Did replacement baking pans and labor to re-glaze or straighten them qualify for Florida's industrial-machinery repair exemption?

Plain-English summary

The bakeries used baking pans to shape products while they rose and baked, and the filled pans physically traveled through the ovens. Both glazed and unglazed pans were capitalized with depreciable lives of at least three years.

Although each pan could appear to be stand-alone equipment, the ovens could not perform their production function without the pans. The Department therefore treated the pans as physically and functionally integrated components of the baking line.

Replacement pans qualified as repair parts incorporated into the integrated production line. Labor to re-glaze or straighten existing pans also qualified for the industrial-machinery repair exemption.

What this means for you

Equipment does not always need bolts or permanent piping to form an integrated line. Functional necessity and actual movement through the production process supported integration here.

Common questions

Why were the pans industrial machinery? They had a depreciable life of three years or more.

Why did replacement count as repair rather than new stand-alone equipment? The pans were indispensable, integrated components of the oven production process.

Was pan-repair labor exempt? Yes, for re-glazing and straightening under the described facts.

Citations and references

• Fla. Stat. § 212.08(7)(xx) and § 212.08(5)(b)6.a., as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12A-013

Original ruling text

SUMMARY

QUESTION: Whether purchases of replacement baking pans by bakeries qualify for exemption
under the provisions of s. 212.08(7)(xx), F.S., as repairs to industrial machinery and equipment.
RESPONSE: Purchases of replacement baking pans with a three-year depreciable life by
bakeries qualify for exemption under the provisions of s. 212.08(7)(xx), F.S., as repairs to an
integrated production line.
QUESTION: Whether bakeries’ purchases of repair labor performed on baking pans qualify for
exemption under the provisions of s. 212.08(7)(xx), F.S., as repairs to industrial machinery and
equipment.
RESPONSE: Bakeries’ purchases of repair labor to re-glaze and/or straighten the baking pans
qualify for exemption under the provisions of s. 212.08(7)(xx), F.S., as repairs to an integrated
production line.
May 8, 2012

XXX
XXX
XXX
Re: Technical Assistance Advisement 12A-013
Sales and Use Tax
Repairs to industrial machinery and equipment
Section 212.08(7)(xx), Florida Statutes (F.S.)
Dear
This is in response to your request dated April 5, 2012, for a Technical Assistance
Advisement (TAA) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, Florida
Administrative Code (F.A.C.), concerning the sales and use tax exemption on repairs to
industrial machinery and equipment for your clients XXX (“Bakeries”). An examination of your
letter has established that 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.
Background
Bakeries produce baked goods including breads, buns, rolls, snack cakes, and pastries.
Baking pans are used to give shape to products while they are rising and during the baking
process. Two types of pans are used: glazed pans and non-glazed pans. The pans physically
travel through the ovens during the baking process.

Bakeries purchase baking pans of both types to replace damaged, old, and obsolete pans
used in the production process. On occasion, the pans are repaired by being re-glazed and/or
straightened. Bakeries capitalize both types of pans for accounting purposes. Both types of pans
have a depreciable life of three years or more.
Issues

1. Whether purchases of replacement baking pans by Bakeries qualify for exemption
   under the provisions of Section 212.08(7)(xx), F.S., as repairs to industrial machinery and
   equipment.
2. Whether Bakeries’ purchases of repair labor performed on baking pans qualify for
   exemption under the provisions of Section 212.08(7)(xx), F.S., as repairs to industrial machinery
   and equipment.
   Applicable Authority
   The following passage from the Florida Statutes (F.S.) is pertinent to the issues under
   consideration.
   Section 212.08(7), F.S., provides in part:
   (xx) Certain repair and labor charges.—
3. Subject to the provisions of subparagraphs 2. and 3., there is exempt from the
   tax imposed by this chapter all labor charges for the repair of, and parts and materials
   used in the repair of and incorporated into, industrial machinery and equipment which is
   used for the manufacture, processing, compounding, production, or preparation for
   shipping of items of tangible personal property at a fixed location within this state.
4. This exemption applies only to industries classified under SIC Industry Major
   Group Numbers 10, 12, 13, 14, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35,
   36, 37, 38, and 39 and Industry Group Number 212. As used in this subparagraph, “SIC”
   means those classifications contained in the Standard Industrial Classification Manual,
   1987, as published by the Office of Management and Budget, Executive Office of the
   President. . . .
   Discussion
   The exemption on repairs as provided in Section 212.08(7)(xx), F.S., is available to those
   industries that are classified under specified Standard Industrial Classification (“SIC”) Industry
   Major Group Numbers. Bakeries’ business activity is properly classified under SIC code 2051,
   Bread and Other Bakery Products, Except Cookies and Crackers. Since Industry Group Number
   20, Food and Kindred Products, is one of the numbers that are specifically listed as eligible for
   the exemption on repairs in the exemption statute, Bakeries would be eligible for the exemption.
   The exemption on repairs is limited to “labor charges for the repair of, and parts and
   materials used in the repair of and incorporated into, industrial machinery and equipment.”

Under the definition provided by Section 212.08(5)(b)6.a., F.S., “industrial machinery and
equipment” means tangible personal property with a depreciable life of three years or more.
Since the baking pans have a three year depreciable life, they can be considered as industrial
machinery and equipment and not as consumable supplies.
The activities of straightening and re-glazing existing pans would be activities that fall
within the repairs exemption. However, it is not immediately clear whether the purchase of
replacement pans would qualify as a repair. This is because, at its simplest level, each baking
pan is a piece of stand-alone equipment.
Generally, if a stand-alone piece of equipment is scrapped and replaced with a new one,
that new item cannot be classified as a part or material that has been incorporated into a greater
existing machine or piece of equipment. If, however, equipment is integrated by virtue of
physical connections, such as by piping systems, loss of function of any part of the line would
cause the remainder of the line to become inoperable as well. In that case, replacement of the
defective element would be an incorporation of parts and materials to repair an integrated line.
Although the baking pans are not bolted or otherwise physically attached to the baking
ovens, nor are they physically connected to other pans, the baking pans filled with dough do
physically travel through the baking ovens. The baking ovens cannot perform their function of
making baked products without the incorporation of the baking pans. Accordingly, the baking
pans would be physically and functionally integrated with the ovens during the baking process.
Conclusions

1. Purchases of replacement baking pans with a three-year depreciable life by Bakeries
   qualify for exemption under the provisions of Section 212.08(7)(xx), F.S., as repairs to an
   integrated production line.
2. Bakeries’ purchases of repair labor to re-glaze and/or straighten the baking pans
   qualify for exemption under the provisions of Section 212.08(7)(xx), F.S., as repairs to an
   integrated production line.
   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 documents are public
   records under Chapter 119, F.S., which are subject to disclosure to the public under the
   conditions of Section 213.22, F.S. Your name, address, and any other details, which might lead
   to identification of the taxpayer, must be deleted before disclosure. In an effort to protect the
   confidentiality of such information, we request you provide the undersigned with an edited copy

of your request for Technical Assistance Advisement, backup material and response within
fifteen days of the date of this advisement.
Sincerely,

Jeffery L. Soff
Tax Law Specialist
Technical Assistance and
Dispute Resolution

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