CORESLAB CHALLENGES FLORIDA SALES TAX REFUND DENIAL FOR "FACTORY-BUILT BUILDINGS."
Recently, Coreslab Structures Miami, Inc. and Coreslab Structures Tampa, Inc. ("Coreslab") filed substantial sister refund cases against the Florida Department of Revenue. Coreslab is a real property contractor/manufacturer that manufactures buildings in Florida. After completion of the building Coreslab transports and affixes the structure to the real property of its customers. In addition, Coreslab constructs "factory-built buildings" for its customers. A "factory-built building" is defined under section 212.07, Florida Statutes, as a structure manufactured in a manufacturing facility for installation as a finished building. As required, the Taxpayer accrued and remitted use tax on the manufacturing costs of its manufactured real property items, including the factory-built buildings.
To lay a foundation, Florida has a complimentary sales and use tax system. Specifically, dealers are required to collect and remit sales tax on the sale of tangible personal property. If a business does not sell tangible personal property, but rather manufactures or installs real property, then it is required to accrue and remit a use tax. Specifically, use tax is due on the taxpayer's direct and indirect costs (material, labor, transportation, etc) of producing and delivering such property to the jobsite, but not on the labor costs incurred on the jobsite where the real property is improved (See section 212.06, Florida Statutes (F.S.) and rule 12A-1.043, Florida Administrative Code (F.A.C.)). This is extremely important for construction related companies, because the manufacturer is normally required to pay Florida use tax on its "cost price," which includes materials and labor costs. Most big construction companies that operate in Florida know this rule. However, what many tax practitioners and construction companies alike do not know is that the manufacturer of a "factory-built building" is only required to accrue and remit tax on its materials and NOT on its labor, service, or transportation costs. Section 212.06(7), F.S., provides that a Factory-Built Building is defined as a "structure manufactured in a manufacturing facility for installation or erection as a finished building."
To some this might seem a little unfair. The company manufacturing a component of a building has to pay use tax on the labor and transportation of tangible personal property incorporated into real estate, but a company that builds the whole building in its factory for installation into realty only has to pay Florida use tax on its materials. The tax savings between the two scenarios is substantial. However, there is one additional point of fact to reconcile the seemingly opposite tax —Any labor costs incurred ON THE JOBSITE to manufacture tangible personal property to be incorporated into the real estate is NOT subject to use tax. Therefore, the legislative intent is to put companies making "factory-built buildings" on an even playing field with companies that fabricate items on the job site to be incorporated into buildings, with neither being subject to use tax on labor, transportation, or other non-material costs. .
In its multiple count complaint, the Taxpayer alleges that it is a manufacturer of "factor-built buildings" and is therefore entitled to a refund of use tax paid related to labor, transportation, and other none material costs with respect to its manufactured and/or installed real property buildings. Second, the taxpayer erroneously calculated overhead in the calculation of other items subject to sales and use tax and is entitled to a refund based on the revised calculation.
Interestingly, in its Tampa complaint, the Taxpayer alleges that the DOR accepted some adjustments for similar contracts for its Miami operation and disallowed in the Tampa company. It seems to be another situation in which the same Florida DOR has taken contrary positions relating to similar contracts with related companies. Of even greater interest, the Plaintiff is seeking reimbursement of attorney's fees with in both suits. With multi-million dollar tax refunds and attorney's fees in the balance these should be interesting cases to follow in the coming months.
A copy of both complaints, as filed in the court, may be downloaded in PDF format below. See also Techncial Assistance Advisement 97A-023 regarding the legislative history of the exemption for Factor-Built Buildings.
If your company or clients are potentially manufacturers of "factory-built buildings," then there may be significant refund opportunities available. Furthermore, it might be possible to restructure a company's contracts to become a manufacturer of the "factor-built buildings." If either of these situations are of interest to your company or your clients, then contact our offices today for a free consultation concerning these matters.
Download a Copy of the Complaint - Tampa - Coreslab Structures of Tampa, Inc. v. State of Florida, Department of Revenue, 2011 CA 002543, September 15, 2011
Download a Copy of the Complaint - Miami - Coreslab Structures of Tampa, Inc. v. State of Florida, Department of Revenue, 2011 CA 002544,September 15, 2011
AUTHORITY
Sec. 212.06, Florida Statutes
Rule 12A-1.043, Florida Administrative Code
Technical Assistance Advisement 97A-023 (Factory-Built Building analysis)