....

Taxpayer has assumed the property management responsibilities of
the previous property management company originally named in the
contract for interior and exterior landscape maintenance.

Exhibit A to the contract breaks down the interior landscaping
maintenance from the exterior landscaping maintenance. The
interior landscaping consists of plants such as bromeliads,
trees and other houseplant-type plants maintained in pots. The
maintenance charge for the interior and cafe includes cleaning
and fertilizing the trees, as well as rotating the bromeliads.
Interior plants are guaranteed by the contractor. Rotation of
other interior plantings is priced by the size and type of the
plant. The interior maintenance is set forth as $330 per month
plus $95 per month for the cafe.

The exterior landscaping maintenance includes "weekly service to
all plated areas, sweeping/vacuuming of hard surfaces, cypress
mulch... when necessary, seasonal color rotation (3 times per
year), maintain[ing] proper elevation of trees for pedestrian
traffic, irrigation inspections once per month and
fertilization, insect and disease control of shrubs/annuals."
The exterior maintenance fee is set forth as $320 per month.
Other optional services are available for a separate set price.

Taxpayer's petition describes the fee as a lump sum of $745 per
month.

REQUESTED ADVISEMENT

Advice is requested whether any portion of the contract is
subject to tax.

LAW AND DISCUSSION

Interior Plant Maintenance

Decorative plants, such as houseplants, that are planted in pots
are classed as tangible personal property, and they are not
classed as improvements to real property.

Section 212.0506, Florida Statutes, provides in pertinent part:

(1) It is the intent of the Legislature that every person
is exercising a taxable privilege who engages in this state
in the business of soliciting, offering, providing,
entering into, issuing, or delivering any service warranty.

(3) For purposes of this section, "service warranty" means
any contract or agreement which indemnifies the holder of
the contract or agreement for the cost of maintaining,
repairing, or replacing tangible personal property....

(8) If a transaction involves both the issuance of a
service warranty that is subject to such tax and the
issuance of a warranty, guaranty, extended warranty or
extended guaranty, contract, agreement, or other written
promise that is not subject to such tax, the consideration
shall be separately identified and stated with respect to
the taxable and nontaxable portions of the transaction. If
the consideration is separately apportioned and identified
in good faith, such tax shall apply to the transaction to
the extent that the consideration received or to be
received in connection with the transaction is payment for
a service warranty subject to such tax. If the
consideration is not apportioned in good faith, the
department may reform the contract; such reformation by the
department is to be considered prima facie correct, and the
burden to show the contrary rests upon the dealer. If the
consideration for such a transaction is not separately
identified and stated, the entire transaction is taxable.
(Emphasis Supplied)

The portion of Taxpayer's contract with contractor for the
interior plants is a service warranty, since contractor
guarantees the interior plants. Service warranties for the
maintenance of tangible personal property are subject to tax.

Additionally, the sale and installation of interior plants by
the contractor to Taxpayer is subject to tax as a sale of
tangible personal property. Section 212.05, Florida Statutes,
generally imposes tax on the sale of tangible personal property.

Exterior Landscape Maintenance

Section 212.06(14), Florida Statutes, provides guidance to
persons in determining whether they are making improvements to
real property, and it states in pertinent part:

(14) For the purpose of determining whether a person is
improving real property, the term:

(a) "Real property" means the land and improvements thereto
and fixtures and is synonymous with the terms "realty" and
"real estate."

(b) "Fixtures" means items that are an accessory to a
building, other structure, or land and that do not lose
their identity as accessories when installed but that do
become permanently attached to realty....

Ornamental nursery stock and other plants that are planted in
the ground are classed as improvements to real property.
Generally, the taxability of improvements to real property falls
on the contractor. Generally, the contractor is required to pay
tax on its acquisition costs of tangible personal property it
purchases for use in its real property improvement contracts.
The contractor should not charge tax to the customer. See Rule
12A-1.051(3), (4), Florida Administrative Code.

Contracts Combining Sales of Tangible Personal Property and
Improvements to Real Property

When a contract includes the sale of tangible personal property
and an improvement to real property, the taxability of the
contract can be handled several different ways, depending on the
specific circumstances of the particular contract. Rule 12A1.051(8), Florida Administrative Code, discusses mixed
contracts, and it states in pertinent part as follows:

(8) Mixed contracts. A real property contract may also
include materials and labor that are not real property
improvements. A contract that includes both real property
work and tangible personal property is referred to in this
subsection as a mixed contract. A mixed contract is not the
same as a contract described in paragraph (3)(d) of this
rule. Paragraph (3)(d) deals with a real property contract
in which the contractor separately itemizes and prices all
the materials that will be incorporated as part of the real
property. A mixed contract is one that involves a real
property improvement, maintenance, or repair and also
involves providing tangible personal property that remains
tangible personal property and does not become part of the
real property. In the case of a mixed contract, taxability
depends upon the predominant nature of the work performed
under the contract and upon the contract terms.

(a) If the predominant nature of a mixed contract is a
contract for real property improvements, taxability will be
determined as if the contract were entirely for real
property. For example, a residential developer routinely
provides some items of tangible personal property, such as
free standing appliances, with new homes sold under costplus contracts. The predominant nature of the contract is
for a dwelling. The developer should pay sales or use tax
on the appliances. A contractor constructs a factory under
a turnkey contract that includes providing and installing
machinery and equipment that is not exempt from sales and
use tax. The contract is predominantly for a factory, a
real property improvement, and the contractor should pay
use tax on the cost of the machinery and equipment. No tax
is collected from the property owner in either case, even
though some tangible personal property is included in the
project.

(b) If the predominant nature of a mixed contract is a
contract for tangible personal property, taxability of the
contract will be determined as if the contract were
entirely for tangible personal property. For example, a
vendor of a mechanical conveyor system for a warehouse

provides reinforced concrete foundations and embeds steel
plates in the concrete to permit installation of the
equipment by bolting it to the plates. The contract is
predominantly for the sale of equipment. The contractor
should buy the equipment, concrete, and steel plates tax
exempt by extending a copy of the contractor's Annual
Resale Certificate (form DR-13) to the selling dealer and
charge tax on the full price charged to the customer.

(c) The determination of the predominant nature of a
contract will depend upon the facts and circumstances of
each case. Consideration will be given to the description
of the project and the responsibilities of the contractor
as set forth in the contract. Consideration will also be
given to the relative cost of performance of the real
property and tangible personal property components of the
contract.

(d) If a mixed contract clearly allocates the contract
price among the various elements of the contract, and such
allocation is bona fide and reasonable in terms of the
costs of materials and nature of the work to be performed,
taxation will be in accordance with the allocation. For
example, a residential developer builds and sells a home on
a cost plus basis, but the contract provides separately
stated prices for the sale and installation of certain
optional free standing appliances that are tangible
personal property and are not classified as real property
fixtures. The contractor may purchase those appliances by
issuing a copy of the contractor's Annual Resale
Certificate (form DR-13) to the selling dealer and charge
sales tax on the price paid for the appliances, including
installation, by the home buyer. The contractor is
responsible for paying tax on all the materials that are
included in the cost plus price of the home, other than the
separately itemized appliances. Similarly, a manufacturer
who sells and installs a mechanical conveyor system in a
warehouse could state a separate charge in the contract for
providing reinforced concrete with embedded steel plates in
the warehouse floor to support the conveyor. The conveyor
system is machinery or equipment and is therefore tangible

personal property. The concrete and plates would be
considered a real property improvement. The contractor
should pay tax on the materials used for the real property
part of the contract and not charge tax to the customer on
the related charge. The customer should pay tax on the rest
of the contract price allocable to the conveyor machinery
itself.... (Emphasis Supplied)

The subject contract clearly allocates the cost of the contract
between the elements that remain tangible personal property
(interior and cafe) and the improvements to real property
(exterior). Rule 12A-1.051(8)(d), Florida Administrative Code,
provides for the taxation of this contract to be based on the
allocation. This allocation appears to be bona fide and
reasonable with respect to cost of materials and nature of work
to be performed.

The contractor should charge tax to Taxpayer on the contract
charge related to the interior and cafe ($425). The contractor
should also charge tax to Taxpayer on the price per plant listed
in Exhibit A for on-going rotation.

The contractor should not charge tax to Taxpayer on the contract
charge related to the exterior ($320), or on any of the options
available in Exhibit A for exterior landscaping. The contractor
should pay tax on its purchase of plants and materials it
purchases for use in the exterior portion of the contract.

CONCLUSION

The contract is a mixed contract. The interior and cafe
landscaping is tangible personal property. The contractor
should charge tax to Taxpayer on the interior and cafe
landscaping charges. The exterior landscaping is an improvement
to real property. The contractor should not charge tax to
Taxpayer on the exterior landscaping charges.

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,
Florida Statutes, and are subject to disclosure to the public
under the conditions of section 213.22, Florida Statutes.
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 #53300