Did a school board's direct-purchase procedures exempt construction materials for a public-works roofing project from Florida sales tax?

Plain-English summary

A school board planned to buy construction materials directly for an elementary-school roofing project. Its procedures called for purchase orders, vendor invoices, payment, passage of title, and insurance arrangements involving the school board.

Florida nevertheless ruled that the submitted program did not qualify for the governmental purchase exemption. The procedures did not require the school board to issue a Certificate of Entitlement with each purchase order to the vendor and contractor, together with the required exemption documentation.

The school board could amend its agreement and procedures to cure the defect, but only for purchases after the amendment. It could not make the correction retroactive. Materials manufactured or fabricated by a contractor or subcontractor also could not enter the direct-purchase program; those contractors were treated as the ultimate consumers.

What this means for you

Substance and documentation both matter in Florida public-works purchasing. Direct purchase orders, invoices, public-fund payments, title, and risk of loss were not enough after the 2011 change without the prescribed Certificate of Entitlement process.

Common questions

Why did the school board's program fail? It omitted Certificates of Entitlement for the vendors and contractor.

Could the school board fix the program? Yes, prospectively. The correction could not reach purchases made before the amendment.

Could contractor-fabricated materials be bought through the program? No. The ruling treated the contractor or subcontractor as the ultimate consumer of materials it manufactured or fabricated.

Citations and references

• Fla. Stat. § 212.08(6) and Fla. Admin. Code rr. 12A-1.038(4), 12A-1.094, and 12A-1.051(10), as quoted or discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11A-019

Original ruling text

SUMMARY
QUESTION: Whether the provisions contained in the contract provided are sufficient to allow
the School Board to take advantage of its tax-exempt status on the purchase of materials for use
in a public works contract.
ANSWER: The School Board’s program does not satisfy the foregoing requirements for
exemption of transactions as sales to a governmental entity. The School Board’s guidelines and
procedures appear to meet all the criteria that were set forth prior to the January 2011 statutory
change. However, the guidelines and procedures do not reference the Certificate of Entitlement
requirements.
The School Board may amend the Agreement with the Contractor to correct the deficiencies that
currently prevent the School Board from taking advantage of its tax-exempt status on the
purchase of materials for incorporation into the project. Any amendment will only apply to
purchases made after the date of the amendment, and the amendment cannot be made to apply
retroactively to the original date of the Agreement or to purchases made prior to the date of the
amendment.
June 17, 2011
XXX
Re:

Technical Assistance Advisement 11A-019
Sales and Use Tax – Public Works Contract
Subsection: 212.08(6), Florida Statutes (F.S.)
Rules: 12A-1.038, 12A-1.094, Florida Administrative Code (F.A.C.)
Petitioner: XXX [hereinafter “School Board”]
Contractor: XXX [hereinafter “Contractor”]

Dear XXX:
This letter is a response to your petition dated May 3, 2011, 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 12-11, 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 the provisions contained in the contract provided are sufficient to allow the School
Board to take advantage of its tax-exempt status on the purchase of materials for use in a public
works contract.
Presented Facts
The School Board’s petition sets forth the following information:

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The School Board . . . will replace roofs at . . . Elementary School using a contractor . . .
that will be delegated certain purchasing authorities by the School Board . . . . The
[School Board] will directly purchase certain construction materials, supplies, and
equipment for this project.
It is [School Board’s] understanding that Section 212.08(6), Florida Statutes, provides
that a School Board is exempt from payment of State sales tax when payment is made
directly to a dealer or vendor by the government entity. . . .
The School Board’s petition includes copies of relevant documents related to the direct purchase
of materials by the School Board, including Exhibit A, Sales Tax Exemption Guidelines [the
“Guidelines”], and Exhibit B, [] School Board Procedures [for] School Board Purchased
Materials [the “Procedures”].
The Guidelines and the Procedures contain the following pertinent procedures:

1. The School Board will issue its own purchase orders directly to the vendors of materials.
   Guidelines #2, Procedures #5. The purchase orders will include “a completed resale and
   exemption certificate.” Procedures #6.
2. The vendors will submit invoices to the School Board. Guidelines #4. The vendors will
   mail invoices to the School Board. Procedures #6.
3. The School Board will make payment directly to the vendor. Guidelines #4, Procedures

9.

4. Purchase orders will indicate that School Board takes title to the materials upon delivery.
   Guidelines #2. School Board will take title to the materials prior to incorporation into the
   project. Procedures #13.
5. The Contractor will purchase insurance to cover loss or damage to School Board
   purchased materials. School Board will be named an additional insured party.
   Procedures #15.
   Neither the Guidelines nor the Procedures indicate that the School Board will issue a Certificate
   of Entitlement to the vendors.
   Applicable Authority
   Sales to governmental units are exempt from sales tax pursuant to Subsection 212.08(6), Florida
   Statutes, which provides in pertinent part:
   (a) There are also exempt from the tax imposed by this chapter sales made to the United
   States Government, a state, or any county, municipality, or political subdivision of a state
   when payment is made directly to the dealer by the governmental entity. . . .
   (b) The exemption provided under this subsection does not include sales of tangible
   personal property made to contractors employed directly to or as agents of any such
   government or political subdivision when such tangible personal property goes into or

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becomes a part of public works owned by such government or political subdivision. A
determination of whether a particular transaction is properly characterized as an exempt
sale to a government entity or a taxable sale to a contractor shall be based upon the
substance of the transaction rather than the form in which the transaction is cast.
However, for sales of tangible personal property that go into or become a part of public
works owned by a governmental entity, other than the Federal Government, a
governmental entity claiming the exemption provided under this subsection shall certify
to the dealer and the contractor the entity’s claim to the exemption by providing the
dealer and the contractor a certificate of entitlement to the exemption for such sales. If the
department later determines that such sales, in which the governmental entity provided
the dealer and the contractor with a certificate of entitlement to the exemption, were not
exempt sales to the governmental entity, the governmental entity shall be liable for any
tax, penalty, and interest determined to be owed on such transactions. Possession by a
dealer or contractor of a certificate of entitlement to the exemption from the
governmental entity relieves the dealer from the responsibility of collecting tax on the
sale and the contractor for any liability for tax, penalty, or interest related to the sale, and
the department shall look solely to the governmental entity for recovery of tax, penalty,
and interest if the department determines that the transaction was not an exempt sale to
the governmental entity. The governmental entity may not transfer liability for such tax,
penalty, and interest to another party by contract or agreement. . . . (Emphasis Supplied)
This statutory section was amended in the 2010 Regular Session of the Florida Legislature to
become effective on January 2, 2011. It was approved by the Governor on May 27, 2010.
Rule 12A-1.038(4), Florida Administrative Code, provides 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.
By its terms, Subsection 212.08(6), Florida Statutes, 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. Administrative guidelines governing the taxability of materials
purchased for public works contracts, such as those involved in the instant situation, are set forth
in Rule 12A-1.094, Florida Administrative Code, which provides in pertinent part:
(1) This rule shall govern the taxability of transactions in which contractors manufacture
or purchase supplies and materials for use in public works contracts . . . .
(2) The purchase or manufacture of supplies or materials by a public works contractor,
when such supplies or materials are purchased for the purpose of going into or becoming
part of public works, whether the purchase or manufacture occurs inside or outside
Florida, is taxable to the public works contractor if the public works contractor also
installs such supplies or materials, since the public works contractor is the ultimate
consumer of such supplies or materials. Public works contractors that purchase or
manufacture such supplies and materials in Florida are liable for sales tax or use tax on

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such purchases and manufacturing costs. A public works contractor that purchases
supplies or materials that may be sold as tangible personal property or may be
incorporated into a public works project may purchase such supplies or materials without
tax by issuing a copy of the contractor’s Annual Resale Certificate and accrue and remit
tax upon withdrawing such supplies or materials from inventory to go into or become a
part of public works. Public works contractors that purchase or manufacture such
materials outside the State of Florida are liable for use tax, subject to credit for any sales
or use tax lawfully imposed and paid in the state of purchase or manufacture.
(3) The purchase or manufacture of tangible personal property for resale to a
governmental entity is exempt from tax, provided this exemption shall not include sales
of tangible personal property made to, or the manufacture of tangible personal property
by, public works contractors when such tangible personal property goes into or becomes
a part of public works.
(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. The Executive Director or the Executive Director’s
designee in the responsible program will determine whether the substance of a particular
transaction is a taxable sale to or use by a contractor or an exempt direct sale to a
governmental entity based on all of the facts and circumstances surrounding the
transaction as a whole.
(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

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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)1. To be entitled to purchase materials tax exempt for a public works project, a
governmental entity is required to issue a Certificate of Entitlement to each vendor and to
the governmental entity’s contractor to affirm that the tangible personal property
purchased from that vendor will go into or become a part of a public work. This
requirement does not apply to any agency or branch of the United States government.

2. The governmental entity’s purchase order for tangible personal property to be
   incorporated into the public works project must be attached to the Certificate of
   Entitlement. The governmental entity must issue a separate Certificate of Entitlement for
   each purchase order. Copies of the Certificate may be issued.
3. The governmental entity will also affirm that if the Department determines that
   tangible personal property sold by a vendor tax-exempt pursuant to a Certificate of
   Entitlement does not qualify for the exemption under Section 212.08(6), F.S., and this
   rule, the governmental entity will be liable for any tax, penalty, and interest determined to
   be due.
4. The following is the format of the Certificate of Entitlement to be issued by the
   governmental entity:
   CERTIFICATE OF ENTITLEMENT
   The undersigned authorized representative of__ (hereinafter
   “Governmental Entity”), Florida Consumer’s Certificate of Exemption Number ,
   affirms that the tangible personal property purchased pursuant to Purchase Order
   Number from _ (Vendor) on or after _ (date) will be
   incorporated into or become a part of a public facility as part of a public works contract
   pursuant to contract # __ with __ (Name of Contractor) for the
   construction of ____.
   Governmental Entity affirms that the purchase of the tangible personal property
   contained in the attached Purchase Order meets the following exemption requirements
   contained in Section 212.08(6), F.S., and Rule 12A-1.094, F.A.C.:
   You must initial each of the following requirements.
   __ 1. The attached Purchase Order is issued directly to the vendor supplying the
   tangible personal property the Contractor will use in the identified public works.
   _ 2. The vendor’s invoice will be issued directly to Governmental Entity.
   3. Payment of the vendor’s invoice will be made directly by Governmental Entity to
   the vendor from public funds.

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_ 4. Governmental Entity will take title to the tangible personal property from the
vendor at the time of purchase or of delivery by the vendor.
_ 5. Governmental Entity assumes the risk of damage or loss at the time of purchase
or delivery by the vendor.
Governmental Entity affirms that if the tangible personal property identified in the
attached Purchase Order does not qualify for the exemption provided in Section
212.08(6), F.S., and Rule 12A-1.094, F.A.C., Governmental Entity will be subject to the
tax, interest, and penalties due on the tangible personal property purchased. If the Florida
Department of Revenue determines that the tangible personal property purchased taxexempt by issuing this Certificate does not qualify for the exemption, Governmental
Entity will be liable for any tax, penalty, and interest determined to be due.
I understand that if I fraudulently issue this certificate to evade the payment of sales tax I
will be liable for payment of the sales tax plus a penalty of 200% of the tax and may be
subject to conviction of a third degree felony.
Under the penalties of perjury, I declare that I have read the foregoing Certificate of
Entitlement and the facts stated in it are true.

Signature of Authorized Representative

Purchaser’s Name (Print or Type)

Title

Date

Federal Employer Identification Number: ____
Telephone Number: ______
You must attach a copy of the Purchase Order to this Certificate of Entitlement.
Do not send to the Florida Department of Revenue. This Certificate of Entitlement must
be retained in the vendor’s and the contractor’s books and records.
(d) Sales to contractors, including subcontractors, are subject to tax.
(e) The governmental entity may not transfer liability for such tax, penalty, and interest to
another party by contract or agreement. . . .
(5) Contractors, including subcontractors, that manufacture, fabricate, or furnish tangible
personal property that the contractor incorporates into public works are liable for tax in
the manner provided in subsection (10) of Rule 12A-1.051, F.A.C. The contractor and
subcontractors, not the governmental entity, are deemed to be the ultimate consumers of
the articles of tangible personal property they manufacture, fabricate, or furnish to

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perform their contracts and may not accept a Certificate of Entitlement for these
articles. . . . (Emphasis Supplied)
Determination
Rule 12A-1.038(4)(b), Florida Administrative Code, 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. . . ." Rules 12A1.094(2) and (3), Florida Administrative Code, state that the purchase of materials for public
works contracts is 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 from the time of delivery to the jobsite, and satisfy various factors provided in Rule
12A-1.094, Florida Administrative Code.
Rule 12A-1.094(4), Florida Administrative Code, which sets forth the 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. These criteria include direct purchase order, direct invoice, direct payment, passage of
title, and assumption of risk of loss. However, the assumption of risk of damage or loss from the
time that the building materials are physically delivered to the job site is a paramount
consideration. The governmental entity must assume all risk of loss or damage for the tangible
personal property from the moment of acceptance of title to the materials. To establish that it has
assumed that risk, the governmental entity should purchase, or be the insured party under,
insurance on the building materials.
To establish that the governmental entity is entitled to the exemption, it must issue a Certificate
of Entitlement to the vendors with each purchase order, and to the contractor(s). A copy of the
governmental entity’s Consumer’s Certificate of Exemption must be attached to the Certificate
of Entitlement. The Certificate of Entitlement sets forth the requirements for making tax-exempt
direct purchases and notes the governmental entity’s acknowledgement that it is responsible for
tax, penalty, and interest on material purchases that do not meet the exemption criteria. By
statute, the governmental entity is prohibited from assigning liability for the tax, penalty, and
interest to another party by contract or agreement. A suggested format for the certificate is found
in Rule 12A-1.094(4)(c), Florida Administrative Code.
As stated, the statutory section requiring the Certificate of Entitlement was amended in the 2010
Regular Session of the Florida Legislature to become effective on January 2, 2011. It was
approved by the Governor on May 27, 2010.
To summarize, the conditions that must be met to satisfy the requirements of Rule 12A-1.094,
Florida Administrative Code, and establish that the governmental entity rather than the
contractor is the purchaser of materials, include:

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1. The governmental entity must execute the purchase orders for the tangible personal
   property involved in the contract directly to the materials vendors. The contractor may
   present the governmental entity's purchase orders to the vendors of the tangible personal
   property;
2. The governmental entity must acquire title to, and assume liability for, the tangible
   personal property at the point in time when it is delivered to the job site;
3. Vendors must directly invoice the governmental entity for supplies;
4. The governmental entity must directly pay the vendors for the tangible personal
   property; and
5. The governmental entity must assume all risk of loss or damage for the tangible
   personal property involved in the contract, as indicated by the entity's acquisition of, or
   inclusion as the insured party under, insurance on the building materials.
6. The governmental entity must issue a Certificate of Entitlement with each purchase
   order, along with a copy of its Consumer’s Certificate of Exemption, to each vendor, as
   well as to the contractor. The governmental entity is responsible for payment of tax,
   penalty, and interest on any purchases that are not found to be in compliance with the
   procedures for tax-exempt direct purchase of materials.
   Conclusion
   The School Board’s program does not satisfy the foregoing requirements for exemption of
   transactions as sales to a governmental entity. The School Board’s guidelines and procedures
   appear to meet all the criteria that were set forth prior to the January 2011 statutory change.
   However, the guidelines and procedures do not reference the Certificate of Entitlement
   requirements.
   The School Board may amend the Agreement with the Contractor to correct the deficiencies that
   currently prevent the School Board from taking advantage of its tax-exempt status on the
   purchase of materials for incorporation into the project. Any amendment will only apply to
   purchases made after the date of the amendment, and the amendment cannot be made to apply
   retroactively to the original date of the Agreement or to purchases made prior to the date of the
   amendment.
   Please note that a contractor that manufactures or fabricates its own materials, as specified in
   Rule 12A-1.094(5), Florida Administrative Code, does not qualify for inclusion in direct
   purchase programs. Under the rule, the contractor and subcontractors, not the government entity,
   are deemed to be the ultimate consumers of the articles of tangible personal property they
   manufacture or fabricate to perform their contracts. As such, the contractor and subcontractors
   are subject to use tax on the full cost of the manufactured or fabricated articles, as detailed in
   Rule 12A-1.051(10), Florida Administrative Code.

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Closing Statement
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 # 102977