Did adding nonstructural architectural metal roofing at an existing steel-deck plant qualify as a separate new business for Florida's machinery exemption?

Plain-English summary

Florida classified the manufacturer's new architectural metal roofing line as a separate “new business,” not merely an expansion of its existing structural roof-deck production. That classification allowed qualifying machinery and equipment to use the new-business exemption in section 212.08(5)(b)1.

Both product lines cold roll-formed coiled steel, and they shared the same broad industry classifications. But the Department found that the finished products represented distinct economic activities rather than variations in size, style, or model.

Structural roof deck and finished metal roofing served different jobs

The existing roof-deck component was a structural support used in commercial and industrial roofs. It supported insulation and finished roofing, was normally hidden after construction, and was sold to building contractors.

The new architectural metal roofing was nonstructural, supported by plywood or insulation, visible on the building exterior, and used as a finished alternative to shingles or cedar shakes. It was commonly sold to roofing contractors.

Most importantly, neither product could substitute for the other.

Materials and machinery also differed

The roof deck used thicker, wider galvanized steel with lower minimum yield strength. The architectural roofing used narrower and thinner Galvalume steel with higher minimum yield strength, received a protective and aesthetic Kynar paint finish, and carried rust or chipping warranties described as 25 to 30 years.

Both used rolling mills, but the machines were dedicated to a particular product profile. Changing a roll-forming machine to an alternate profile was impractical and could take nearly two weeks of adjustment and alignment.

The Department applied a multi-factor test

Rule 12A-1.096(5) considered the existing business, industry codes, raw materials, substitutability, machinery differences, and production units. No single factor controlled.

Even though the manufacturing process was similar, different products, customers, functions, materials, finishing, and dedicated equipment—especially total non-substitutability—made architectural metal roofing distinct enough to qualify as a new business.

What this means for you

Manufacturers adding a product line

Using the same basic process does not automatically make a product an expansion. Demonstrate a separate market function, different customers and inputs, dedicated equipment, and why the new product cannot replace the old one.

Metal and building-product manufacturers

Aesthetic finish versus structural function was meaningful here. The Department looked at what the product did in the completed building, not just how steel moved through the plant.

Accountants and tax professionals

The new-business exemption also had timing requirements: qualifying machinery purchases had to occur before productive operations began, with delivery within the statutory period described in the ruling.

Common questions

Q: Did the same cold roll-forming process make this only an expansion?
A: No. The products were economically distinct despite the shared process.

Q: What was the most important factor?
A: The ruling emphasized that architectural roofing and structural roof deck could not substitute for each other.

Q: Did the products serve the same customers?
A: Generally no. Roof deck was sold to building contractors, while architectural roofing was sold to roofing contractors.

Q: Were the rolling mills interchangeable?
A: No practical interchangeability was described; mills were dedicated to profiles, and conversion could take nearly two weeks.

Citations and references

• Fla. Stat. § 212.08(5)(b)1. — new-business industrial machinery and equipment exemption
• Fla. Admin. Code r. 12A-1.096(5) — factors distinguishing a new manufacturing business from an expansion
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-013

Original ruling text

SUMMARY

QUESTION: Whether a Taxpayer's purchase and installation of
machinery and equipment necessary to produce non-structural
architectural metal roofing is exempt from sales and use
tax as a new business pursuant to s. 212.08(5)(b), F.S.
The Taxpayer previously produced general purpose roof deck
components for structural building purposes.

ANSWER - Based on Facts Below: The process necessary to
manufacture the Taxpayer's existing and additional products
is essentially the same, cold roll-forming steel sheet.
However, the differences in the products made are more than
mere changes in size, style, or model line. Most
significantly, structural roof decking is commonly sold to
building contractors, while non-structural metal roofing is
sold to roofing contractors. The use of one product
absolutely cannot be substituted for the other. Therefore,
the production of non-structural architectural metal
roofing represents an economic activity that is distinct
and separate from the prior roof deck components.
Accordingly, the Taxpayer qualifies for exemption as a new
business.

Mar 02, 2004

Re: Technical Assistance Advisement 04A-013
Sales and Use Tax
New Business Exemption for Architectural Metal Roofing
Section 212.08(5)(b), F.S.
Rule 12A-1.096, F.A.C.

Dear :

This is in response to your letter of January 23, 2004,
which requests the issuance of a Technical Assistance Advisement
concerning the applicability of an exemption from sales and use
tax pursuant to s. 212.08(5)(b), F.S., to purchases of machinery

and equipment by your client, XXX (hereinafter "Taxpayer").

BACKGROUND

Taxpayer is an established manufacturer of composite and
non-composite steel decking and roof deck components from coiled
flat steel. Generally, composite and non-composite steel
decking are used in the construction of building floor systems.
Roof deck components (hereinafter, "RDC") are used in the
construction of building roofs. Recently, Taxpayer made
purchases of machinery and equipment that are necessary to begin
producing non-structural architectural metal roofing
(hereinafter, "AMR").

ISSUE

Whether the production of architectural metal roofing
("AMR") by Taxpayer qualifies as a new business pursuant to
subparagraph 1. of s. 212.08(5)(b), F.S.

RELEVANT AUTHORITIES

The following passages from the Florida Statutes (F.S.) and
the Florida Administrative Code (F.A.C.) are pertinent to the
exemption issues in this advisement.

Section 212.08(5)(b), F.S. (2003), provides in part:

1. Industrial machinery and equipment purchased for
   exclusive use by a new business in spaceport activities as
   defined by s. 212.02 or for use in new businesses which
   manufacture, process, compound, or produce for sale items
   of tangible personal property at fixed locations are exempt
   from the tax imposed by this chapter upon an affirmative
   showing by the taxpayer to the satisfaction of the
   department that such items are used in a new business in
   this state. Such purchases must be made prior to the date
   the business first begins its productive operations, and
   delivery of the purchased item must be made within 12
   months of that date....

Rule 12A-1.096, F.A.C., provides in part:

(5) Manufacturing Business Classification Factors.

(a) When an additional product is made at an existing fixed
location, the determination whether that business is
classified for the exemption as a new business or as an
expanding business will depend upon whether the additional
product represents an economic activity that is distinct
and separate from a product, or a group of products, that
is already being manufactured, processed, compounded, or
produced at that fixed location.

(b) The Executive Director or the Executive Director's
designee will make a determination regarding the
classification of a business' application for exemption on
a case-by-case basis. The Department will be guided by the
following factors when making a determination:

1. The general nature of the applicant's predominant
   existing business;

2. The Standard Industrial Classification (SIC) or North
   American Industry Classification System (NAICS) industry
   number of the existing product(s) versus the additional
   product;

3. The raw materials or components used to make the
   existing product(s) versus the additional product;

4. Whether the additional product is an alternative to, or
   represents a replacement for, the existing product(s);

5. The differences in machinery and equipment needed to
   make the existing product(s) versus the additional product;
   and

6. The units used to measure production of the existing
   product(s) versus the additional product.

(c) No single factor within paragraph (b) will decide

whether the additional product represents a distinct and
separate economic activity.

(d) Products that merely differ in size, color, flavor,
style, packaging, or model line are not considered to be a
distinct and separate economic activity....

DISCUSSION

Steel Decking Described

Generally, steel decking is a construction material
utilized by professional commercial contractors, not homeowners
or remodelers. It is made by feeding rolls of coiled flat steel
into a long machine that bends or roll-forms the steel into a
variety of ribbed (corrugated, zigzag, or accordion-like)
profiles. Depending on the particular profile, the decking may
be categorized or sub-categorized as roof deck (RDC), acoustical
deck, form deck, cellular floor deck, or composite floor deck.

Roof Decking Components (RDC)

Typically, RDC is used as a permanent support for rigid
insulation and finished roofing materials in commercial and
industrial applications. RDC is supported by steel joists. RDC
is a structural building material. It easily supports its own
weight and the weight of objects placed upon it. However, RDC
is not a finished roofing material. Once construction of a roof
is completed, RDC may only be viewed, if at all, from the
interior or attic space of the building. If visible, a building
owner may decide to paint the underside of the RDC for aesthetic
reasons.

The RDC made by Taxpayer is made from 22, 20, 18, or 16
gauge galvanized steel with a minimum yield strength of 33,000
psi. The steel comes in 48-inch wide coils. The coiled steel
is unrolled and bent by a succession of rolling stations in a
roll-forming machine into various profiles and then cut to
length. The RDC does not go through any type of finishing
process at Taxpayer's facility. Generally, a roll-forming
machine is dedicated to a particular profile shape. It is not

practical to change a roll-forming machine to produce an
alternate profile of decking, since it can take nearly two weeks
to adjust and align all of the rolling stations of the machine.

Architectural Metal Roofing (AMR)

AMR is a finished roofing material and is an alternative to
asphalt shingles or cedar shakes when used for residential
applications. AMR is non-structural. It has limited ability to
support itself, let alone other roof components or mechanical
equipment. Accordingly, AMR is typically supported by plywood
or rigid insulation. Once a building is completed, AMR is
exposed to the elements and is easily visible from the exterior
of a building. Typically, AMR is painted for protection from the
elements and for aesthetic purposes.

The AMR made by Taxpayer is made from 24, 26, or 29 gauge
Galvalume(R) steel with a minimum yield strength of either
50,000 or 80,000 psi. Galvalume(R) steel has an aluminum-zinc
coating and is much more corrosion resistant than plain
galvanized steel. The Galvalume(R) steel comes in 20, 27 1/2,
or 41-inch wide coils. For further corrosion protection and
aesthetic reasons, Taxpayer sends the Galvalume(R) steel to a
painting company where a Kynar(R) paint system finish is
applied. As a result, the AMR comes with warranties against
rust or chipping for 25 to 30 years. In the manufacturing of
AMR, the coiled steel is unrolled, cut to length, and then rollformed into the desired profile. This results in a finer edge
for appearance purposes at the ends of the pieces.

New Versus Expanding Business

Section 212.08(5)(b), F.S., provides an exemption from
sales and use tax to businesses that manufacture, process,
compound, or produce tangible personal property for sale. The
amount of the exemption that is available will depend on whether
that business is classified as "new" or "expanding." At its most
basic level, a new business is one that buys machines and begins
production for the first time at a fixed location. An expanding
business is one where a product is already being made at a fixed
location and the business is buying more machines to make more

of that same product. When a similar, but not identical, product
is made at a facility, the determination whether that business
should be classified for the exemption as new or expanding must
be made on a case-by-case basis. The Department will be guided
by the provisions of Rule 12A-1.096(5), F.A.C., when making a
determination. After consideration of the factors as enumerated
in that rule passage, the Department finds the following:

1. The general nature of Taxpayer's predominant existing
   business activity is to produce cold roll-formed steel.

2. The appropriate SIC and NAICS code classifications for
   both of Taxpayer's existing and additional products appear to be
   3444 (Sheet Metal Work) and 332322 (Sheet Metal Work
   Manufacturing) respectively.

3. All of the products are made from rolled coils of sheet
   steel that come in various widths and different gauges
   (thickness). However, the steel for RDC (galvanized) comes in a
   greater width, a greater thickness, but a lower minimum yield
   strength than the steel for AMR (Galvalume(R)).

4. RDC is a structural building material, which has no
   aesthetic qualities, and is used in commercial and industrial
   applications. AMR is a non-structural roofing material, which
   has aesthetic qualities, and is used in residential or noncommercial applications. Accordingly, one product cannot be
   substituted for the other.

5. All of the decking products are made by rolling mill
   machinery. However, the rolling mills are dedicated to only
   producing either RDC or AMR.

6. Production of all of the roll-formed products is
   typically measured in square feet. However, AMR may also be
   commonly measured in linear feet.

No single above factor will decide whether the additional
product represents a distinct and separate economic activity.
Products that merely differ in size, color, flavor, style,
packaging, or model line are not considered to be a distinct and

separate economic activity. The business claiming an exemption
as a new business has the burden of demonstrating that the
additional product does represent a distinct and separate
economic activity from a product, or group of products, that is
already being made at the fixed location.

DETERMINATION

The previously discussed new versus expanding business
classification factors do not tend to overtly indicate a clear
distinction between the previous and additional products made by
Taxpayer. The process necessary to manufacture Taxpayer's
existing and additional products is essentially the same, cold
roll-forming steel sheet. However, the differences in the
products made are more than mere changes in size, style, or
model line. RDC is commonly sold to building contractors, while
AMR is sold to roofing contractors. If a licensed building
contractor is also a licensed roofer, that contractor may have a
use for both RDC and AMR. However, a licensed roofing contractor
will most likely have no use for RDC. The most important
classification factor for the issues at hand is whether the new
product may be substituted for the previous product. AMR
absolutely cannot be substituted for RDC and vice versa.
Therefore, it is the position of the Department that Taxpayer's
production of AMR represents an economic activity that is
distinct and separate from the prior RDC products. Accordingly,
Taxpayer qualifies under the exemption provisions of s.
212.08(5)(b)1., F.S., as a new business.

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 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

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