How did Florida tax lump-sum contracts to furnish and install built-in cabinetry and millwork?

Plain-English summary

A homebuilder hired a subcontractor to furnish and install custom built-in cabinetry, countertops, and millwork. The items were permanently affixed and intended to last for the life of the residence. The subcontractor billed a single lump sum but had charged sales tax to the builder.

Florida classified the installed items as real-property improvements. Because the subcontractor furnished and installed them under a lump-sum contract, it was the consumer of the materials and should not charge sales tax to the homebuilder. Instead, the subcontractor owed use tax on its fabricated cost under Rule 12A-1.043(1).

Any tax the builder overpaid had to be recovered from the subcontractor, not directly from the Department. If the subcontractor sought its own refund from Florida, the Department would offset the use tax owed on fabricated cost if that tax had not already been paid.

What this means for you

For this type of lump-sum furnish-and-install job, the customer buys a completed real-property improvement rather than taxable cabinetry at retail. The contractor's tax obligation falls on the materials and fabricated cost used to perform the contract.

Common questions

Were the built-in cabinets and countertops tangible personal property after installation? No. Florida treated the permanently installed cabinetry, countertops, and millwork as real-property improvements.

Should the subcontractor collect sales tax on the lump-sum invoice? No. It should pay use tax on fabricated cost instead.

Who must refund tax previously charged to the builder? The subcontractor that collected it, not the Department of Revenue.

Citations and references

• Fla. Stat. § 212.06(14) (fixtures and real-property improvements)
• Fla. Admin. Code r. 12A-1.051 (real-property contractors)
• Fla. Admin. Code r. 12A-1.043(1) (fabricated cost)
• Fla. Admin. Code r. 12A-1.014(4) (refund from dealer)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-041

Original ruling text

SUMMARY
QUESTION: Is built-in cabinetry classed as improvements to real property?
ANSWER - Based on Facts Below: Built-in cabinetry and countertops, as well as millwork, are classed as
improvements to real property upon installation. Contractors that furnish and install such items are making
improvements to real property. Such contractors should not charge tax to their customers. These contractors instead
owe use tax on their fabricated cost of the cabinets, countertops, and millwork. This tax should be calculated in
accordance with Rule 12A-1.043(1), Florida Administrative Code.

October 17, 2005
Re: Technical Assistance Advisement 05A-041
Sales and Use Tax - Improvements to Real Property
Sections: 212.05, 212.06, F.S.
Rules: 12A-1.014, 12A-1.043, 12A-1.051, F.A.C.
Petitioner: XXX (herein "Taxpayer")
FEI: XX
Dear :
This letter is a response to your petition dated August 29, 2005, 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, 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 facts:
[Taxpayer] is a contractor commercially domiciled in the State of Florida. [Taxpayer] builds and sells single-family
houses. In order to maintain efficiency and ensure quality, [Taxpayer] will, under its supervision, use subcontractors
for various aspects of building the homes. For example, [Taxpayer] will subcontract for the furnishing and installation
of flooring, roofing, cabinets, painting, etc.
A subcontractor has been charging [Taxpayer] sales tax on the purchase and installation of custom cabinetry,
countertops and millwork which are specifically designed, manufactured and installed based upon the preferences of
the future homeowner. The items that are furnished and installed by the subcontractor are permanently affixed to the
residence and meant to last for the duration of the residence and are not freestanding. Invoices rendered by the
subcontractor to [Taxpayer] for this work are lump sum invoices which list cabinetry, kitchen cabinetry, countertop,

millwork or a similar description. They are not time and materials invoices and do not break out all the materials such
as lumber, plywood, paint, nails, hardware, etc. There is no separate charge made or listed for labor, installation or
other term to reflect the service element or time and labor involved in building and installing the cabinetry, countertops
or millwork.
REQUESTED ADVISEMENT
Advice is requested whether the cabinetry is classed as improvements to real property, and on the proper tax
treatment of the cabinetry as improvements to real property. Advice is also requested on refunds of taxes overpaid.
APPLICABLE LAW
Section 212.05, Florida Statutes, generally imposes tax on the sale of tangible personal property. Section 212.06(14),
Florida Statutes, provides guidance in determining whether an item is an improvement to real property, and it states
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.
(c) "Improvements to real property" includes the activities of building, erecting, constructing, altering, improving,
repairing, or maintaining real property.
Rule 12A-1.051, Florida Administrative Code, discusses the application of tax to improvements to real property, 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....

(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.

(17) Specific activities classified as real property contracts. Contractors who are engaged in the following activities are
generally considered to be real property contractors, although any particular job may be determined not to involve an
improvement to real property:

(e) Cabinetry (built-in only)....
Rule 12A-1.014, Florida Administrative Code, discusses refunds of tax, and it states in pertinent part as follows:
(4) A taxpayer who has overpaid tax to a dealer, or who has paid tax to a dealer when no tax is due, must secure a
refund of the tax from the dealer and not from the Department of Revenue.
Rule 12A-1.043(1), Florida Administrative Code, sets forth the procedure for calculating tax on the fabricated cost of
taxable items.
DETERMINATION
Built-in cabinetry and countertops, as well as millwork, are classed as improvements to real property upon installation.
Contractors that furnish and install such items are making improvements to real property. Your letter asserts that
Taxpayer uses such a subcontractor that furnishes and installs built-in cabinetry, countertops and millwork, and that
the contract utilized is a lump sum contract. As such, the contractor should not charge tax to Taxpayer. Contractor
instead owes use tax on its fabricated cost of the cabinets, countertops, and millwork. This tax should be calculated in
accordance with Rule 12A-1.043(1), Florida Administrative Code.
Taxpayer must secure any refund of tax from the subcontractor to which it paid the tax, and not from the Department
of Revenue. See Rule 12A-1.014(4), Florida Administrative Code. Details of any tax refund from the subcontractor are
between the subcontractor and Taxpayer. However, a refund of tax to the subcontractor from the Department will be
offset by the use tax it owes on the fabricated cost (if not previously paid).
This response constitutes a Technical Assistance Advisement under Section 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 Section 213.22, Florida Statutes. 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 s. 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
Control #16378