Was a supermarket's separately contracted installation of owner-purchased refrigeration equipment a taxable service or a real property improvement?

Plain-English summary

A supermarket chain bought walk-in coolers, freezer boxes, and refrigerated display units from equipment vendors, then hired different contractors to install them in leased stores. The installers supplied extensive connecting materials and systems, including rooftop compressor racks and condenser coils, copper tubing, fittings, valves, insulation, drains, controls, pipe, and hardware.

Florida treated the installation contracts as real property improvement contracts. The systems were bolted, welded, embedded, plumbed, and wired into the stores. Removing them would be difficult and could substantially damage the realty. The leases ran about 20 years, and the supermarket intended the equipment and connections to remain for the full term.

That classification determined who paid tax:

• The installation contractor was the ultimate consumer of the materials and supplies it furnished and owed sales or use tax on their cost.
• The supermarket did not owe sales tax on the contractor's installation labor under the rule for installing freestanding tangible personal property.
• The separate equipment-purchase and installation agreements were not a "mixed contract." The installation contract stood alone, and the installed refrigeration became part of the realty.

The answer applied whether the installer used a lump-sum or time-and-materials real-property contract; separately stating material and labor charges did not change the contractor's consumer status.

What this means for you

Separate vendors do not keep equipment personal property

The supermarket's ownership of the refrigeration equipment before installation did not control. Its physical integration and intended long-term attachment made the completed system real property.

Attachment and removal damage are strong fixture evidence

Bolting rooftop systems, embedding connections, and tying the system into structural utilities supported fixture treatment, especially where removal was costly and damaging.

The contractor pays tax on incorporated materials

For a real property contract, the installer does not resell its tubing, fittings, controls, and similar supplies to the customer. It consumes them in producing the completed improvement.

Installation labor was not taxed to the supermarket

Rule 12A-1.016 taxes labor used to install tangible property that stays personal property as part of a taxable sale. It did not apply because this installation produced a real property improvement.

Common questions

Q: Were the refrigeration connections fixtures?
A: Yes. The Department treated the supplied installation materials as permanently attached components of the real property.

Q: Who owed tax on those materials?
A: The refrigeration installation contractor, as the ultimate consumer.

Q: Was the installer required to charge the supermarket tax on labor?
A: No under the stated real-property-contract treatment.

Q: Did buying equipment and installation from different vendors create a mixed contract?
A: No. The installation agreement was separate, and the installed system became part of the realty.

Citations and references

• Fla. Stat. §§ 212.02(16), 212.05, and 212.06(14) (sales price, tangible-property tax, and fixtures)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)
• Fla. Admin. Code r. 12A-1.016(3)(a) (installation of tangible personal property)
• Fla. Admin. Code r. 12A-1.051(2)-(4) and (8) (fixtures, real property contracts, and mixed contracts)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08A-029

Original ruling text

T.A.A. Summary

QUESTION 1: Is the contract for the installation of refrigeration equipment that is owned by the
Taxpayer deemed a real property improvement contract?
ANSWER: The items used by the refrigeration installation contractors in the refrigeration
installation process are deemed to be fixtures that are permanently attached to realty.
Accordingly, the contractor performing the refrigeration equipment installation is the ultimate
consumer of the supplies and materials used in the performance of a real property contract, and is
subject to tax on the cost of such materials and supplies.
QUESTION 2: Would the refrigeration installation services nevertheless be taxable under Rule
12A-1.016(3)(a), F.A.C., because the installation services are purchased from separate
contractors than those providing the refrigeration equipment?
ANSWER: Since the contracts are deemed to be real property improvement contracts, the
installation services would not be subject to tax pursuant to Rule 12A-1.016, F.A.C. Rather,
they are subject to tax under the provisions of Rule 12A-1.051, F.A.C.
QUESTION 3: Would the separately purchased refrigeration equipment installation services
contracts be subject to the provisions for a mixed contract?
ANSWER: Even though the refrigeration equipment and the installation services are purchased
from separate vendors, the refrigeration equipment, when installed, will become a part of realty.
The fact that the equipment, purchased by the Taxpayer from a separate vendor does not make
the installation services contract subject to mixed contract provisions.
November 4, 2008

XXX.

Re:

Technical Assistance Advisement -08A-029
Sales and Use Tax – Refrigeration Equipment

Letter of Technical Advice
Page 2 of 9

Sections 212.02, 212.05, Florida Statutes
Rules 12A-1.016, 12A-1.051, Florida Administrative Code
Petitioner: XXX
Dear XXX:
This letter is a response to your petition dated June 26, 2008, 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.
STATED FACTS
Your letter sets forth the following information:
Background
Taxpayer is a supermarket retailer of natural and organic foods, with more than 265
stores in North America and the United Kingdom. It obtains its products both locally and
from all over the world, often from small, uniquely dedicated food artisans.
In its efforts to expand and serve an ever growing customer base, Taxpayer plans to open
multiple stores within the State. Since Taxpayer is a retail grocer, it requires the
purchase
of refrigeration equipment and related installation services for each new location it opens.
This equipment is used in multiple departments of Taxpayer’s locations such as: meat
and poultry, dairy, produce, prepared foods, etc. The refrigeration equipment purchased
by Taxpayer is used as both freezers and refrigerated display units located in its sales
area, as well as walk-in coolers and freezer boxes that are located in the storage area of
its locations.
Refrigeration Installation Process
Taxpayer contracts with various contractors with regard to the installation of its
refrigeration equipment. Taxpayer purchases the refrigeration equipment from various
vendors and does not contract with these same vendors for any installation services
associated with the equipment. The installation services associated with bringing the
equipment to full functioning capacity are contracted for by the Taxpayer separately and

Technical Assistance Advisement
Page 3
are provided by contractors who specialize in such services.
The installation of the refrigeration equipment involves the use of a substantial amount of
parts such as: copper tubing, fittings, pipe insulation, miscellaneous hardware, metal
pipes, condensers, compressors, air coils, etc. These items are not fabricated by the
contractor in-house, but rather are purchased by them from third party suppliers. The
supplies used in conjunction with the installation services are not related to the actual
purchase of the refrigeration equipment. Rather, the items are used by the refrigeration
installation contractors as part of their refrigeration equipment installation services.
The true object of the Taxpayer’s procurement of refrigeration installation services is not
to purchase the items [tangible personal property] associated with the installment of the
refrigeration equipment, but rather to purchase commercial refrigeration installation
services. Although these services are procured through different contractors than the
refrigeration equipment itself, they are acquired for the sole purpose of ensuring the
separately purchased refrigeration equipment (walk-in coolers, freezer boxes, refrigerated
display units, etc.) will be properly installed in its various store locations.
The installation process substantially alters the Taxpayer’s leased premises. For
example, in order for the refrigeration equipment to properly function, compressor rack
systems and condenser coils are installed by the vendors on the roofs of the leased
premises. These items are affixed to the leased property in such a manner (bolted,
welded, embedded, etc.) that removing them at the termination of a lease is extremely
difficult without substantial damage to the underlying realty. The resulting cold storage
units and related components are essentially integrated with the existing real property for
the duration of the lease. The refrigerated display units are the most mobile of all the
refrigeration equipment purchased by the Taxpayer; however, these items are rarely
moved once they are affixed to the real property.
Although it is impractical to remove the piping as well as the other items associated with
the installation of its refrigeration equipment, the Taxpayer will remove any piping and
fixtures upon the termination of its lease if specifically mandated to do so by its lessors
through the lease agreement. The lease terms between the Taxpayer and its lessors
define the term “fixture” as any and all movable or removable fixtures purchased or
leased by the Taxpayer from third parties and installed within the leased premises
(whether or not affixed). The lease term holds the Taxpayer liable for all damages to the
structural elements of the premises upon removal of the fixtures associated with the
installation of the refrigeration equipment (copper tubing, fittings, pipe insulation,
miscellaneous hardware, metal pipes, and welding supplies, etc.).
The lease terms between the Taxpayer and its lessors for the leased premises are for
approximately twenty (20) years. Although not necessarily indefinite, the lease period is
for a substantial amount of years, and barring any unforeseen circumstances, the

Technical Assistance Advisement
Page 4
Taxpayer intends on honoring its leases for their entire period. The Taxpayer has been in
the State for several years, and has yet to prematurely terminate a lease or close down a
store in this State due to economic factors. In fact, it has been opening more locations in
the State and has expanded its operations by acquiring other food supermarkets in
Florida. As such, the piping, wiring, tubing, etc., used in prior refrigeration equipment
installation contracts in its other Florida locations has remained affixed to the leased
premises, and has yet to be removed by the Taxpayer in accordance with any lease
agreements or as a result of the closing of a store. In other words, even though the items
used in the refrigeration equipment installation process can be removed (albeit with
substantial cost and hardship to the Taxpayer), the Taxpayer does not intend on removing
these items.
Some refrigeration installation contractors bill the Taxpayer by separately stating the cost
of the items used in the process from the cost of the installation labor on their invoice.
These contractors charge Florida sales tax to the Taxpayer on both items used in the
installation process mentioned above, as well as on the installation services themselves.
However, some vendors invoice the entire job on the invoice in a lump-sum amount
billed as “refrigeration installation services,” and charge Florida sales tax on the entire
amount. Either way, the cost of the particular job is set and agreed upon prior to any
work being commenced by the contractors.
REQUESTED ADVISEMENT
You have posed the following questions:

1. Are the items used by the refrigeration equipment installation contractors in the
   refrigeration equipment installation process considered fixtures/real property under [Rule
   12A-1.051(2), F.A.C.]?
2. Assuming the items used by the refrigeration equipment contractors in the refrigeration
   equipment installation process are deemed not taxable to the Taxpayer by the Department
   of Revenue because they are considered fixtures/real property components of a real
   property contract, would the refrigeration installation services nevertheless be taxable
   under [] Rule 12A-1.016(3)(a)[, F.A.C.,] considering they are procured to install
   refrigeration equipment (arguably tangible personal property which does not become part
   of realty), albeit purchased from separate contractors than the refrigeration equipment
   installation services?
3. Assuming the separately purchased refrigeration equipment impacts the Florida sales and
   use tax treatment of the refrigeration equipment installation services; will the separately
   procured refrigeration equipment installation contracts be subject to the mixed contracts
   rules under [] Rule 12A-1.051[, F.A.C.,] even though the tangible personal property
   being installed was purchased from different vendors than the services themselves?
   APPLICABLE LAW

Technical Assistance Advisement
Page 5
Section 212.05, Florida Statutes, generally imposes tax on the sale of tangible personal property.
The tax is based on the “sales price,” which term is defined in section 212.02(16), Florida
Statutes, as “the total amount paid for tangible personal property including any services that are
a part of the sale.”
Rule 12A-1.016(3)(a), Florida Administrative Code, states that “[t]he total consideration
received for labor or services used in installing tangible personal property which is sold and does
not become a part of realty, is taxable even though such charge may be separately stated.”
Installation charges for installing tangible personal property when the installer provides no
materials are not subject to tax. Installation charges are only taxable as a service that is part of
the sale of tangible personal property. Since Taxpayer purchases the equipment from a separate
source, the installation charges stand separately from the equipment itself, and the taxability of
the installation contract is determined based on the status of the materials furnished and installed
by the installation contractor.
Section 212.06(14)(a), F.S., defines “real property” as land and improvements thereto, including
fixtures, and is synonymous with realty and real estate. The term “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. Section
212.06(14)(b), F.S.
Rule 12A-1.051, F.A.C., governs the taxability of the purchase, sale, or use of tangible personal
property by contractors and subcontractors who purchase, acquire, or manufacture materials and
supplies for use in the performance of real property contracts
As provided in Rule 12A-1.051(2)(c), F.A.C.,

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

Technical Assistance Advisement
Page 6
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.
Rule 12A-1.051(2)(h), F.A.C., provides, in part:
(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.

RESPONSE

Technical Assistance Advisement
Page 7
Pursuant to Rule 12A-1.051, F.A.C., fixtures will be classified either as real property or as
tangible personal property depending upon review of all the facts and circumstances, including
method of attachment, damage upon removal, intent of the buyer, treatment for other tax and
accounting purposes, treatment under real property law, contract provisions, and any other
factors relevant to the determination.
As previously stated, since the Taxpayer purchases the equipment from a separate source, the
installation charges stand separately from the equipment itself, and the taxability of the
installation contract is determined based on the status of the materials furnished and installed by
the installation contractor. The installation contract requires that compressor rack systems and
condenser coils are installed by the vendors on the roofs of the leased premises. These items are
affixed to the leased property in such a manner (bolted, welded, embedded, etc.) that removing
them at the termination of a lease is difficult without substantial damage to the underlying realty.
In addition, the installation contractor is required to provide and install copper tubing, fittings,
valves, pipe insulation, hardware items, PVC pipe drains, controls, and other related items in its
installation of the refrigeration equipment. Thus, the resulting refrigeration equipment is
essentially integrated with, and becomes a part of, the existing real property. As such, the
refrigeration equipment installation contract is a contract for the improvement to real property,
governed by the provisions of Rule 12A-1.051, F.A.C.
As contained in Rule 12A-1.051, F.A.C., subsection (3) of the rule describes the classification of
contracts by pricing. Under this subsection, contracts are classed as: (3)(a) Lump Sum; (3)(b)
Cost Plus or Fixed Fee; (3)(c) Upset or Guaranteed Price; (3)(d) Retail Sale plus Installation;
and, (3)(e) Time and Materials contracts. Subsection (4) of the rule gives the general rule of
taxability for real property contractors, specifically, “Contractors performing only contracts
described in paragraph (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.”

CONCLUSION
Regarding your specific questions:
In Question Number 1, you asked whether the items used by the refrigeration equipment
installation contractors in the installation process are considered fixtures/real property under
Rule 12A-1.051(2), F.A.C.
Response: The items used by the refrigeration installation contractors in the refrigeration
equipment installation process are deemed to be fixtures that are permanently attached to real

Technical Assistance Advisement
Page 8
property, with the intent that they become permanently affixed to the underlying real property.
Accordingly, the contractor performing the refrigeration equipment installation is the ultimate
consumer of the various items used in the performance of a real property improvement contract,
either under a lump sum or time and materials contract. As such, the contractor is the ultimate
consumer of the supplies and materials used in the performance of the real property contract, and
therefore, subject to the payment of tax on the cost of the materials and supplies so used,
pursuant to the provisions of Rule 12A-1.051, F.A.C.
In Question Number 2, you asked, assuming that the items utilized by the equipment installation
contractors are deemed not taxable to the Taxpayer, would the installation services nevertheless
be taxable under Rule 12A-1.016(3)(a), F.A.C.
Response: Since the contractors performing the installation contracts are deemed to be
performing real property improvement contracts, the installation services are not taxable to the
Taxpayer under Rule 12A-1.016, F.A.C. Rather, the cost of materials and supplies used in the
performance of a real property contract are taxable under the provisions of Rule 12A-1.051,
F.A.C., to the contractor performing such services.
In Question Number 3, you asked, assuming the separately purchased refrigeration equipment
impacts the sales and use tax treatment of the refrigeration installation services, will the
separately procured refrigeration installation contracts be subject to the mixed contracts
treatment under Rule 12A-1.051, F.A.C.
Response: Even though the refrigeration equipment is purchased by the Taxpayer from separate
vendors than the vendors that are contracted with for the installation of the refrigeration
equipment, the refrigeration equipment when installed will become a part of realty. Therefore,
the installation contract is not deemed a “mixed contract,” as that term is used in Rule 12A1.051(8), F.A.C., because the installation contract is separate and apart from the purchase
contract. The fact that the refrigeration equipment already belongs to the Taxpayer does not alter
the fact that the Taxpayer is entering into a real property improvement contract for the
installation of the equipment.

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

Technical Assistance Advisement
Page 9
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
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 10 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:

47545