Did a Florida city's proposed owner-direct-purchase contract qualify construction materials for the public-works sales-tax exemption?

Plain-English summary

The Florida Department of Revenue approved a city's proposed owner-direct-purchase provisions for materials used to improve a water-reclamation facility. The structure made the city—not the construction manager or contractor—the purchaser for the selected materials.

The city had to issue purchase orders with its exemption number, receive vendor invoices directly, pay vendors directly from public funds, take title, and bear risk of loss from delivery at the jobsite until the materials became part of the real property. Risk of loss was a paramount factor and had to be supported by insurance.

The Department limited its answer to jobsite deliveries. The contract did not clearly address risk of loss when goods were delivered somewhere else, so the TAA did not decide those transactions.

What this means for you

Government project owners

The exemption requires real transaction control, not just a contract label. The government must perform each direct-purchase step for the selected materials.

Contractors and construction managers

Contractors may recommend items and coordinate orders, but the exempt owner must remain the actual purchaser and assume the pre-installation risk.

Accountants and tax professionals

Check delivery locations, title terms, invoices, payments, and insurance together. A delivery away from the jobsite may fall outside this TAA's approved facts.

Common questions

Q: Did the proposed contract qualify?
A: Yes, if every direct-purchase measure described in the ruling was completed.

Q: What were the core requirements?
A: Direct government purchase order, invoice, and payment, plus passage of title and government assumption of risk of loss.

Q: When did the city assume risk?
A: From vendor delivery at the jobsite until the materials were permanently affixed.

Q: Did the ruling cover off-site delivery?
A: No. The Department said the contract was unclear on that scenario and did not decide it.

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 18A-011

Original ruling text

SUMMARY
TAX: Sales and Use Tax
TAA NUMBER: 18A-011
ISSUE: Public Works Contract
STATUTE CITE: 212.08(6), F.S.
RULE CITE: 12A-1.094, F.A.C.
QUESTION:
Whether the provisions contained in the submitted proposed contract are sufficient to enable
the Taxpayer to realize savings of its tax-exempt status on the purchase of materials for use in a
public works project.
ANSWER:
Section 212.08(6), F.S., provides only direct purchases by governmental entities are exempt.
Therefore, if a contractor, who is employed by a governmental entity, purchases tangible
personal property to be used in a public works contract, then the exemption listed in s.
212.08(6), F.S., does not apply. Rule 12A-1.094, F.A.C, provides the guidelines for purchasing
materials tax-exempt for a public works contract. Here, the Taxpayer's submitted proposed
contract satisfies the conditions of the foregoing statute and rule.

08/06/2018
XXXXXX
Attn: XXXXX
P.O. Box XXXXX
XXXXXXX, Florida XXXXX-XXX
Re:

Technical Assistance Advisement XXX-XXX
Public Works Contract
Section: 212.08, Florida Statutes (F.S.)
Rules: 12A-1.038, 12A-1.051, 12A-1.094, Florida Administrative Code (F.A.C.)
Petitioner: XXXXXXX (“Taxpayer”)
FEI: XXXXXXXX

Dear XXXXXX:

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This letter is a response to your petition received on July 13, 2017, 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, F.A.C. This response to your
request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.
Requested Advisement
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
Taxpayer1 is entering into a contract (the "Agreement"), pursuant to which Contractor is
engaged to construct an improvement of a water reclamation facility (the "Project"). Taxpayer
provided draft copies of the contract and general terms and conditions (“GTC”) incorporated by
reference into the contract. On June 12, 2018, updated copies of the contract and GTC were
provided. Taxpayer also provided copies of the documents referenced in the GTC’s table of
contents on June 14, 2018.

The updated contract contains the following in relevant part:
ARTICLE 8 – OWNER’S DIRECT PURCHASE OPTION

8.2.3 OWNER DIRECT PURCHASE POLICY. The OWNER reserves the right to issue
OWNER Purchase Orders directly to suppliers of materials to be incorporated into the Work
of Project as described in the Contract, in order to obtain the exemption from sales taxes
available under Fla. Stat. § 212.08(6), in accordance with the procedures listed below. For
purposes of this Policy, the term, “materials,” means all items of tangible personal property
which OWNER may be eligible to directly purchase tax free in accordance with Fla. Stat. §
212.08(6), and implementing administrative regulations; and all other terms will have the
meaning provided or suggested in the Contract, where applicable.

(2) The OWNER may accept or reject the CM’s [construction manager]
recommendations and will at OWNER’s discretion directly purchase those items that
OWNER deems suitable for direct purchase. The OWNER’s election to make direct
1

Taxpayer is referred to in the documents as “City” or “Owner.” To preserve the language of the draft contract and
GTC these terms are left in the text.

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purchases under this Policy will not eliminate or affect the CM’s responsibilities under the
Contract except as specifically noted herein. Among other things, CM will remain
responsible for controlling the means and methods by which the Work is to proceed;
working diligently to complete the Work in accordance with applicable deadlines; and for
tracking ordering and delivery of materials so as to maintain the critical path. Neither the
procedures herein, nor the OWNER’s election to directly purchase certain materials, will
alter or the applicability of the procedures and standards to be used under the Contract
for claims for delay or change orders.
(3) The CM will require that all quotes for materials received by CM for
tangible personal property to be incorporated into the Project: (i) itemize sales tax as a
separate item; (ii) include language that the quotations are assignable to the OWNER; and
(iii) include language stating that if assigned to OWNER, no sales tax will be charged upon
provision of OWNER’s sales tax exemption certificate. Nothing herein will prohibit the
OWNER from requiring the supplier of materials to be directly purchased by OWNER, from
requiring the supplier to issue a written quotation directly to OWNER, even where CM
has provided OWNER with an assignable quotation as provided herein.

(5) For those items of tangible personal property that OWNER elects to
directly purchase, CM will prepare City form Purchase Order Requisitions, consistent with
the quotes provided by the suppliers and this Policy.
(6) CM will forward the completed Purchase Order Requisition to the
OWNER’s Account Clerk, and provide a copy to the Contract Administrator.
(7) The Purchasing Agent will issue a purchase order to the supplier
based on the information provided by the CM and the supplier’s written quotation. The
Purchasing Agent will provide a copy of the purchase order to the CM.

(9) OWNER will acquire title to and assume responsibility for materials
directly purchased by OWNER under this Policy, upon delivery to the Job Site.2
(10) Suppliers will directly invoice the OWNER. Invoices will be
forwarded to the CM for verification. Immediately as materials directly purchased by
2

Please note the contract also provides, in section 2.13 on page 19, Title and Risk of Loss of Materials
and Equipment, that the risk of loss does not pass to the owner until title passes and title does not pass
until the payment is made. However, the section notes this section does not apply in cases of an owner
direct purchase.

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OWNER are delivered to the Job Site, the CM will review the condition of the materials
delivered for conformity with contract specifications and the supplier’s invoice for
conformity with this Policy, including confirmation that the invoice references OWNER’s
purchase order and is billed to OWNER, not CM. CM will promptly advise the OWNER of
any deficiencies in the materials or invoice. The intent of this requirement is to require
CM to act diligently to allow OWNER to meet its obligations to the supplier under Florida’s
Prompt Payment Act, Fla. Stat. § 218.70 et seq. Nothing herein will prohibit the CM from
requiring a Subcontractor of CM’s conduct a similar review for CM’s benefit; however, CM
will remain responsible to OWNER for promptly reviewing the materials and invoice in
accordance with this Section.
(11) Upon being satisfied that directly purchased materials and the
accompanying invoice from the supplier are satisfactory, OWNER will pay the supplier for
the items purchased. Under no circumstances will CM be responsible for paying the
supplier. The OWNER will issue a check for the Approved invoice amount and mail this
check directly to the supplier, accompanied by the Certificate of Entitlement. A copy of
the check will be forwarded to the CM so that CM can accurately track and summarize all
OWNER Direct Purchase payments.
In the event the OWNER does not timely execute the appropriate
documents submitted by the CM for direct purchase, the CM may, upon timely notice to
the OWNER, order such materials irrespective of loss of sales tax savings. It is the intent
of these provisions to implement the cost savings afforded by the sales tax exemption
without delay of the Work and that the CM retain complete control of the Project
Schedule. While the OWNER’S direct purchase of materials or supplies will not relieve the
CM of responsibility to maintain and safeguard such materials and supplies until they are
incorporated into the Work and accepted by the OWNER, the OWNER will assume liability
for the materials at the time they are delivered to the jobsite. The CM will not be entitled
to a time extension in the event that delay is occasioned by the OWNER'S direct purchase
of materials.
(12) The OWNER will bear the economic burden of obtaining insurance
covering damage or loss or will directly enjoy the economic benefit of the proceeds of any
such insurance. Nothing herein will prohibit the OWNER from requiring CM to supply
additional coverage, such as through a builder’s risk policy or installation floater, to insure
materials directly purchased by OWNER from damage and risk of loss.
(13) The OWNER does hereby defend, hold harmless, and indemnify
the CM from any and all liability for unpaid sales taxes which the CM may suffer as a result
of claims, demands, costs, interest, penalties or judgments against the CM made by or in
favor of the State of Florida on account of failure to pay Florida State Sales Taxes on
materials purchased by the OWNER under this Policy The OWNER agrees to defend

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against any such claims or actions brought against the CM whether rightfully or wrongfully
brought or filed. The CM agrees that it will promptly notify the OWNER of any such claim,
demand, or action. Furthermore, the CM expressly agrees that, if and when requested
by the OWNER, it will enter into such amendments to this Contract as the OWNER, upon
consultation with its legal counsel, may deem necessary or useful to preserve or ensure
its right under Florida law to the sales tax exemption contemplated by this subsection.
OWNER’s obligation to indemnify and hold harmless CM as provided herein is subject to
limitations, including monetary limitations, contained in Florida Statutes § 768.28.
The GTC also provides includes the following in relevant part:
ARTICLE 18 - OWNER DIRECT PURCHASE POLICY

The CITY may accept or reject the CM’s recommendations and will in CITY’s discretion
directly purchase those items that CITY deems suitable for direct purchase. The CITY’s
election to make direct purchases under this Policy will not eliminate or affect the CM’s
responsibilities under the Contract except as specifically noted herein. Among other
things, CM will remain responsible for controlling the means and methods by which the
Work is to proceed; working diligently to complete the Work in accordance with
applicable deadlines; and for tracking ordering and delivery of materials so as to
maintain the critical path. Neither the procedures herein, nor the CITY’s election to
directly purchase certain materials, will alter or the applicability of the procedures and
standards to be used under the Contract for claims for delay or change orders.
The CM will require that all quotes for materials received by CM for tangible personal
property to be incorporated into the Project: (i) itemize sales tax as a separate item; (ii)
include language that the quotations are assignable to the CITY; and (iii) include
language stating that if assigned to CITY, no sales tax will be charged upon provision of
CITY’s sales tax exemption certificate. Nothing herein will prohibit the CITY from
requiring the supplier of materials to be directly purchased by CITY, from requiring the
supplier to issue a written quotation directly to CITY, even where CM has provided CITY
with an assignable quotation as provided herein.

The CITY will issue a Purchase Order to the supplier based on the information provided
by the CM and the supplier’s written quotation. The City will provide a copy of the
Purchase Order to the CM.

CITY will acquire title to and assume responsibility for materials directly purchased by
CITY under this Policy, upon delivery to the job site.

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Suppliers shall directly invoice the CITY. Invoices will be forwarded to the CM for
verification. Immediately as materials directly purchased by CITY are delivered to the
Project site, the CM will review the condition of the materials delivered for conformity
with Contract specifications and the supplier’s invoice for conformity with this Policy,
including confirmation that the invoice references CITY’s Purchase Order and is billed to
CITY, not CM or Subcontractor. CM will promptly advise the CITY of any deficiencies in
the materials or invoice. The intent of this requirement is to require CM to act diligently
to allow CITY to meet its obligations to the supplier under Florida’s Prompt Payment Act,
Fla. Stat. § 218.70 et seq. Nothing herein will prohibit the CM from requiring a
Subcontractor of CM’s conduct a similar review for CM’s benefit; however, CM will
remain responsible to CITY for promptly reviewing the materials and invoice in
accordance with this Section.
Upon being satisfied that directly purchased materials and the accompanying invoice
from the supplier are satisfactory, CITY will pay the supplier for the items purchased.
Under no circumstances will CM be responsible for paying the supplier. The CITY will
issue a check for the approved invoice amount and mail this check directly to the
supplier, accompanied by the Certificate of Entitlement. A copy of the check will be
forwarded to the CM so that CM can accurately track and summarize all CITY Direct
Purchase payments.

The CITY will bear the economic burden of obtaining insurance covering damage or loss
or will directly enjoy the economic benefit of the proceeds of any such insurance.
Nothing herein will prohibit the CITY from requiring Cm to supply additional coverage,
such as through a builder’s risk policy or installation floater, to insure materials directly
purchased by CITY from damage and risk of loss.

Authority
Sales to governmental units are exempt from sales tax pursuant to Section 212.08(6), Florida
Statutes, 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

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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.... (Emphasis Supplied)
By its terms, Section 212.08(6), Florida Statutes, exempts only direct purchases by
governmental entities. Rule 12A-1.094, Florida Administrative Code, which provides guidelines
for governmental entities purchasing materials tax exempt for a public works contracts. The
rule provides in pertinent 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 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 ofthe proceeds of such
   insurance.
   (c) Sales are taxable sales to the contractor unless it can be demonstrated to the
   satisfaction of the Executive Director or the Executive Director's designee in the

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responsible program that such sales are, in substance, tax exempt direct sales to the
government.
(5) Contractors that manufacture materials for incorporation into public works shall be
liable for tax in the manner provided in subsection (10) of Rule 12A-1.051, F.A.C. . . .
(Emphasis Supplied)
Discussion
Section 212.08, F.S., and Rule 12A-1.038(4)(b), Florida Administrative Code, state that in order
for a sale to a 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), Florida Administrative Code, 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 prior to its incorporation into realty, and satisfy various factors
contained in Rule 12A-1.094, Florida Administrative Code.
Rule 12A-1.094(4), Florida Administrative Code, 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 during the time that the building materials are physically stored at the job site
prior to their installation or incorporation into the project is a paramount consideration. The
governmental entity must assume all risk of loss or damage for the tangible personal property
during that period. 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 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:

1. The governmental entity must execute the purchase orders for the tangible personal
   property involved in the contract, which must include the governmental entity's
   consumer's certificate of exemption number. The contractor may present the
   governmental entity's purchase orders to the vendors of the tangible personal property;

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2. The governmental entity must acquire title to and assume liability for the tangible
   personal property from the point in time when it is delivered to the job site up until the
   time it is incorporated as real property;
3. Vendors must directly invoice the governmental entity for supplies;
4. The governmental entity must directly pay the vendors for the tangible personal
   property; and
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.
   Conclusion
   So long as the criteria provided by Rule 12A-1.094, F.A.C, is satisfied, the purchase of tangible
   personal property under the proposed Owner direct purchase provisions provided for review
   will not be subject to sales and use tax. Taxpayer will be required to complete all measures
   provided herein, including, but not limited to, direct issuance of purchase orders, direct
   payment to vendors by Taxpayer, direct invoicing from vendors to Taxpayer, passage of title of
   tangible personal property directly from the vendors to Taxpayer, assumption of risk of loss of
   the materials used in project from the moment the vendor delivers the material to the jobsite
   until it is permanently affixed as a real property improvement. If all measures that are provided
   in the request are completed by Taxpayer, then Taxpayer may purchase the materials used in
   project without paying the vendor for sales tax. Therefore, based on the documentation
   provided, Taxpayer's contract meets the requirement of the above-mentioned Rule, and
   Taxpayer may purchase the materials tax-exempt for use in a public works contract.
   Please note: Taxpayer’s contract and the incorporated GTC, provide that Taxpayer assumes the
   risk of loss upon delivery to the jobsite. It is unclear how the risk of loss is affected in the event
   delivery takes place at a location other than the jobsite. Therefore, this determination does not
   discuss the applicability of sales and use tax, in instances where the goods are not delivered to
   the jobsite.
   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.

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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 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.
Sincerely,

Timothy Surface
Senior Attorney
Technical Assistance and Dispute Resolution
Control #7000016560