Did permanently installed conveyors and automated handling equipment in a food distribution center become tax-treated real-property improvements?

Plain-English summary

A company built a dedicated perishable-food distribution center around an integrated material-handling system. Conveyors connected 34 receiving docks with 38 shipping docks, and cranes, lifts, caddy picks, shelving, software, and hardware moved and stored pallets throughout the facility. Most equipment was attached to floors, walls, tracks, or ceiling beams and was intended to remain permanently.

Florida nevertheless treated the furnishing-and-installation contract as a purchase of tangible personal property, not an improvement to real property. The system moved and handled goods for commercial use and remained identifiable machinery or equipment. Florida's statute expressly excludes industrial machinery and equipment from fixtures even when permanently attached.

The lump-sum contract form, permanent installation, and purpose-built facility therefore did not change the classification.

What this means for you

Permanent attachment alone does not make operational machinery part of the real estate for Florida sales-tax purposes. Equipment serving a particular commercial activity—such as conveyors that move inventory—can remain tangible personal property even when the building was designed around it.

Common questions

Did the equipment become a fixture because it was bolted down or installed on tracks? No.

Did the building's custom design change the result? No. The ruling still classified the system as machinery and equipment.

What did the contract purchase? Tangible personal property consisting of material-handling equipment and machinery.

Citations and references

• Fla. Stat. §§ 212.05 and 212.06 (sales and use tax)
• Fla. Stat. § 212.06(14) (real property, fixtures, and industrial machinery)
• Fla. Stat. § 212.21(2) (tax applies unless specifically exempted)
• Fla. Admin. Code r. 12A-1.051(2) (fixtures and machinery or equipment)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08A-011

Original ruling text

April 24, 2008

XXX

Re: Technical Assistance Advisement 08A-011
Sales and Use Tax – Dedicated Food Warehouse Equipment
Sections: 212.05 and 212.06, Florida Statutes (F.S.)
Rule: 12A-1.051, Florida Administrative Code (F.A.C.)
Petitioner: XXX
Taxpayer ID: XXX
Dear: XXX:
This letter is a response to your petition dated November 27, 2007, for the Department's
issuance of a Technical Assistance Advisement ("TAA") concerning the above
referenced party and matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a TAA and is issued to you under the
authority of s. 213.22, F.S.
FACTS
Your petition provides the following, in pertinent part:
[Taxpayer] is in the process of building a [XXX] square foot Dedicated Perishable
Food Distribution Center in [City], Florida. Taxpayer has entered into two
separate contracts with two different contractors related to the construction and
equipping of the facility. One contract, between Taxpayer and [Contractor A], for
approximately $[XX] million, is for the construction of the structure itself. The
second contract, between [Taxpayer] and [Contractor B] for approximately $[XX]
million[,] is for the material handling and distribution equipment. The two
contractors and [Taxpayer] worked together on the planning and design of the
building to accommodate the equipment necessary to operate the facility. In
effect, the building was designed around the equipment.

Technical Assistance Advisement
Page 2

The structure has 34 receiving docks and 38 shipping docks. The docks are
connected by conveyors that run throughout the structure. The structure was
designed to take into consideration the conveyors, lifts, cranes, and caddy picks,
all automated equipment, physically attached to the structure, intended to be a
permanent addition, and required for the structure to serve its intended purpose.

The second contract, a lump sum contract, with [Contractor B], is for the design
and installation of the entire integrated material handling and distribution system,
including conveyors, cranes and de-pallet equipment, caddy picks, shelving, and
the software and hardware to operate the warehouse management and distribution
system’s equipment and machinery. This equipment amounts to approximately
$[XX] million. The equipment in this facility is used to manage the entire
distribution center’s movement and storage of pallets from receiving docks to the
designated storage areas and then to the appropriate shipping docks.
The distributions system’s general contractor has hired several sub-contractors
and equipment suppliers to supply the contractor with the equipment and/or
supply and install equipment into the facility. The vast majority of the equipment
and racking is attached to the floor and/or walls of the structure, or moves along
tracks in the floor, or by hanging from I-beams in the ceiling. The building,
including the cold and frozen temperature chambers, was designed and
constructed to the specifics of the equipment and conveyors.
It is [Taxpayer’s] intent that the logistic equipment attached to the facility will
become a permanent annexation of the food distribution center.
The distribution center was designed to accommodate the material handling and
distribution equipment.
[Taxpayer] has paid use tax on the entire contract price, paid to date, for the
material handling equipment contracts . . . .
TAXPAYER’S ANALYSIS
Taxpayer believes the conveyor and handling equipment is incorporated into the building
in such a manner that the equipment becomes a fixture of the building.
REQUESTED ADVISEMENT

Technical Assistance Advisement
Page 3

You have asked advice regarding the following:
Is [Taxpayer] making improvements to real property or purchasing tangible
personal property when it has entered into a contract for the furnishing and
installation of material handling equipment and machinery in a distribution center
under a lump sum fixed price contract?
APPLICABLE LAW AND DISCUSSION
Chapter 212, F.S., imposes a sales or use tax on each and every sale of tangible personal
property unless a specific exemption applies. The Legislative intent regarding exemptions from
the tax imposed by Chapter 212, F.S., is found in Section 212.21(2), F.S., which provides, in
pertinent part:
It is hereby declared to be the specific legislative intent to tax each and every sale,
admission, use, storage, consumption, or rental levied and set forth in this chapter, except
as to such sale, admission, use, storage, consumption, or rental as shall be specifically
exempted therefrom by this chapter subject to the conditions appertaining to such
exemption. . . .
In regards to improvements to real property, Section 212.06(14), F.S., defines the terms “real
property,” “fixtures,” and “improvements to real property.” Section 212.06(14), F.S., provides:
For the purpose of determining whether a person is improving real property, the term:
(a) "Real property" means the land and improvements thereto and fixtures and is
synonymous with the terms "realty" and "real estate."
(b) "Fixtures" means items that are an accessory to a building, other structure, or land
and that do not lose their identity as accessories when installed but that do become
permanently attached to realty. However, the term does not include the following items,
whether or not such items are attached to real property in a permanent manner: property
of a type that is required to be registered, licensed, titled, or documented by this state or
by the United States Government, including, but not limited to, mobile homes, except
mobile homes assessed as real property, or industrial machinery or equipment. For
purposes of this paragraph, industrial machinery or equipment is not limited to machinery
and equipment used to manufacture, process, compound, or produce tangible personal
property. For an item to be considered a fixture, it is not necessary that the owner of the
item also own the real property to which it is attached.

Technical Assistance Advisement
Page 4

(c) "Improvements to real property" includes the activities of building, erecting,
constructing, altering, improving, repairing, or maintaining real property.

As the terms are used in Chapter 212, F.S., industrial machinery and equipment are specifically
excluded by Section 212.06(14)(b), F.S., from the definition of fixtures and, therefore, of real
property. Rule 12A-1.051, F.A.C., titled Sales to or by Contractors Who Repair, Alter, Improve
and Construct Real Property, provides further information concerning real property
improvements and fixtures. Rule 12A-1.051, F.A.C., provides, in pertinent part:
(2) Definitions. For purposes of this rule, the following terms have the following
meanings:

(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.

4. The term "fixture" does not include the following items, whether or not such items are
   attached to real property in a permanent manner:

b. Machinery or equipment.

(e)1. "Machinery or equipment" means and includes property that:
a. Is intended to be used in manufacturing, producing, compounding, processing,
fabricating, packaging, moving, or otherwise handling personal property for sale or other
commercial use, in the performance of commercial services, or for other purposes not
related to a building or other fixed real property improvement; and
b. May, on account of its nature, be attached to the real property but which does not
lose its identity as a particular piece of machinery or equipment.
2. "Machinery or equipment" generally does not include junction boxes, switches,
conduits, wiring, valves, pipes, and tubing incorporated into the electrical, cabling,
plumbing, or other structural systems of fixed works, buildings, or other structures,

Technical Assistance Advisement
Page 5

whether or not such items are used solely or partially in connection with the operation of
machinery and equipment.

3. "Machinery or equipment" serves a particular commercial activity that is carried on
   at a location rather than serving general uses of land or a structure. Examples of
   machinery or equipment include conveyor systems, printing presses, drill presses, or
   lathes. Examples of items that are not machinery or equipment because they are
   integrated into the structure or realty and retain their usefulness no matter what activity is
   carried on at the site include heating and air conditioning system components or water
   heaters. Any property that would be classified as machinery or equipment under s.
   212.08(5), F.S., or any other provision of Chapter 212, F.S., is considered to be
   machinery or equipment for purposes of this rule. In the case of property used in the
   production of electrical or steam energy, any item that would qualify as exempt
   machinery or equipment under s. 212.08(5)(c), F.S., is considered to be machinery or
   equipment for purposes of this rule. . . .
   The Taxpayer’s material handling equipment and machinery moves and handles goods that will
   be sold at retail. As such, the material handling equipment and machinery falls within the
   definition provided in Rule 12A-1.051(2)(e), F.A.C., for machinery and equipment and is
   specifically excluded by Section 212.06(14), F.S., from being considered a fixture or
   improvement to real property.
   RESPONSE
   Based on the above, the Taxpayer was not making improvements to real property, but rather, the
   Taxpayer was purchasing tangible personal property, when it entered into a contract with
   Contractor B for the furnishing and installation of material handling equipment and machinery in
   its distribution center under a lump sum fixed price contract.
   CONCLUSION
   This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which
   is binding on the Department only under the facts and circumstances described in the request for
   this advice, as specified in Section 213.22, F.S. Our response is predicated 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 backup documents are public
   records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
   of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
   effort to protect confidentiality, we request you provide the undersigned with an edited copy of

Technical Assistance Advisement
Page 6

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.
If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at (850) 922-4727.
Sincerely,

Horace Royals
Senior Tax Specialist
Technical Assistance & Dispute Resolution
HR\
Record ID:

38736