Which phosphate-industry repairs, maintenance, and replacements qualified for the machinery exemption?

Plain-English summary

A phosphate company asked how Florida's machinery-repair exemption applied across mining and beneficiation, chemical manufacturing, and terminal operations, including preventive maintenance, component replacement, and inventory used for both exempt and taxable work.

Florida treated the described fixed-location operations as qualifying production or shipping-preparation activities. Eligible industrial machinery repairs included preventive maintenance and replacement of a component integral to a discrete manufacturing or production line.

The exemption did not extend to stand-alone equipment replacement, real-property repairs, consumables, or general repair tools. The final determination also rejected a blanket exemption certificate for mixed-use inventory; the company could instead use a direct-pay permit and accrue tax when items were used in a taxable manner.

What this means for you

The exemption follows the function and integration of the repaired equipment, not simply the industry or maintenance label. Inventory procedures must account for the item's eventual use.

Common questions

Did preventive maintenance count as repair? Yes. It included work preventing malfunctions as well as restoring equipment to working order.

Could an entire stand-alone machine be replaced exempt? No. The replacement rule covered components integral to a discrete production process, not stand-alone equipment.

Could mixed-use parts be bought under a blanket exemption certificate? No under the operative conclusion. A direct-pay permit could support tax-free purchase followed by self-accrual on taxable use.

Citations and references

• Fla. Stat. § 212.08(7)(xx) (machinery and equipment repair exemption)
• Fla. Stat. § 212.183 (direct-pay permits)
• Fla. Admin. Code rr. 12A-1.051 and 12A-1.096 (real property and industrial machinery)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-053

Original ruling text

SUMMARY
QUESTION 1: Whether certain machinery and equipment used in phosphate mining/beneficiation operations,
chemical operations, and terminal facility operations are used in activities that qualify for the machinery and equipment
repair exemption provided in s. 212.08(7)(zz), F.S.?
ANSWER - Based on Submitted Facts: The mining/beneficiation operations, chemical operations, and terminal
facility operations are all activities that fall with the meaning of "manufacture, processing, compounding, production, or
preparation for shipping of items of tangible personal property at a fixed location within this state," as required by s.
212.08(7)(zz), F.S.
QUESTION 2: Whether the machinery and equipment as described in the request is "industrial machinery and
equipment" within the meaning of s. 212.08(7)(zz), F.S.?
ANSWER - Based on Submitted Facts: Except for the specific exceptions as noted in the TAA, the items under
consideration are "industrial machinery and equipment" within the meaning of s. 212.08(7)(zz), F.S.
QUESTION 3: Whether the term "repairs," as used in s. 212.08(7), F.S., includes preventive maintenance to avoid
malfunctions, as well as activities that return machinery and equipment to proper working order?
ANSWER - Based on Submitted Facts: The term "repairs," as used in s. 212.08(7), F.S., includes preventive
maintenance to avoid malfunctions, as well as activities that return machinery and equipment to proper working order.
QUESTION 4: Whether the term "repairs," as used in s. 212.08(7), F.S., includes actual replacements of machinery
and equipment that constitute an integral part of a manufacturing or production process so long as there is no
expansion that increases productive output of the facility by ten percent or more as described in s. 212.08(5)(b)2.a.,
F.S.?
ANSWER - Based on Submitted Facts: The term "repairs," as used in s. 212.08(7), F.S., includes actual
replacements of machinery and equipment that constitute an integral part of a discrete manufacturing or production
process. The term does not include replacements of stand alone equipment. Treatment of a replacement as a repair
does not depend on whether there is an increase in productive output of less than ten percent.
QUESTION 5: Whether a phosphate mining/manufacturing company in the performance of its own maintenance and
repair activities, is permitted to purchase and store items that may be used for an exempt repair and may be used for
a taxable activity without paying tax at the time of purchase by issuing blanket exemption certificates to vendors?
ANSWER - Based on Submitted Facts: A phosphate mining/manufacturing company performing its own
maintenance and repair activities is permitted to purchase and store items that may be used for an exempt repair or
may be used for a taxable activity without paying any tax at the time of purchase by issuing blanket exemption
certificates to vendors. The company may also purchase such items without paying any tax and accrue tax upon
subsequent taxable use by obtaining and providing vendors with a copy of a direct pay permit.

December 20, 2005

Re: Technical Assistance Advisement 05A-053
Sales and Use Tax
Machinery and Equipment Repair Exemption
Section 212.08(7)(xx), F.S.
Dear :
This is in response to your letter of July 13, 2005, which requests a Technical Assistance Advisement (TAA) to be
issued to your company (hereinafter "Phosphate Company") concerning the exemption provided by s. 212.08(7)(xx),
F.S., for repairs to industrial machinery and equipment.
BACKGROUND
Phosphate Company was previously a member of an association. On September 20, 2001, the Department of
Revenue (DOR) issued TAA 01A-059, to that association with respect to the tax exempt status of repairs to industrial
machinery and equipment. Subsequent to the issuance of the TAA, the association was dissolved. Phosphate
Company now requests that a TAA be issued in its own name with respect to the same issues as enumerated below.
PHOSPHATE COMPANY'S ACTIVITIES
Mining and Processing
Mining begins with clearing and preparing a mine site using machinery and equipment such as bulldozers and
tractors. After site preparation is complete, mining begins using large crane-like equipment called draglines. Draglines
dig up phosphate-bearing matrix and deposit it into a pit, where it is mixed with water to form a slurry. The slurry is
transported using a series of pumps through a pipeline to the processing location.
Processing is referred to as beneficiation, which consists of a washing and screening operation followed by a froth
floatation operation. The washing and screening involves moving the matrix through a series of metal screens while
spraying the mix with water. This reduces the size of the particles and removes unwanted materials. Froth floatation
involves coating the matrix with chemicals and injecting streams of air bubbles into the liquid mix. These steps remove
sand and clay from the matrix and leave a product consisting only or primarily of phosphate rock.
The rock is then loaded into rail cars for transport to manufacturing facilities. Those facilities are generally in the
vicinity of the mining operations. Some rock, however, is shipped over long distances to in-state or out-of-state
manufacturing facilities. The railcars travel on spur lines from the mining/beneficiation plant to main rail lines
maintained by carrier railroads that are in turn connected to spur lines at the manufacturing facility.

Machinery and equipment used in the mining and beneficiation processes include earthmoving equipment, other
off-road vehicles, draglines, pipelines, pumps, washers, floatation chambers, dryers, rod mills, tanks, bins, silos,
electrical equipment, conveyors, computer control equipment, loading equipment, rail cars, locomotives, and
maintenance shop equipment. Any particular operation may use additional types of machinery or equipment in its
mining and processing operations that are not specifically listed.
Chemical and Fertilizer Manufacturing Operations
Phosphate rock arriving at the manufacturing facility is unloaded and typically run through a grinder to reduce the
size of the particles or make them uniform in size. The rock is then moved to a phosphoric acid plant ("PAP") where it
is mixed with sulfuric acid to produce phosphoric acid. Some phosphoric acid is sold. The remainder is used as the
primary raw material for the manufacturing of other phosphate products. Gypsum is produced as a by-product of the
phosphoric acid production process. The gypsum is placed in piles adjacent to the facilities.
Most manufacturers manufacture the sulfuric acid needed in order to ensure availability. Molten sulfur is delivered
to the facility by rail or truck. That sulfur is then processed into sulfuric acid at a sulfuric acid plant ("SAP") and then
transported through piping to the PAP. The SAP process produces substantial quantities of heat and steam energy.
Some of the steam is used directly in plant operations. Much of the steam is captured and used to generate electrical
energy through use of a turbine generator. That electrical energy is then used in plant operations.
Phosphoric acid is used in the manufacturing of various final products. The primary products are fertilizers such as
monoammonium phosphate ("MAP"), diammonium phosphate ("DAP"), and granular triple superphosphate ("GTSP").
In addition, significant quantities of liquid fertilizers and animal feed ingredients are manufactured. A variety of other
phosphatic chemicals and products are also manufactured. Each type of final product involves a plant facility
specifically designed and configured for that product. The finished products are prepared for shipment. Some products
are shipped directly from the manufacturing facility to the customer by truck or rail. In most cases, the products are
either loaded directly onto vessels for shipment to customers (if the manufacturing facility is located at a port) or are
moved in railcars or trucks to a port or to another transloading terminal.
Machinery and equipment used in the manufacturing operations include heavy equipment such as loaders and offroad vehicles, grinding equipment, PAP machinery and equipment, SAP machinery and equipment, final product plant
equipment, shipping facilities, conveyors, piping, pumps and motors, turbines, electrical generation and distribution
equipment, equipment used to place and move gypsum, railcars, locomotives, and maintenance shop equipment.
Terminal Facilities
The bulk of Phosphate Company's products are shipped through transportation terminals such as a port or other
transloading facilities. The product is shipped by rail or truck to the terminals, where Phosphate Company owns or
leases facilities, machinery, and equipment used in unloading, temporary storage, and loading for further shipment.
The machinery and equipment at the terminal facilities include tanks, silos, heaters, heavy equipment, off-road
vehicles, boilers, and pumps.

REQUESTED ADVISEMENTS
Phosphate Company requests the following advisements on the following issues:

1. Whether the machinery and equipment described above and used in mining/beneficiation operations, chemical
   operations, and terminal facility operations are used in activities that qualify for the machinery and equipment repair
   exemption provided in s. 212.08(7)(xx), F.S.?
2. Whether the machinery and equipment described above is "industrial machinery and equipment" within the
   meaning of s. 212.08(7)(xx), F.S.?
3. Whether the term "repairs," as used in s. 212.08(7)(xx), F.S., includes preventive maintenance to avoid
   malfunctions, as well as activities that return machinery and equipment to proper working order?
4. Whether the term "repairs," as used in s. 212.08(7)(xx), F.S., includes actual replacements of machinery and
   equipment that constitute an integral part of a manufacturing or production process so long as there is no expansion
   that increases productive output of the facility by ten percent or more as described in s. 212.08(5)(b)2.a., F.S.?
5. Whether Phosphate Company, in the performance of its own maintenance and repair activities, is permitted to
   purchase and store items that may be used for an exempt repair and may be used for a taxable activity without paying
   tax at the time of purchase by issuing blanket exemption certificates to vendors?
   PHOSPHATE COMPANY'S POSITIONS
   Phosphate Company's positions on the requested advisements are as follows:
6. The mining/beneficiation operations, chemical operations, and terminal facility operations are all activities that fall
   with the meaning of "manufacture, processing, compounding, production, or preparation for shipping of items of
   tangible personal property at a fixed location within this state" as required by s. 212.08(7)(xx), F.S. The mining and
   beneficiation activities are described in Standard Industrial Classification ("SIC") Major Group 14, and the chemical
   production processes are described in SIC Major Group 28, both of which are included in the statute's list of qualifying
   SIC Major Group numbers.
7. Based on Rule 12A-1.096, F.A.C., dealing with purchases of industrial machinery and equipment by new and
   expanding businesses, and Rule 12A-1.051, F.A.C., dealing with classification of machinery and equipment as
   tangible personal property rather than real property, the items under consideration are "industrial machinery and
   equipment" within the meaning of s. 212.08(7)(xx), F.S.
8. The term "repairs," as used in s. 212.08(7)(xx), F.S., includes preventive maintenance to avoid malfunctions as well
   as activities that return machinery and equipment to proper working order.
9. The term "repairs," as used in s. 212.08(7)(xx), F.S., includes actual replacements of machinery and equipment that
   constitute an integral part of a manufacturing or production process so long as there is no expansion that increases

productive output of the facility by ten percent or more as described in s. 212.08(5)(b)2.a., F.S.

5. Phosphate Company, when performing its own maintenance and repair activities, should be permitted to purchase
   and store items that may be used for an exempt repair and may be used for a taxable activity without paying tax at the
   time of purchase by issuing blanket exemption certificates to vendors.
   APPLICABLE LAW, DISCUSSION, AND ANALYSIS
   Section 212.08(7), F.S., provides in part:
   (xx) Certain repair and labor charges.1. Subject to the provisions of subparagraphs 2. and 3., there is exempt from the tax imposed by this chapter all labor
   charges for the repair of, and parts and materials used in the repair of and incorporated into, industrial machinery and
   equipment which is used for the manufacture, processing, compounding, production, or preparation for shipping of
   items of tangible personal property at a fixed location within this state.
6. This exemption applies only to industries classified under SIC Industry Major Group Numbers 10, 12, 13, 14, 20,
   22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, and 39 and Industry Group Number 212. As used in
   this subparagraph, "SIC" means those classifications contained in the Standard Industrial Classification Manual, 1987,
   as published by the Office of Management and Budget, Executive Office of the President....
   The statutory language contains numerous limitations on the exemption.
   * It applies only to charges for labor or for parts and materials that are incorporated into qualifying machinery and
   equipment in the course of a repair. It does not apply to any other expenses related to a repair transaction. For
   example, rentals of equipment used in making repairs and purchases of consumable supplies that are not
   incorporated into the machinery or equipment being repaired are not exempted by this statute.
   * The taxpayer must use the machinery and equipment being repaired in an activity described in the specified SIC
   Major Group numbers.
   * The machinery and equipment must be used to manufacture, process, compound, or produce tangible personal
   property or to prepare tangible personal property for shipping.
   * The machinery and equipment must be used at a fixed location in Florida.
   Qualification of Phosphate Company's Activities
   The first requested advisement is that the mining, beneficiation, chemical, and shipping activities described above
   are ones in which industrial machinery and equipment can be repaired on an exempt basis. Under the statute, the SIC
   Major Group number applicable to an activity determines whether a taxpayer carrying out the activity is eligible for
   exemption on machinery and equipment repairs. The SIC classification of an activity is determined by reference to the
   Standard Industrial Classification Manual, 1987, as published by the Office of Management and Budget, Executive

Office of the President (the "Manual").
SIC Major Group 14 is titled "Mining and Quarrying of Nonmetallic Minerals, Except Fuels." The Manual provides
that this Major Group includes "establishments primarily engaged in mining or quarrying, developing mines, or
exploring for nonmetallic minerals, except fuels." It also includes "... primary preparation plants, such as those
engaged in crushing, grinding, washing, or other concentration." Under the guidelines in the Manual, SIC Major Group
14 also includes establishments engaged primarily in "crushing, pulverizing, or otherwise treating other nonmetallic
minerals" regardless of whether that facility is operating in conjunction with a mine. Industry Group 147 is titled
"Chemical and Fertilizer Mineral Mining" and Industry 1475 is "Phosphate Rock." The mining and beneficiation
activities described above are clearly within the intended scope of the statute.
The description under Industry 1475 also states, "Establishments primarily engaged in the production of
phosphoric acid, superphosphates, or other manufactured phosphate compounds or chemicals are classified in
Manufacturing, Major Group 28." That Major Group is titled "Chemicals and Allied Products." That Major Group
includes, among others, establishments that manufacture "finished chemical products to be used... as materials or
supplies in other industries, such as... fertilizers...." Industry 2874 specifically covers the manufacturing of phosphatic
fertilizers. The Manual's lists of products typically produced at establishments classified under Industry 2874 includes
ammonium phosphates, diammonium phosphates, mixed fertilizers, phosphoric acid, and plant foods. The description
of the chemical processes carried on by Phosphate Company establishes that the facilities involved in those
processes are used in a qualifying manufacturing activity.
The activities carried on at shipping terminals would be classified under non-qualifying SIC Major Group numbers,
if those activities were performed by a company providing transportation services to other enterprises. The Manual,
however, provides that transportation facilities that furnish services "only to other establishments of the same
enterprise are classified as auxiliary to the establishments or units of the enterprise which they serve." Therefore,
terminal facilities owned or leased and operated by Phosphate Company exclusively in conjunction with further
shipment of Phosphate Company's phosphate products would be considered part of the company's qualifying
manufacturing activities. This result is supported by the fact that "preparation for shipping" was added to the list of
qualifying uses of machinery a year after the enactment of s. 212.08(7)(xx), F.S. The apparent intent was to expand
the exemption to include machinery and equipment used in post-production preparations for shipping of products
included in the qualifying SIC Major Group numbers. The activities carried on at shipping terminals by Phosphate
Company are, therefore, also qualifying activities for purposes of the exemption.
Qualification of Items as Industrial Machinery and Equipment
Section 212.08(7)(xx), F.S., does not define the phrases "industrial machinery and equipment" or "fixed location."
There is, however, a similarly worded, long-standing exemption in s. 212.08(5)(b), F.S., for purchases of industrial
machinery and equipment by new and expanding businesses. That exemption applies to "[i]ndustrial machinery and
equipment" purchased by "businesses which manufacture, process, compound, or produce for sale items of tangible
personal property at fixed locations...." The phrase "industrial machinery and equipment" is defined for purposes of
that exemption as follows:

6. For the purposes of the exemptions provided in subparagraphs 1. and 2., these terms have the following meanings:
a. "Industrial machinery and equipment" means tangible personal property or other property that has a depreciable life
of 3 years or more and that is used as an integral part in the manufacturing, processing, compounding, or production
of tangible personal property for sale or is exclusively used in spaceport activities. A building and its structural
components are not industrial machinery and equipment unless the building or structural component is so closely
related to the industrial machinery and equipment that it houses or supports that the building or structural component
can be expected to be replaced when the machinery and equipment are replaced. Heating and air-conditioning
systems are not industrial machinery and equipment unless the sole justification for their installation is to meet the
requirements of the production process, even though the system may provide incidental comfort to employees or
serve, to an insubstantial degree, nonproduction activities. The term includes parts and accessories only to the extent
that the exemption thereof is consistent with the provisions of this paragraph.
The term as used in s. 212.08(7)(xx), F.S., differs in that the exemption for repairs extends to machinery and
equipment used in preparing tangible personal property for shipping and does not require that the tangible personal
property be produced for sale. Nonetheless, it is appropriate to look to s. 212.08(5)(b), F.S., for guidance as to what
types of property qualify under the similarly worded exemption in s. 212.08(7)(xx), F.S.
The Department has promulgated Rule 12A-1.096, F.A.C., to provide guidance in applying the new and expanding
business exemption. In relevant part, that rule provides:
12A-1.096 Industrial Machinery and Equipment for Use in a New or Expanding Business.
(1) Definitions - The following terms and phrases when used in this rule shall have the meaning ascribed to them
except where the context clearly indicates a different meaning:
(a) "Fixed location" means being permanently affixed to one location or plant site. The term also includes any portable
plant which is set up for a period of not less than six months in a stationary manner so as to perform the same
industrial manufacturing, processing, compounding, or production process that could be performed at a permanent
location or plant site. The geographical limits of the fixed location for purposes of this rule are limited to the immediate
permanent location or plant site. Facilities or plant units that are within the same building, or that are on the same
parcel of land if not contained in a building, are considered to be one fixed location.
(b) "Industrial machinery and equipment" means tangible personal property or other property with a depreciable life of
3 years or more that is used as an integral part in the manufacturing, processing, compounding, or production of
tangible personal property.... Buildings and their structural components are not industrial machinery and equipment
unless the building or structural component is so closely related to the industrial machinery and equipment that it
houses or supports that the building or structural component can be expected to be replaced when the machinery and
equipment itself is replaced. Heating and air conditioning systems are not considered industrial machinery and
equipment, unless the sole justification for their installation is to meet the requirements of the production process....
(c) "Integral to" means that the machinery and equipment provides a significant function within the production process,

such that the production process could not be complete without that machinery and equipment.
(d) "Manufacture, process, compound, or produce ..." means the various industrial operations of a business where raw
materials will be put through a series of steps to make an item of tangible personal property....
(e) "Mining activities" means phosphate and other solid minerals severance, mining, or processing operations. Mining
activities end at the point where the mineral is readily identifiable as the final product of mining or where it is ready to
be compounded or mixed with other materials to form a new material....
(g) "Production process" or "production line" means those industrial activities beginning when raw materials are
delivered to the new or expanding business' fixed location and generally ending when the items of tangible personal
property have been packaged for sale, or are in saleable form if packaging is not done. However, the production
process may include quality control activities after the items have been packaged (or are in saleable form if packaging
is normally not done), if such quality control activities are required by good manufacturing practices or mandated by
state or federal government agencies....
(9) Types of industrial machinery and equipment that will or will not qualify for the exemption.
(a) For the purpose of this exemption industrial machinery and equipment includes:

1. Special foundations required for the support of such qualifying machinery and equipment;
2. Electrical wiring from the nearest power panel or disconnect box to the qualifying machinery and equipment; and
3. Plumbing connections necessary to connect the machinery and equipment to the nearest water supply or drain line.
   ...
   (c) Quality control equipment installed within the production line and required to perform quality checks on each item,
   article, or batch produced before the item, article, or batch can be sold qualifies for the exemption.
   (d) Preproduction, random, or postproduction quality control equipment shall qualify as industrial machinery and
   equipment, if it is an integral part of the production process.
   (e) Industrial machinery and equipment which is an integral part of the production process, as well as in
   postproduction, such as a fork-lift, will qualify for the exemption.
   (f) Pollution control equipment, or sanitizing and sterilizing equipment that is an integral part of the production process
   qualifies for exemption.
   (g) Monitoring machinery and equipment that is an integral part of the production process qualifies for exemption.
   (h) Machinery and equipment used to remove waste materials away from industrial machinery and equipment, where
   the removal is required to maintain the operation of the production process, will qualify for exemption. For example,
   equipment used to remove wood chips and sawdust from around a qualified industrial wood lathe will qualify for

exemption.
...
(j) Conveyers or related equipment used to transport raw materials from the storage area located at the fixed location
to the production line will qualify for exemption.
(k) Computers used to direct and control the functions of exempt industrial machinery and equipment will qualify for
exemption, even though such computers may also have non-production related applications or uses.
(l) Machines used to control exempt industrial machinery and equipment through the reading or sensing of a tape or
some other similar means will qualify for exemption.
(n) Machinery and equipment used in the general repair or maintenance of the plant or production machinery and
equipment, such as welders, gear-pullers, or bench grinders, does not qualify for the exemption. However, specialized
machinery and equipment that is continuously required to keep production machinery and equipment calibrated or in
optimum condition such as a sharpening machine in a sawmill, will qualify for the exemption.
(p) Scales at the start of, or within, the production process that are necessary to weigh raw materials or ingredients, or
finished goods at the time of packaging, will qualify for the exemption.
In general, the machinery and equipment described as used in the mining and beneficiation processes will qualify
for the exemption so long as each item has a depreciable life of three years or more and that item is used exclusively
at the mining location. With those qualifications, repairs to earthmoving equipment, other off-road vehicles, draglines,
pipelines, pumps, washers, floatation chambers, dryers, rod mills, tanks, bins, silos, electrical equipment, conveyors,
and loading equipment will be exempt. Any additional types of machinery or equipment that are used directly in
removing phosphatic rock from the ground, in processing it to make it suitable for further manufacture or for sale, in
conveying it from one stage of the mining/beneficiation process to the next, or in loading it for shipment will also
qualify, if the depreciable life and fixed location tests are satisfied.
Repairs to computer equipment will be exempt, if the computers are used to direct and control other qualifying
machinery and equipment.
Railcars and locomotives used to move phosphate rock off the fixed location where mining and beneficiation occur
for delivery to another location will not qualify, because such railcars and locomotives do not meet the "fixed location"
requirement. Any railcars and locomotives used exclusively at the mining facility to move phosphatic rock from one
stage to another of the mining/beneficiation process may be repaired on an exempt basis.
Maintenance shop equipment may or may not qualify. Rule 12A-1.096(9)(n), F.A.C., provides the guidelines to be
applied to maintenance shop equipment. Items used in general repair and maintenance of the mining plant will not
qualify. Only specialized items that are in continuous use to keep mining or beneficiation machinery and equipment
properly calibrated or in optimum condition will qualify.
Machinery and equipment used in the manufacturing operations include heavy equipment such as loaders and off-

road vehicles, grinding equipment, PAP machinery and equipment, SAP machinery and equipment, final product plant
equipment, shipping facilities, conveyors, piping, pumps and motors, turbines, electrical generation and distribution
equipment, equipment used to place and move gypsum, railcars, locomotives, and maintenance shop equipment. All
of those items with a depreciable life of three years or more will qualify to be repaired on an exempt basis with the
possible exceptions of railcars, locomotives, and maintenance shop equipment. As noted above, railcars and
locomotives that bring phosphatic rock from a mining location to a noncontiguous manufacturing facility or that
transport final phosphate products from the manufacturing facility fail to satisfy the "fixed location" requirement. In
addition, maintenance shop equipment must be analyzed under the general maintenance versus specialized
continuous use standard discussed above.
Machinery and equipment at terminal facilities that is used to unload, store, and reload phosphate products for
further shipment will also qualify for the repair exemption. This includes tanks, silos, industrial heaters, heavy
equipment, off-road vehicles, boilers, and pumps.
It must be noted that the repair exemption does not extend to real property repairs. Therefore, any repairs or
maintenance performed on general purpose buildings or other real property improvements (e.g., roads) will not qualify
for exemption.
Preventive Maintenance
The exemption provided in s. 212,08(7)(xx), F.S., extends to "all labor charges for the repair of, and parts and
materials used in the repair of and incorporated into," qualified machinery and equipment. The statute does not define
the term "repair." When a statute fails to define terms, they must be given their ordinary meaning. Rinker Materials
Corp. v. City of North Miami, 286 So.2d 552 (Fla.1973). Webster's New Universal Unabridged Dictionary (1996)
defines "repair" as "to restore to a good or sound condition after decay or damage; mend" and defines "maintain" as
"to keep in an appropriate condition, operation, or force." In the context under consideration, both terms refer to taking
action to keep existing machinery and equipment operating properly at existing levels.
Not all expenses incurred in the course of an exempt repair are exempt. The exemption is limited by its terms to
charges for labor and parts that are incorporated into the machinery and equipment. It does not apply to any other
expenses incurred in the course of a repair. For example, if equipment is rented to use in making a repair, the rental
charges are not exempted by s. 212.08(7)(xx), F.S. Consumable items and tools that are used in the course of an
exempt repair, but are not incorporated into the machinery and equipment, such as rags, cleaning solutions,
sandpaper, wrenches, hammers, and drills are not exempt.
Replacements
Phosphate Company also asks for an advisement that the exemption extends to the replacement of machinery and
equipment, so long as the replacement does not cause an increase in productive output of 10 percent or more.
Phosphate Company bases this position on the fact that an increase of 10 percent or more would qualify a business
purchasing machinery and equipment as an expanding business under s. 212.08(5)(b), F.S. Such a business would
be exempt on those purchases to the extent that sales and use taxes due in a calendar year exceeded $50,000.

Phosphate Company asserts that whether exemption is available, when there is a purchase of machinery and
equipment combined with a 10 percent or greater increase in productivity, should be determined under s.
212.08(5)(b), F.S. Phosphate Company argues that in any case where productivity does not increase by at least 10
percent, treatment as a repair is appropriate.
Exemptions must be strictly construed against taxpayers. The 10 percent productivity increase in s. 212.08(5)(b),
F.S., is clearly intended to differentiate between exempt purchases of machinery and equipment and purchases which
are not exempt because they do not add sufficiently to the amount of tangible personal property that will be sold and
generate tax revenues. Phosphate Company’s interpretation of s. 212.08(7)(xx), F.S., would render that distinction
meaningless by providing that failure to meet the 10 percent test would result in exemption under s. 212.08(7)(xx),
F.S., instead of s. 212.08(5)(b), F.S. In fact, a business that increased productive output by less than 10 percent could
thereby receive a greater tax benefit than one that met the 10 percent increase cutoff. A business that invested
$2,000,000 in replacements for existing machinery and equipment and increased productivity by 10 percent would be
subject to s. 212.08(5)(b), F.S. The tax on $2,000,000 in purchases of machinery and equipment would be $120,000,
and the taxpayer would be required to pay the first $50,000 of that amount for a net tax benefit of $70,000. If the
increase in productivity were only 9 percent, under Phosphate Company’s interpretation, the entire $2,000,000 would
be exempt. A taxpayer would receive a $50,000 greater tax exemption benefit by limiting the increase in productivity,
which is patently inconsistent with the intent of s. 212.08(5)(b), F.S., to encourage increases in productive output.
The exemption under s. 212.08(7)(xx), F.S., is limited to "labor charges for the repair of, and parts and materials
used in the repair of and incorporated into, industrial machinery and equipment." The type of transaction covered by
that exemption must be determined by considering the language of the statute itself. It applies to any parts or
materials incorporated into existing industrial machinery and equipment. The critical question is from what perspective
it is to be applied. If a stand alone machine, such as a dragline, is scrapped and replaced with a new one, that new
machine cannot be classified as a part or material that has been incorporated into a greater existing machine or piece
of equipment. If, however, a series of operations on phosphatic rock or product are performed sequentially without
interruption by machinery and equipment that is integrated by virtue of physical connection, loss of function of any part
of the line would render the remainder of the line useless as well. Replacement of the defective element would in that
case be an incorporation of parts and materials to repair the integrated line. Replacement of the entire line, however,
would not be an exempt repair, because the added machinery and equipment could not be characterized as a part of
a greater whole. In addition, where there is a discrete process, only machinery and equipment involved in that process
will be considered integrated for the repair exemption. Points in the overall mining/beneficiation/manufacturing process
at which materials are not being acted upon in any way other than to move or store them and points at which those
materials could either be sold or used in their current form or undergo additional processes are interruptions that break
the integration of machinery and equipment.
Applying this principle to the operations of Phosphate Company leads to the following conclusions:

• Draglines, railcars, locomotives, bulldozers, tractors, and other off-road vehicles are stand alone machinery or
  equipment and cannot be replaced on an exempt basis under s. 212.08(7)(xx), F.S.
• The process by which slurry is mixed, transported, washed and screened, and put through froth floatation is an

integrated process in which each piece of equipment is physically connected to the next piece of equipment. Slurry
moves directly from the pit through the washers, screens, and floatation chambers. Pumps, pipes, washers, floatation
chambers, dryers, electrical equipment, conveyors, computer control equipment, and other individual components of
the continuous production line that begins with mixing the slurry and ends with loading the rock for shipment to the
manufacturing facilities can be replaced on an exempt basis as part of the repair or maintenance of the existing
mining/beneficiation line.
The grinder and PAP perform an integrated operation by which phosphatic rock is transformed into phosphoric acid,
which can either be sold in that state or undergo further processing. Equipment that is interconnected with the PAP
and transports the gypsum byproduct to the storage piles adjacent to the facilities is part of the PAP process as well.
Any bulldozers or similar equipment used to move gypsum once deposited in the storage piles are stand alone
equipment and cannot be replaced as a part of any larger integrated process.
The manufacture of sulfuric acid at the SAP is an integrated process, and any equipment that is part of that process
will be considered a part of the machinery comprising the SAP.
The cogeneration of electricity is an integrated process. The turbine generator and any related equipment that works
in conjunction with the generator to produce electrical energy and distribute that energy to other plant operations will
be viewed as forming an integrated production line for purposes of the machinery repair exemption. (It should be
noted that cogeneration equipment may be exempt under s. 212.08(5)(c), F.S., as well.)
Each final product production line will be viewed as integrated for purposes of the machinery and equipment repair
exemption. A component of that line may be replaced as a repair of the integrated line.

• Whether shipping machinery and equipment can be replaced as parts of an integrated shipping process will be
  determined based on whether any component equipment is physically and functionally integrated with other
  components. Cranes and off-road vehicles are stand alone equipment. Tanks, conveyors, silos, heaters, boilers, and
  pumps, however, may be part of integrated lines for unloading, storing, or loading phosphate products.
  Procedures
  In Tax Information Publication ("TIP") 00A01-15, dated July 5, 2000, the Department provided a suggested format
  for a certificate that purchasers could issue to vendors when claiming the exemption for machinery and equipment
  repairs. Phosphate Company requests advice on whether it is permissible to issue the suggested certificate to
  purchase parts and materials that may or may not be used for exempt repairs. Phosphate Company often maintains
  large maintenance shops, warehouses, and store yards with replacement parts, materials, and supplies for use in the
  repair and maintenance of its facilities. The parts and materials may be used in the repair and maintenance of
  industrial machinery and equipment that qualifies for exemption under s. 212.08(7)(xx), F.S., or may be used in other
  repair and maintenance operations that are not qualified for exemption. Accordingly, the suggested use of the
  certificate is inappropriate because the certificate states that purchased items will be used for exempt repairs, which is
  not necessarily the case.

Although Phosphate Company may not use the suggested certificate to claim a complete exemption on all
purchases from a vendor and determine taxability at the date of later use, there is an alternative procedure that
permits this result. Phosphate Company could apply for a direct pay permit that could be offered to vendors. That
permit would allow the vendors to collect no tax and authorize self-accrual by Phosphate Company, if and when the
materials purchased are subsequently used in a taxable manner. Pursuant to s. 212.183, F.S., the Department may
by rule provide for self-accrual of tax under specified circumstances, including cases "(w)here the taxable status of
types of tangible personal property will be known only upon use." The Department has issued Rule 12A-1.0911,
F.A.C., providing guidelines and procedures for obtaining self-accrual authorization. A direct pay permit may be issued
under that rule to dealers who purchase annually $100,000 or more of taxable tangible personal property, specifically
including "maintenance and repairs for the dealer's own use...." The self-accrual authority in that case applies to
"taxable tangible personal property, including maintenance and repairs for the dealer's own use, [when] the taxable
status of the property will be known only when the dealer uses the property." Rule 12A-1.0911(2)(a)6., F.A.C. That is
precisely the type of property under consideration in this case. If Phosphate Company spends more than $100,000
per year on property falling into this category, it would be authorized to obtain a direct pay permit by following the
procedures set forth in Rule 12A-1.0911, F.A.C.
ADVISEMENTS

1. The mining/beneficiation operations, chemical operations, and terminal facility operations are all activities that
   fall with the meaning of "manufacture, processing, compounding, production, or preparation for shipping of items of
   tangible personal property at a fixed location within this state," as required by s. 212.08(7)(xx), F.S.
2. Except for the specific exceptions noted, based on Rule 12A-1.096, F.A.C., dealing with purchases of industrial
   machinery and equipment by new and expanding businesses, and Rule 12A-1.051, F.A.C., dealing with classification
   of machinery and equipment as tangible personal property rather than real property, the items under consideration are
   "industrial machinery and equipment" within the meaning of s. 212.08(7)(xx), F.S.
3. The term "repairs," as used in s. 212.08(7)(xx), F.S., includes preventive maintenance to avoid malfunctions, as
   well as activities that return machinery and equipment to proper working order.
4. The term "repairs," as used in s. 212.08(7)(xx), F.S., includes actual replacements of machinery and equipment
   that constitute an integral part of a discrete manufacturing or production process. The term does not include
   replacements of stand alone equipment.
5. Phosphate Company is not permitted to purchase and store items, which may be used for an exempt repair or
   that may be used for a taxable activity, without paying any tax at the time of purchase by issuing blanket exemption
   certificates to vendors. Instead, Phosphate Company may purchase such items without paying any tax and accrue tax
   upon subsequent taxable use by obtaining and providing vendors with a copy of a direct pay permit.
   CLOSING STATEMENT
   This response constitutes a Technical Assistance Advisement under s. 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 s. 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 s. 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 # 15593