Did a custom-sign fabricator owe sales tax or use tax when it sold or installed signs?

Plain-English summary

Florida split custom-sign work according to whether the fabricator was responsible for installation.

When the company sold a sign without installing it or hiring the installer, it made a sale of tangible personal property. It had to collect sales tax when the customer took possession in Florida, even if the customer immediately carried the sign out of state, unless a valid resale or exemption certificate applied. Documented delivery outside Florida was not a Florida sale. In either case, the fabricator did not owe use tax on fabricated cost.

When the company installed the sign itself or through a subcontractor and the sign became a real-property improvement, the company was the ultimate consumer. It owed use tax on fabricated cost, including taxable materials and production labor, at fabrication even if installation occurred elsewhere.

For repairs to signs treated as real property, the company paid tax on repair materials and did not charge tax to the customer. Permit-process costs were excluded from fabricated cost.

What this means for you

Installation responsibility controls the tax model. Track who installs, where possession passes, valid certificates, out-of-state delivery records, and which costs enter the fabrication calculation.

Common questions

What if the customer picks up the sign in Florida for out-of-state installation? The Florida pickup is a taxable Florida sale unless exempt documentation applies.

What if the fabricator ships the sign outside Florida and does not install it? It does not collect Florida sales tax if it documents outside delivery.

Are permit costs part of fabricated cost? No, under the ruling.

Citations and references

• Fla. Stat. § 212.05 and Fla. Admin. Code rr. 12A-1.0015, 12A-1.039, 12A-1.043, and 12A-1.051, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-011

Original ruling text

SUMMARY
QUESTION: Is Taxpayer’s method for paying sales and use tax on signage that it
fabricates correct?
ANSWER: When Taxpayer sells and delivers a sing or the sign is picked up by the
customer, and Taxpayer is not responsible for the installation of the sign, either with its
own employees or through a subcontractor, then Taxpayer is making a sale of tangible
personal property. Taxpayer should collect tax from the customer, or document the
exempt status of the sale. Taxpayer does not owe use tax on the fabricated cost of the
sign.
When Taxpayer is responsible for the installation of the sign, either with its own
employees or through a subcontractor, Taxpayer owes use tax on the fabricated cost of
the sign in accordance with Rule 12A-1.043(1), Florida Administrative Code.

February 23, 2010
XXX
Re:

Technical Assistance Advisement 10A-011
Sales and Use Tax – Custom Signs
Section: 212.05, Florida Statutes (F.S.)
Rules: 12A-1.0015, 12A-1.039, 12A-1.043, 12A-1.051, Florida Administrative
Code (F.A.C.)
Petitioner: XXX [hereinafter “Taxpayer”]

Dear XXX:
This letter is a response to your petition dated January 11, 2010, 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, Florida Administrative Code. This response to your request constitutes a TAA and is
issued to you under the authority of Section 213.22, F.S.
Issue
Whether Taxpayer’s method for paying sales and use tax on signage that it fabricates is
correct.
Presented Facts
Your petition sets forth the following information:

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Description of Work: Electrical Sign Industry
A)

B)
C)

Manufacture, permit and install illuminated and non-illuminated
signs to building fascias and/or erect freestanding signs on
property by excavating a footer and pouring concrete to anchor the
sign structure.
Service and repair signs of same type wall mount or freestanding
pole signs.
Fabrication only of electrical signs:
1.
Sold to other sign companies that in turn will sell and
install these signs to end user at which time sign will
become real property.
2.
To be sold to business[es] that hire other contractors to
install these signs within the State and also Out-of-State.
These signs, at time of install[ation], become real property.

[Taxpayer does m]anufacture, permit, install [,] service & repair signs that are
secured, bolted or attached permanently to real property. [Taxpayer] provide[s] a
service for illumination letters such as in Shopping Malls or illuminated signs
within Shopping Centers, retail stores, restaurants, and/or pole signs (freestanding
signs) along roadways. . . .

[Taxpayer] currently perform[s ]transactions as a lump sum Contract and do[es]
not charge [the] customer sales tax. [Taxpayer] pay[s] sales tax on all purchased
material which will be incorporated into manufacturing the final product.
[Taxpayer] then track[s] the gross labor [paid to] employees to manufacture each
sign in [the] warehouse and pay[s] Use Tax on that labor. [Taxpayer] then
transport[s] the sign to the jobsite and install[s] the sign on a building or property.
Taxpayer’s petition states that use tax is accrued on materials purchases from vendors
that do not charge Taxpayer tax.
Taxpayer’s petition poses the following scenarios about which it requests advice:
1.

2.

If a sign is sold to an out-of-state company and the sign is shipped out-ofstate, should [Taxpayer] not pay Sales Tax on the materials and Use tax on
the gross labor cost it took to manufacture that particular sign; or, continue
to . . . pay Sales Tax on all materials when [] purchased [] and Use Tax on
gross labor.
If a sign is sold to a Company in the State of Florida[, but] the sign is
shipped out-of-state to be installed by others[, does Taxpayer owe use tax
on the fabricated cost of the sign]?

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3.

4.
5.

If a sign is sold in the State of Florida to another sign company, picked up
at [Taxpayer’s] facility by another sign company and installed by the other
sign company:
A)
The end user Annual Resale Certificate for Sales Tax is on file
with [Taxpayer, does it] not pay Sales Tax for [the] purchases of
raw materials to fabricate the sign or list those deductions in the
“Less Deduction” column.
B)
Do[es Taxpayer] pay Sales Tax on materials purchased and Use
Tax on the gross labor cost only or do[es it] charge Sales Tax on
the full price of the sale and then back out the Sales Tax [] paid on
the materials and list that in the “Less Deduction” column.
Do[es Taxpayer] charge Sales Tax to [its] customer if [Taxpayer is]
repairing their sign on their property?
The permit process almost always is required for each sign that [Taxpayer]
install[s] on the exterior of a building. How do[es Taxpayer] treat the
permit process as it pertains to Sales Tax? The permit process includes
clerical labor to fill out application form, assembly of documents,
obtaining sealed engineer drawings from an outside source, either mailing
or transporting all paperwork to municipality for review, securing any
legal notices associated with project and recording documents and
returning to municipality to pick-up permit when notified as being ready.
Law and Discussion

Not enough information was provided to determine whether the signs fabricated by
Taxpayer become improvements to real property upon installation. Taxpayer believes
that the signs do become improvements to real property upon installation, and the
information that was provided in Taxpayer’s petition does not indicated that another
answer would be appropriate. The response is based on the assumption that the signs do
become improvements to real property upon installation.
The appropriate taxation of a job performed by Taxpayer is dependent upon whether
Taxpayer is responsible for the installation of the signs, either with its own employees or
through a subcontractor.
Taxpayer is not responsible for installation.
When Taxpayer is not responsible for the installation of a sign, either with its own
employees or through a subcontractor, then Taxpayer is making a sale of tangible
personal property.
Section 212.05, Florida Statutes, generally imposes tax on the sale of tangible personal
property when the sale occurs in Florida. The sale is deemed to have occurred in Florida
when the purchaser takes possession of the item at a location in Florida, regardless

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whether the purchaser will immediately transport the item out of state. See Rule 12A1.0015(2)(a), Florida Administrative Code. If a sign is picked up by a customer at
Taxpayer’s warehouse, or if Taxpayer delivers or ships a sign to a location in Florida,
then Taxpayer must collect tax on the sale. Taxpayer may also accept a copy of the
purchaser’s valid Annual Resale Certificate in lieu of collecting tax.
If Taxpayer delivers or ships a sign to a location outside Florida, then a Florida sale has
not occurred. Taxpayer must document the delivery or shipment to show that the
customer accepted delivery of the sign outside Florida. Taxpayer does not collect Florida
tax on these sales, even if the invoice is delivered to a location in Florida.
When Taxpayer makes a sale of tangible personal property, whether it is a Florida sale or
an out of state sale, Taxpayer does not owe Florida use tax on the fabricated cost of the
sign (materials or labor). Taxpayer is considered to be purchasing the materials
incorporated into the sign for resale. See Rule 12A-1.039(1)(b)6., Florida Administrative
Code. Taxpayer may issue a copy of its Annual Resale Certificate to the vendor. If
Taxpayer has paid tax to the vendor on the purchase of the materials, Taxpayer may take
a “lawful deduction” for those taxes paid on its Sales and Use Tax Return, Form DR-15.
Taxpayer is responsible for installation.
When Taxpayer is responsible for the installation of a sign that becomes an improvement
to real property upon installation, either with its own employees or through a
subcontractor, Taxpayer is the ultimate consumer of the materials incorporated into the
sign, and it owes use tax on the fabricated cost of the sign.
Rule 12A-1.043(1), Florida Administrative Code, describes the calculation of the
fabricated cost, and it states in pertinent part as follows:
(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:

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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.
   (e)1. To purchase direct materials tax exempt, dealers registered with the
   Department to sell tangible personal property may extend a copy of their Annual
   Resale Certificate (Form DR-13) to the selling dealer in lieu of paying tax at the
   time of purchase. The cost of such materials is subject to tax on the cost of the

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items so manufactured, produced, compounded, processed, or fabricated, as
provided in paragraph (d).

2. Persons who do not sell tangible personal property are not required to register
   with the Department as a dealer. However, to purchase direct materials tax
   exempt, such persons may extend an Exemption Certificate, as provided in Rule
   12A-1.038, F.A.C., to the selling dealer in lieu of paying tax at the time of
   purchase. The cost of such materials is subject to tax on the cost of the items so
   manufactured, produced, compounded, processed, or fabricated, as provided in
   paragraph (d).
   (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. (Emphasis Supplied)
   Tax is due on the fabricated cost of signs, including materials cost and labor cost, as
   described in Rule 12A-1.043(1)(b), Florida Administrative Code, when Taxpayer is
   responsible for the installation of the sign. Florida tax is due at the time a sign is
   fabricated, regardless when or where the sign is installed.
   Since Taxpayer fabricates signs for sale as tangible personal property and installs signs as
   improvements to real property, Taxpayer may wish to issue a copy of its Annual Resale
   Certificate to its vendors and include the use tax on the materials in its calculation of
   fabricated cost.
   Other issues.
   When Taxpayer repairs a customer’s sign that is classed as an improvement to real
   property, Taxpayer is making a repair to real property. Taxpayer owes tax on the
   materials it uses in the repair of these signs. Taxpayer does not charge tax to the
   customer in any amount. See Rule 12A-1.051(4), Florida Administrative Code.
   When Taxpayer pulls a permit for the installation of a sign, costs associated with the
   permitting process are not included in the fabricated cost of the sign. See Rule 12A1.043(1)(b), Florida Administrative Code.
   Conclusion
   When Taxpayer sells and delivers a sing or the sign is picked up by the customer, and
   Taxpayer is not responsible for the installation of the sign, either with its own employees
   or through a subcontractor, then Taxpayer is making a sale of tangible personal property.
   Taxpayer should collect tax from the customer, or document the exempt status of the sale.
   Taxpayer does not owe use tax on the fabricated cost of the sign.

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When Taxpayer is responsible for the installation of the sign, either with its own
employees or through a subcontractor, Taxpayer owes use tax on the fabricated cost of
the sign in accordance with Rule 12A-1.043(1), Florida Administrative Code.
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
upon 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 from that which is 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 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.

Sincerely,

Sara D. Faulkenberry
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Control # 76814