Which machinery, systems, structures, and construction purchases for two city electric-generating units qualified for Florida's energy-production sales-tax exemption?

Plain-English summary

The Florida Department of Revenue approved the energy-production exemption for most permanent machinery, systems, and related structures used in the two new generating units. It denied the exemption for general real-property site improvements and construction equipment that would not become a permanent part of the generating plant.

The city and contractor had a turnkey fixed-price agreement to add two simple-cycle combustion turbines to an existing electric-generating facility. The units would burn natural gas as the primary fuel and No. 2 distillate oil as the secondary fuel.

The generating units met the basic exemption

Section 212.08(5)(c) exempted fixed-location machinery and equipment necessary to produce electrical or steam energy by burning fuels other than residual oil, when the energy was primarily used to manufacture or produce tangible personal property for sale.

The ruling treated electricity itself as the tangible personal property produced for sale. Natural gas and distillate oil were nonresidual fuels, so no residual-fuel proration or tax-paid refund procedure applied. Qualifying purchases were exempt at the time of sale.

The integrated-plant theory covered more than the turbine itself

The Department applied Jacksonville Electric Authority v. Department of Revenue and the integrated-plant theory. Machinery could qualify if it formed part of the electricity-generation process or made the plant function practically, even if it was not intrinsically necessary by itself.

The items listed in the request generally qualified if permanently installed as part of the generation machinery and equipment. Structures whose sole purpose was to enclose, shelter, or control the environment for qualifying equipment also qualified.

General site work and temporary equipment remained taxable

The exemption did not cover general real-property improvements. Site and road materials, site construction labor, and site preparation were taxable unless they constituted foundations or subsurface foundation improvements integral to qualifying machinery.

Rented cranes, scaffolding, earthmovers, and other construction equipment remained fully taxable because they were not installed as permanent parts of the generating system.

The city-to-contractor affidavit chain mattered

The benefit extended to the city, contractor, subcontractors, and lower-tier subcontractors. The city first gave a notarized exemption affidavit to the contractor. Each contractor then issued its own affidavit downstream, along with a copy of the affidavit received, until the purchaser placed the order with the vendor.

The ruling warned that one entity could not use another entity's sales-tax registration, consumer exemption, or direct-pay number. The affidavit could be separate or incorporated into the purchase order but had to include the false-affidavit warning and be notarized.

What this means for you

Utilities and municipal power systems

Map every purchase to the generation process. Permanent integrated machinery, controls, foundations, and dedicated protective structures can differ from roads, general site improvements, and temporary construction assets.

EPC contractors and subcontractors

The statutory exemption can flow through the contracting chain, but each purchaser needs its own affidavit and supporting copies. Do not reuse another entity's tax certificate number.

Project accounting teams

Separate qualifying installed equipment from taxable rentals and real-property work in purchase orders, invoices, and cost codes. Preserve proof of permanent incorporation and exempt use.

Common questions

Q: What fuels did the units use?
A: Natural gas primarily and No. 2 distillate oil secondarily; the ruling treated both as nonresidual fuels.

Q: Did the exemption cover buildings?
A: A structure used only to enclose, shelter, or control the environment for qualifying machinery could qualify. General buildings or improvements were not approved merely because they were on the site.

Q: Were roads and general site work exempt?
A: No, except integral machinery foundations or subsurface foundation improvements described by the ruling.

Q: Were rented cranes and scaffolding exempt?
A: No. Construction equipment rentals remained taxable.

Q: Could subcontractors use the exemption?
A: Yes, through the stated notarized affidavit chain and only for qualifying purchases.

Citations and references

• Fla. Stat. § 212.08(5)(c) — machinery and equipment for nonresidual-fuel electrical or steam production
• Fla. Stat. § 212.085 — false-affidavit penalty referenced in the required statement
• Fla. Admin. Code r. 12A-1.051 — contractor treatment for real-property improvements
• Jacksonville Electric Authority v. Department of Revenue, 486 So. 2d 1350 (Fla. 1st DCA 1986) — integrated-plant theory
• JEA/FPL Declaratory Statement, Exhibit B — Department guide referenced for qualifying integrated items

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-017

Original ruling text

SUMMARY
QUESTION: Whether certain systems and machinery and equipment purchased for the installation of electric
generating units may qualify for exemption when purchased by a city and the city's contractor.
ANSWER - Based on Facts Below: The systems and machinery and equipment as described in the advisement
request will qualify for exemption except for those purchases that are considered real property improvements or
purchases of items that will not be incorporated into the final project. The city and the city's contractor must follow
certain affidavit procedures as described in the advisement.

March 23, 2005

Re: Technical Assistance Advisement 05A-017
Sales and Use Tax
Construction of electric generating units
Section 212.08(5)(c), F.S.
Dear :
This is in response to your request for a Technical Assistance Advisement regarding the construction, installation,
start-up, testing, and commissioning services for two simple cycle combustion turbines ("generating units") at the XXX
("electric generating facility") by XXX ("the Contractor") for the XXX ("the City").
Based on your letter and exhibits accompanying the letter, the following is understood. The Contractor and the City
have entered into a turn-key fixed price agreement for the construction of generating units at the City's electric
generating facility. The generating units will be fueled by natural gas as a primary fuel and distillate oil (#2 oil) as a
secondary fuel. Since the generating units are an addition to the existing generating facility, no administrative, control,
or other buildings will be constructed as a part of the contract. However, there will be certain facilities that will be
purchased to enclose, provide shelter, or control environments for some of the machinery and equipment.
The City has directly purchased certain major pieces of equipment as identified in Exhibit B of the advisement
request. Other pieces of equipment as identified in Exhibits C and D of the advisement request will be purchased by
the Contractor.
TAXPAYER'S POSITION
The systems and machinery and equipment as described in Exhibits B, C, and D of the advisement request qualify
for exemption from sales and use tax pursuant to s. 2l2.08(5)(c), F.S.
The City, the Contractor, and the Contractor's subcontractors may use affidavit procedures to purchase the

systems and machinery and equipment as described in Exhibits B, C, and D exempt from tax.
RELEVANT AUTHORITY
The following passage from the Florida Statutes (F.S.) is pertinent to your request for a Technical Assistance
Advisement.
Section 212.08(5)(c), F.S., provides:
(c) Machinery and equipment used in production of electrical or steam energy.1. The purchase of machinery and equipment for use at a fixed location which machinery and equipment are
necessary in the production of electrical or steam energy resulting from the burning of boiler fuels other than residual
oil is exempt from the tax imposed by this chapter. Such electrical or steam energy must be primarily for use in
manufacturing, processing, compounding, or producing for sale items of tangible personal property in this state. Use
of a de minimis amount of residual fuel to facilitate the burning of nonresidual fuel shall not reduce the exemption
otherwise available under this paragraph.

2. In facilities where machinery and equipment are necessary to burn both residual and nonresidual fuels, the
   exemption shall be prorated. Such proration shall be based upon the production of electrical or steam energy from
   nonresidual fuels as a percentage of electrical or steam energy from all fuels. Purchasers claiming a partial exemption
   shall obtain such exemption by refund of taxes paid, or as otherwise provided in the department's rules.
3. The department may adopt rules that provide for implementation of this exemption. Purchasers of machinery and
   equipment qualifying for the exemption provided in this paragraph shall furnish the vendor with an affidavit stating that
   the item or items to be exempted are for the use designated herein. Any person furnishing a false affidavit to the
   vendor for the purpose of evading payment of any tax imposed under this chapter shall be subject to the penalty set
   forth in s. 212.085 and as otherwise provided by law. Purchasers with self-accrual authority shall maintain all
   documentation necessary to prove the exempt status of purchases.
   DETERMINATION
   Exemption of Facility
   The exemption provided under s. 212.08(5)(c), F.S., is applicable to those facilities that produce electrical or steam
   energy from the burning of fuels other than residual oil. The natural gas and distillate oil fuels to be burned in the
   generating units are not residual oil fuels. The exemption further requires that such electrical or steam energy must be
   primarily used in manufacturing, processing, compounding, or producing tangible personal property for sale. Electrica1
   energy is the tangible personal property that is produced for sale. Accordingly, since the generating units do not burn
   residual oil and electrical energy is produced for sale, the generating units qualify for exemption. Further, since
   residual oil is not a fuel source, the Contractor and the City are not obligated under the provisions of subparagraph 2.
   of the exemption statute to pay tax on the purchases of machinery and equipment and seek a subsequent refund of

the exempt portion. The Contractor's and the City's purchases of qualifying machinery and equipment will be exempt
at the time of the purchase transaction.
Qualifying Purchases
The scope of s. 212.08(5)(c), F.S., was reviewed by the First District Court of Appeal of Florida in Jacksonville
Electric Authority v. Department of Revenue, 486 So.2d 1350 (Fla. 1st DCA 1986). That case involved the taxable
status of certain machinery and equipment purchased by the Jacksonville Electric Authority to be used in the burning
of coal to produce electrical energy.
The District Court of Appeal determined that it was the legislative intent, based on the tape recorded proceedings
of the Florida Senate Committee on Ways and Means, to embrace the "integrated plant theory" as a basis for
interpreting the exemption for machinery and equipment provided in s. 212.08(5)(c), F.S. Under the "integrated plant
theory," machinery and equipment used in the process of generating electrical energy, regardless of the fact that such
machinery and equipment was not intrinsically necessary to generate electrical energy or the sole purpose of such
machinery and equipment was to make the plant function more practically, would be considered a component part of
the manufacturing process. Therefore, the machinery and equipment used in the process of generating electrical
energy, but not distribution, would qualify for the exemption provided in s. 2l2.08(5)(c), F.S.
The Department implemented the court's instructions by amending "Exhibit B" of the JEA/FPL Declaratory
Statement. "Exhibit B" now serves as a guide for the Department when embracing the "integrated plant theory."
Therefore, based on "Exhibit B" of the JEA/FPL Declaratory Statement, the Department now finds that all items within
Exhibits B, C, and D of the advisement request qualify for the exemption under s. 212.08(5)(c), F.S., with the following
exceptions.
Exhibit D of the advisement request lists categories of items that will be purchased by the Contractor or the
Contractor’s subcontractors. Among the line items listed in the exhibit are the following:
Site and road construction materials (fill, asphalt, concrete)
Site construction labor
Site preparation
Rental construction equipment
The exemption under s. 2l2.08(5)(c), F.S., does not extend to real property improvements at the generating facility.
Accordingly, site improvements that do not constitute foundations or sub-surface improvements for foundations for
machinery and equipment that is integral to the production of electrical energy will not qualify for exemption.
Contractors that perform real property improvements are subject to the provisions of Rule 12A-l .051, F.A.C.
Generally, the contractor will be subject to tax on all materials consumed in the real property improvement activities.
Structures or facilities whose only purpose is to enclose, provide shelter, or control environments for qualifying items

of machinery and equipment are considered to be an integral part of that machinery and equipment and do not
constitute real property improvements. Accordingly, such structures or facilities will qualify for exemption.
The exemption under s. 212.08(5)(c), F.S., is only applicable to items that are installed as a permanent part of the
machinery and equipment that is integral to the production of electrical energy. Accordingly, the rental of any
construction equipment, such as cranes, scaffolding, or earthmovers, will remain fully taxable to the contractors.
Affidavit Procedures
The benefit of the exemption inures to the City, to the Contractor, and to the Contractor's subcontractors. The
exemption is implemented by extending an affidavit to the machinery and equipment or materials vendor at the time of
the purchase transaction. At no time when extending an affidavit for the exemption provided in s. 2l2.08(5)(c), F.S.,
should anyone include another business entity's Certificate of Registration number (sales tax number), Consumer's
Certificate of Exemption number, or Direct Pay Certificate number. Each of those numbers may only be used by the
business entity to which it was assigned.
Procedurally, an affidavit must be given by the City to the Contractor. The Contractor, in turn, would then issue its
own affidavit to its subcontractors along with a copy of the affidavit provided by the City. This process continues from
subcontractors to sub-subcontractors until the actual purchase order is issued to the vendor or supplier for the
qualifying machinery and equipment or materials.
The affidavit may be a separate document attached to purchase orders or it may be incorporated within the
purchase order itself. If the affidavit is incorporated within the purchase order, a statement that would have the same
effect as the statement regarding a false affidavit, as provided in the sample affidavit, must be incorporated within the
purchase order. Further, it is the position of the Department that the affidavit must be notarized regardless of whether
the affidavit is incorporated within the purchase order or is an independent affidavit attached to the purchase order.
The following is a suggested format for the affidavit.
AFFIDAVIT
STATE OF FLORIDA
COUNTY OF ___.
On this day, personally appeared the undersigned who, being first duly sworn, deposes and says:
That all machinery and equipment purchased from __ will be incorporated into and/or become a
component part of the ___ located in __, Florida, County of
____. Further that said machinery and equipment is necessary for the production of electric or
steam energy resulting from the burning of boiler fuels other than residual oil and is exempt from the tax imposed by
Chapter 212, Florida Statutes, Sales and Use Tax Act, pursuant to Section 212.08(5)(c), Florida Statutes.
I understand any person furnishing a false affidavit to a vendor for the purpose of evading payment of any tax

imposed under Chapter 212, Florida Statutes, shall be subject to the penalty set forth in Section 212.085, Florida
Statutes, and as otherwise provided by law.
___.___.
Purchaser's NameSignature
Sworn to and
subscribed before me
this _ day of
__, A.D., 20 .____.
Notary Public
(Seal)

My Commission Expires
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
id# 12815