Did a county's proposed direct-purchase procedures qualify building materials for its courthouse project for Florida's governmental exemption?

Plain-English summary

The Florida Department of Revenue concluded that a county's stated procedures qualified its building-material purchases for the governmental exemption on a courthouse restoration project.

The county would issue purchase orders directly to vendors, receive invoices in its own name, pay vendors directly from public funds, take title upon delivery and acceptance, assume risk of loss, maintain builder's-risk insurance, and issue a Certificate of Entitlement with each purchase order. Those facts made the county, rather than the contractor, the purchaser.

The conclusion was qualified because the county did not provide the complete construction contract. If controlling terms in the original contract contradicted the special direct-purchase provisions, the exemption would not apply. Purchases that were not actually made under the required procedures also could not be amended after the fact to become exempt.

What this means for you

Governmental project owners

An exempt direct-purchase program requires more than an exemption certificate. The government must control the purchase, pay the vendor, take title, bear risk of loss, and document each purchase with the required certificate.

Contractors and subcontractors

Materials you buy and install remain taxable to you. Materials you manufacture or fabricate yourself also cannot enter the direct-purchase program under the cited rule.

Contract reviewers

Check the entire agreement for conflicting title, risk, payment, or control provisions. A favorable special provision may not govern if another controlling clause says otherwise.

Common questions

Q: Did the county's proposed procedures satisfy the exemption rules?
A: Yes, based on the special provisions supplied to the Department.

Q: Was the approval unconditional?
A: No. The complete contract was not provided, and contradictory controlling terms could defeat the exemption.

Q: Can a nonqualifying purchase be fixed retroactively?
A: No. The Department said purchases not made under the special procedures could not be amended after the fact to qualify.

Citations and references

• Fla. Stat. §§ 212.08(6) and 213.22
• Fla. Admin. Code rr. 12A-1.038(4), 12A-1.094, and 12A-1.051(10)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-004

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: CAN A DEALER WHO SELLS BUILDING MATERIALS TO AN EXEMPT
GOVERNMENTAL ENTITY INCLUDE THE NAME OF A CONTRACTOR OR
SUBCONTRACTOR AS “C/O” ON THE INVOICES IT REMITS TO THE EXEMPT
GOVERNMENTAL ENTITY?
ANSWER: AS LONG AS THE PARTY BEING BILLED REMAINS THE
GOVERNMENTAL ENTITY (AND ALL OF THE OTHER REQUIREMENTS FOR A
DIRECT PURCHASE ARE MET), THERE IS NO PROHIBITION AGAINST ALSO
INCLUDING A CONTRACTOR OR SUBCONTRACTOR ON THE INVOICE AS A C/O
PARTY.
February 21, 2014
Re:

Technical Assistance Advisement – TAA 14A-004
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 “County”]

Dear XXX:
This letter is a response to your petition dated XXX, 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 an amendment to a public works contract provided are
sufficient to allow the County to use its tax-exempt status to purchase materials for use in the
construction of a courthouse.
Presented Facts
County entered into a contract for the restoration of a Courthouse (the “Contract”) on XXX. A
partial copy of the Contract was included with County’s petition, and it specifically includes
Special Provisions for County purchases. Article 6 of the Special Provisions contains the
following relevant provisions:
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

1. Paragraph C. 4) of the provisions provides that the County will prepare its own purchase
   orders for the purchase of materials. The Purchase Order will be issued to the supplier,
   materialman, or vendor of the materials. The purchase order will contain or be
   accompanied by the County’s “exemption certificate,” as well as a Certificate of
   Entitlement.
2. Paragraph C. 16) of the provisions requires that the invoices show the County as the
   entity being invoiced.
3. Paragraph C. 7) of the provisions state that County is responsible for payment of invoices
   issued by the suppliers. Paragraph C. 8) of the provisions states that the invoices will be
   processed and paid in the same manner as all other County invoices. Paragraphs C. 17)
   and 18) of the provisions state that County will remit payment directly to the supplier(s)
   of the materials.
4. Paragraph C. 5) of the provisions states that County will retain title to any “Owner
   Directly Purchased Materials” from the time of delivery and acceptance of the materials.
5. Paragraph C. 5) of the provisions also states that the “County shall be liable for all loss or
   damage to equipment and materials purchased pursuant to the Purchase Order.”
   Paragraph C. 14) of the provisions requires the County to “purchase and maintain
   builder’s risk insurance . . . in an amount sufficient to cover the replacement cost of
   Owner Directly Purchased Materials.”
6. As stated, Paragraph C. 4) of the provisions states that County will issue a Certificate of
   Entitlement with each Purchase Order.
   The complete contract was not provided with the petition, and the provided portion of the
   contract does not contain a statement to the effect that the Special Provisions related to County
   Purchases are controlling to the extent there is a conflict between the Special Provisions related
   to those purchases and other parts of the Contract.
   Applicable Authority
   Sales to governmental units are exempt from sales tax pursuant to Section 212.08(6), F.S., 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

Technical Assistance Advisement
Page 3

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)
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.
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.
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 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

Technical Assistance Advisement
Page 4

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.

Technical Assistance Advisement
Page 5

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)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.
6. 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.
7. 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.
8. 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.

Technical Assistance Advisement
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_ 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.
_ 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. . . .

Technical Assistance Advisement
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(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
perform their contracts and may not accept a Certificate of Entitlement for these
articles. . . . (Emphasis Supplied)
Determination
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 . . . ." Rule 12A-1.094(2) and (3), F.A.C.,
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 contained in Rule 12A-1.094, F.A.C.
Rule 12A-1.094(4), F.A.C., 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, and to the contractors, with each purchase order. 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 of the certificate is found
in Rule 12A-1.094(4)(c), F.A.C.
To summarize, the conditions that must be met to satisfy the requirements of Rule 12A-1.094,
F.A.C., and establish that the governmental entity rather than the contractor is the purchaser of
materials, include:

Technical Assistance Advisement
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1. The governmental entity must execute the purchase orders for the tangible personal
   property involved in the contract 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;
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; and
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.
   The County’s procedures do satisfy the foregoing requirements for exemption of transactions as
   sales to a governmental entity. The County will issue its own purchase orders directly to the
   vendor of the materials, and it will issue payment for the materials directly to the vendor. The
   vendor is required to issue its invoices directly to County. The County also assumes title to the
   materials at the time they are delivered to the job site. County assumes risk of loss of county
   purchased materials, and County will issue a Certificate of Entitlement to the vendors.
   To the extent purchases were not made in accordance with the Special Provisions, those
   purchases do not qualify for exemption, and the terms of such purchases cannot be amended in
   an attempt to cause them to qualify for exemption after the fact.
   Please also note that if the original Contract contradicts the County Purchases set forth in the
   Special Provisions, and the terms of the original Contract are controlling, the County may not
   take advantage of its tax-exempt status on the purchase of materials for use in the public work.
   Finally, please note a contractor that manufactures or fabricates its own materials, as specified in
   Rule 12A-1.094(5), F.A.C., 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), F.A.C.

Technical Assistance Advisement
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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 # 158005