Did a public airport owner's proposed direct-purchase procedure qualify building materials for Florida's governmental exemption?

Plain-English summary

The Florida Department of Revenue approved a public airport owner's proposed procedure for buying public-works building materials without sales tax.

The special district would issue its own purchase orders directly to suppliers, receive invoices in its own name, pay suppliers directly, and provide its exemption certificate and Certificate of Entitlement. It would take title and assume liability for loss or damage when the materials reached the jobsite.

The contractor could coordinate orders, verify delivery, safeguard materials, and obtain insurance, but the public owner remained entitled to insurance proceeds for loss. Those terms supported treating the district, not the contractor, as the purchaser.

What this means for you

Government project owners

Direct ordering, direct payment, title, risk of loss, and entitlement documentation all matter to the exemption.

Contractors and suppliers

The contractor may administer logistics, but the governmental entity must remain the actual purchaser.

Common questions

Q: Did the proposed procedure qualify?
A: Yes, based on the draft terms and facts supplied.

Q: Who paid the suppliers?
A: The public owner directly.

Q: Did contractor-provided insurance shift the risk away from the owner?
A: No; the owner retained risk and the right to attributable insurance proceeds.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-026

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: WHETHER, BASED ON THE TERMS OF THE DRAFT AGREEMENT AND THE
FACTS PROVIDED WITH THE TAXPAYER’S REQUEST, THE PROPOSED OWNER DIRECT
PURCHASE PROCEDURES ALLOW FOR THE EXEMPT PURCHASE OF BUILDING MATERIALS
PURSUANT TO S. 212.08(6), F.S.
ANSWER: BASED ON THE TERMS OF THE DRAFT AGREEMENT AND THE FACTS
PROVIDED WITH THE TAXPAYER’S REQUEST, THE PROPOSED OWNER DIRECT PURCHASE
PROCEDURES ALLOW FOR THE EXEMPT PURCHASE OF BUILDING MATERIALS PURSUANT
TO S. 212.08(6), F.S. THE TAXPAYER WILL ISSUE ITS OWN PURCHASE ORDERS DIRECTLY
TO THE SUPPLIERS, WHO WILL DIRECTLY INVOICE THE TAXPAYER. THE TAXPAYER
WILL ISSUE A CHECK FOR THE MATERIALS DIRECTLY TO THE SUPPLIER, ACCOMPANIED
BY A CERTIFICATE OF ENTITLEMENT. THE TAXPAYER ASSUMES LIABILITY FOR THE
MATERIALS UPON DELIVERY TO THE JOBSITE AND WILL ACQUIRE TITLE TO THE
MATERIALS. WHILE THE CONTRACTOR WILL ACT AS INTERMEDIARY, ENSURING THAT
THE CORRECT MATERIALS HAVE BEEN DELIVERED TO THE JOB SITE AND
INCORPORATED INTO THE PROJECT, THE ASSUMPTION OF RISK DOES NOT CHANGE AND
CONTINUES TO REST WITH THE TAXPAYER. THE CONTRACTOR IS REQUIRED TO
PURCHASE INSURANCE WHICH COVERS THE COST OF THE BUILDING MATERIALS. THE
TAXPAYER “SHALL BE SOLELY ENTITLED TO THE PROCEEDS PAID AND ATTRIBUTABLE
TO DAMAGE OR LOSS” UNDER THE TERMS OF THE INSURANCE POLICIES PURCHASED BY
THE CONTRACTOR.
October 20, 2014
Re:

Subject: Technical Assistance Advisement (TAA) 14A-026
Sales and Use Tax – Public Works Contract
Section 212.08, Florida Statutes (F.S.)
Rules 12A-1.038, 12A-1.051, and 12A-1.094, Florida Administrative Code (F.A.C.)
XXXX (“Taxpayer”)
FEI # XXXX

Dear XXXX:
This is in response to your letter dated August 20, 2014, 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 the above referenced party and matter. 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.

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Howard Moyes, Interim Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement
Page 2 of 8
Facts
The request for a TAA provides the following in part:
[The Taxpayer] is an independent special district of the State of Florida operating under Chapter
2012-234, Laws of Florida . . . . The [Taxpayer], which owns and operates all publicly owned
aviation facilities within XXXX County, is preparing to make necessary and substantial
renovations and additions to the parking garage at XXXX (“Airport”), located in XXXX County,
Florida. The parking garage is a feature of the Airport’s terminal and is wholly owned and
operated by the [Taxpayer].
The precise nature and scope of the projects have been published in the Airport’s Master Plan.
[Contractor has] been selected and Design contracts have commenced. . . . The [Contractor] will
perform all obligations listed in their respective contracts, and the relationship between the
[Taxpayer] and the [Contractor] will be governed by contractual agreements (“Agreements”),
which are currently in draft form. The projects will increase the capacity and improve the safety of
airport operations. As such, the project is in the nature of a public works contract.

The Taxpayer provides that it has drafted Agreements (“Draft Agreement”) in accordance with Section
212.08, F.S., and Rule 12A-1.094, F.A.C., in order to take advantage of its tax exempt status. The
Taxpayer submits the following language as provided in “Article XXXX” of the Draft Agreement, entitled
“Owner Direct Purchase”:
xx. The [Taxpayer] reserves the right, at the[Taxpayer’s] option, to direct purchase materials,
equipment, supplies and furnishings involved in the Project, so as to save sales tax which would
otherwise have been due with regard to the purchase of the materials, equipment, supplies and
furnishings. Pursuant to Section 212.08 Fla. Stat. and Rules 12A-1.094 and 12A-1.038 Fla.
Admin. Code, the [Taxpayer] and [Contractor] agree to the following procedure regarding the
[Taxpayer’s] direct purchase from suppliers, vendors and materialmen of certain material,
equipment, supplies and furnishings to be used in the Project:
xx. 1.1 The [Contractor] shall provide the [Taxpayer] a list of all materials, equipment, supplies
and furnishings required for the project and the proposed suppliers, vendors and materialmen for
those materials, equipment, supplies and furnishings as well as the date upon which those
materials, equipment, supplies and furnishings are required to be delivered to the site, a description
of the materials, estimated quantities and prices. . . .
xx. 1.2 The [Taxpayer] shall determine the materials, equipment, supplies and furnishings it
will direct purchase and provide that information to the [Contactor] no later than __ .
xx. 1.3 In order to not delay the project, the [Contractor] shall submit to the [Taxpayer] . . . a
Purchase Order Requisition Form indicating the proposed supplier, vendor or materialman for the
materials, equipment, supplies and furnishings, the description of the materials, equipment,
supplies and furnishings and the price, quantity, delivery terms, delivery location, warranties and

Technical Assistance Advisement
Page 3 of 8
guarantees. Prior to the delivery of the Purchase Order Requisition Forum, the Contractor must
enter into a contractual relationship with the supplier, vendor or materialman that includes the
materials, equipment, supplies and furnishings to be direct purchased and incorporates these terms.
All purchase orders made by the [Taxpayer] that direct purchase materials, equipment supplies or
furnishings shall be subject to the [Taxpayer’s] standard PO terms and conditions which are made
a part hereof.
xx. 1.4 . . . [Taxpayer] shall prepare its Purchase Order for materials, equipment, supplies and
furnishings specified by the [Contractor] which the [Taxpayer] chooses to purchase directly.
The [Taxpayer] will deliver the Purchase Order to the [Contractor] and . . . [Contractor] shall
verify the terms and conditions of the Purchase Order . . . . After such verification by the
[Contractor], the [Taxpayer] shall issue the Purchase Order to the supplier, vendor or materialman.
. . . The Purchase Order shall also require that the supplier, vendor or materialman invoice the
[Taxpayer] directly for the purchase price of the [Taxpayer] Direct Purchased materials,
equipment, supplies and furnishings. . . . The [Taxpayer’s] Purchase Orders shall contain or be
accompanied by the [Taxpayer’s] exemption certificate and must include the [Taxpayer’s] name,
address, and exemption number with issue and expiration date shown. The [Taxpayer] shall issue
each supplier, vendor or materialman a Certificate of Entitlement on the Certificate of Entitlement
Form attached hereto with each Purchase Order.
xx. 1.5 [Contractor] shall be fully responsible for all matters relating to the receipt of
materials, equipment, supplies and furnishings, including, but not limited to, . . . providing and
obtaining all warranties and guarantees in favor of and for the benefit of the [Taxpayer] . . . . At
the time of, and subsequent to, the delivery of such materials, equipment, supplies and furnishings,
the [Taxpayer] shall be liable for all loss or damage to materials, equipment, supplies and
furnishings purchased pursuant to the Purchase Order. . . . Notwithstanding the foregoing, the
[Taxpayer] shall be responsible for payment of the invoices issued by the supplier, vendor or
materialman . . . .
xx. 1.6 Upon receipt of the materials, equipment, supplies and furnishings, the [Contractor]
shall verify in writing to the [Taxpayer] that the materials, equipment, supplies and furnishings
were received and agree to approve the invoice for payment. The invoice shall be thereupon
furnished to the [Taxpayer] for processing and payment in the manner as all other [Taxpayer]
invoices are processed. . . .
xx. 1.7 The [Contractor] shall be responsible for obtaining and managing all warranties and
guarantees in favor of and for the benefit of the [Taxpayer] for all materials, equipment, supplies
and furnishings as required by the Contract. . . .
xx. 1.8 The transfer of possession of [Taxpayer] Direct Purchased materials, equipment, supplies
and furnishings from the [Taxpayer] to the [Contractor] shall constitute a bailment for mutual
benefit of the [Taxpayer] and the [Contractor]. The [Taxpayer] shall be considered the bailor and
the [Contractor] the bailee of the [Taxpayer] Direct Purchased materials, equipment, supplies and
furnishings. [Taxpayer] Direct Purchased materials, equipment, supplies and furnishings shall be

Technical Assistance Advisement
Page 4 of 8
considered returned to the [Taxpayer] for purposes of its bailment at such time as they are
incorporated into the Project or consumed in the process of completing the Project. Bailee shall
have the duty to safeguard, store and protect all [Taxpayer] Direct Purchased materials, equipment,
supplies and furnishings.
xx. 1.9 The [Contractor] shall maintain insurance in favor of and for the benefit of the
[Taxpayer] pursuant to the Contract requirements which shall be sufficient to protect against any
loss of or damage to [Taxpayer] Direct Purchased materials, equipment, supplies and furnishings.
Such insurance shall cover the full value of any [Taxpayer] Direct Purchased materials, equipment,
supplies and furnishings not yet incorporated into the Project from the time the [Taxpayer] first
takes title which shall be at the time of delivery and acceptance of the materials, equipment,
supplies and furnishings by the [Contractor] as provided in above.
xx. 1.10 . . . [The Contractor] shall provide to the [Taxpayer], a list indicating the acceptance of the
materials, equipment, supplies and furnishings in accordance with the established monthly
Payment Request Schedule. The list shall include a copy of the applicable Purchase Order,
invoices, delivery tickets, written acceptance of the delivered items, and such other documentation
as may be reasonably required by the [Taxpayer]. Upon receipt and verification of the appropriate
documentation, the [Taxpayer] shall prepare a payment to the supplier, vendor or materialman
based upon the receipt of data provided. This payment will be released, delivered and remitted
directly to the supplier, vendor or materialman by the [Taxpayer]. . . .
xx.1.11 From the time of delivery and acceptance, the [Taxpayer] shall have and retain title to
any and all [Taxpayer] Direct Purchased materials, equipment, supplies and furnishings.
xx.1.12 Risk of Loss
xx.1.12.1 Notwithstanding any provision in this Agreement to the contrary, except with respect to
tangible personal property purchased by the [Taxpayer] for the purpose of receiving a tax
exemption under Section 212.08(6), Fla. Stat., if any, the risk of loss shall remain with the
[Contractor] until Final Completion.
xx.1.12.2 The [Taxpayer] shall retain the risk of loss of and damage to [Taxpayer] furnished
materials, equipment, supplies and furnishings for the purpose of receiving a tax exemption under
Section 212.08(6), Fla. Stat., which meets the criteria in Rule 12A 1.094(4)(b)(l-4), Fla. Admin.
Code, to determine if the [Taxpayer] is the purchaser for the purposes of the tax exemption under
Section 212.08(6), Fla. Stat.
xx.1.12.3 The [Taxpayer] shall be solely entitled to the proceeds paid and attributable to damage or
loss to [Taxpayer] furnished materials, equipment, supplies and furnishings under the
Property/Builders Risk policies.

It is important to note that the complete Draft Agreement was not provided with the Taxpayer’s request
for a TAA. Further, the provided drafted language does not contain a statement to the effect that the
“Owner Direct Purchase” provisions are controlling to the extent there is a conflict between the “Owner
Direct Purchase” provisions and other parts of the Agreements.

Technical Assistance Advisement
Page 5 of 8
Requested Advisement
The Taxpayer requests that the Department issue a TAA that confirms the following:
The direct purchase procedures listed in the [D]raft Agreement satisfy the conditions of
Section 212.08(6), Florida Statutes, and Rule 12A-1.094, Florida Administrative Code.
Therefore, the [Taxpayer’s] compliance with the procedures listed in the draft Agreement
constitute compliance with the requirements for the sales tax exemption authorized under Section
212.08(6)[, F.S.] and Rule 12A-1.094[, F.A.C]. As such, any materials purchased by the
[Taxpayer] under the [D]raft Agreement qualify for tax-exempt status.
Applicable Authority and Discussion
Section 212.08(6), F.S., provides that sales to political subdivisions of Florida are exempt from sales tax.
Rule 12A-1.038(4), F.A.C., contains guidelines for claiming and documenting the exemption. Rule 12A1.038(4)(b), F.A.C., states that in order for a sale to a political subdivision 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. . . .” Political subdivisions 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.
The cited exemption exempts only direct purchases by governmental entities. The exemption does not
apply when a contractor, employed by a political subdivision, 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 this case, are
contained in Rule 12A-1.094, F.A.C.
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 a political subdivision, however, the transaction is exempt. For there to
be an exempt transaction, the political subdivision 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, 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 political
subdivision 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 political subdivision 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 political subdivision should purchase, or be the insured party under,
insurance on the building materials.

Technical Assistance Advisement
Page 6 of 8
To establish that the political subdivision 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 political
subdivision’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 political subdivision’s acknowledgement that it is responsible for tax, penalty, and interest on
material purchases that do not meet the exemption criteria. By statute, the political subdivision 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), 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 political subdivision rather than the contractor is the purchaser of materials, include:

1. The political subdivision must execute the purchase orders for the tangible personal property involved
   in the contract directly to the materials vendors. The contractor may present the political subdivision's
   purchase orders to the vendors of the tangible personal property;
2. The political subdivision 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 political subdivision for supplies;
4. The political subdivision must directly pay the vendors for the tangible personal property; and
5. The political subdivision must assume all risk of loss or damage for the tangible personal property
   involved in the contract, as indicated by the political subdivision’s acquisition of, or inclusion as the
   insured party under, insurance on the building materials.
6. The political subdivision 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
   political subdivision 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.
   Review of the Department’s data base confirms that the Taxpayer is registered with the Department for
   purposes of obtaining a Consumer’s Certificate of Exemption as a tax exempt political subdivision. Based
   on the terms of the Draft Agreement and the facts provided with the Taxpayer’s request, the proposed
   Owner Direct Purchase Procedures allow for the exempt purchase of building materials pursuant to s.
   212.08(6), F.S. The Taxpayer will issue its own purchase orders directly to the suppliers, who will
   directly invoice the Taxpayer. The Taxpayer will issue a check for the materials directly to the supplier,
   accompanied by a Certificate of Entitlement. The Taxpayer assumes liability for the materials upon
   delivery to the jobsite and will acquire title to the materials. While the [Contractor] will act as
   intermediary, ensuring that the correct materials have been delivered to the job site and incorporated into
   the project, the assumption of risk does not change and continues to rest with the Taxpayer. The
   [Contractor] is required to purchase insurance which covers the cost of the building materials. The
   Taxpayer “shall be solely entitled to the proceeds paid and attributable to damage or loss” under the terms
   of the insurance policies purchased by the [Contractor].

Technical Assistance Advisement
Page 7 of 8
Conclusion
The Draft Agreement’s Owner Direct Purchase Procedures meet the requirements of the Rule 12A-1.094,
F.A.C. The direct purchase of materials by the Taxpayer under the Draft Agreement “qualify for tax
exempt status.” The Draft Agreement provides that the Taxpayer will issue its own purchase orders
directly to the suppliers, accompanied by the Taxpayer’s Consumer’s Certificate of Exemption. The
suppliers will directly invoice the Taxpayer. The Taxpayer will issue payment for the materials directly to
the supplier, accompanied by a Certificate of Entitlement. The Taxpayer will assume liability for the
materials upon delivery and will acquire title to the materials upon delivery. The Taxpayer will be the
insured party under the insurance on the building materials required by the terms of the Draft Agreement.
Since only draft language for future anticipated Agreements was provided for review, this conclusion is
based on language and facts provided with the Taxpayer’s request for a TAA, and it presumes that no
other sections of the of the Final Agreements will compromise the Owner Direct Purchase Procedures of
the Draft Agreement. To the extent purchases are not made in accordance with the Owner Direct
Purchase Procedures, those purchases will not qualify for exemption. Please note that if the Final
Agreements contradict the terms set forth in the Owner Direct Purchase Procedures, and the terms of the
Final Agreements are controlling, the Taxpayer may not take advantage of its tax-exempt status on the
purchase of materials for use in the public work.
Further, this response does not apply to a contractor or subcontractor that manufactures, fabricates, or
furnishes tangible personal property that it will incorporate into a public work as specified in Rule 12A1.094(5), F.A.C. Under the rule, the contractor and subcontractors, not the Taxpayer, are deemed to be the
ultimate consumers of the articles of tangible personal property they manufacture, fabricate, or furnish to
perform their contracts. As such, the contractor and subcontractors are liable for the sales tax on the full
cost of the manufactured, fabricated or furnished articles of tangible personal property, as detailed in Rule
12A-1.051(10), F.A.C. Such contractors cannot accept a certificate of entitlement for such materials.
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.

Technical Assistance Advisement
Page 8 of 8

Your response should be received by the Department within 15 days of the date of this letter.
Sincerely,

Brinton Hevey
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/717-6839
Record ID: 176168