Could a Florida city buy construction materials, furniture, and equipment tax-free for its public events-center project?

Plain-English summary

Florida approved a city's tax-exempt direct-purchase structure for construction materials, furniture, and equipment used in a new city-owned events center, provided the city followed its Project Construction Agreement.

For construction materials, the city had to issue the purchase order directly to the vendor and provide its Florida Consumer's Certificate of Exemption. The vendor had to invoice the city, the city had to pay directly from public funds, title had to pass to the city at purchase or delivery, and the city had to assume risk of loss. The agreement met those five requirements, including making the city the beneficiary of insurance proceeds for damaged materials.

Furniture and equipment not affixed to the project used a simpler governmental-purchase rule: the city had to provide its exemption certificate and pay the vendor directly. The reviewed agreement met those requirements too.

What this means for you

A government's exemption does not automatically flow through to its contractor. Public-works purchases are exempt only when the transaction is substantively a direct purchase by the government and the required documents, title, payment, and risk allocation all support that result.

Common questions

Could the contractor buy the materials under the city's exemption? No. The city itself had to be the purchaser under the five-factor test.

Did the city have to bear risk of loss? Yes. That was a paramount factor.

Were unattached furniture and equipment exempt too? Yes, if the city gave the vendor its certificate and paid directly.

Citations and references

• Fla. Stat. §§ 212.06 and 212.08(6), and Fla. Admin. Code rr. 12A-1.038 and 12A-1.094, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10A-018

Original ruling text

SUMMARY
QUESTION: Whether the City qualifies to purchase construction materials and tangible
personal property tax exempt to be incorporated into a public works contract.
ANSWER: Provided that the City adheres to the provisions contained in the Project
Construction Agreement, then no sales tax will be due on the City’s purchase of construction
supplies and materials for incorporation into the public works contract, and for the City’s
purchase of furniture and equipment for use in the public works contract. The Project
Construction Agreement requires (1) the City to issue its purchase order directly to the vendor
supplying the materials the contractor will use and provide the vendor with a copy of the
governmental entity’s Florida Consumer’s Certificate of Exemption; (2) the vendor’s invoice to
be issued to the City; (3) the City to pay the vendor directly from public funds; (4) the City to
take title to the tangible personal property from the vendor at the time of purchase or delivery by
the vendor; and (5) the City to assume the risk of damage or loss at the time of purchase.
April 13, 2010
XXX
Re:

Technical Assistance Advisement (TAA) 10A-018
Sales and Use Tax – Public Works Contract
Sections 212.06, 212.08(6) Florida Statutes (F.S.)
Rules 12A-1.038(4), 12A-1.094, Florida Administrative Code (F.A.C.)
XXX (Taxpayer)

Dear XXX:
This is in response to your letter dated February 1, 2010, requesting this Department’s issuance
of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule
Chapter 12-11, F.A.C., concerning a public works contract. An examination of your letter has
established you have complied with the statutory and regulatory requirements for issuance of a
TAA. Therefore, the Department is hereby granting your request for a TAA.
Issue
Whether pursuant to the Project Construction Agreement (Agreement), Taxpayer qualifies to
purchase construction materials and tangible personal property tax exempt to be incorporated
into a public works contract.
Facts
In your letter dated February 1, 2010, you provided that Taxpayer, a city, is a political
subdivision under section 212.08(6). Taxpayer (City) is constructing a new events center that
will be used for community, civic, sports, and entertainment events (Project). You provided the
following in part:

Technical Assistance Advisement
Page 2 of 8
… The Project will be owned, managed and operated by the City. Prior to commencing
construction, the City determined that it was in its best interest to retain the Project
Developer to manage, administer and oversee the development and construction of the
Project. The City and the Project Developer selected a licensed general contractor (the
“Prime Contractor”) to construct all or part of the Project.
In 2008, the City and the Project Developer entered into a project construction agreement
[Agreement] setting forth the terms and conditions for the development and construction
of the Project. The City and the Project Developer agreed to and implemented
procedures for the City to purchase construction supplies and materials in accordance
with Florida Administrative Code Rule 12A-1.094. The City desires to use the same
procedures for its acquisition of tangible personal property to furnish and equip the
Project (in addition to the existing procedures used for construction materials purchased
for incorporation into the Project). The Project Construction Agreement was amended as
of August 31, 2009 to permit the Project Developer to manage and administer the
purchase of tangible personal property that will be used to furnish or equip the Project.
The Agreement, as amended, provides the following in pertinent part:
2.2
Acquisition of Construction Materials. To the extent permitted by Applicable
Law and as otherwise agreed by the City and Project Developer, the City may acquire
construction materials for the Project, as well as other tangible personal property for
incorporation into the Project Improvements or to furnish or equip the Project (together,
“City-Furnished Materials”), and the responsibilities of the City, the Project Developer,
the Prime Contractor and the Contractors relating to such City-Furnished Materials shall
be governed by the terms and conditions set forth in Exhibit “B” attached hereto.

7.7
Payment for Project Improvements.
(a)
Obligation to Pay Project Costs. … Project Costs shall be paid as follows: … (ii)
all City-Furnished Materials Costs shall be paid directly by the City from the Project
Development Fund ....
Exhibit “B,” as amended, provides the following in pertinent part:
1.3
From time to time, the Project Developer and/or Prime Contractor will prepare a
purchasing request requisition form (the “Requisition Form”) which shall, in form and
detail reasonably acceptable to the CCR [City Construction Representative], specifically
identify the City-Furnished Materials which City will purchase directly as City-Furnished
Materials….
1.4
Within two (2) Business Days after receipt thereof, the CCR shall forward each
Requisition Form to the City. Within five (5) Business Days of receipt of a Requisition
Form …, the City shall review and approve the Requisition Form and issue a purchase
order for the City-Furnished Materials … to the applicable supplier. The Purchase Order

Technical Assistance Advisement
Page 3 of 8
shall include the City’s Consumer’s Certificate of Exemption number and a copy of the
Consumer’s Certificate of Exemption. The Purchase Order shall be sent directly to the
supplier by the City with copies thereof delivered to the Project Developer and Prime
Contractor. Pursuant to the Purchase Order, the supplier will provide the required CityFurnished Materials at the price established in the supplier’s pricing quote, excluding any
sales tax associated with such price.

1.6
… The City assumes the risk of loss of City-Furnished Materials from the time
title to such City-Furnished Materials passes from the supplier upon delivery of such
City-Furnished Materials to the Project Site (or to any other storage area or “laydown”
area used in connection with the Project Improvements) (i.e., Free On Board Destination
pursuant to Section 672.319, Florida Statutes).
1.7
… The City shall be directly invoiced by the suppliers for all City-Furnished
Materials in care of the Project Developer. Neither Project Developer nor the Prime
Contractor shall pay invoices for City-Furnished Materials.

1.11 Notwithstanding the delivery or transfer of City-Furnished Materials to the Prime
Contractor or to the Project Site (or materials staging/laydown area) for their
incorporation by the Prime Contractor into the Project Improvements or for furnishing or
equipping the Project, the City shall retain legal and equitable title to any and all CityFurnished Materials. The transfer of possession of City-Furnished Materials from the
City to the Prime Contractor shall constitute a bailment for the mutual benefit of the City,
the Project Developer and the Prime Contractor. The City shall be considered the bailor
and the Prime Contractor the bailee of the City-Furnished Materials. Transfer of
possession shall be deemed to occur immediately and automatically upon delivery of
City-Furnished Materials to the Prime Contractor without notice from City to the Project
Developer or the Prime Contractor. City-Furnished Materials shall be considered
returned to the City for the purposes of their bailment at such time as they are
incorporated into the Project Improvements or used for furnishing or equipping the
Project….
1.12 The Project Developer shall purchase and maintain builders risk insurance to
protect against any loss of or damage to City-Furnished Materials in accordance with
Exhibit “D” of this Agreement. Such insurance shall cover the full value of any CityFurnished Materials not yet incorporated into the Project Improvements during the period
between the time the City first takes title to any of such City-Furnished Materials and the
time when the last of such City-Furnished Materials are incorporated into the Project
Improvements. Such insurance shall also cover the full value of any City-Furnished
Materials to be used to furnish or equip the Project during the period between the time
the City first takes title to any such City-Furnished Materials and Substantial Completion.

1.14

The City shall directly pay all suppliers with respect to City-Furnished Materials

Technical Assistance Advisement
Page 4 of 8
purchased by the City….
Exhibit “D” provides the following, in regards to risk of loss:
1.4.8

Risk of Loss
A. Notwithstanding any provision in this Agreement to the contrary, except with
respect to tangible personal property purchased by the City for the purpose of
receiving a tax exemption under Section 212.08(6), Florida Statutes, if any,
the risk of loss shall remain with the Project Developer until Substantial
Completion.
B. The City shall retain the risk of loss of and damage to City Furnished
Materials for the purpose of receiving a tax exemption under Section
212.08(6), Florida Statutes, which meets the criteria in Rule 12A1.094(4)(b)1-4, F.A.C. to determine if the City is the purchaser for the
purpose of the tax exemption under Section 212.08(6), Florida Statutes.
C. The City shall be solely entitled to the proceeds paid and attributable to
damage or loss to City-Furnished Materials under the Property/Builder’s Risk
Policy(ies), and such proceeds shall be used by the City to fulfill its
obligations to replace the damaged or destroyed City-Furnished Materials.
Requested Advisement

Taxpayer requests that the Department determine the following:

1. Provided that the [Taxpayer] adheres to the provisions contained in the Project
   Construction Agreement, no sales tax will be due on [Taxpayer’s] purchase of
   construction supplies and materials for incorporation into the Project.
2. Provided that the [Taxpayer] adheres to the provisions contained in the Project
   Construction Agreement, no sales tax will be due on the [Taxpayer’s] purchase of
   furniture and equipment for use in the Project.
   Applicable Authority and Discussion
   Sales to governmental units are exempt from sales tax pursuant to subsection 212.08(6), F.S.
   Rule 12A-1.038(4), F.A.C., contains guidelines for claiming and documenting the exemption.
   Governmental entities must obtain a consumer’s certificate of exemption from the Department of
   Revenue. Vendors are required to obtain for their records proper documentation of the exempt
   status of the sale. Rule 12A-1.038(4)(b), F.A.C., states that in order for a sale to a state or local
   governmental entity to be tax exempt, “[p]ayment for tax-exempt purchases … must be made
   directly to the selling dealer by the … political subdivision of a state….”
   By its terms, Section 212.08(6), F.S., exempts only direct purchases by governmental entities.
   The exemption does not apply when a contractor, employed by a governmental entity, purchases
   tangible personal property that is to be incorporated into public works owned by the entity.

Technical Assistance Advisement
Page 5 of 8
Administrative guidelines governing the taxability of materials purchased for public works
contracts, such as those involved in the instant situation, are contained in Rule 12A-1.094,
F.A.C., which provides in part:
(4)(a) The exemption in Section 212.08(6), F.S., is a general exemption for sales made
directly to the government. A determination whether a particular transaction is properly
characterized as an exempt sale to a governmental entity or a taxable sale to or use by a
contractor shall be based on the substance of the transaction, rather than the form in
which the transaction is cast….
(b) The following criteria that govern the status of the tangible personal property prior to
its affixation to real property will be considered in determining whether a governmental
entity rather than a contractor is the purchaser of materials:

1. Direct Purchase Order. The governmental entity must issue its purchase order
   directly to the vendor supplying the materials the contractor will use and provide the
   vendor with a copy of the governmental entity’s Florida Consumer’s [Certificate] of
   Exemption.
2. Direct Invoice. The vendor’s invoice must be issued to the governmental entity,
   rather than to the contractor.
3. Direct Payment. The governmental entity must make payment directly to the vendor
   from public funds.
4. Passage of Title. The governmental entity must take title to the tangible personal
   property from the vendor at the time of purchase or delivery by the vendor.
5. Assumption of the Risk of Loss. Assumption of the risk of damage or loss by the
   governmental entity at the time of purchase is a paramount consideration. A
   governmental entity will be deemed to have assumed the risk of loss if the
   governmental entity bears the economic burden of obtaining insurance covering
   damage or loss or directly enjoys the economic benefit of the proceeds of such
   insurance.
   (c) Sales are taxable sales to the contractor unless it can be demonstrated … that such
   sales are, in substance, tax exempt direct sales to the government.
   Rule 12A-1.094(2) and (3), F.A.C., states that purchases of materials for public works contracts
   are taxable to the contractor as the ultimate consumer, where the contractor is deemed to be the
   purchaser. If the purchaser of the materials is the governmental entity, however, the transaction
   is exempt. For there to be an exempt transaction, the governmental entity must directly
   purchase, hold title to, and assume the risk of loss of the tangible personal property prior to its
   incorporation into realty, and satisfy various factors contained in Rule 12A-1.094, F.A.C.

Purchase of Construction Materials
As provided in your letter, Exhibit “B” sets forth guidelines for Taxpayer to purchase
construction materials, furniture, and equipment. The five requirements in Rule 12A-

Technical Assistance Advisement
Page 6 of 8
1.094(4)(b), F.A.C., are discussed below:

1. Direct Purchase Order
   Section 1.4 of Exhibit “B” of the Agreement requires that the Taxpayer review the
   Requisition Form submitted pursuant to section 1.3 and issue the purchase order,
   along with a copy of the Taxpayer’s Consumer’s Certificate of Exemption number,
   directly to the supplier. Therefore, the first requirement is met.
2. Direct Invoice
   Section 1.7 of Exhibit “B” requires that the suppliers issue the invoice directly to
   Taxpayer; hence, the second requirement is met.
3. Direct Payment
   Section 1.14 of Exhibit “B” and section 7.7(a) of the Agreement require Taxpayer to
   pay the suppliers directly with its own funds. Therefore, the third requirement is met.
4. Passage of Title
   Section 1.11 of Exhibit “B” provides that Taxpayer retains legal and equitable title to
   all purchased materials and the transfer of the materials to the Contractor constitutes a
   bailment of the materials. The fourth requirement is met.
5. Assumption of Risk
   Section 1.6 of Exhibit “B” provides that the Project Developer shall purchase and
   maintain builders risk insurance to protect against any loss or damage to the materials
   purchased by Taxpayer. Section 1.4.8 of Exhibit “D” provides that Taxpayer retains
   the risk of loss and damage to the materials, and that the Taxpayer is the sole
   beneficiary of the insurance proceeds from the damage or loss of the materials. The
   Taxpayer directly enjoys the economic benefit of the proceeds of such insurance;
   hence, the fifth requirement is met.

Purchase of Furniture and Equipment
Rule 12A-1.094, F.A.C., does not apply to purchases of furniture and equipment that will not be
affixed or appended to the Project. However, Section 212.08(6), F.S., provides that sales made
to a governmental entity are exempt from tax when the payment is made directly to the dealer by
the governmental entity. For a governmental entity to take advantage of the exemption, Rule

Technical Assistance Advisement
Page 7 of 8
12A-1.038(4), F.A.C., requires the following:

1. The governmental entity must issue a copy of its consumer’s certificate of exemption
   to the selling dealer to purchase the taxable items in lieu of paying sales tax.
2. The governmental unit must make payments directly to the selling dealer.
   As discussed above, under Exhibit “B”, Taxpayer is required to issue the purchase order, along
   with a copy of Taxpayer’s Consumer’s Certificate of Exemption number, directly to the supplier
   and Taxpayer is required to pay the invoice directly to the supplier with its own funds.
   Therefore, both requirements under Rule 12A-1.038(4), F.A.C., are met.
   Conclusion
3. Provided that the Taxpayer adheres to the provisions contained in the Project
   Construction Agreement, no sales tax will be due on Taxpayer’s purchase of construction
   supplies and materials for incorporation into the Project.
4. Provided that the Taxpayer adheres to the provisions contained in the Project
   Construction Agreement, no sales tax will be due on Taxpayer’s purchase of furniture
   and equipment for use in the Project.
   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 that 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 15 days of the date of this
letter.
Sincerely,

Technical Assistance Advisement
Page 8 of 8

Angel Sessions
Senior Tax Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Record ID: 78214