Sales and Use Tax TAA 13A-025 Public Works Contract

QUESTION: Should Taxpayer have been charged sales tax on the sale and installation of plantation shutters?

ANSWER: A lump sum contract for the sale and installation of plantation shutters is a contract for the improvement to real property. Vendor should not have separately stated the tax on the plantation shutters; rather, the tax should be included in the price of the materials used to complete the contract.

November 7, 2013

Re: Technical Assistance Advisement – TAA 13A-025 
Sales and Use Tax – Plantation Shutters 
Sections: 212.05, 212.06, Florida Statutes (F.S.) 
Rule: 12A-1.051, Florida Administrative Code (F.A.C.) 
Petitioner: XXX [hereinafter “Taxpayer”]

Dear XXX:

This letter is a response to your petition dated XXX, 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, 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.

Issue

Whether Taxpayer should have been charged sales tax on the sale and installation of plantation shutters.

Presented Facts

Taxpayer entered into a contract with XXX (“Vendor”), for the purchase and installation of plantation shutters for one dining room window, a sliding blind for lanai doors and venetian blinds for three bedroom windows. Vendor provided Taxpayer with an invoice listing the quantity and price of each item ordered. Sales tax was charged as a separate line item for all items on the invoice. 

Taxpayer does not dispute that tax was due on the sales price of the blinds and understands that the vendor can include sales tax in the cost of the plantation shutters when issuing the invoice; however, Taxpayer does not agree with the vendor adding sales tax as a separate line item on the invoice. 
Taxpayer and Vendor are currently in a dispute over the amount of refund Taxpayer is due based on the return of defective merchandise and sales tax Taxpayer was charged as a separate line item. Taxpayer has provided copies of correspondence between Vendor and himself attempting to resolve the refund issue. However, Vendor asserts that the sales tax it charged Taxpayer cannot be refunded since Vendor is required to pay taxes on its sales.

Law and Discussion

Section 212.05, F.S. provides that anyone involved in the business of selling tangible personal property at retail is engaged in a taxable privilege and tax is due on each taxable transaction or incident. The tax is calculated on the “sales price” of the item(s) sold. Section 212.02(16), F.S. defines “sales price” to mean the total amount paid for tangible personal property, including any services that are a part of the sale… 
In order to determine whether the tax rules relating to tangible personal property or those related to real property apply to this transaction, it is necessary to determine whether the installation of the property at issue, namely the plantation shutters, becomes part of real property or retains the characteristics of tangible personal property. “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…1 “Real property” is defined in section 212.06(14)(a), F.S., as “the land and improvements thereto and fixtures…” “Fixtures” mean 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…2 Rule 12A-1.051(3) provides the criteria for determining whether an item is a fixture. “Improvements to real property” includes the activities of building, erecting, constructing, altering, improving, repairing, or maintaining real property.3Section 212.05(1), F.S., provides that sales and repairs of tangible personal property are taxable. However, the charge for a real property improvement or repair is not taxable.

In addition, the courts have provided some additional guidance in determining when property attached to realty is considered a fixture rather than retaining its character as tangible personal property. In Commercial Finance Co. v. Brooksville Hotel Co., 123 So. 814, 816 (Fla. 1929), the Florida Supreme Court set out a three-part test for determining whether an object is a fixture or personalty: 1) Is there actual annexation to the realty or something appurtenant thereto?; 2) Is the item in question appropriately applied to the use or purpose of that part of the realty to which it is connected?; 3) Did the party making the annexation intend the item to be a permanent accession to the freehold? If the answer to these three questions is yes, the object is a fixture.

1 Sec. 212.02(9), F.S. 
2 Sec. 212.06(14)(b), F.S. 
3 Sec. 212.06(14)(c)

In this case, there is an actual annexation to realty since the plantation shutters were either screwed or bolted to the windows of Taxpayer’s home. Next, the plantation shutters are appropriately applied to the use and purpose of the part of the realty to which they are connected since they are being used for the purpose that one uses shutters for namely, controlling the amount of sunlight that enters a room, to provide privacy, security, enhancement of the home’s aesthetics, etc. Based on the information provided in Taxpayer’s request it can be assumed that by entering into a contract with Vendor and paying for the cost and installation of custom shutters, in addition to the significant changes to the window seals necessary to install the shutters, that it was Taxpayer’s intention that the shutters would become a permanent accession to his home. Therefore, the plantation shutters would be considered a fixture for purposes of determining that the tax rules relating to real property would apply to this transaction.

Pursuant to Rule 12A-1.016(b)(2), F.A.C., draperies, shades and blinds have been determined to be tangible personal property. Rule 12A-1.051 (g), F.A.C., emphasizes this position by excluding the items listed in Rule 12A-1.016, F.A.C., from treatment as real property improvements. Rule 12A-1.051, F.A.C., provides further guidance to persons making improvements to real property. Rule 12A-1.051(18), F.A.C., specifically excludes blinds and shades from being classed as improvements to real property. However, blinds and shades differ from plantation shutters in one significant aspect: blinds and shades are not attached in any manner to the real property. They rest in brackets; even though the brackets are screwed or bolted into the wall or window frame, the minimal value of the bracket does not make the blinds and shades into improvements to real property. Plantation shutters, on the other hand, are usually directly screwed or bolted into the wall or window frame, and when they are attached as such, they are properly classified as improvements to real property.

The appropriate taxation of plantation shutters and materials incorporated in their installation depends upon the type of contract vendor has with its customers. According to the information provided by Taxpayer, Vendor both provides and installs the blinds and shutters. Rule 12A-1.051(4), Florida Administrative Code, outlines the tax requirements of lump sum and similar contracts for the improvement to real property and it states as follows: 
(4) General rule of taxability of real property contractors. Contractors are the ultimate consumers of materials and supplies they use to perform real property contracts and must pay tax on their costs of those materials and supplies, unless the contractor has entered a retail sale plus installation contract. Contractors performing only [lump sum] contracts . . . do not resell the tangible personal property used to the real property owner but instead use the property themselves to provide the completed real property improvement. Such contractors should pay tax to their suppliers on all purchases. They should also pay tax on all materials they fabricate for their own use in performing such contracts, as discussed in subsection (10). They should charge no tax to their customers, regardless of whether they itemize charges for materials and labor in their proposals or invoices, because they are not engaged in selling tangible personal property. Such contractors should not register as dealers unless they are required to remit tax on the fabricated cost of items they fabricate to use in performing contracts. (Emphasis Supplied)

Charges for improvements to real property made by the contractor to the customer are generally not subject to tax. Instead, the contractor pays tax to its supplier on its purchase of materials and supplies used in the performance of the job. The contractor recoups the tax it pays on the materials by including it as a cost of the job; the tax should not be separately stated to the customer. In this case, Vendor should not have separately stated the tax on the plantation shutters; rather it should have been included in the price of the shutters, which likely would have resulted in a higher cost to Taxpayer.

Regardless whether it performed the installation, Vendor was correct to charge you tax on the plantation shutters, however, Taxpayer should not have been charged tax as a separate line item.

Conclusion

A lump sum contract for the sale and installation of plantation shutters is a contract for the improvement to real property. Vendor should not have separately stated the tax on the plantation shutters; rather it should be included in the price of the materials used to complete the contract.

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 upon 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 from that which is 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.

Sincerely, 
Sara D. Faulkenberry 
Senior Tax Specialist 
Technical Assistance and Dispute Resolution 
Control # 144509