How should a Florida contractor tax a construction contract containing both permanent and removable hurricane shutters?

Plain-English summary

Florida taxed a contract containing both permanent and removable hurricane shutters according to the contract's predominant nature, unless the contract made a bona fide and reasonable allocation among its elements.

The taxpayer association described contractors building residential and commercial structures in high-velocity hurricane zones. Some shutters were designed to be removed and stored; others, including certain upper-story shutters, were permanently attached. The contractors separately listed storm shutters and their price, but the association did not provide sample contracts.

First classify the shutters

• Permanently affixed shutters were fixtures and real-property improvements. For a construction contract limited to those shutters, the contractor paid tax to its supplier on materials and did not charge the customer sales tax, assuming it was not a retail-sale-plus-installation contract.
• Removable shutters remained tangible personal property. For a contract selling those shutters, the contractor bought the materials for resale and collected sales tax from the customer on the full amount, including installation, unless the customer supplied a valid exemption certificate.

Then classify the mixed contract

When one contract included building construction or permanent shutters plus removable shutters, Rule 12A-1.051 supplied three possible methods:

1. Predominantly real property: The contractor paid sales or use tax on all materials and supplies, including removable shutters, and charged the customer no sales tax.
2. Predominantly tangible personal property: The contractor registered as a dealer, bought the materials using its resale certificate, and collected sales tax on the entire contract price, including materials and labor.
3. Clearly allocated contract: A bona fide, reasonable allocation controlled. The contractor paid tax on materials used in the real-property portion and charged the customer no tax on that portion. For the tangible-personal-property portion, it bought for resale and collected tax on the allocated price, including labor.

The predominant-nature determination depended on the project description, the contractor's responsibilities, and the relative performance cost of the real-property and personal-property components.

What this means for you

Contract drafting determines the compliance method. A contractor using a clear allocation must also track which tax-exempt materials are later consumed in real-property work and accrue tax on those materials. Merely listing a shutter price does not establish that an allocation is bona fide or reasonable.

Common questions

Q: Are permanently attached hurricane shutters tangible personal property?
A: No. The ruling classified them as fixtures and real-property improvements.

Q: Are removable shutters taxed as retail goods?
A: Yes. Their sale, including installation charges, was taxable as tangible personal property.

Q: What if the overall contract is mainly construction of a building?
A: The contractor may treat the whole mixed contract as a real-property improvement, paying tax on materials and charging no tax to the owner.

Q: Can the contract split the two treatments?
A: Yes, if it clearly provides a bona fide and reasonable allocation among the elements.

Citations and references

• Fla. Stat. § 212.02(16) — sales price includes services that are part of the sale
• Fla. Stat. § 212.05 — tax on sales of tangible personal property
• Fla. Stat. § 212.06(14) — real property and fixture definitions
• Fla. Admin. Code r. 12A-1.016(3)(a) — taxable installation charges for tangible personal property
• Fla. Admin. Code r. 12A-1.051 — contractor pricing methods, real-property treatment, and mixed contracts

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-066

Original ruling text

SUMMARY
QUESTION: With respect to both the permanently affixed shutters and the removable shutters, does the contractor
owe tax on its purchase of the shutters from the supplier, or should contractor, instead, collect tax on the storm shutter
allocation from its customer?
ANSWER - Based on Facts Below: The taxation of the shutters is in accordance with the predominant nature of
contract used by the contractor, or, in the case of a contract that clearly allocates the price of the various elements, in
accordance with the allocation.
December 3, 2004
Re: Technical Assistance Advisement 04A-066
Sales and Use Tax - Mixed Contracts
Section: 212.06, F.S.
Rule: 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer Association")
FEI: XX
Dear:
This letter is a response to your petition dated August 18, 2004, for the Department’s issuance of a Technical
Assistance Advisement ("TAA") for your association 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, Florida Administrative Code. This response to your request constitutes a TAA and is issued to you
under the authority of s. 213.22, Florida Statutes.
FACTS
The petition sets forth the following information:
... The tax issue [Taxpayer Association] is concerned with involves the installation of storm shutters to both residential
and commercial structures as required by the Florida Building Code ("Code"). Specifically the Code at Section 2413.1
requires the use of storm shutters/external protective devices in hurricane zones located in an area of the State
categorized as a High Velocity Zone. The Code requires storm shutters in these zones when windows and doors of a
structure do not preserve the building envelope against hurricane force winds.
The Code does not require that the shutters be permanently installed in all cases. Specifically, the Code at Section
2413.6 provides that unless storm shutters are permanently attached to the main structure, all such storm shutters
shall, where practicable, be neatly stored at all times in a designated and accessible area within the building.

However, Section 2413.6.1 further provides: "Shutters used to protect openings above the first story of any building or
structure, with the exception of single family residences of one or two stories, must be permanently installed and
closable from the inside of the building or structure unless such openings are accessible without the use of a ladder or
lift, or shutters can be installed from the interior of the building or structure." (Emphasis Supplied.) Single family
residences of not more than two stories are not required to have permanently installed storm shutters.
[Taxpayer Association] contractors typically enter into mixed contracts that call for both real property improvements
and the sale to the customer of items of tangible personal property that do not become real property fixtures. For
purposes of this TAA request, these contracts call for the construction of one [-] or two-story residential and
commercial structures. The contracts also separately allocate the contract prices between the real property
improvement elements of the contract and the sale and installation of items that do not become real property fixtures.
The storm shutters and their price are separately listed in the mixed contract. The [Taxpayer Association] contractor
conveys the storm shutters to the customer in conjunction with the delivery of the completed structure. (Emphasis in
Original)
The petition also poses the following specific scenarios:
FACT SCENARIO 1: Contractor enters into a contract for the construction of a one- or two-story single family
residence in an area of the State that is categorized as a High Velocity Hurricane Zone. The windows of the residence
will not themselves incorporate product features designed to protect the enclosed building envelope against the
impact loads specified in the Building Code. Consequently, the Contractor will supply storm shutters and will
incorporate into the residential structure those features necessary for attachment of the storm panels. The storm
shutters themselves will not be permanently affixed to the residential structure but will be designed to be removed and
stored until such time as a hurricane or other significant wind event is threatened.

FACT SCENARIO 2: Same facts as with Scenario 1, except that the structure is a two-story commercial building. The
storm shutters can be installed and removed from the interior of the structure, without the use of a lift or ladder, and
[they] are not permanently affixed.

FACT SCENARIO 3: Same facts as Scenario 2, except that the second story window openings require the use of a
ladder and thus, as required by the Building Code, the second story storm shutters are permanently affixed to the
building. The first story shutters are not permanently affixed.
No copies of example contracts were provided.
REQUESTED ADVISEMENT
With respect to both the permanently affixed shutters and the removable shutters, advice is requested whether the

contractor owes tax on its purchase of the shutters from the supplier, or whether contractor should, instead, collect tax
on the storm shutter allocation from its customer.
LAW AND DISCUSSION
Section 212.05, Florida Statutes, generally imposes tax on the sale of tangible personal property. The tax is based on
the "sales price" of the tangible personal property, which term is defined in section 212.02(16), Florida Statutes, in
pertinent part as "the total amount paid for tangible personal property, including any services that are a part of the
sale." Installation charges for tangible personal property are taxable as part of the sales price of tangible personal
property. See Rule 12A-1.016(3)(a), Florida Administrative Code.
The taxation of transactions regarding improvements to real property is different. Section 212.06(14), Florida Statutes,
provides the following pertinent definitions regarding the improvement to real property, and it states in pertinent part
as follows:
(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. However, the term does not
include the following items, whether or not such items are attached to real property in a permanent manner: property
of a type that is required to be registered, licensed, titled, or documented by this state or by the United States
Government, including, but not limited to, mobile homes, except mobile homes assessed as real property, or industrial
machinery or equipment. For purposes of this paragraph, industrial machinery or equipment is not limited to
machinery and equipment used to manufacture, process, compound, or produce tangible personal property. For an
item to be considered a fixture, it is not necessary that the owner of the item also own the real property to which it is
attached.... (Emphasis Supplied)
Rule 12A-1.051, Florida Statutes, discusses different types of contracts a contractor may use for jobs for the
improvement to real property, and the taxation of each, and it states in pertinent part as follows:
(3) Classification of contracts by pricing. The taxability of purchases and sales by real property contractors is
determined by the pricing arrangement in the contract. Contracts generally fall into one of the following categories:
(a) Lump sum contracts. These are contracts in which a contractor or subcontractor agrees to furnish materials and
supplies and necessary services for a single stated lump sum price.
(b) Cost plus or fixed fee contracts. These are contracts in which the contractor or subcontractor agrees to furnish the
materials and supplies and necessary services in exchange for reimbursement of costs plus a fee that is fixed in
advance or calculated as a percentage of the costs.

(c) Upset or guaranteed price contracts. These are contracts in which the contractor or subcontractor agrees to furnish
materials and supplies and necessary services based on costs plus fees but with an upset or guaranteed maximum
price which may not be exceeded.
(d) Retail sale plus installation contracts. These are contracts for improvements to real property in which the contractor
or subcontractor agrees to sell specifically described and itemized materials and supplies at an agreed price or at the
regular retail price and to complete the work either for an additional agreed price or on the basis of time consumed. In
order for a contract to fit in this category, all the materials that will be incorporated into the work must be itemized and
priced in the contract before work begins. If a contract itemizes some materials but does not itemize other materials
that will be incorporated into the work, the contract is not included in this category. Because the sale of the materials
is a separable transaction from the installation, the purchaser must assume title to and risk of loss of the materials and
supplies as they are delivered, rather than accepting title only to the completed work. The contractor may remain liable
for negligence in handling and installing the items.
(e) Time and materials contracts. These are contracts in which the contractor or subcontractor agrees to furnish
materials and supplies and necessary services for a price that will be calculated as the sum of the contractor's cost or
a marked up cost for materials to be used plus an amount for services to be based on the time spent performing the
contract. These contracts are similar to cost plus or fixed fee contracts, because the final price to the property holder
will be determined based on the cost of performance. A time and materials contract may or may not also have a
guaranteed or upset price clause. Time and materials contracts differ from contracts described in paragraph (d),
because the materials are not completely identified, itemized, and priced in the contract in advance and because the
property owner is contracting for a finished job rather than the purchase of materials.
(4) General rule of taxability of real property contractors. Contractors are the ultimate consumers of materials and
supplies they use to perform real property contracts and must pay tax on their costs of those materials and supplies,
unless the contractor has entered a retail sale plus installation contract. Contractors performing only contracts
described in paragraphs (3)(a), (b), (c), or (e) do not resell the tangible personal property used to the real property
owner but instead use the property themselves to provide the completed real property improvement. Such contractors
should pay tax to their suppliers on all purchases. They should also pay tax on all materials they fabricate for their
own use in performing such contracts, as discussed in subsection (10). They should charge no tax to their customers,
regardless of whether they itemize charges for materials and labor in their proposals or invoices, because they are not
engaged in selling tangible personal property. Such contractors should not register as dealers unless they are
required to remit tax on the fabricated cost of items they fabricate to use in performing contracts.
(5) Rule for (3)(d) contractors. Contractors who perform retail sale plus installation contracts described in paragraph
(3)(d) do sell tangible personal property. They should register as dealers and provide a copy of their Annual Resale
Certificate (form DR-13) to the selling dealer to purchase tax exempt materials that are itemized and resold under
paragraph (3)(d) contracts. They should not provide the certificate to purchase tax exempt items that they use
themselves rather than reselling, such as hand tools, shop equipment, or office supplies. They must charge their
customers tax on the price paid for tangible personal property but not on the charges for installation labor. See Rule
12A-1.038, F.A.C., for tax exempt sales made to entities that hold a valid Consumer's Certificate of Exemption.
(Emphasis Supplied)

Hurricane shutters that are permanently affixed to a structure are fixtures and are properly classed as improvements
to real property. Construction contracts that include the installation of permanently affixed hurricane shutters (but not
removable hurricane shutters) are taxed as improvements to real property. The contractor should pay tax on its
purchases of all materials and supplies, including the shutters, to its supplier, and it should not charge tax to its
customer.(FN 1)
Hurricane shutters that are removable are not improvements to real property; they are properly classed as tangible
personal property. A contract for the sale of removable hurricane shutters is a sale of tangible personal property.
Unless the property owner can extend a valid exemption certificate, the contractor should charge and collect tax from
the customer on the entire contract amount, including the shutters and other materials and the installation charge. The
contractor can purchase the materials exempt for resale by extending to its vendor a copy of its valid Annual Resale
Certificate.
Confusion is possible when a contractor enters into a contract that involves both improvements to real property
(construction of a building and/or permanently installed hurricane shutters) and the sale of tangible personal property
(removable hurricane shutters), which is the subject of the petition. Such contracts are known as "mixed contracts,"
and they are discussed in Rule 12A-1.051(8), Florida Administrative Code, which provides 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 cost-plus
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 contactor'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)
There are three ways in which the tax can apply to a mixed contract, based on the predominant nature of the contract
or whether a clear allocation of the price is made between the tangible personal property sold and the improvements
to real property.
If the predominant nature of the mixed contract is for the improvement to real property, then the taxation of the
contract is as if the entire job is an improvement to real property. The contractor will pay tax on its purchase of all
materials and supplies used in the performance of the contract, and it will not charge tax to its customer in any
amount. Taxpayer Association contractors may use this alternative on contracts for the construction of a structure that
also includes supplying removable hurricane shutters if the contract pricing is not too specific as to the cost of the
removable hurricane shutters. Taxpayer Association contractors may find this alternative to be the most attractive,
since they will not need to register as dealers and keep track of materials that may have been purchased tax exempt,
but upon which use tax is due.
If the predominant nature of the mixed contract is for the sale of tangible personal property, then the taxation of the
contract is as if the entire job is a sale of tangible personal property. The contractor, who must register as a dealer, will
issue a copy of its valid Annual Resale Certificate to its supplier of the materials, and it will charge tax to its customer
on the entire amount of the contract, including all materials and all labor.

If the mixed contract clearly allocates the cost of the various elements of the contract, then the taxation of the contract
will be in accordance to the allocation. The portion of the contract price allocated to improvements to real property will
be taxed as improvements to real property. The contractor will pay tax on all materials and supplies used in the
performance of the real property improvement portion of the contract, and no tax will be charged to the customer on
this portion of the contract. The portion of the contract price allocated to the sale of tangible personal property will be
taxed as a sale of tangible personal property. The contractor, who must register as a dealer, will issue a copy of its
valid Annual Resale Certificate to its supplier of the materials, and it will charge tax to its customer on the entire
amount of the contract allocated to the sale of tangible personal property, including all materials and all labor.
Contractors using mixed contracts that clearly allocate the cost of the contracts may do business with suppliers that
are not able to charge tax on materials upon which the contractor owes use tax, and also exempt the materials that
the contractor is reselling; such suppliers may exempt all of the materials. In such cases, the contractor will be
responsible for tracking the materials, and accruing tax on those materials which are used in the performance of the
real property improvement portion of the contract.
CONCLUSION
The taxation of the shutters is in accordance with the predominant nature of contract used by the contractor, or, in the
case of a contract that clearly allocates the price of the various elements, in accordance with the allocation.
This response constitutes a Technical Assistance Advisement under s. 213.22, Florida Statutes, which is binding on
the Department only under the facts and circumstances described in the request for this advice, as specified in s.
213.22, Florida Statutes. 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 backup documents are public records under
Chapter 119, Florida Statutes, and are subject to disclosure to the public under the conditions of s. 213.22, Florida
Statutes. Ordinarily, confidential information, such as the identity of the person to whom an advisement is issued,
must be deleted before public disclosure. In the situation in which a taxpayer association is seeking an advisement on
behalf of its members, having the identity of the requesting association remain in the published advisement is useful to
those using the advisement for guidance. No specific taxpayer information is included in an advisement issued to a
taxpayer association, and concerns about protecting proprietary information are not present under such
circumstances. However, in light of statutory requirements as to confidentiality, a taxpayer association must give its
consent to the Department to allow its name to be included in the published advisement.
Sincerely,
Sara D. Faulkenberry
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control #61292

FOOTNOTE #1 - It is assumed that the contractor is not using a retail sale plus installation contract as described in
Rule12A-1.051(3)(d), Florida Administrative Code.