Did Florida treat installed Murphy beds as real-property improvements or sales of tangible personal property?

Plain-English summary

A Murphy-bed installer permanently anchored the spring-loaded bed mechanism to the concrete foundation or floor beams with eight bolts. The surrounding cabinet was secured to wall studs with screws, and the installation was intended to remain indefinitely.

Florida classified the installed bed as a fixture and real-property improvement rather than a retail sale of tangible personal property. The attachment method and intended permanence supported that result.

For a lump-sum real-property contract, the contractor was the ultimate consumer of materials. It had to pay tax to suppliers on its material purchases and tax on fabricated items used in the contract when applicable, but it did not charge sales tax to the customer.

What this means for you

Tax treatment depended on both fixture status and contract pricing. The ruling's no-tax-to-the-customer answer addressed lump-sum real-property work; a qualifying retail-sale-plus-installation contract would instead require the contractor to collect tax on separately itemized tangible personal property.

Common questions

Why was the Murphy bed a fixture? It was bolted to the foundation or floor structure, secured to wall studs, and intended to remain for an indefinite period.

Who paid sales tax under a lump-sum contract? The contractor paid tax on materials as the ultimate consumer.

Did the contractor charge the customer sales tax? No, for the lump-sum real-property contract described in the ruling.

What if the contract separately sold and itemized materials before work began? The ruling explains that a qualifying retail-sale-plus-installation contract has different treatment: tax is collected on the tangible property price but not installation labor.

What about items the contractor fabricated itself? The contractor had to account for tax on fabricated cost under the cited statute and rule when using those items in the real-property contract.

Citations and references

• Fla. Stat. § 212.06(1)(a), (b) (retail sales and self-fabricated property)
• Fla. Admin. Code r. 12A-1.051(2)-(4) (fixtures and real-property contracts)
• Fla. Admin. Code r. 12A-1.043 (self-fabricated tangible personal property)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-042

Original ruling text

SUMMARY
QUESTION(S): Is the sale and installation of a Murphy Bed a real property improvement or a sale of tangible personal
property?
ANSWER - Based on Facts Below: Due to the method of attachment, and the fact that the items are expected to
remain in place for an indefinite period of time, a Murphy Bed is considered a real property improvement. As such, the
contractor should pay tax to suppliers on the cost of the materials as the ultimate consumer of the materials and
supplies used to perform a lump sum contract to repair or install these items pursuant to Rule 12A-1.051, F.A.C. The
contractor should charge no tax to the customer.

December 12, 2006

Re: Technical Assistance Advisement 06A-042
XXX, d/b/a XXX ("Taxpayer")
FEIN: XX
Sales and Use Tax - Murphy Beds
Statutes: Section 212.06(1), F.S.
Rules: 12A-1.043, 12A-1.045, 12A-1.051, F.A.C.
Dear:
This response is in reply to your letter dated July 26, 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.
Stated Facts and Requested Advisement
Your letter states in pertinent part:
As a franchisee owner associated with a corporation called XXX, Inc. ("Corporation"), I recently requested assistance
from the corporate XXX as to the taxability of the product we sell. I was informed to contract you directly for a ruling.
Our products are categorized as being one of two types of "real property" fixtures: XXX which are permanently
mounted to the wall studs, or cabinetry and wall beds.

1. The Murphy Beds consist of a cabinet and the bed frame [and] mattress. The bed frame mechanism is a spring
   loaded hinge system that must be permanently bolted to the cement foundation or the floor beams using 8 anchor

bolts.

2. The wall unit cabinet is attached to the mechanism, and bolted to the wall studs using 2 1/2" screws. This is done to
   permanently secure the cabinet to the wall so that when the bad unit/frame is down, there is little chance of it tearing
   from the wall and falling.
   Enclosed is a diagram showing the installation bolted into the flooring/foundation. These installations, like those of
   kitchen cabinetry, are designed to be of a permanent nature.
   Applicable Authority
   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, 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. The determination whether an item is a fixture depends upon review of all the facts and circumstances of each
   situation. Among the relevant factors that determine whether a particular item is a fixture are the following:
   a. The method of attachment. Items that are screwed or bolted in place, buried underground, installed behind walls, or
   joined directly to a structure's plumbing or wiring systems are likely to be classified as fixtures. Attachment in such a
   manner that removal is impossible without causing substantial damage to the underlying realty indicates that an item
   is a fixture.
   b. Intent of the property holder in having the item attached. If the property holder who causes an item to be attached
   to realty intends that the item will remain in place for an extended or indefinite period of time, that item is more likely to
   be a fixture. That intent may be determined by reviewing all of the property holder's actions in regard to the item,
   including how the item is treated for purposes of ad valorem and income tax purposes. For example, if a property
   owner reports the value of the item for purposes of ad valorem taxation of the realty and depreciates the item for tax
   and financial accounting purposes as real property, that indicates an intent that the property is permanently attached
   as a fixture.
   c. Real property law. If an interest in an item arises upon acquiring title to the land or building, the item is more likely to
   be considered a fixture. For example, if the seller of real property would be expected to leave an item behind when
   vacating the premises for a new owner without the contract specifically requiring that it be left, that item is likely to be
   classified as a fixture.
   d. Customization. If items are custom designed or custom assembled to be attached in a particular space, they are
   more likely to be classified as fixtures. Customization indicates intent that the items are to remain in place following
   installation.
   e. Permits and licensing. If installation of an item requires a construction permit or licensing of the contractor under
   statutes or regulations governing the building trades, that item is more likely to be regarded as a fixture.
   f. Legal agreements. The terms of any purchase agreement deed, lease, or other legal document pertaining
   specifically to an item may be relevant in determining whether that item is a fixture of real property. The foregoing list
   of factors relevant to determining whether an item is a fixture is intended to be illustrative only. Additional factors may
   exist in any particular case, and the weight to be given to the factors will also vary in each case....

(h)1. Real property contract" means an agreement, oral or written, whether on a lump sum, time and materials, cost
plus, guaranteed price, or any other basis, to:...
c. Furnish and install tangible personal property that becomes a part of or is directly wired or plumbed into the central
heating system, central air conditioning system, electrical system, plumbing system, or other structural system that
requires installation of wires, ducts, conduits, pipes, vents, or similar components that are embedded in or securely
affixed to the land or a structure thereon....

(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.

Discussion and Response
To provide a ruling on how tax should be applied to the Murphy beds, a determination on whether the beds are real
property or tangible personal property must first be made. It appears that the beds are permanently mounted to real
property and are designed to be of a permanent nature. Therefore, the beds fall under the definition of "fixtures,"
which are taxed as real property.
Pursuant to Rule 12A-1.051, F.A.C., the taxability of purchases and sales by real property contractors is determined
by the pricing arrangement in the contract.
Contractors are the ultimate consumers of materials and supplies they use to perform real property contracts and
must pay tax on the costs of those materials and supplies, unless the contractor has entered a retail sale plus
installation contract, described in Rule 12A-1.051(3)(d), F.A.C. Contractors performing only contracts described in
Rule 12A-1.051(3)(a), (b), (c), or (e), F.A.C., such as lump sum contracts, do not resell the tangible personal property,
but instead are the ultimate consumers of the property to provide the completed real property improvement. Such
contractors should pay tax to their suppliers on all purchases. They should not charge 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.
Contractors that fabricate items to use in performing real property contracts should also pay tax on all materials they
fabricate for their own use in performing such contracts, pursuant to s. 212.06(1)(b), F.S., and Rule 12A-1.043, F.A.C.
If such contractor purchases raw materials for use in fabrication, the contractor may include the cost price of the raw
materials in the fabricated cost calculation in lieu of paying the tax up front at the time of purchase of these materials,
by extending a resale certificate to the seller, if registered at the time of purchase, or issuing an exemption certificate
to the seller, pursuant to Rule 12A-1.038, F.A.C., if the contractor is not registered at the time of purchase.
For retail sale plus installation contracts, contractors should register as dealers and provide a copy of their valid resale
certificate to the selling dealer to purchase materials that are itemized and resold. They should not provide the resale
certificate to purchase items that they use themselves rather than reselling, such as hand tools, shop equipment, or
office supplies. They should charge their customers tax on the price paid for tangible personal property but not on the
charges for installation labor.
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 # 22824