Were temporary traffic-control devices taxable rentals when a road contractor possessed, moved, and controlled them?

Plain-English summary

Florida treated the temporary traffic-control devices used on Department of Transportation road projects as taxable rentals. The supplier delivered and initially set up the devices, performed repairs when notified, and removed them when the work ended. The road contractor, however, had possession after setup, supplied some operating materials, trained its personnel, and handled the devices' daily placement and relocation.

Those facts distinguished the transaction from a service arrangement in which the supplier retained continuous control. The contract called the road contractor the equipment's "end user" and "controlling party," so the supplier had transferred possession and control. The temporary devices also were not real-property improvements because they moved as work progressed and were removed at project completion.

The contractor owed sales tax on the rental payments, and the supplier had to collect and remit it. Whether the supplier also owed tax on its own equipment cost depended on how it used the devices: exclusive rental use could support tax-free acquisition, while mixed rental and service use could create tax on cost as well as collection duties.

The Department also accepted the contractor's restated invoices separating tax from the total amount for audit purposes, unless the parties later agreed on another proper calculation.

Common questions

Why was this a rental instead of a service? The contractor possessed, operated, moved, and controlled the devices rather than leaving continuous control with the supplier.

Were the temporary devices real-property improvements? No. They were moved during construction and removed afterward, so they were not permanently attached fixtures.

Did the supplier necessarily owe tax when buying or building the devices? Not necessarily. The answer depended on whether the devices were used only for rentals or also in the supplier's service contracts.

Could the contractor break tax out of an invoice that did not separately state it? Yes. The TAA found the described restatement acceptable for audit purposes unless the parties reached a different agreement on calculating the tax.

Citations and references

• Fla. Stat. §§ 212.02(10)(g), (14), (15), and (21)
• Fla. Stat. §§ 212.05(1), 212.06(1), and 212.07(2), (8)
• Fla. Admin. Code rr. 12A-1.071 and 12A-1.051
• Fla. Stat. §§ 212.15, 213.756, and 213.22
• Warning Safety Lights of Georgia, Inc. v. Department of Revenue, 678 So. 2d 1377 (Fla. 4th DCA 1996)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-095

Original ruling text

SUMMARY

Rentals of temporary barrier walls, temporary signs, and
other temporary traffic control devices by a taxpayer for
use in performing roadwork contracts for the Florida
Department of Transportation are taxable where the taxpayer
is required by its contract with the Department of
Transportation to maintain such signs and devices, the
agreement with the supplier provides that taxpayer has
chosen to perform contract maintenance itself using
supplier's equipment and designates the taxpayer as the
"end user" of the devices, and taxpayer rather than the
supplier is responsible for the daily placement and
relocation of the devices. In regard to the temporary
traffic control devices, the supplier is responsible only
for initial delivery and set up, making repairs when
notified by the taxpayer of the need, and removing the
devices when the work is complete. Because of the transfer
of possession and control of the devices from the supplier
to the taxpayer, the transactions are taxable rentals of
those devices.

Dec 28, 1998

Re: Technical Assistance Advisement 98A-095
XXX ("Taxpayer")
Department of Transportation Subcontracts
Sections 212.02, 212.05, 212.06, F.S.
Rules 12A-1.051, 12A-1.071, F.A.C.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated October 23, 1998, in which you asked for a
technical assistance advisement concerning the appropriate
taxation of temporary barrier walls, temporary signs, and other
temporary traffic control devices provided by XXX ("Supplier").

Facts

Taxpayer is a construction company involved primarily in
building roads pursuant to contracts with the Florida Department
of Transportation ("DOT"). Section 102 of the DOT Standard
Specifications for Road and Bridge Construction
("Specifications") contains provisions governing traffic
maintenance during construction projects. Taxpayer is required
to maintain traffic on the portions of the road that are under
construction, when applicable, and to maintain signs and devices
indicating detours when traffic is to be rerouted. Taxpayer is
responsible for installation and maintenance of "adequate
traffic control devices, warning devices and barriers for the
protection of the traveling public and workers, as well as to
safeguard the work area in general." Taxpayer is required to
designate an employee with responsibility for maintaining the
positions and condition of all such devices and barriers, and
that employee is to be accessible to the DOT on an around-theclock basis. Section 8-1 of the Specifications deals with
subcontracting. Specialty work may be subcontracted. Temporary
traffic control devices are considered to be specialty work.
Under section 8-2 of the Specifications, Taxpayer is permitted
to use rented equipment but generally must indicate whether
equipment is rented with or without operators. Such notice is
not required if equipment is rented without operators from a
dealer whose principal business is renting equipment.

You have provided a Standard Subcontract between Taxpayer and
Supplier dated October 21, 1996. Under that contract, Supplier
"accepts exclusive liability for all sales or use taxes which
may be assessed against equipment or materials used in the
work." Supplier is to provide items or perform work as indicated
on Schedule A, which lists four types of traffic control
equipment with unit prices, total days of anticipated use, per
diem cost, and total cost per item. Schedule A states that
Taxpayer must furnish sandbags for barricades and fuel and locks
for arrowboards, variable message boards, and light towers.
Taxpayer is responsible for daily placement and relocations of
equipment. In addition, Schedule A lists and prices sign posts,
sign panels, and flexible tubular delineator. These items
relate to permanent signage and road markings rather than

temporary traffic control.

Pursuant to an Addendum, Taxpayer must be present at the job
site whenever Supplier delivers or picks up equipment. The
Addendum reiterates that, although Supplier sets up devices upon
initial delivery according to the contract plans, Taxpayer is
responsible for the day-to-day placement and relocation.
Supplier undertakes to repair and replace equipment, but
Taxpayer, as the "end user" of the equipment, must notify
Supplier of problems and allow reasonable time for corrective
action. The Addendum states Taxpayer "has chosen to perform his
own Maintenance of Traffic with the equipment of [Supplier]" and
is required to handle the equipment with due care. Taxpayer is
required to provide personnel to be instructed in the operation
of mechanical devices, since Taxpayer will be "the controlling
party in the use of this equipment." The estimates on which the
contract pricing was based indicate that as to four types of
items that are temporary traffic control devices, the price is
"for rental only." The prices for signposts, sign panels, and
tubular delineator include installation.

You have also provided materials from another project. The
estimate for that job indicates that prices are for rental only
and that "sales tax is included." When Supplier sent invoices,
tax was itemized as "0.00." Taxpayer requested that the
invoices be restated to reflect the amount of tax being
collected. Supplier replied that it was in the business of
performing contracts governed by Rule 12A-1.051, F.A.C. Based
on that characterization of its transactions, Supplier asserted
that it should pay tax when it acquires materials used to
assemble its equipment but should not collect tax from Taxpayer.
Supplier stated that it had been audited twice by the Department
and implied that its treatment of the contracts had been
approved in those audits. Taxpayer was also undergoing an audit
by the Department at that time, which has since been concluded.
Taxpayer was informed that its payments to Supplier for
temporary traffic control devices were subject to tax, and that
the contracts were not governed by the authorities cited by
Supplier. Taxpayer subsequently requested and received a Letter
of Technical Advice from the Department in February 1997. That
letter concluded that because Taxpayer exercised control over

and was responsible for daily movement and relocation of the
temporary devices, the payments made by Taxpayer were taxable
rental payments.

Taxpayer and Supplier have continued to disagree about the
proper taxability of the temporary traffic control devices.
Taxpayer now restates the total invoice amount related to those
devices and breaks out an amount that it designates as sales
tax. Supplier objects to this treatment, because Supplier
believes that the correct treatment is for it to pay tax on the
materials it buys to assemble the devices and to treat the
agreements with Taxpayer in their entirety as real property
contracts. (Taxpayer and Supplier appear to be in agreement
that permanent signs and road markings are real property
improvements on which Taxpayer owes no tax.)

Requested Advisements

You have requested advice on the following two questions:

1. Under the Standard Subcontract, including Exhibit A and
   the Addendum, are the payments made by Taxpayer for temporary
   traffic control devices taxable as rental payments or is
   Supplier taxable on its costs incurred in purchasing or
   manufacturing those items?

2. Is the method currently being used by Taxpayer to break
   out sales tax as an itemized amount of the total invoice price
   acceptable for Department audit purposes?

Law, Discussion, and Analysis

Sales tax is imposed on all sales of tangible personal property
in Florida by section 212.05(1), F.S. For purposes of sales and
use taxation, the term "sale" is defined in section 212.02(15),
F.S., to include "any transfer of title or possession or both,
exchange, barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of tangible
personal property for a consideration." "Rental" is defined in
section 212.02(10)(g), F.S., to mean "the leasing or rental of
tangible personal property and the possession or use thereof by

the lessee or rentee for a consideration, without transfer of
the title of such property,...." The seller or renter is
responsible for adding the tax to the price, collecting it from
the buyer or rentee, and remitting it to the state. If a
purchaser or rentee is unable to prove the tax was paid to the
seller or renter, the purchaser is directly liable to the state.
See sections 212.06(1), 212.07(2), (8), F.S.

Use tax generally is payable by one who uses tangible personal
property that was not taxed when the user purchased it. Use tax
is also due on the cost of any item of tangible personal
property fabricated or manufactured for one's own use, which
includes items produced to be used in the performance of a
contract rather than produced to be resold as tangible personal
property. See sections 212.05(1), 212.06(1), F.S. This
provision most often comes into play when a contractor produces
items to use in performing real property contracts, because the
items become part of realty in the course of performing the
contract. Real property transactions are not taxable under the
sales and use tax laws. The real property contractor is
therefore last user, the taxable ultimate consumer, of the
tangible personal property he converts to realty in fulfilling
his contractual obligations.

Like real property improvements, service transactions, unless
specifically made taxable, are exempt from sales and use taxes.
This is because the purchaser is not buying tangible personal
property that would trigger tax. Under section 212.08(7)(v),
F.S., personal service transactions are exempt even when there
is a transfer of tangible personal property, so long as the
property is an inconsequential element of the transaction and
there is no separate charge. Like real property contractors,
personal service providers are the taxable consumers of the
tangible personal property they use in performing their
contracts.

The proper taxation of the temporary traffic devices at issue in
this case depends on whether Supplier is renting them to
Taxpayer, performing a real property contract for Taxpayer, or
providing a nontaxable service to Taxpayer. If the transactions
constitute rentals of the devices, Supplier should collect sales

tax from Taxpayer and remit it to the state. If the
transactions are real property contracts, Taxpayer owes no tax
on the charges for the devices, but Supplier should pay use tax
on their cost. Similarly, if Supplier is using the devices in
performing a nontaxable service, Supplier rather than Taxpayer
owes tax.

Warning Safety Lights of Georgia, Inc. v. Department of Revenue,
678 So.2d 1377 (Fla. 4th DCA 1996), addressed the taxability of
DOT subcontracts for temporary traffic control devices and
permanent signs and road markings. In that case, Warnings
Safety Lights of Georgia, Inc. ("WSL") had asked the Department
for a declaratory statement that its subcontracts were service
transactions rather than rentals. The Department concluded WSL
was renting the temporary traffic control devices and must
collect and remit tax on the proceeds from that portion of the
contract. WSL appealed that determination. The court agreed
with WSL's characterization of the transaction as the providing
of a service. The court described WSL's obligations under the
contract as construction of the temporary traffic control
pattern, continuous maintenance and adjustment of the pattern,
and then installation of permanent road striping, signs, and
traffic control devices. All equipment provided by WSL remained
under WSL's "continuous control and supervision." WSL asserted
that its entire business, including construction and maintenance
of temporary traffic control patterns, was a nontaxable service,
and that the Department could not classify the provision of
temporary traffic control devices as a taxable rental.

The court found that it was WSL's services in setting up and
maintaining the temporary traffic control pattern that provided
value under the subcontract, and that there was no transfer of
possession or control of the devices. The Department and the
Court agreed that under the statutory definition of "lease" or
"rental" in section 212.02(10)(g), F.S., as "transactions in
which the owner of tangible personal property transfers
possession or use of this property to another, for
consideration, without the transfer of title," four conditions
had to be met. Two of the conditions clearly were. The
transactions involved tangible personal property, and WSL
retained title to the property. The decision turned on the

other two conditions: whether WSL transferred possession or use
of the property and whether WSL received consideration in
exchange for that transfer.

The court noted that Rule 12A-1.071(1), F.A.C., provides that in
order for there to be transfer of possession, the owner must
transfer actual or constructive custody or possession, the right
to custody or possession, or the right to use and control or
direct the use of the property. "Use" is defined in section
212.02(21), F.S., to include "the exercise of any right or power
over tangible personal property incident to the ownership
thereof, or interest therein,...." The Department had concluded
that the prime contractor had control and constructive
possession of the devices. Although only the subcontractor's
employees placed, moved, or removed the traffic devices, the
Department argued that the prime contractor's control of the
construction site resulted in joint possession. The court
rejected that argument because of Rule 12A-1.071(10), F.A.C.,
which provides that the transaction for performance of a
specific job in a manner to be determined by the owner is not a
rental. That rule goes on the explain that if an owner of
equipment furnishes operators and all operating supplies and
contracts to perform work under his direction, the customer does
not take possession of or have control of the equipment. The
contract at issue provided that only the subcontractor's
employees would place, move, or remove the devices. Based on
that fact, the court concluded that the transaction was for the
performance of a service.

The Department subsequently issued an Amended Declaratory
Statement on September 27, 1996. In that statement, the
Department concluded that the portion of the subcontract
involving permanent signs and road markings was a contract to
provide real property improvements. On that portion of the
contract, the subcontractor was required to pay use tax on the
materials and supplies used. No tax was owed by the contractor
on the consideration paid to the subcontractor. As to the
portion of the contract dealing with temporary traffic control
devices, the Department noted that it is not always easy to
apply the definition of "possession" and "use" to transactions
involving both tangible personal property and services. The

Department used the example of real estate signs to explain the
distinction. If a real estate agent's contract with a sign
provider limits the agent to providing an address and dates a
sign is to be in place, that is a service contract. On the
other hand, if the contractor creates, places, moves and removes
signs but the customer also has to right to place, move or
remove signs, the "situation would be a rental of tangible
personal property due to the customer's right to affect the
placement of the real estate signs." The Department then
acquiesced in the court's decision that the subcontract at issue
was for a service. Of particular importance was the fact that
only WSL employees were authorized under the contract to place,
move and remove the devices. The prime contractor had no right
to possession, control, or use of the temporary devices.

The contract at issue in this case differs from that in Warning
Safety Lights in one crucial manner. The contract between
Taxpayer and Supplier clearly does transfer possession and
control. Under the contract, Supplier initially delivers and
sets up the temporary devices for a phase of the road
construction. Supplier does not provide all the supplies
necessary because Taxpayer is required to provide and place the
sandbags for the barriers. Supplier is not on site at all
times. Supplier schedules regular maintenance and, if notified
by Taxpayer of a problem, provides additional maintenance or
repair service within a reasonable time. Taxpayer, however,
exercises significant control over the temporary devices and has
them in its possession after initial setup until they are
removed. The contract specifically provides that Taxpayer will
perform maintenance of traffic control using Supplier's
equipment and must exercise due care in handling it. Taxpayer
has to provide personnel to be trained by Supplier to operate
the mechanical equipment. Taxpayer, using its own employees, is
responsible for the daily movement and relocation of the
temporary devices. Taxpayer is identified in the Addendum as the
"end user of this equipment" and the "controlling party in the
use of this equipment." Under the circumstances of this case,
unlike Warning Safety Lights, Taxpayer does take possession and
exercise control over the temporary traffic control devices.
This subcontract therefore involves a taxable rental of those
devices.

Supplier appears to argue that the providing of the temporary
traffic control devices is a real property contract governed by
Rule 12A-1.051, F.A.C. If so, Supplier would owe use tax on the
cost of those devices and Taxpayer would owe no sales tax under
Rule 12A-1.051, F.A.C. This argument has no merit. Real
property includes land, buildings, other improvements to land,
and fixtures. For an item to become part of realty, it must be
attached in some permanent manner and the person causing it to
be placed (in this case, Taxpayer or the DOT) must intend for it
become part of the realty and remain in place indefinitely. See
Commercial Finance Co. v. Brooksville Hotel Co., 123 So. 814,
816 (Fla. 1929); Sweeting v. Hammons, 521 So.2d 226 (Fla. 3rd
DCA 1988). Effective July 1, 1998, the Legislature added
definitions of "real property," "improvements to real property,"
and "fixtures" to section 212.06, F.S. To the extent they are
relevant to this case, the new statutory definitions recognize
the existing case law. To be a fixture that is considered real
property, an item must be an accessory to land or to a
structure, which retains its character as an accessory when
installed and which is permanently attached to realty.
Temporary traffic control devices that are moved whenever the
work progresses and are removed at the end of the project are
not real property. A contract to provide those devices is not a
real property contract.

Based on the foregoing discussion, Supplier is renting temporary
traffic control devices to Taxpayer when the agreement embodies
the terms of the Standard Subcontract and Addendum. Taxpayer
owes and Supplier should collect and remit sales tax on the
amounts paid for those devices. Whether or not Supplier is
also taxable when it purchases or assembles those devices cannot
be determined from the facts presented. If Supplier uses those
devices only for contracts such as the one under consideration,
Supplier would be deemed to acquire the devices exclusively for
rental purposes. In that case, Supplier's acquisition of the
devices would be tax exempt. If Supplier uses the devices both
for contracts like the one with Taxpayer and also for contracts
in which Supplier uses the devices to provide a service, as was
the case in Warning Safety Lights, Supplier would be obligated
to pay tax on their cost because of that use as well as to

collect tax when possession or control of the devices is
transferred under a rental agreement. See section 212.02(14),
F.S.; Rule 12A-1.071(2), F.A.C.

Sales tax on rentals must be computed based on and added to the
total rental price. It should ordinarily be stated as a
separate amount on invoices. Supplier does not state a separate
amount for tax. In some cases the underlying documentation
indicates that sales tax is included in the per diem price. In
other cases, there is no such provision and the terms indicate
the price is for rental only. The Standard Subcontract, however,
provides that Supplier is responsible for sales and use taxes.
Taxpayer has interpreted these provisions to mean that whatever
amount is invoiced is required to include both the rental
payment and the tax owed. Taxpayer therefore restates the
amount to break out the tax. Supplier believes no tax is due
and objects to Taxpayer's restatement of the invoices. Based on
the facts provided, Taxpayer is determining its tax liability
and paying that amount of tax as such to Supplier. Supplier has
not asserted that Taxpayer is underpaying that tax, but rather
that Taxpayer owes no tax at all. It is not known whether
Supplier actually remits the amounts Taxpayer pays as sales tax
to the state. Supplier is, however, required to remit to the
state any amounts paid by a purchaser as tax. See sections
212.15, 213.756, F.S. The Department's likely audit position
would be that Taxpayer's payments coupled with restated invoices
denoting the amount of tax would establish that Taxpayer paid
the tax to Supplier. The Department would look to Supplier to
properly remit the tax to the state.

Conclusions

1. Under the Standard Subcontract, including Exhibit A and
   the Addendum, the payments made by Taxpayer for temporary
   traffic control devices are taxable as rental payments.
   Supplier may or may not be taxable on its costs incurred in
   purchasing or manufacturing those items, depending on whether
   they are used exclusively for rental purposes.

2. The method currently being used by Taxpayer to break out
   sales tax as an itemized amount of the total invoice price is

acceptable for Department audit purposes, unless and until the
parties reach a mutual agreement concerning the proper
calculation of tax on the rental payments.

Closing Statement

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 and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of section 213.22,
F.S. Your name, address, and any other details that might lead
to identification of the taxpayer, must be deleted by the
Department before disclosure. In an effort to protect
confidential information, we request you notify the undersigned
in writing within 15 days of any deletions you wish made to the
request or this response.

Sincerely,

Linda W. Bridges
Tax Law Specialist
Technical Assistance and Dispute Resolution
(904) 922-9412

LWB/
Control #: 35626