Were prefabricated walk-in cooler panels and their installation taxable retail sales rather than real-property improvements?

Plain-English summary

The Florida Department of Revenue treated prefabricated panels used to assemble walk-in coolers and freezers as tangible personal property, not permanent improvements to real property.

The panels stood on wooden perimeter strips and connected with cam-lock fasteners. They were not wired or plumbed into the building, could be removed without substantial damage, had a limited useful life, and were commonly removed and sold when a customer left the property.

Because the transaction's predominant nature was the sale of tangible personal property, the seller had to collect sales tax on both the panels and the installation charges.

What this means for you

Equipment fabricators and installers

Removability, attachment method, intended duration, and customary resale can make installed equipment taxable tangible personal property rather than a real-property improvement.

Contractors and accountants

The result was expressly limited to the described panel-and-accessory installation. If the seller also provided refrigeration or electrical installation, the ruling said it would be treated as a real-property contractor instead, paying use tax on materials rather than collecting sales tax from the customer.

Common questions

Q: Were the panels fixtures?
A: No. They remained free-standing, removable items of tangible personal property.

Q: Was installation labor taxable?
A: Yes. The seller was required to collect tax on the materials and installation charges in the described transaction.

Q: What facts supported the result?
A: The cam-lock assembly, lack of wiring or plumbing, easy removal without substantial damage, limited useful life, and customers' practice of removing and reselling the panels.

Q: Would refrigeration or electrical work change the classification?
A: Yes. The ruling says adding those activities would make the taxpayer a real-property contractor for that scenario.

Citations and references

• Fla. Stat. §§ 212.05, 212.06(14), and 213.22
• Fla. Admin. Code r. 12A-1.051

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17A-025

Original ruling text

Executive
Director
Leon Biegalski

QUESTION: Whether Taxpayer’s sales are retail sales of tangible personal property?
ANSWER: Yes. The Taxpayer sells and installs prefabricated panel sections that are installed into
realty, easily removable for maintenance and replacement without substantial damage to the realty, and
are generally removed for separate sale prior to vacating the realty.
December 29, 2017

XXXX
XXXX
XXXX
XXXX
Subject: Technical Assistance Advisement (“TAA”) 17A-025
TAA 17A-025
Sales and Use Tax-Real Property Contractor
Section(s) 212.05 and 212.06, Florida Statutes (“F.S.”)
Rule(s) 12A-1.016, 12A-1051, Florida Administrative Code (“F.A.C.”)
XXXX (“Taxpayer”) (“Petitioner”)
Florida License No. XXXX
FEIN #: XXXX
BPN #: XXXX
XXXX (“Customer”)
Dear XXXX:
This letter is a response to your petition dated October 4, 2017, for the Department’s issuance of a
Technical Assistance Advisement (“TAA”) to Petitioner, regarding real property contractor
requirements. Your petition has been carefully examined, and the Department finds it to be in
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
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

Page 2 of 5
Technical Assistance Advisement
How should the installation purchase agreements between Taxpayer and their customers be treated for
sales tax purposes?

Facts
Taxpayer manufactures, fabricates, and installs insulated panel sections and accessories used in
walk-in coolers for food market retailers, retail grocery chains, and convenience store retailers
(hereafter, “Customers”). Taxpayer XXXX, is registered for sales and use tax purposes with the
Florida Department of Revenue, and remits sales tax to the State on the retail sale and installation
(when included), of its products.
Based upon the Customer’s preference, the panels are either sold separately, with the installation
performed by an unrelated third party chosen by the Customer, or the Taxpayer provides the panels
and performs the installation, or hires a sub-contractor to perform the installation. The Taxpayer
may also install accessories such as doors, shelving, and lighting fixtures, but does not install any
electrical wiring. If a construction permit is required for the project, typically the refrigeration
contractor would be responsible for obtaining the permit, and not the Taxpayer.
For purchases which include both the paneling materials and the installation labor, the installation
purchase agreements are structured in one of two ways: itemized, in which labor and/or materials
are separately stated, or as lump sum contracts, in which the Taxpayer agrees to furnish materials
and labor for a single stated lump sum price. When quoting orders, the Taxpayer does not itemize
each separate item of tangible personal property (including each item’s price) used, in fulfilling
the contract. The Taxpayer also discloses a lump sum for the total installation labor cost, in its
Customer’s quotes.
Generally, the Taxpayer delivers the prefabricated panel sections to its Customer’s retail store
location, and the panels are either assembled on-site by the Taxpayer, or by a third-party contractor.
The panels and associated hardware are shipped FOB shipping point. The panels can be a standard
size or manufactured to a custom size, as required by the Customer, but regardless of size, the
installation method remains the same for all panels. Each of the panel sections has a tongue and
groove perimeter edge that are interlocked and joined together by using cam lock fasteners. The
cam lock fasteners are locked using a hex wrench and are easily unlocked the same way. The
panels are placed on top of a one-inch perimeter wood strip which is screwed into the flooring.
There are no additional fastenings, nails, or glue used to hold the panel walls upright and together.
The panels are easily removable for subsequent maintenance or replacement. Under normal usage,
the panels have an average life span of six to ten years, and under heavy usage, about four to six
years. If the Customer subsequently moves and/or sells the building after the panel installation, it
is the Customer’s preference whether they remove the panels and sell them separately, or choose
to sell them with the building. The Taxpayer states, from experience, most of its Customers will
remove the panels and sell them separately, if they later vacate and/or sell the building. Your client
also installs an air-tight roof panel, but there is no separate floor installation for walk-in coolers.

Page 3 of 5
Technical Assistance Advisement

Applicable Law & Discussion
Section 212.05, F.S., provides that dealers engaged in the business of selling tangible personal
property are required to collect sales tax on the sales price of each retail sale. Real property
improvement contractors generally are the end consumers of the tangible personal property used
in the contracts, and are liable for the tax on the purchases made. See Rule 12A-1.051(4), F.A.C.
A real property improvement contractor is liable for the tax on the fabricated cost of items it
produces. See Rule 12A-1.051(2)(a) and (10), F.A.C.
Section 212.06(14), F.S., provides guidance in determining whether a person is making
improvements to real property by providing the following relevant definitions, in part:
(a) “Real property” means the land and improvements thereto and fixtures and is
synonymous with the terms “realty” and “real estate.”
(b) “Fixtures” means items that are an accessory to a building, other structure, or
land, and that do not lose their identity as accessories when installed but that do
become permanently attached to realty. (Emphasis added)
(c) “Improvements to real property” includes the activities of building, erecting,
constructing, altering, improving, repairing, or maintaining real property.
Rule 12A-1.051(2)(c)3., F.A.C., further provides that the determination of whether an item is a
fixture depends upon the review of all facts and circumstances of each situation. Among the
relevant factors, in part, that determine whether an item is a fixture are the following:
(a) The method of attachment. Items that are screwed or bolted in place, buried
underground, installed behind walls, or joined directly to a structure’s plumbing or
wiring systems, are likely to be classified as fixtures. Attachment in such a manner
that removal is impossible without causing substantial damage to the underlying
realty indicates that an item is a fixture. (Emphasis added)
(b) Intent of the property holder. If the property holder who causes an item to be
attached to realty intends that the item will remain in place for an extended or
indefinite period of time, that item is more likely to be a fixture.
(c) Real property law. If an interest in an item arises upon acquiring title to the land
or building, the item is more likely to be considered a fixture. For example, if the
seller of real property would be expected to leave an item behind when vacating the
premises for a new owner without the contract specifically requiring that it be left,
that item is likely to be classified as a fixture.

Page 4 of 5
Technical Assistance Advisement

(d) Customization. If items are custom designed or custom assembled to be attached
in a particular space, they are more likely to be classified as fixtures. Customization
indicates intent that the items are to remain in place following installation.
Rule 12A-1.051(2)(h)1.c., F.A.C., further provides that a “real property contract” means an
agreement, oral or written, whether on a lump sum , time and materials, cost plus, guaranteed price,
or any other basis, to furnish and install tangible personal property that becomes a part of, or is
directly wired or plumbed into, the central heating system, central air conditioning system,
electrical system, plumbing system, or other structural system that requires installation of wires,
ducts, conduits, pipes, vents, or similar components that are embedded in, or securely affixed to,
the land or a structure thereon.
Rule 12A-1.051(6), F.A.C., further provides that contractors, manufacturers, or dealers who sell
and install items of tangible personal property, including those enumerated in Rule 12A-1.016,
F.A.C., must collect tax on the full selling price, including any installation or other charges, even
though such charges may be separately stated.
Concluding Statement

Here, the Taxpayer entered into a purchase agreement with one of its Customers to sell and install
prefabricated panel sections that are joined together to form walk-in coolers, freezers, and
combination units, as specified. The standard panels are interchangeable for ease of assembly. No
refrigeration systems were specified by the Customer. The installation services included erecting
panels, shelving, doors, and lighting fixtures. This specific purchase agreement does not state if
the Customer, the Taxpayer, or a third-party contractor acting on behalf of the Customer or
Taxpayer, will perform the installation services. However, as stated in your facts, the Taxpayer
installs only panels and accessories and never installs electrical wiring. The predominate nature of
this purchase agreement is a contract for tangible personal property. Your client’s invoice to its
Customer, itemizes the panels, installation, and freight separately, and the Taxpayer collected sales
tax from its Customer, on the panels and installation cost.
Based on the Customer’s purchase agreement, the Taxpayer provides prefabricated, free-standing,
factory-made panels that are not wired or plumbed to realty, but are attached to one-inch wooden
strips on ground level, that are fastened together with cam action fasteners. The panels remain
free-standing, and are easily removable for maintenance or replacement, without substantial
damage to the underlying realty. The panels have an average life span of six to ten years under
normal usage, and there is no intent on keeping the panels in place for an extended or indefinite
period of time. In fact, from experience, most Customers will remove the panels and sell them
separately, prior to vacating a building. Therefore, the panels do not fall into the definition of a
“Fixture” and are an item of tangible personal property. Your client should collect and remit sales
tax from its Customers, on the sales price of the materials and the installation charges.

Page 5 of 5
Technical Assistance Advisement
It should be noted that the above response, analysis, and conclusion is specific only to the facts
outlined in one scenario as described in your Customer’s purchase agreement, for which you also
included an example quotation, purchase order, and invoice. If, for example, the Taxpayer would
engage in providing refrigeration or electrical installation activities to its Customers, either
performed by themselves or by an unrelated third-party, the Taxpayer will be classified as a real
property contractor, and should not collect sales tax from its Customers, but should pay use tax on
all materials they use in the performance of these contracts.
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,
Mary Slagy
Mary Slagy
Technical Assistance & Dispute Resolution
(850) 717-7670
AMS ID: 7000025342