Which foundations, production-support systems, HVAC components, and electrical costs at a new newspaper plant qualified for Florida's expanding-business exemption?

Plain-English summary

Eighteen major areas or systems at the newspaper publisher's new printing facility qualified fully or partly for Florida's expanding-business machinery-and-equipment exemption. The facility itself had already been approved under section 212.08(5)(b); this TAA classified specific foundations, building systems, and production-support equipment after the Department reviewed documents and toured the plant.

Press foundations and directly related systems

The Department treated these items as exempt machinery, equipment, or installed components:

• auger-cast piles supporting the press line;
• the press mat, press table, and press columns;
• the additional two inches of concrete and reinforcing bar in the specialized slab beneath production machinery, allocated from total concrete purchases;
• the press crane rail used to install and maintain the presses;
• the textured epoxy finish on the press table;
• four of the facility's twelve dock levelers that were reinforced for one-ton paper rolls;
• the fire-protection system mounted in the lower press-table areas;
• the separated process-wastewater and solvent piping systems;
• the compressor/vacuum system, for which no nonproduction use was observed;
• the ink-mist filter protecting press efficiency; and
• the separate air-conditioning unit cooling the room containing the facility's computer-network hub and press controls.

The waste systems qualified under the expanding-business rule even though the Department said the facts did not establish a pollution-control exemption under section 212.051(1).

Shared HVAC and electrical allocation

Seven air-handling units served production-related areas: units 1, 2, 3, 4, 5, 8, and 9. The two office units did not. Because the units had different capacities, the Department rejected a simple seven-ninths allocation.

Production-related airflow was 147,708 CFM out of 166,703 CFM, or 88.61%. The Department used that percentage for the exempt share of:

• the air-handling units;
• adjustable-frequency drives;
• ductwork;
• cooling towers and chillers;
• boilers;
• centrifugal pumps; and
• the facility electrical system, where production and nonproduction feeds could not readily be separated.

Piping could use the same 88.61% allocation. Alternatively, identifiable piping running directly from chillers to equipment cabinets could be treated as fully exempt, with the remaining piping allocated at 88.61%.

Refund documentation

For previously taxed materials incorporated into the auger piles, press supports, and specialized slab, the TAA required notarized assignments of refund rights from the relevant vendors or subcontractor. For the press mat, table, and columns, the Department accepted the subcontractor's AIA document in place of an invoice as supporting documentation.

What this means for you

Manufacturers should classify facility costs by actual production function rather than by broad building-system labels. Dedicated press-support equipment qualified fully; mixed-use systems required an engineering allocation; and ordinary portions of a building component did not qualify merely because a specialized portion did. Refund claims also depended on the documentation identified in the ruling.

Common questions

Q: Did the entire specialized concrete floor qualify?
A: No. Only the extra two inches of concrete and reinforcing bar under the production machinery qualified, based on an allocation of total concrete purchases.

Q: Why was 88.61% used instead of seven ninths for the air handlers?
A: The nine units had different capacities. Production-related units supplied 147,708 of the system's 166,703 CFM.

Q: Did all twelve dock levelers qualify?
A: No. Only the four reinforced levelers used as the entry point for one-ton paper rolls qualified.

Q: Did the process-waste system qualify as pollution-control equipment?
A: The Department said that basis was not established, but the system still qualified under the expanding-business machinery rule.

Citations and references

• Fla. Stat. § 212.08(5)(b) — expanding-business exemption
• Fla. Stat. § 212.051(1) — pollution-control machinery discussed for the waste systems
• Fla. Admin. Code r. 12A-1.096 — industrial machinery and equipment exemption and allocation rules

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-006

Original ruling text

SUMMARY
QUESTION: Company has constructed a new state-of-the-art facility to replace existing facility for the printing and
publishing of newspapers. The company seeks a determination as to which major areas and systems of the new
facility may be considered as machinery and equipment qualifying for exemption from sales and use tax as an
expanding business.
ANSWER - Based on Facts Below: Based on the exemption statute and rule and a tour of the facility, it has been
determined that eighteen major areas or systems at the new facility fully or partially qualify for exemption.

January 24, 2005

Re: Technical Assistance Advisement 05A-006
Sales and Use Tax
Expanding Business
Section 212.08(5)(b), F.S.
Rule 12A-1.096, F.A.C.
Dear:
This is in response to your request dated November 8, 2004, for a Technical Assistance Advisement (TAA) regarding
XXX ("Taxpayer's") new newspaper printing facility in XX. The facility has been approved for an exemption from sales
and use tax as an expanding business pursuant to s. 212.08(5)(b), F.S. The Department has previously addressed
specific exemption issues relating to this facility in Letter of Technical Advice (LTA) 04A-495 dated June 9, 2004, and
LTA 04A-773 dated August 30, 2004. You now seek the Department’s formal position with respect to these same
issues. These issues are as follows.
Auger Cast Piles
Augered piles were drilled and cast in concrete as part of the support system for the pressline. As a part of the
foundation for the qualifying machinery and equipment, the auger cast piles would be exempt from sales and use tax
pursuant to Rule 12A-1.096(9)(a)1., F.A.C. Materials purchased for incorporation into the auger cast piles will be
eligible for a refund of previously paid tax, once the notarized assignment of rights has been obtained from the
vendors.
Press Mat, Press Table, and Press Columns
The press mat, press table, and press columns are a part of the support system for the pressline. As a part of the
foundation for the qualifying machinery and equipment, the press mat, press table, and press columns would be
exempt from sales and use tax pursuant to Rule 12A-1.096(9)(a)1., F.A.C. Materials purchased for incorporation into

the press mat, press table, and press columns will be eligible for a refund of previously paid tax, once the notarized
assignment of rights has been obtained from the sub-contractor. The AIA document issued by the sub-contractor will
be accepted as a supporting document in lieu of an invoice.
Specialized Concrete Slab
A specialized concrete slab is necessary to support manufacturing operations in the pressroom and related areas.
All concrete used throughout the facility has the same psi rating. However, the slab under the machinery and
equipment is two inches thicker than the slab in non-production areas. The concrete and reinforcing bar comprising
this additional two inches of thickness will qualify for exemption as a part of the machinery and equipment pursuant to
Rule 12A-1.096(9)(a)1., F.A.C. Accordingly, the total cubic yardage of concrete purchased needs to be computed and
the percentage that is applicable to the specialized floor slab will be eligible for exemption and refund following receipt
of the notarized assignment of rights from the concrete supplier.
Press Crane Rail System
A press crane rail system was installed at the facility to assist in the initial installation of the printing presses and in
any future repairs of those presses. It is noted that the future use of the press crane rail system will probably be
infrequent, possibly once every six months for press maintenance purposes. Pursuant to Rule 12A-1.096(9)(n),
F.A.C., an exemption is allowable for "specialized machinery and equipment that is continuously required to keep
production machinery and equipment calibrated or in optimum condition." The press crane rail system is specialized
machinery and equipment. The system serves no purpose other than the initial installation and subsequent
maintenance of the presses. To date, the Department has not had to address the issue of what is meant by the
phrase "continuously required" in the rule. Rule 12A-1.096(9)(t), F.A.C., provides that "[i]nstallation labor charges
qualify for exemption. However, other installation costs, such as equipment rental or expendable supplies, which do
not become a physical part of qualifying machinery and equipment, do not qualify for exemption." The purchase of the
press crane rail system is an installation cost of the presses. Further, the close and integral proximity of the system to
the presses, effectively, makes the rail system an installed part of the presses. Accordingly, the press crane rail
system may be considered as machinery and equipment qualifying for exemption.
Epoxy Covering
The concrete table, upon which the presses sit, is covered in an epoxy material. It has been stated that the epoxy
covering "is needed to ensure the proper functioning of the press." Section 1.7. of the printing press manufacturer's
project manual specifies that the customer is to provide the epoxy finish on the concrete table. The customer is also
required to provide "[i]nformation on thickness of epoxy finishing to position plates in zero height." It is presumed that
the reference to the thickness of the epoxy finish is only relevant to installation dimensions for the presses. It is not
known how the epoxy would otherwise relate to the functioning of the presses.
Based on a tour of the facility by Department of Revenue personnel, this epoxy material is dark red in color and
contains a grit-like textured surface, presumably for a non-slip finish. The epoxy is only on the upper levels of the
concrete table for the presses. The epoxy is not a facility-wide floor finish. Even though the epoxy does not provide a

known function in the actual manufacturing of tangible personal property, it is an integral element of the press table,
which in turn is integral to the presses. Accordingly, the application of the epoxy finish to the press table will qualify for
exemption as an installed part of machinery and equipment.
Dock Levelers
Four of the twelve dock levelers installed at the facility are reinforced to handle the one-ton weight of the rolls of
paper used in the printing process. Pursuant to Rule 12A-1.096(1)(g), F.A.C., the production process generally begins
at the point where raw materials are delivered to the facility. The raw materials (rolls of paper) have no other entry
point into the facility other than at these reinforced dock levelers. Accordingly, the four reinforced dock levelers will
qualify for exemption as part of the production process.
Fire Protection
Based on the facility tour, it has been shown that the fire protection system has been mounted in the lower areas of
the press tables where the rolls of paper feed the presses. Although the fire protection system does not actively
participate in the printing of the newspapers, it is an integral part of the press area and it is required by fire codes.
Accordingly, the fire protection system will qualify for exemption as a part of the machinery and equipment.
Processed Waste/Process Waste Piping
The facility waste systems in question relate to waste water and waste solvents from the blanket wash room and
platemaking room. These wastes must be kept separate from the facility's sanitary waste stream. It has not been
established whether control of this waste stream is mandated by the Florida Department of Environmental Protection.
More likely, control of this waste stream is in response to a local municipal or county ordinance. Accordingly, an
exemption may not be available pursuant to s. 212.051(1), F.S., as pollution control machinery and equipment.
However, these waste systems will fall under the provisions of Rule 12A-1.096(9)(f), F.A.C., as systems qualifying for
exemption.
Compressor/Vacuum System
Compressed air and vacuum is needed to run the inserting equipment at the facility. Based on the facility tour, it
was observed that compressed air also serves the printing presses. No non-production use of compressed air or
vacuum was observed or could be perceived. Accordingly, the compressor/vacuum system will fully qualify for
exemption.
Ink Mist Filter System
An ink mist filtering system has been installed in the upper levels of the press room of the Taxpayer's facility. This
system traps airborne ink mist particles as well as dust that would otherwise detract from the operational efficiency of
the printing presses. Accordingly, the ink mist filtering system would be exempt from tax as machinery and equipment
that is integral to the production process.

Air Conditioning Unit
The press controls for the printing presses are required to be located in a cooled environment. A separate air
conditioning unit has been purchased for the specific purpose of cooling the room which houses the computer network
hub for the facility. Since this air conditioning unit is integral to the production process, this item will qualify for
exemption.
Air Handling Units (AHUs)
The HVAC system at the facility includes nine air handling units (AHUs). Each of these AHUs provides heating and
cooling to specific areas. These areas and their capacities are as follows:
AHU

Service Area

1 and #2

Press Hall and

CFM Air Flow
88,000

Reel Room

3

Inserting Area

25,000

(Machinery and Equipment)

4 and #5

Plate Making

6,708

6

Offices

10,000

7

Offices (Utility)

8,995

8

Free-Standing

25,000

Insert (FSI)
Storage Area

9

Press Electrical

3,000

Room
Based on a review of the printing press manufacturer's project manual and the facility tour, conditioned air is
necessary for the proper operation of machinery and equipment in the production areas. Accordingly, the AHUs
serving the production areas will qualify for exemption. These exempt AHUs are numbers 1, 2, 3, 4, 5, 8, and 9.
Although newspaper production does not take place in the FSI storage area, the newspaper inserts that are stored in
this area prior to insertion must be kept in an air conditioned environment for proper functioning of the insertion
machinery and equipment.
The AHUs do not have identical specifications. Accordingly, a straight 7/9ths allocation is not appropriate. System
specifications show that the total capacity of the facility's HVAC system is 166,703 CFM. The total capacity of the
system that services production areas is 147,708 CFM, or 88.61 percent. Accordingly, the Taxpayer is exempt from

sales and use tax on 88.61 percent of the cost of the AHUs.
Adjustable Frequency Drives
The adjustable frequency drives work in direct concert with the air handling units to control the climatic conditions
within the facility. As previously discussed, the majority, but not all, of the facility's HVAC system is dedicated to the
production process. Accordingly, an exemption for the adjustable frequency drives should be allocated by utilizing the
88.61 percent exempt portion that is applicable to the HVAC system.
Ductwork
It is understood that the amount of ductwork at the facility is not evenly distributed. Not all ductwork is of the same
size, and the ductwork may travel for varying distances. The ductwork is directly related and integral to the facility's
HVAC system. Therefore, the exempt portion of the ductwork may be determined by utilizing the 88.61 percent
exempt portion that is applicable to the HVAC system.
Cooling Towers, Chillers, and Piping
Whereas the air handling units provide the driving force and the ductwork provides the pathway, the cooling
towers, chillers, and piping provide the method of cooling the air in the facility. (The cooling towers are located on the
roof of the building, while the chillers are in close proximity on the inside of the building.) These systems are all directly
related. Accordingly, the exempt portion of the cooling towers and chillers may be allocated by utilizing the 88.61
percent exempt portion that is applicable to the HVAC system.
Based on the facility tour, a portion of the piping goes to the AHUs while the remaining portion is piped directly to
the various equipment cabinets for the direct cooling of those devices. It has not been established whether the piping
was installed as a separate contract by a contractor other than the one or ones used to install the cooling towers and
chillers. It is also not known whether the piping contract is of a significant dollar amount. Accordingly, the exempt
portion of the piping may be determined by utilizing the 88.61 percent exempt portion that is applicable to the HVAC
system. Alternately, if it can be determined, all piping from the chillers to the equipment cabinets may be considered
as exempt and the balance of the piping may be further allocated on the 88.61 percent basis that is used for the
HVAC system.
Boilers
It is understood that in addition to the use of chillers in maintaining proper environmental temperatures within the
facility, boilers are also necessary to provide temperature conditioning and humidity control. These boilers are also in
close proximity to the facility's AHUs. Accordingly, the exempt portion of the boilers may be allocated by utilizing the
88.61 percent exempt portion that is applicable to the HVAC system.
Centrifugal Pumps
The centrifugal pumps are used to support the hydronic heating and/or cooling systems at the facility. Cooled water

is also piped to the presses and the frequency drive cabinets for those presses. Since the centrifugal pumps are
integral to the production process, the pumps will qualify for exemption. Again, an exemption for the centrifugal pumps
should be allocated by utilizing the 88.61 percent exempt portion that is applicable to the HVAC system.
Electrical
Generally, Rule 12A-1.096(9)(a)2., F.A.C., extends the exemption to electrical wiring from the machinery and
equipment back to the first panel box or disconnect. This rule provision contemplates a generic factory building where
a variety of machinery and equipment may be installed at any number of spots in the building and/or removed at a
later date. At the Taxpayer’s facility, there is very little general distribution of electricity. The electricity feed from the
power company enters the facility and is almost immediately connected to the presses, which are the single, largest
draw on the available power. There is limited ability to break apart the facility's electrical system and identify
specifically which parts feed production and non-production areas. Accordingly, the exempt portion of the parts and
materials that comprise the facility's electrical system may be allocated by utilizing the 88.61 percent exempt portion
that is applicable to the HVAC system.
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
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