How did Florida TAA 25A-003 tax a building-component manufacturer's retail sales and lump-sum contracts?

Plain-English summary

The manufacturer could buy raw materials for lump-sum contracts tax-exempt with its resale certificate, but it had to accrue use tax when it used those materials to perform the contracts.

Direct retail sales of building components were taxable. By contrast, the manufacturer should not collect sales tax from customers on lump-sum real property contracts.

For building components fabricated at the plant and installed under lump-sum contracts, use tax applied to fabricated cost. Both use tax and discretionary surtax used the rate of the county where the plant was located.

New machinery and equipment for the expanding plant qualified for exemption when it had a depreciable life of at least three years, was an integral part of manufacturing, and the expanded facility's productive output increased by at least 5%.

What this means for you

The TAA separated retail sales from contractor consumption and sourced fabricated-cost surtax to the plant county. The expansion exemption had specific property and output conditions.

Common questions

Were direct retail sales taxable? Yes.

Should customers on lump-sum real property contracts be charged sales tax? No.

Where was surtax on fabricated cost sourced? To the county where the plant was located.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, 212.06, 212.07, 212.08(5)(b), 212.08(7)(jjj), and 212.12(12), and the Florida Administrative Code rules listed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 25A-003

Original ruling text

Florida Department of Revenue Jim Zingale
Office of Technical Assistance Executive Director

JEPARTMENT OF REVENUE

FLORIDA

5050 West Tennessee Street Tallahassee FL 32399 floridarevenue.com

QUESTION 1: Whether Taxpayer should issue [its] Annual Resale Certificate (Form DR-13) to
vendors to purchase raw materials tax exempt.

ANSWER 1: Based on the facts provided, Taxpayer’s purchases of raw materials for lump-sum
contracts are exempt. However, Taxpayer should accrue use tax on all raw materials used in its
performance of any lump sum contracts

QUESTION 2: Whether Taxpayer should collect and remit sales tax on sales sold at retail.

ANSWER 2: Based on the facts provided, Taxpayer should collect and remit sales tax on sales
at retail.

QUESTION 3: Whether Taxpayer should accrue and remit use tax on the fabricated cost of
[building components] that are manufactured at the plant site for installation of lump-sum real
property contracts at a job site.

ANSWER 3: Based on the facts provided, Taxpayer should accrue and remit use tax on the
fabricated cost of [building components] that are manufactured at the plant site for installation
pursuant to lump-sum real property contracts at a job site

QUESTION 4: Whether the accrual and remittance of use tax on the fabricated cost of [building
components] that are manufactured at the plant site and installed as a lump-sum real
property contract at the job site, is the accrual of tax based on location of plant site or job site
for surtax purposes?

ANSWER 4: Based on the facts provided, Taxpayer should accrue and remit both the use tax
and the discretionary sales surtax on fabrication cost at the rate of the county
where the plant site is located.

QUESTION 5: Whether Taxpayer should collect and remit sales tax from its customers on lump-
sum real property contracts.

ANSWER 5: Based on the facts provided, Taxpayer should not collect and remit sales tax from
its customers on lump-sum real property contracts

QUESTION 6: Whether Taxpayer should qualify to purchase its new machinery and equipment
tax exempt at its expanding manufacturing plant in Florida.

ANSWER 6: Based on the facts provided, Taxpayer should qualify for machinery and equipment
exemption for an expanding business on property that has a depreciable life of three (3)
years or more that is used as an integral part in the manufacturing process and where
productive output of such expanded facility is not less than 5%.

Technical Assistance Advisement
May 2, 2025
Page 2

May 2, 2025

Via ernail tO: [a

Re: Technical Assistance Advisement — TAA #: 25A-003
Florida Sales and Use Tax — Exemptions, Manufacturing
(91 2xpayer’)
Sections 212.02, 212.05, 212.06, 212.07, 212.08(5)(b), 212.08(7)(jjj) and 212.12(12),
Florida Statutes (F.S.)
Rules 12A-1.043, 12A-1.051, 12A-1.091(7), and 12A-1.096, Florida Administrative Code
(F.A.C.)

FEIN:
BPt: a

Dea a

This letter is a response to your petition dated gg for the Florida Department of
Revenue’s (the “Department’s”) issuance of a Technical Assistance Advisement ("TAA"). 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, Florida Administrative Code. This response to your

request constitutes a TAA and is issued to you under the authority of s. 213.22, F.S.

ISSUES PRESENTED

Taxpayer is seeking guidance on the purchase of raw materials, sales of tangible personal
property at retail, lump-sum real property contracts and purchase of industrial machinery and
equipment on an expanding business in Florida. Specifically, Taxpayer is requesting clarification
concerning the following items:

1. Should Taxpayer issue Annual Resale Certificate (Form DR-13) to vendors to purchase
   raw materials tax exempt?

2. Should Taxpayer collect and remit sales tax on sales sold at retail?

3. Should Taxpayer accrue and remit use tax on the fabricated cost of [building components]
   that are manufactured at the plant site for installation of lump-sum real property contracts
   at a job site?

4. |If Taxpayer should accrue and remit use tax on the fabricated cost of [building
   components] that are manufactured at the plant site and installed as a lump-sum real
   property contract at the job site, is that accrual of tax based on location of plant site or job
   site for surtax purposes?

Technical Assistance Advisement
May 2, 2025
Page 3

5. Should Taxpayer collect and remit sales tax from its customers on lump-sum real property
   contracts?

6. Should Taxpayer qualify to purchase its new machinery and equipment tax exempt at its
   expanding manufacturing plant in Florida?

FACTS AS PROVIDE

Taxpayer has presented the following information regarding its lump-sum real property contracts
at its three locations in Florida along with several sample contracts:

Taxpayer provides NN services which include design services, wall
panels, trusses and providing a seamless and fully integrated shell
construction process, hereinafter referred to collectively as building components or ("BC")
both for sale and for installation in fulfilling lump-sum real property contracts at its Jy

Taxpayer is a single member limited liability company yy
ee
pd
ee
ee

Taxpayer sells building components to jg, other affiliated entities and third parties
predominantly under lump-sum real property contracts for materials and installation.
Those contracts include BC which are either delivered to the jobsite by Taxpayer's owned

Technical Assistance Advisement
May 2, 2025
Page 4

trucks or via third party freight contractors. Taxpayer also engages in retail sales of BC
to third parties.

Taxpayer purchases raw materials from third party vendors and utilizes an Annual
Resale Certificate to purchase raw materials tax exempt. Taxpayer collects and pays tax
to the Department on the retail selling price to third parties on direct sales of BC.
Taxpayer accrues and remits use tax on the fabricated cost, including raw materials
purchased tax exempt, on BC that are manufactured for lump-sum real property
contracts. The lump-sum real property contracts make up the majority of the revenue of
the business and the fulfillment of which account for the majority of the utilization of the
machinery and equipment in the plant.

Taxpayer is expanding its existing Florida manufacturing plant location in

and purchasing industrial machinery and equipment having more than a
three-year life and increasing production output by 5% or more. To receive the temporary
exemption on the machinery and equipment Taxpayer will apply to the Department for a
temporary tax exemption permit. To the best of our knowledge, Taxpayer, ggg nor any
of its affiliated subsidiaries are currently not under audit by the Department.

LEGAL AUTHORITY AND DISCUSSION

Sales and Use Tax

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 tangible personal
property? in this state. For exercising such 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 discretionary
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 in this state.

Complementary to the sales tax, use tax is imposed upon tangible personal property that is not
sold at retail in this state but is instead “used, consumed, distributed, or stored for use or
consumption in this state.” The tax is imposed on the “cost price” of the item as of the moment of
commingling with the general mass of property in this state. See ss. 212.05(1)(b) and
212.06(1)(a), F.S., and Rule 12A-1.091(7), F.A.C.

Real Property Contractors

In its communication, Taxpayer declares that it is a real property contractor, and that it does not
engage in retail sale plus installation contracts. Generally, real property contractors are
considered the ultimate consumers or users of the tangible personal property they purchase to
perform a real property contract—they are not reselling tangible personal property. See Rule
12A-1.051(4), F.A.C. Sales tax is imposed on the purchaser or ultimate consumer/user of tangible
personal property. Therefore, real property contractors, as the ultimate consumers, must pay tax
on the cost of the materials and supplies they use to perform real property contracts. Real
property contractors who, like Taxpayer, do not engage in retail sale plus installation contracts,

1 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.

Technical Assistance Advisement
May 2, 2025
Page 5

should not charge tax to or collect tax from their customers because they are not engaged in the
activity of selling tangible personal property.

Fabrication Cost

Real property contractors are required to be registered and to remit use tax on certain costs of
fabrication when they fabricate items for their own use in performing real property contracts. The
elements of fabricated cost are set forth in Rule 12A-1.043, F.A.C. Materials, labor, service, or
transportation costs that are attributable to manufacturing, producing, compounding, processing,
or fabricating an article of tangible personal property for one's own use, and which are properly
chargeable to the cost of the product under generally accepted cost accounting standards, are
the use tax base to the fabricator/real property contractor.

Furthermore, Rule 12A-1.043(1)(b), F.A.C., clarifies what each broad category of costs
comprises:

1. Material costs include:

a) all direct materials and their related freight,
b) handling and warehousing costs,
Cc) manufacturer’s excise tax on such materials.

2. Labor costs include:

a) direct labor cost for employees, and/or contract labor allocable to the production of the
finished property, including, payroll burden, overtime premium, vacation and holiday
pay, sick leave pay, shift differential, payroll taxes, payments to a supplemental benefit
plan, and employee fringe benefits, among others,

b) compensation of officers—only such portion allocable to production,

c) cost of service, engineering, design and other support employees allocated to
production.

3. Service costs include non-employee services allocated to the production—engineering,
   design, and/or similar consultation or professional services.

However, when calculating the fabricated cost, the following costs should not be included:

1. cost of direct materials for which sales tax was paid when purchased,

2. cost of labor that is performed at the job site where the installation occurs, and

3. cost of transporting the finished product from the manufacturers plant to the job site.

Machinery and Equipment Exemptions

Section 212.08(7)(jjj)1., F.S., provides that “industrial machinery and equipment? purchased by
eligible manufacturing businesses which is used at a fixed location in this state for the
manufacture, processing, compounding, or production of items of tangible personal property for

2 Industrial machinery and equipment” means, in part, 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 s. 212.08(7)(jjj)2.e., F.S.

Technical Assistance Advisement
May 2, 2025
Page 6

sale is exempt from the tax. If, at the time of purchase, the purchaser furnishes the seller with a
signed certificate certifying the purchaser’s entitlement to exemption pursuant to this paragraph,
the seller is not required to collect the tax on the sale of such items, and the department shall look
solely to the purchaser for recovery of the tax if it determines that the purchaser was not entitled
to the exemption.”

Section 212.08(7)(jjj)2., F.S., defines the term, “eligible manufacturing business” as “any business
whose primary business activity? at the location where the industrial machinery and equipment is
located is within the industries classified under NAICS codes 31, 32, 33, 112511, and 423930.”

Tax Information Publication 16A01-07 provides the method to purchase qualified machinery and
equipment tax exempt under the provisions of s. 212.08(7)(jjj), F.S.

Based on the above, purchases of machinery and equipment that meet all the eligibility
requirements of s. 212.08(7)(jjj), F.S., are exempt from Florida sales and use tax. Otherwise, the
purchase of machinery and equipment is subject to Florida sales and use tax.

Additionally, s. 212.08(5)(b), F.S., and Rule 12A-1.096, F.A.C., provide an exemption from tax on
qualifying industrial machinery and equipment purchased or leased by an eligible new or
expanding business. Such machinery and equipment must be at least 3-year depreciable
property that is used as an integral* part in the manufacturing, processing, compounding, or
production of tangible personal property for sale at a fixed location in this state. This exemption
requires the filing of an Application for Temporary Tax Exemption Permit, form DR-1214. There
is no exemption until the required application has been filed.

CONCLUSIONS

1. Should Taxpayer issue [its] Annual Resale Certificate (Form DR-13) to vendors to
   purchase raw materials tax exempt?

Based on the facts provided, Taxpayer’s purchases of raw materials for lump-sum
contracts are exempt. However, Taxpayer should accrue use tax on all raw materials
used in its performance of any lump sum contracts under the provisions of s.
212.07(1)(b), F.S. and Rule 12A-1.039, F.A.C.

2. Should Taxpayer collect and remit sales tax on sales sold at retail?

Based on the facts provided, Taxpayer should collect and remit sales tax on sales
at retail under the provisions of s. 212.12(12), F.S.

3. Should Taxpayer accrue and remit use tax on the fabricated cost of [building components]
   that are manufactured at the plant site for installation of lump-sum real property contracts
   at a job site?

3“Primary business activity” means an activity representing more than 50 percent of the activities conducted
at the location where the industrial machinery and equipment or postharvest machinery and equipment is
located. See s. 212.08(7)(jjj)2.d., F.S.

4 Integral to means that the machinery and equipment provides a significant function within the production
process, such that the production process could not be complete without that machinery and equipment.
See Rule 12A-1.096(1)(c), F.A.C.

Technical Assistance Advisement
May 2, 2025
Page 7

Based on the facts provided, Taxpayer should accrue and remit use tax on the
fabricated cost of [building components] that are manufactured at the plant site for
installation pursuant to lump-sum real property contracts at a job site under the
provisions of Rule 12A-1.043, F.A.C.

4. \If Taxpayer should accrue and remit use tax on the fabricated cost of [building
   components] that are manufactured at the plant site and installed as a lump-sum real
   property contract at the job site, is that accrual of tax based on location of plant site or
   job site for surtax purposes?

Based on the facts provided, Taxpayer should accrue and remit both the use tax
and the discretionary sales surtax on fabrication costs at the rate of the county
where the plant site is located under the provisions of Rule 12A-1.043, F.A.C.

5. Should Taxpayer collect and remit sales tax from its customers on lump-sum real property
   contracts?

Based on the facts provided, Taxpayer should not collect and remit sales tax from
its customers on lump-sum real property contracts under the provisions of Rule
12A-1.051(4), F.A.C.

6. Should Taxpayer qualify to purchase its new machinery and equipment tax exempt at its
   expanding manufacturing plant in Florida?

Based on the facts provided, Taxpayer should qualify for machinery and
equipment exemption for an expanding business on property that has a
depreciable life of three (3) years or more that is used as an integral part in the
manufacturing process and where productive output of such expanded
facility not less than 5% under the provisions of ss. 212.08(5)(b) and 212.08(7)(jjj),
F.S. and Rule 12A-1.096, F.A.C.

This response constitutes a TAA 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, 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 TAA, 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 ten (10) days of the date of this letter.

If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at (850) 717-6326.

Record ID # 70001060523

Technical Assistance Advisement
May 2, 2025
Page 8

Kind Regards,

Denise L. Smith, MPM
Tax Law Specialist
Office of Technical Assistance

Technical Assistance Advisement
May 2, 2025
Page 9

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