Which Florida machinery exemptions applied to energy-from-waste facilities, repairs, and their production process?

Plain-English summary

The Florida Department of Revenue found that these energy-from-waste operators did not qualify for two industry-code-limited manufacturing exemptions. Their NAICS code was 2211 rather than one of the codes listed in section 212.08(7)(kkk), and their SIC code was 4911 rather than one listed in section 212.08(7)(xx).

They could still use the separate exemption in section 212.08(5)(c) for qualifying machinery and equipment used to produce electrical or steam energy from permitted fuel. That exemption extended to qualifying repairs, maintenance, replacement equipment, and parts. A waste-to-energy permit did not disqualify them, and municipal versus private facility ownership did not change the statutory test.

For these facilities, the exempt production process began when solid waste reached the scale house for inspection and ended at the first step-up point or transformer before distribution. Direct sorting and grading equipment could qualify, but measurement scales that were not integral to production did not.

What this means for you

Energy-from-waste operators

Do not stop after testing a general manufacturing exemption. A facility that fails the listed NAICS or SIC codes may still qualify under the energy-production provision if its equipment, location, fuel, and use meet that section.

Maintenance and procurement teams

The energy exemption can extend beyond original construction to qualifying repairs, maintenance, replacements, and parts. The ruling required strict compliance and an affidavit to the seller.

Accountants and tax professionals

Trace each item to the integrated production process and stop at distribution. Ownership type alone did not control, and the ruling allowed the taxpayer to choose the most beneficial exemption when more than one actually applied.

Common questions

Q: Did NAICS 2211 qualify for the section 212.08(7)(kkk) exemption?
A: No.

Q: Did the waste-to-energy permit prevent the energy-production exemption?
A: No.

Q: Did qualifying repair and replacement parts fall within section 212.08(5)(c)?
A: Yes.

Citations and references

• Fla. Stat. §§ 212.08(5)(c), 212.08(7)(q), 212.08(7)(xx), 212.08(7)(kkk), and 213.22
• Fla. Admin. Code rr. 12A-1.059(2)(a) and 12A-1.096
• Jacksonville Electric Authority v. Department of Revenue, 486 So. 2d 1350 (Fla. 1st DCA 1986)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17A-006

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTIONS/ANSWERS:

1. IS TAXPAYER CONSIDERED AN “ELIGIBLE MANUFACTURING BUSINESS,” AS
   DEFINED IN S. 212.08(7)(KKK), F.S.?
   BASED ON THE INFORMATION SUBMITTED, RESEARCH CONDUCTED, AND
   DISCUSSION, TAXPAYER DOES NOT QUALIFY FOR THE EXEMPTION FROM TAX
   PROVIDED UNDER S. 212.08(7)(KKK), F.S. TO BE ELIGIBLE FOR THE EXEMPTION
   FROM TAX, THE BUSINESS’S NAICS CODE WOULD HAVE TO FALL UNDER EITHER
   NUMBER 31, 32, 33, 115114, OR 423930. TAXPAYER’S BUSINESS ACTIVITIES ARE
   IDENTIFIABLE UNDER NAICS NUMBER 2211, ELECTRIC POWER GENERATION,
   TRANSMISSION, AND DISTRIBUTION. NAICS NUMBER 2211 IS NOT A QUALIFYING
   NAICS CODE FOR THE EXEMPTION PROVIDED BY S. 212.08(7)(KKK), F.S.
2. DOES THE HOLDING OF A PERMIT AS A WASTE TO ENERGY FACILITY ISSUED
   BY THE FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION PRECLUDE
   TAXPAYER FROM QUALIFYING FOR THE EXEMPTION CONTAINED IN S.
   2L2.08(5)(C), F.S.?
   THE ELIGIBILITY FOR THE EXEMPTION FROM TAX PROVIDED UNDER S. 212.08(5)(C),
   F.S., WOULD NOT BE PRECLUDED BASED ON TAXPAYER’S HOLDING OF A PERMIT
   ISSUED BY THE FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION. FOR A
   TAXPAYER TO BE EXEMPT FROM TAX FOR MACHINERY AND EQUIPMENT USED IN
   THE PRODUCTION OF ELECTRICAL OR STEAM ENERGY, IT MUST STRICTLY
   ADHERE TO THE PROVISIONS PROVIDED IN S. 212.08(5)(C), F.S.
3. DO THE OPERATORS’ REPAIRS, MAINTENANCE, OR REPLACEMENT OF
   EQUIPMENT PREVIOUSLY EXEMPTED UNDER S. 212.08(7)(Q), F.S., QUALIFY FOR
   EXEMPTION UNDER S. 212.08(5)(C), F.S. OR S. 2L2.08(7)(XX), F.S., AS REPAIRS TO
   MACHINERY AND EQUIPMENT NECESSARY TO PRODUCE ELECTRICAL OR
   STEAM ENERGY? WHERE MORE THAN ONE EXEMPTION MAY APPLY TO
   MACHINERY AND EQUIPMENT, DOES ONE EXEMPTION CONTROL?
   THE EXEMPTION FROM TAX PROVIDED FOR MACHINERY AND EQUIPMENT UNDER
   S. 212.08(5)(C), F.S., EXTENDS TO THE REPAIR, MAINTENANCE, AND REPLACEMENT
   OF QUALIFYING MACHINERY, EQUIPMENT, AND PARTS. TAXPAYER WOULD NOT
   QUALIFY FOR THE EXEMPTION PROVIDED BY S. 212.08(7)(XX), F.S. THE EXEMPTION
   IS LIMITED TO INDUSTRIES CLASSIFIED UNDER SPECIFIED STANDARD INDUSTRY
   Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
   Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

TAA
Page 2

CLASSIFICATION (SIC) NUMBERS1. TAXPAYER’S SIC NUMBER WOULD BE 4911,
WHICH IS NOT A QUALIFYING SIC NUMBER.
REGARDING MULTIPLE TAX
EXEMPTIONS THAT TAXPAYER MAY BE ELIGIBLE FOR, TAXPAYER MAY USE ITS
DISCRETION TO CHOOSE THE EXEMPTION THAT PROVIDES THE MOST BENEFIT TO
ITS BUSINESS OPERATIONS.

4. DOES OWNERSHIP OF THE FACILITY BY A MUNICIPALITY OR TAXPAYER
   AFFECT THE APPLICABILITY OF S. 212.08(5)(C), F.S.?
   NO. THE ELIGIBILITY REQUIREMENTS FOR THE EXEMPTION FROM TAX PROVIDED
   UNDER S. 212.08(5)(C), F.S., ARE BASED ON LOCATION, TYPE, AND PURPOSE OF THE
   MACHINERY AND EQUIPMENT AND THE TYPE OF FUELS USED TO POWER THE
   MACHINERY AND EQUIPMENT. THERE ARE NO PROHIBITIONS BASED ON THE
   TYPE OF BUSINESS OWNERSHIP OF THE FACILITY (I.E., PUBLIC OR PRIVATE).
   ACCORDINGLY, ANY BUSINESSES SEEKING AN EXEMPTION FROM TAX UNDER S.
   212.08(5)(C), F.S., MUST COMPLY ONLY WITH THE REQUIREMENTS SET FORTH BY
   THE EXEMPTION STATUTE AND APPLICABLE RULE 12A-1.059(2)(A), F.A.C.
5. WHERE DOES THE MANUFACTURING PROCESS BEGIN AND END FOR THE
   PURPOSES OF THE EXEMPTION PROVIDED WITHIN S. 212.08(5)(C)?
   IN GENERAL, FOR THE EXEMPTION PROVIDED UNDER S. 212.08(5)(C), F.S., THE
   MANUFACTURING PROCESS BEGINS AT THE POINT WHERE THE FUEL SOURCE IS
   RECEIVED BY THE FACILITY. IN THIS PARTICULAR INSTANCE, IT IS WHEN THE
   SOLID WASTE IS DELIVERED TO THE SCALE HOUSE FOR INSPECTION. MACHINERY
   AND EQUIPMENT USED TO DIRECTLY SORT AND GRADE MATERIALS TO BE USED
   AS FUELS TO GENERATE ELECTRICAL ENERGY WOULD BE EXEMPT FROM TAX.
   HOWEVER, THE SCALES USED TO MEASURE THE AMOUNTS OF MATERIALS
   RECEIVED AND THAT ARE NOT INTEGRAL TO THE MANUFACTURING PROCESS
   WOULD NOT QUALIFY FOR THE EXEMPTION FROM TAX PROVIDED AND ARE
   SUBJECT TO TAX. THE MANUFACTURING PROCESS ENDS AT THE POINT WHERE
   THE ELECTRICITY IS PREPARED AT THE FIRST STEP-UP POINT/TRANSFORMER AT
   THE PRODUCTION FACILITY LOCATION, WHICH IS PRIOR TO DISTRIBUTION TO
   CUSTOMERS.
   February 9, 2017
   Re:

1

Technical Assistance Advisement
XXXX (“Taxpayer”)
Florida Sales and Use Tax
Exemption For Machinery and Equipment
Sections 212.05, 212.055, 212.08(5)(c), (7)(q), (xx), (kkk), Florida Statute (F.S.)
Rules Rule 12A-1.059(2)(a), 12A-1.096, Florida Administrative Code (F.A.C.)
BP#: XXXX

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. See s. 212.08(7)(xx)2., F.S.

TAA
Page 3

Dear XXXX:
This letter is in response to your request dated September 29, 20162, and received in this office on
November 20, 2016, for issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section
213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the taxability of machinery and equipment. An
examination of your request has established you complied with the statutory and regulatory requirements
for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
FACTS PRESENTED
Taxpayer indirectly owns the following six (6) businesses (collectively “Operators”) which operate,
manage and maintain Energy from Waste (“EfW”) facilities on behalf of municipalities located in Florida:

1. XXXX
2. XXXX
3. XXXX
4. XXXX
5. XXXX
6. XXXX
   With the exception of one facility, which is owned by Taxpayer, each of the listed facilities is owned by
   the municipality in which it is located. The Operators have contracted with the municipality owners to
   operate, maintain, manage, and guarantee the performance of each facility. The primary purpose of each
   facility is to use the heat generated from the burning of solid waste to convert water into steam energy.
   The steam energy is used to generate electricity, which is then sold to local utilities under a Power
   Production Agreement between the utilities and the municipality. The revenue generated from the sale of
   electricity is shared by the Operators and the owners of each facility.
   The contracts require that the Operators operate, manage, and maintain the facility in a manner consistent
   with the standards applicable to solid waste handling and electric generating industries. Each of the
   facilities meets the requirements to be treated as “Qualifying Facilities,” as defined in the Public Utility
   Regulatory Policies Act of 1978. Each of the EfW Operators holds a permit issued by the Florida
   Department of Environmental Protection to operate each facility as a waste to energy facility (Class Type
   820).
   Production of Electrical or Steam Energy Process
   The process of producing energy from waste begins when the waste arrives at the Operator’s location.
   Upon entering the Operator’s facility, the waste is weighed at the scale house and inspected for any
   unacceptable material (as defined by permit; for example, hazardous or radioactive materials). The waste
   then proceeds to the “tipping floor,” where it is dumped and sorted. At one end of the tipping floor is a
   “refuse holding pit.” Various equipment moves/sorts the waste before ultimately depositing the waste into
   the “refuse holding pit.” The waste is picked up by overhead crane and deposited into a “feed chute,”
   which moves die waste into the combustion chamber, where it is burned.
   2

A revised TAA request was submitted and received on November 21, 2016, containing minor additions to the original request.

TAA
Page 4

The heat from combustion converts water into steam energy, which is then used to drive turbines
generating the electricity. The electricity is then distributed to the power grid via transformers and
transmission equipment. The residual ash produced from the combustion of waste is moved out of the
combustion chamber for further processing and/or disposal, to increase the efficiency of the combustion
chamber. Pollutants are removed from the air to meet or exceed specifications mandated by the
Department of Environmental Protection via certified pollution control equipment.
Energy Production Equipment
In performing their duties under the contracts, the Operators are required to purchase, lease, repair, and
maintain machinery and equipment necessary for the production of electrical or steam energy, including
equipment directly related to the production of electrical or steam energy (e.g., boilers, turbines, cooling
systems, water filtration equipment, etc.) and equipment required by federal and state law (e.g.,
continuous emissions monitoring systems [“CEMS”] equipment, pollution control equipment, etc.).
Resource Recovery Equipment
One or more of the Operators had previously purchased tax exempt machinery and equipment qualifying
as resource recovery equipment pursuant to s. 212.08(7)(q), F.S. The equipment was certified as resource
recovery equipment pursuant to Rule Chapter 62-704, F.A.C. The Operators from time to time will repair,
maintain, or replace such equipment. Resources recovered from the operation of each of the EfW facilities
are ultimately sold to third parties. These resources include, but are not limited to, the recovery of both
ferrous and non-ferrous metals and ash that is produced when the solid waste is burned.
APPLICABLE LAW
Unless a specific exemption applies, s. 212.05, F.S., provides it is the legislative intent that every person is
exercising a taxable privilege that engages in the business of selling or repairing tangible personal
property3 in this state. For exercising such a privilege, a tax is levied on each taxable transaction or
incident. The tax is due and payable at the rate of 6 percent, plus any applicable surtaxes imposed under s.
212.055, F.S., on the total consideration received for each item or article of tangible personal property
when sold at retail or repaired in this state. Exemptions from tax are strictly construed against the
claimant. Wanda Marine Corp. v. Dep’t of Revenue, 305 So. 2d 65, 69 (Fla. 1st DCA 1975).
Certain Machinery and Equipment
Pursuant to s. 212.08(7)(kkk), F.S., eligible manufacturing businesses may purchase industrial machinery
and equipment4 tax exempt, if the machinery and equipment is used at a fixed location in this state for the
manufacture, processing, compounding, or production of items of tangible personal property for sale.

3

Tangible personal property means and includes personal property which may be seen, weighed, measured, or touched or is in
any manner perceptible to the senses. See s. 212.02(19), F.S.
4
“Industrial machinery and equipment,” in part, means tangible personal property or other property that has a depreciable life
of 3 years or more and that is used as an integral part in the manufacturing, processing, compounding, or production of tangible
personal property for sale. See 212.08(7)(kkk)2.c., F.S.

TAA
Page 5

Also, based on this statute, an “eligible manufacturing business" means any business whose primary
business activity at the location where the industrial machinery and equipment is located is within the
industries classified under NAICS5 codes 31, 32, 33, 423930, and 115114. Primary business activity
means an activity representing more than 50 percent of the activities conducted at the location where the
industrial machinery and equipment is located.
Machinery and Equipment used in Production of Electrical or Steam Energy
Section 212.08(5)(c), F.S., provides that the purchase of machinery and equipment for use at a fixed
location in which the machinery and equipment are necessary in the production of electrical or steam
energy resulting from the burning of fuels other than residual oil is exempt from Florida sales and use the
tax. Such electrical or steam energy must be primarily for use in manufacturing, processing,
compounding, or producing for sale items of tangible personal property in Florida. Additionally, the
exemption provided by s. 212.08(5)(c), F.S., is not limited to the original machinery and equipment used
in the construction of an electrical or steam generation facility. The exemption also extends to repairs,
maintenance, and replacement of such machinery, equipment, and parts thereof.
To secure the above referenced exemption from tax, the statute requires an eligible business provide the
selling dealer an affidavit attesting to its entitlement for the expressed exemption. The statute further
requires that the affidavit state that the item(s) purchased are exempt for the use designated within the
exemption statute. Accordingly, it is the Department’s position an affidavit should include the language
provided on the suggested affidavit attached to this advisement, inclusive of a fixed location.
The scope of s. 212.08(5)(c), F.S., as determined in the JEA/FPL Declaratory Statement was reviewed by
the First District Court of Appeal of Florida in Jacksonville Electric Authority v. Department of Revenue,
486 So. 2d 1350 (Fla. 1st DCA 1986). That case involved the taxable status of certain machinery and
equipment purchased by the Jacksonville Electric Authority to be used in the burning of coal to produce
electrical energy.
The District Court of Appeal determined that it was the legislative intent, based on the tape recorded
proceedings of the Florida Senate Committee on Ways and Means, to embrace the “integrated plant
theory” as a basis for interpreting the exemption for machinery and equipment provided in s. 212.08(5)(c),
F.S. Under the “integrated plant theory,” machinery and equipment used in the process of generating
electrical energy, regardless of the fact that such machinery and equipment was not intrinsically necessary
to generate electrical energy or the sole purpose of such machinery and equipment was to make the plant
function more practically, would be considered a component part of the manufacturing process. Therefore,
the machinery and equipment used in the process of generating electrical energy, but not distribution,
would qualify for the exemption provided in s. 212.08(5)(c), F.S.

“NAICS” means those classifications contained in the North American Industry Classification System, as published in 2007
by the Office of Management and Budget, Executive Office of the President.
5

TAA
Page 6

Resource Recovery Equipment
Section 212.08(7)(q), F.S., provides an exemption from tax for resource recovery equipment which is
owned and operated by or on behalf of any county or municipality, certified by the Department of
Environmental Protection under the provisions of s. 403.715.
REQUESTED ADVISEMENTS

6. Is Taxpayer considered an “eligible manufacturing business,” as defined in s. 212.08(7)(kkk),
   F.S.?
   Based on the information submitted, research conducted, and discussion, Taxpayer does not
   qualify for the exemption from tax provided under s. 212.08(7)(kkk), F.S. To be eligible for the
   exemption from tax, the business’s NAICS code would have to fall under either number 31, 32, 33,
   115114, or 423930. Taxpayer’s business activities are identifiable under NAICS number 2211,
   Electric Power Generation, Transmission, and Distribution. NAICS number 2211 is not a
   qualifying NAICS code for the exemption provided by s. 212.08(7)(kkk), F.S.
7. Does the holding of a permit as a waste to energy facility issued by the Florida Department of
   Environmental Protection preclude Taxpayer from qualifying for the exemption contained in
   s. 2l2.08(5)(c), F.S.?
   The eligibility for the exemption from tax provided under s. 212.08(5)(c), F.S., would not be
   precluded based on Taxpayer’s holding of a permit issued by the Florida Department of
   Environmental Protection. For a taxpayer to be exempt from tax for machinery and equipment
   used in the production of electrical or steam energy, it must strictly adhere to the provisions
   provided in s. 212.08(5)(c), F.S.
8. Do the Operators’ repairs, maintenance, or replacement of equipment previously exempted
   under s. 212.08(7)(q), F.S., qualify for exemption under s. 212.08(5)(c), F.S. or s.
   2l2.08(7)(xx), F.S., as repairs to machinery and equipment necessary to produce electrical or
   steam energy? Where more than one exemption may apply to machinery and equipment,
   does one exemption control?
   The exemption from tax provided for machinery and equipment under s. 212.08(5)(c), F.S.,
   extends to the repair, maintenance, and replacement of qualifying machinery, equipment, and
   parts. Taxpayer would not qualify for the exemption provided by s. 212.08(7)(xx), F.S. The
   exemption is limited to industries classified under specified Standard Industry Classification (SIC)
   numbers6. Taxpayer’s SIC number would be 4911, which is not a qualifying SIC number.
   Regarding multiple tax exemptions that Taxpayer maybe eligible for, Taxpayer may use its
   discretion to choose the exemption that provides the most benefit to its business operations.

6

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. See s. 212.08(7)(xx)2., F.S.

TAA
Page 7

9. Does ownership of the facility by a municipality or Taxpayer affect the applicability of s.
   212.08(5)(c), F.S.?
   No. The eligibility requirements for the exemption from tax provided under s. 212.08(5)(c), F.S.,
   are based on location, type, and purpose of the machinery and equipment and the type of fuels used
   to power the machinery and equipment. There are no prohibitions based on the type of business
   ownership of the facility; i.e., public or private. Accordingly, any businesses seeking an
   exemption from tax under s. 212.08(5)(c), F.S., must comply only with the requirements set forth
   by the exemption statute and applicable Rule 12A-1.059(2)(a), F.A.C.
10. Where does the manufacturing process begin and end for the purposes of the exemption
    provided within s. 212.08(5)(c)?
    In general, for the exemption provided under s. 212.08(5)(c), F.S., the manufacturing process
    begins at the point where the fuel source is received by the facility. In this particular instance, it is
    when the solid waste is delivered to the scale house for inspection. Machinery and equipment used
    to directly sort and grade materials to be used as fuels to generate electrical energy would be
    exempt from tax. However, the scales used to measure the amounts of materials received and that
    are not integral to the manufacturing process would not qualify for the exemption from tax
    provided and are subject to tax. The manufacturing process ends at the point where the electricity
    is prepared at the first step-up point/transformer at the production facility location, which is prior
    to distribution to customers.
    For more information concerning all of the taxes administered by the Department of Revenue, please refer
    to the Department’s Internet site at:
    www.floridarevenue.com
    This response constitutes a Technical Assistance Advisement under s. 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 s. 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 and 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 s.
    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.

TAA
Page 8

Kind Regards,

Alan R. Fulton
Tax Law Specialist
Technical Assistance & Dispute Resolution
850-717-6735
CC:

XXXX
XXXX
XXXX
XXXX
XXXX

ARF\tadrstaff
Record ID: 211966