How did sales and use tax apply when a contractor manufactured and installed roof trusses and wall panels?

Plain-English summary

A Florida contractor manufactured roof trusses and wall panels at its facility and installed them under lump-sum construction contracts. It also continued to sell some fabricated products as tangible personal property to third-party contractors.

Florida treated the installed trusses and panels as real-property improvements. The contractor was the ultimate consumer, so it did not collect sales tax from the property owner but owed tax on purchased materials and use tax on the items' manufactured or fabricated cost.

Fabricated cost included direct materials and direct labor at the manufacturing facility. Materials already taxed at purchase and job-site labor were excluded. Materials for retail resale could still be bought with a resale certificate, with tax collected on the later retail sale.

What this means for you

A dual fabricator and installer must distinguish retail inventory from property consumed in real-property contracts. Withdrawing self-made items for installation triggers use tax based on fabricated cost.

Common questions

Did the contractor charge the owner sales tax on a lump-sum contract? No. It paid tax as the ultimate consumer instead.

Was off-site fabrication labor included? Yes. Direct labor at the manufacturing facility entered fabricated cost.

Was job-site installation labor included? No. The ruling excluded job-site labor from fabricated cost.

Could resale certificates still be used? Yes, for materials incorporated into products sold at retail, and for other direct materials if their cost was later included in the use-tax calculation when consumed.

Citations and references

• Fla. Stat. § 212.06(1) (use tax on fabricated property)
• Fla. Admin. Code r. 12A-1.043 (manufactured and fabricated cost)
• Fla. Admin. Code r. 12A-1.051 (real-property contractors and lump-sum contracts)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-014

Original ruling text

SUMMARY
QUESTION(S): Does Taxpayer owe sales tax on the trusses and wall boards it manufactures and installs?
ANSWER - Based on Facts Below: The trusses and wall panels manufactured and installed by Taxpayer are
considered a real property improvement. As such, Taxpayer owes sales tax on the cost of the materials as the
ultimate consumer of the materials and supplies used to perform a lump sum contract pursuant to Rule 12A-1.051,
F.A.C.
Additionally, since Taxpayer fabricates the trusses and wall panels that will be incorporated into real property,
Taxpayer must pay tax on the cost of the fabricated items that will be incorporated into real property. See Rule 12A1.043, F.A.C. A contractor who manufactures or fabricates items of tangible personal property for his own use or
consumption in fulfilling a real property improvement, construction, alteration or repair contract is required to pay use
tax on the manufactured or fabricated cost of such items. However, direct materials on which the tax has already been
paid at the time of purchase or acquisition shall not be included when computing the use tax. Job site labor is not
included in the calculation of fabricated cost.

June 2, 2006

Re: Technical Assistance Advisement 06A-014
XXX ("Taxpayer")
FEIN: XX
Sales and Use Tax - Roof Trusses
Statutes: Section 212.06(1), F.S.
Rules: 12A-1.043, 12A-1.051, F.A.C.
Dear :
This response is in reply to your letter dated February 13, 2006 requesting the Department's issuance of a Technical
Assistance Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter 12-11, F.A.C., regarding the referenced
matter and parties. An examination of your petition has established that you have complied with the statutory and
regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for
issuance of a TAA.
INFORMATION SUPPLIED
Your letter states in pertinent part:

II. FACTS

Taxpayer fabricates roof trusses ("trusses") and wall panels ("panels") at a facility located in Florida. Historically,
Taxpayer has exclusively sold its products to persons such as contractors and subcontractors for their use in
constructing real property improvements. Taxpayer has collected sales tax on these sales and has remitted the tax
collected to the Department. When purchasing materials that will become a component of the trusses or panels,
Taxpayer has provided a Florida sales tax resale certificate to its vendors and has not paid sales or use tax on these
component materials. When it has purchased materials that would be consumed in the fabrication of the trusses and
panels, Taxpayer has either paid sales tax to its vendors or accrued and remitted use tax on the cost price of the
materials.
Although Taxpayer intends to continue its sale of fabricated trusses and panels, it now intends to also use these
products itself in constructing real property improvements in Florida. Taxpayer intends to enter into lump sum
contracts with customers for the construction of these improvements. Taxpayer will, under its contracts, furnish all
labor and materials required for the construction of the improvement. In most (if not all) cases, the improvement sold
to the customer will consist of a substantially (but not completely) constructed home or other structure. The customer
will make its own arrangements with other parties to provide the materials and labor to complete the structure.
A sample contract in a form that will be used by Taxpayer is attached. As can be seen from this sample
agreement, the price is a lump sum price for the construction of the improvement. The agreement does not provide
any itemization or separate statement of the materials to be provided and does not provide any separate price for the
materials or any portion thereof.

IV.

DISCUSSION
Department Rule 12A-1.051, Fla. Admin. Code, addresses the application of the sales and use tax to persons who

repair, alter, improve and construct real property. [Subsection] (4) of this rule provides the following regarding the
general application of sales and use tax in the real property improvement context:
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.
As stated in [subsection] (4) quoted above, this general provision concerning the application of sales tax applies
only to the contracts described in paragraphs (3)(a), (b), (c) or (e) of the rule. Paragraph (3)(a) of Rule 12A-1.051

references "lump sum contracts" and defines them as follows:
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.
Taxpayer's agreements, as previously described, qualify as "lump sum contracts" as defined above. Therefore,
Taxpayer should not collect sales tax on the amounts charged to customers pursuant to these contracts. Rather,
Taxpayer should pay sales tax on all materials purchased for use in fulfilling these contracts. Further, Taxpayer should
pay use tax on the fabricated cost of the trusses and panels used in fulfilling these contracts.
Pursuant to Rule 12A-1.051(10), Fla. Admin. Code, use tax due on fabricated materials is to be calculated in
accordance with Rule 12A-1.043, Fla. Admin. Code. Paragraph (1)(b) of Rule 12A-1.043 requires the calculation and
payment of use tax on fabricated items be based on the fabricator's direct materials and direct labor costs. Direct labor
costs, according to this rule, include only those labor costs incurred at the off-site place of fabrication and do not
include any job site labor. Therefore, Taxpayer will owe use tax on the fabrication labor that takes place at Taxpayer's
manufacturing facility but will not owe sales or use tax on the job site labor provided to fulfill its realty improvement
contracts. Regarding direct materials used in fabrication, Taxpayer can either pay sales tax to its vendors or provide a
resale certificate. If tax is paid on the materials to the vendor, the cost of said materials need not be included in the
fabrication cost price. If a resale certificate is provided to the vendor in lieu of paying tax, the cost of the materials shall
be included in the fabrication tax calculation. Rule 12A-1.043(1)(e), Fla. Admin. Code.
V.

RULING REQUESTED

a. Taxpayer should not collect sales tax from its customers on the charges made to customers for the real property
improvements referenced above.
b. Taxpayer owes sales or use tax on the materials (including the fabricated trusses and panels) it uses in fulfilling the
real property improvement contracts. Taxpayer should calculate and pay this tax in accordance with the provisions of
Rule 12A-1.043, Fla. Admin. Code, as previously described.
c. Taxpayer can continue to apply the resale exemption to its purchases of materials that will be incorporated into the
trusses and panels that will be sold to third parties. Taxpayer can also apply the resale exemption to its purchases of
materials that will be incorporated into the trusses and panels that Taxpayer will use in fulfilling its real property
improvement agreements provided that Taxpayer will, in that case, be required to include the cost of these materials
in its fabricated cost calculation for use tax purposes.
d. Taxpayer will not owe sales or use tax on the on-site labor necessary for Taxpayer to fulfill its real property
improvement agreements. Taxpayer will, however, be required to include the cost of direct labor incurred at
Taxpayer's manufacturing facility for the fabrication of trusses and panels that are used by Taxpayer in fulfilling its real
property improvement agreements.

The sample blank contract provided with your letter and which, according to your letter, Taxpayer intends to use,
states, in part:

Contractor is under contract for construction of improvements to real property (hereafter "the property") more
particularly described on Exhibit "A" to this Contract. Subcontractor has agreed to provide a lump sum construction
package for certain of the components of the improvement, consistent with the plans and specifications provided by
Contractor which hare incorporated herein by reference, and a copy of which is attached hereto as Exhibit "B." The
purpose of this contract is to document in writing the parties' agreement for the construction of the Subcontractor's
portions of the building's improvements, and to specify the compensation to be paid to Subcontractor by Contractor.

2. Compensation to Contractor: Contractor agrees to pay Subcontractor the following lump sum for the construction
   package as described in this contract:
   $__. Payment shall be made according to the construction payment schedule attached to and incorporated
   herein as Exhibit "D."

3. Changes to Plans and Specifications:... Subcontractor shall not be responsible for making changes to the
   improvements under construction unless Contractor's changes are designed to Subcontractor in writing and unless
   the parties execute a change order reflecting the changes and any increase in the lump sum for same.

ISSUES
a. Whether Taxpayer should collect sales tax from its customers on the charges made to customers for the real
property improvements referenced above.
b. Whether Taxpayer owes sales or use tax on the materials (including the fabricated roof trusses and wall panels) it
uses in fulfilling the real property improvement contracts. If so, the manner in which Taxpayer should calculate and
pay this tax.
c. Whether Taxpayer can continue to apply the resale exemption to its purchases of raw materials that will be
incorporated into the trusses and panels that will be sold to third parties.
d. Whether Taxpayer can apply the resale exemption to its purchases of raw materials that will be incorporated into
the trusses and panels that Taxpayer will use in fulfilling its real property improvement agreements.
e. Whether Taxpayer will owe sales or use tax on the labor necessary for Taxpayer to fulfill its real property
improvement agreements.
APPLICABLE LAW AND DISCUSSION
Section 212.06(1), F.S., provides in pertinent part:

(a) The aforesaid tax at the rate of 6 percent of the retail sales price as of the moment of sale, 6 percent of the cost
price as of the moment of purchase, or 6 percent of the cost price as of the moment of commingling with the general
mass of property in this state, as the case may be, shall be collectible from all dealers as herein defined on the sale at
retail, the use, the consumption, the distribution, and the storage for use or consumption in this state of tangible
personal property or services taxable under this chapter. The full amount of the tax on a credit sale, installment sale,
or sale made on any kind of deferred payment plan shall be due at the moment of the transaction in the same manner
as on a cash sale.
(b) Except as otherwise provided, any person who manufactures, produces, compounds, processes, or fabricates in
any manner tangible personal property for his or her own use shall pay a tax upon the cost of the product
manufactured, produced, compounded, processed, or fabricated without any deduction therefrom on account of the
cost of material used, labor or service costs, or transportation charges, notwithstanding the provisions of s. 212.02
defining "cost price."...
Rule 12A-1.043(1), F.A.C., provides in pertinent part:
(1)(a) Any person who manufactures, produces, compounds, processes, or fabricates in any manner an article of
tangible personal property for his own use shall pay a tax upon the cost of the property manufactured, produced,
compounded, processed, or fabricated without any deduction therefrom on account of the cost of material used, labor
or service costs, or transportation charges.
(b) Elements of cost will include the following materials, labor, service, or transportation costs that are attributable to
manufacturing, producing, compounding, processing, or fabricating an article of tangible personal property for one's
own use and which are properly chargeable to the cost of the product under generally accepted cost accounting
standards.

1. Material costs include the following:
   a. All direct materials and related freight costs that are physically observable as being identified to the finished
   tangible personal property, that are consumed in producing the property, or that become a component or ingredient of
   the finished property. See paragraphs (c) and (d), below, for calculating the tax on the cost of the finished product
   when sales tax has or has not been paid on direct materials.
   b. Material handling and warehousing of direct materials and goods in process.
   c. Manufacturer's excise taxes on materials.
2. Labor costs include the following:
   a. The total direct labor costs for employees or contract labor that are allocable to the production of the finished
   property, including the entire amount of payroll burden, which includes but is not limited to overtime premium, vacation
   and holiday pay, sick leave pay, shift differential, payroll taxes, payments to a supplemental unemployment benefit

plan, and employee fringe benefits.
b. Compensation of officers, to the extent it is allocated to production and not administrative functions.
c. Costs of service, engineering, design or other support employees allocated to production.

3. Service costs include the costs of non-employee services that are allocated to the production of the tangible
   personal property, such as engineering, design or similar consulting or professional services.
   (c) Direct materials on which the tax has been paid shall not be included when computing the tax on the cost of items
   of tangible personal property manufactured, produced, compounded, processed, or fabricated.
   (d) Persons who manufacture, produce, compound, process, or fabricate items of tangible personal property for resale
   or for their own use or consumption may purchase direct materials tax exempt but shall include the cost of the direct
   materials when computing tax on the cost of the items so manufactured, produced, compounded, processed, or
   fabricated for such persons' own use or consumption. If tax has been paid on the direct materials, the method
   described in paragraph (c) should be used when computing the tax on the cost of the items so manufactured,
   produced, compounded, processed, or fabricated.

(f) The tax is due at the time the article of tangible personal property is manufactured, produced, compounded,
processed, or fabricated for use or consumption, and such tax shall be remitted to the Department of Revenue in
accordance with Rule 12A-1.056, F.A.C.
Rule 12A-1.051, F.A.C., provides in pertinent part:
(2)(c)1. "Fixture" means an item that is an accessory to a building, other structure, or to land, that retains its separate
identity upon installation, but that is permanently attached to the realty. Fixtures include such items as wired lighting,
kitchen or bathroom sinks, furnaces, central air conditioning units, elevators or escalators, or built-in cabinets,
counters, or lockers....
(3) Classification of contracts by pricing. The taxability of purchases and sales by real property contractors is
determined by the pricing arrangement in the contract. Contracts generally fall into one of the following categories:
(a) Lump sum contracts. These are contracts in which a contractor or subcontractor agrees to furnish materials and
supplies and necessary services for a single stated lump sum price.
(b) Cost plus or fixed fee contracts. These are contracts in which the contractor or subcontractor agrees to furnish the
materials and supplies and necessary services in exchange for reimbursement of costs plus a fee that is fixed in
advance or calculated as a percentage of the costs.
(c) Upset or guaranteed price contracts. These are contracts in which the contractor or subcontractor agrees to furnish
materials and supplies and necessary services based on costs plus fees but with an upset or guaranteed maximum
price which may not be exceeded.

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

(10) Use tax on fabrication costs. Contractors may maintain shops, plants, or similar facilities where they manufacture,
produce, compound, process, or fabricate items for their own use in performing contracts. Contractors are required to
pay use tax on the fabricated cost of those items. The elements that must be included in the taxable cost of such
items are set forth in Rule 12A-1.043, F.A.C. In the case of real property contractors, the taxable cost of an item
manufactured, produced, compounded, processed, or fabricated for use in performing a contract does not include
labor that occurs at the job site where the item will be incorporated into a real property improvement or transportation
from the plant where an item was fabricated to the job site. Examples of real property contractors who are subject to
tax under this subsection include cabinet contractors who build custom cabinets in their shops, roofing contractors
who operate tile plants, or heating/air conditioning/ventilation contractors who maintain sheet metal shops for making
ductwork. Real property contractors that are required to remit use tax on fabricated items must register as dealers for

purposes of remitting such tax if they are not already registered as dual operators.

The trusses and wall panels installed by Taxpayer are considered a real property improvement. The sample contract
provided indicates that Taxpayer is intending to enter into a lump sum contract with its customers. Taxpayer is
deemed the ultimate consumer of the trusses, wall panels and any other materials and supplies that it purchases to
use in the performance of a lump sum real property improvement contract, including a contract involving construction,
alteration or repair. As such, Taxpayer must pay tax on the purchase price or cost of these materials and supplies,
pursuant to Rule 12A-1.051, F.A.C. Taxpayer should not collect sales tax on the charges made to customers for the
real property improvements under a lump sum contract.
Additionally, when Taxpayer manufactures or fabricates items of tangible personal property, including trusses and wall
panels, for its own use or consumption in fulfilling a real property improvement contract, Taxpayer is required to pay
use tax on the full manufactured or fabricated cost of such items, pursuant to s. 212.06(1)(b), F.S. Taxpayer is also
required to pay use tax based on the full manufactured or fabricated cost of items that it manufactures or fabricates for
its own use or consumption. Please see Rules 12A-1.043 and 12A-1.051(10), F.A.C., for further guidance on the
elements included in the fabricated cost calculation of each item. However, direct materials costs on which the tax has
already been paid at the time of purchase or acquisition and job site labor costs shall not be included in the calculation
of fabricated cost.
Taxpayer may purchase with its Annual Resale Certificate all materials and supplies that will be incorporated into the
trusses and panels that will be sold to third party contractors as tangible personal property, provided it collects and
remits tax when the trusses or wall panels are sold at retail to third party contractors. Taxpayer may extend a copy of
its Annual Resale Certificate when purchasing materials and supplies that Taxpayer will use or consume in the
fabrication of trusses, panels, and other items, provided that Taxpayer includes the costs of the materials and supplies
in the fabrication cost calculation.
If Taxpayer keeps an inventory of items that it sometimes resells (as tangible personal property) and sometimes uses
to fulfill real property improvement contracts, Taxpayer may extend a copy of its Annual Resale Certificate when
purchasing such items and either collect sales tax from customers or accrue use tax as items are withdrawn from
inventory for sale or use.
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 and administrative rule changes or those judicial interpretations of the statutes or rules upon
which this advice is based may subject similar future transactions to a different treatment than expressed in this
response.
You are further advised that this response, your request and related backup documents are public records under

Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request that 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,
Michael T. Cavanaugh
Tax Law Specialist
Technical Assistance and Dispute Resolution
850-922-9411
Control # 19473