Could a government owner buy public-works materials directly from suppliers without Florida sales tax under its proposed contract?

Plain-English summary

The Florida Department of Revenue approved a governmental entity's proposed owner-direct-purchase procedure for materials used in a public-works project.

The government owner—not its contractor—would issue purchase orders, receive invoices, pay suppliers directly from public funds, take title when materials were delivered to the jobsite, and bear the risk of loss. It would also provide each supplier its Consumer's Certificate of Exemption and Certificate of Entitlement.

Because the amended contract satisfied those conditions, the direct material purchases qualified for the governmental exemption. The ruling warned that contradictory contract terms or conduct could defeat the exemption, and contractor-fabricated materials could not enter the direct-purchase program.

What this means for you

Government project owners

Substance controls. Keep the owner as the actual purchaser at every step—order, invoice, payment, title, insurance risk, and exemption documentation.

Contractors and suppliers

Do not invoice or receive payment from the contractor for an owner-direct purchase. Contractor-manufactured or fabricated items are outside the procedure described here.

Common questions

Q: What five purchase factors did the ruling emphasize?
A: Direct purchase order, direct invoice, direct payment, passage of title to the government, and government assumption of risk of loss.

Q: What certificates were required?
A: The government's Consumer's Certificate of Exemption and a Certificate of Entitlement for each supplier and purchase order.

Q: Could the contractor supply its own fabricated materials tax-free through this program?
A: No. The ruling says contractor-manufactured or fabricated materials do not qualify for inclusion.

Q: Could actual conduct override the contract language?
A: Yes. If the parties' actions contradicted the direct-purchase procedure, the exemption could be lost.

Citations and references

• Fla. Stat. §§ 212.08(6) and 213.22
• Fla. Admin. Code r. 12A-1.094

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17A-023

Original ruling text

December 15, 2017

Executive
Director
Leon Biegalski

TAX: Sales and Use Tax
TAA NUMBER: 17A-023
ISSUE: Public Works Contract
STATUTE CITE(S): Section(s) 212.08(6), F.S.
RULE CITE(S): Rule 12A-1.094, F.A.C.
QUESTION: Will Taxpayer’s contract satisfy the criteria for Rule 12A-1.094(4), F.A.C.?
ANSWER: Yes, Taxpayer meets all Rule requirements.

XXXXXX
XXXXXX
XXXXXX
XXXXXX
Subject: Technical Assistance Advisement (“TAA”)
TAA 17A-023
Sales and Use Tax-Public works
Section(s) 212.08(6), Florida Statutes (“F.S.”)
Rule(s) 12A-1.094, Florida Administrative Code (“F.A.C.”)
XXXXXXX (“Taxpayer”)(“Owner”)(“Petitioner”)
Business Partner Number: XXXX
FEIN: XXXXXXXX
Exemption Certificate Number: XXXXXXXXXXX
Dear XXXXXX:
This letter is a response to your petition dated October 24, 2017, for the Department’s issuance
of a Technical Assistance Advisement (“TAA”) to Petitioner, regarding public works project
requirements. Your petition has been carefully examined, and the Department finds it to be in
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

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Technical Assistance Advisement
compliance with the requisite criteria set forth in Rule Chapter 12-11, F.A.C. 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 proposed contract provisions will enable Taxpayer to directly purchase materials from
suppliers without sales tax when the materials are used in a public works contract?

Facts
Taxpayer will be purchasing materials, supplies, and equipment directly from suppliers for use in
a project at XXXXXXXXXX, which is a department of Taxpayer. The project is a “public
work” for purposes of Rule 12A-1.094(1)(b), F.A.C. The project is for an expansion and
upgrade to existing structures at XXXXXX to handle an increased number XXXXXXX. The
completion of the project will allow XXXXXXXXXXX.
The owner direct purchase procedure will be used exclusively for supplies, goods, equipment,
appliances, and other materials from third party suppliers, and not from contractors, or
subcontractors, providing construction services for the project. The proposed contract language
for the owner direct purchase procedure has been provided.
The proposed contract language requires Taxpayer to issue a direct purchase order to the vendors
and suppliers from whom Taxpayer will make direct purchases. Taxpayer will obtain title upon
delivery of the items to the job site location designated by Taxpayer. The items will be approved
for acceptance by Taxpayer or Taxpayer’s agents prior to installation. Taxpayer will assume risk
of loss for the items delivered, and Taxpayer will be required to be the insured party for these
items.
The proposed contracts provide an invoice requirement that Taxpayer’s purchase orders shall
provide that that the suppliers shall invoice Taxpayer directly for the items purchased and not
invoice the contractor. Taxpayer will immediately provide the contractor with copies of the
invoices Taxpayer receives. Taxpayer will make payment directly to the vendor and not to the
contractor. Taxpayer will issue the Consumer’s Certificate of Exemption and Certificate of
Entitlement to each vendor and supplier.
Applicable Law
Sales to governmental units are exempt from sales tax, pursuant to Section 212.08(6), F.S., which
states, 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. This exemption shall not inure to any transaction otherwise
taxable under this chapter when payment is made by a government employee by

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Technical Assistance Advisement
any means, including, but not limited to, cash, check, or credit card when that
employee is subsequently reimbursed 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 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.
(c) The department shall adopt rules for determining whether a particular
transaction is properly characterized as an exempt sale to a governmental entity or a
taxable sale to a contractor which give special consideration to factors that govern
the status of the tangible personal property before being affixed to real property. In
developing such rules, assumption of the risk of damage or loss is of paramount
consideration in the determination. The department shall also adopt, by rule, a
certificate of entitlement to exemption for use as provided in paragraph (b). The
certificate shall require the governmental entity to affirm that it will comply with
the requirements of this subsection and the rules adopted under paragraph (b) in
order to qualify for the exemption and that it acknowledges its liability for any tax,
penalty, or interest later determined by the department to be owed on such
transactions.
Rule 12A-1.094, F.A.C., provides the guidelines for purchasing materials tax-exempt for a
public works contract. Rule 12A-1.094, F.A.C., states, in relevant part:

(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

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Technical Assistance Advisement
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 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.

If the contract or actions of the parties contradict the owner direct purchases procedures set forth,
Taxpayer may not take advantage of its tax-exempt status on the purchase of materials for use in

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Technical Assistance Advisement
the public work. Also, 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. In such an instance, 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.
Here, Taxpayer will be required to assume the risk of loss for the items purchased upon delivery to
the jobsite. Taxpayer will acquire title to the materials upon delivery to the jobsite. Taxpayer will
issue its own purchase orders directly to the suppliers prior to delivery. Taxpayer will issue the
Consumer’s Certificate of Exemption and Certificate of Entitlement to each supplier when
submitting the purchase orders. Taxpayer will issue a check for the items purchased directly to the
supplier. Taxpayer’s proposed contract requires direct invoicing to Taxpayer by the supplier.

Concluding Statement
Based on the amended language to the contract, Taxpayer’s direct purchase procedures satisfy all
required conditions, and the exemption provided for by s. 212.08(6)(c), F.S., applies.

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 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.
Respectfully,
Chuck Wallace
Chuck Wallace
Technical Assistance & Dispute Resolution
(850) 717-7541

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Technical Assistance Advisement

AMS ID: 7000028193