Sales and Use Tax TAA 19A-005 Public Works Contracts

QUESTION: If a contractor or a subcontractor purchases materials for a project for an exempt governmental entity and pays tax at the time of the sale, can the governmental entity submit a Certificate of Exemption and a Certificate of Entitlement to the vendor after the transaction has occurred and have the sales tax on that transaction removed?

ANSWER: No. If a contractor or subcontractor purchases materials for a governmental entity and pays tax at the time of the sale, the five criteria of 1) Direct Purchase Order, 2) Direct Invoice, 3) Direct Payment, 4) Passage of Title, and 5) Assumption of the Risk of Loss will not have been met. Therefore, the governmental entity cannot submit a Certificate of Exemption and a Certificate of Entitlement to a vendor after a transaction has occurred and have the sales tax removed. Another requirement for a governmental entity to be entitled to purchase materials tax exempt for a public works project is that a purchase order be attached to the Certificate of Entitlement and that these be issued to the vendor supplying the materials for the project. Providing a Certificate of Entitlement to a vendor after a sale has occurred would not meet this requirement, and the sale would not be tax exempt pursuant to Rule 12A-1.094(4)(a)-(c), F.A.C.

February 25, 2019

XXXX 
XXXX 
XXXX

Re: Technical Assistance Advisement No. 19A-005 
Sales and Use Tax – Public Works Contracts 
XXXX (“Taxpayer”) 
Sections 212.06(1)(a) and 212.08(6)(b), Florida Statutes (“F.S.”) 
Rules 12A-1.056(1)(a) and 12A-1.094, Florida Administrative Code (“F.A.C.”)

Dear XXXX:

This letter is a response to your petition on behalf of XXXX (“Taxpayer”), dated October 8, 2018, for the Florida Department of Revenue’s (the “Department’s”) issuance of a Technical Assistance Advisement ("TAA") concerning whether, if a contractor or a subcontractor purchases materials for a project for an exempt governmental entity and pays tax at the time of the sale, the governmental entity can submit a Certificate of Exemption and a Certificate of Entitlement after a transaction has occurred. 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.

Requested Advisement:

If a contractor or a subcontractor purchases materials for a project for an exempt governmental entity and pays tax at the time of the sale, can the governmental entity submit a Certificate of Exemption and a Certificate of Entitlement to the vendor after the transaction has occurred and have the sales tax on that transaction removed?

Facts As Provided:

This petition for a TAA is brought on behalf of XXXX (“Taxpayer”). XXXX. The request for advisement arises out of situations in which there are misunderstandings as to whether the contractors or subcontractors are going to be purchasing the materials to be incorporated into exempt governmental entities’ building projects or whether the exempt entities are going to be purchasing the materials directly. On occasion, contractors or subcontractors purchase and pay tax on building materials which will be used in projects for governmental entities. In these instances, the governmental entities may have planned on purchasing the materials themselves and not paying tax by virtue of using Certificates of Exemption and Certificates of Entitlement. Often, in these situations, pressure comes from the governmental entities through the contractors and subcontractors to the material suppliers for the suppliers to re-bill the completed sales directly to the governmental entities without the tax. The governmental entities also ask the suppliers to apply the Certificates of Exemption and Certificates of Entitlement retroactively back to the time of the sales in order for the suppliers to remove the tax on the contractors’/subcontractors’ purchases.

Applicable Law and Discussion:

Sales tax is due at the time of the moment of the sales transaction. Rule 12A-1.056(1)(a), F.A.C., provides, in relevant part:

• The total amount of tax on cash sales, credit sales, installment sales, or sales made on any kind of deferred payment plan shall be due at the moment of the transaction. . . .

(Emphasis added.)

See also s. 212.06(1)(a), F.S. Therefore, if a contractor or a subcontractor purchases building materials for a governmental entity’s project, the contractor or subcontractor must pay tax at the time of the sale or purchase.

Rule 12A-1.094(4)(a)-(c)1. and 2., F.A.C., pertaining to Public Works Contracts, also provides, in relevant 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 Certification 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 of the proceeds of such insurance.

(c)1. To be entitled to purchase materials tax exempt for a public works project, a governmental entity is required to issue a Certificate of Entitlement to each vendor and to the governmental entity’s contractor to affirm that the tangible personal property purchased from that vendor will go into or become a part of a public work. . . .

2. The governmental entity’s purchase order for tangible personal property to be incorporated into the public works project must be attached to the Certificate of Entitlement. The governmental entity must issue a separate Certificate of Entitlement for each purchase order. Copies of the Certificate may be issued.

See also s. 212.08(6)(b), F.S.

When a governmental entity submits a Certificate of Entitlement to a vendor, one of the things it is affirming in the Certificate is that purchase of the tangible personal property contained in the Purchase Order it is submitting with the Certificate of Entitlement meets the five exemption requirements in Rule 12A-1.094(4)(b)1.-5., F.A.C., above. See Rule 12A-1.094(4)(c), F.A.C. The Certificate of Entitlement contains a checklist with those five exemption requirements listed, and an authorized representative of the governmental entity must initial beside each requirement affirming that the requirement has been met. See Rule 12A-1.094(4)(c)4., F.A.C. The exemption requirements in the checklist that the governmental representative must affirm have been met in a Certificate of Entitlement are:

1. The purchase order attached to the Certificate of Entitlement must be issued directly to the vendor supplying the tangible personal property the Contractor will use in the identified public works.
2. The vendor’s invoice must be issued directly to the governmental entity
3. Payment of the vendor’s invoice must be made directly by the governmental entity to the vendor from public funds.
4. A governmental entity must take title to the tangible personal property from the vendor at the time of purchase or of delivery by the vendor.
5. The governmental entity must assume the risk of damage or loss at the time of purchase or delivery by the vendor.

See Rule 12A-1.094(4)(b) and (c)4., F.A.C.

An authorized representative of the governmental entity and the purchaser must also sign the Certificate of Entitlement, declaring under penalty of perjury that the facts stated in it are true. See Rule 12A1.094(4)(c)4., F.A.C.

Turning to your question as to whether a governmental entity can submit a Certificate of Exemption and a Certificate of Entitlement to a vendor after a contractor or subcontractor has purchased materials and paid tax and have the tax on those materials retroactively removed, the answer is “no.” In order for a governmental entity to be entitled to purchase materials tax exempt for a public works project, it must:

. . . issue a Certificate of Entitlement to each vendor and to the governmental entity’s contractor to affirm that the tangible personal property purchased from that vendor will go into or become a part of a public work. . . . 1

(1) This requirement does not apply to any agency or branch of the United States government.

See Rule 12A-1.094(4)(c)1., F.A.C.

A representative for the governmental entity must also affirm in the Certificate of Entitlement that each of the five exemption requirements delineated above (and found in Rule 12A-1.094(4)(b) and (c)4., F.A.C.) have been met. The first requirement is that the purchase order be attached to the Certificate of Entitlement and that these be issued to the vendor supplying the materials for the public works project.

Therefore, if a Certificate of Entitlement is not submitted at the time of purchase, the governmental entity will not meet that first exemption requirement and it will not be entitled to purchase those materials tax-exempt. If a contractor or subcontractor purchases materials for a governmental entity and pays tax at the time of the sale and the governmental entity submits a Certificate of Exemption and Certificate of Entitlement to the vendor after the transaction has occurred, as in your scenario, the sale will not be tax-exempt pursuant to Rule 12A-1.094(4)(a)-(c)1. and 2.

Conclusion:

If a contractor or subcontractor purchases materials for a governmental entity and pays tax at the time of the sale, the five criteria of 1) Direct Purchase Order, 2) Direct Invoice, 3) Direct Payment, 4) Passage of Title, and 5) Assumption of the Risk of Loss will not have been met. Therefore, the governmental entity cannot submit a Certificate of Exemption and a Certificate of Entitlement to a vendor after a transaction has occurred and have the sales tax removed. Another requirement for a governmental entity to be entitled to purchase materials tax exempt for a public works project is that a purchase order be attached to the Certificate of Entitlement and that these be issued to the vendor supplying the materials for the project. Providing a Certificate of Entitlement to a vendor after a sale has occurred would not meet this requirement, and the sale would not be tax exempt pursuant to Rule 12A1.094(4)(a)-(c), F.A.C.

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 that 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 15 days of the date of this letter.

Sincerely,

Katharine Heyward 
Senior Attorney 
Technical Assistance & Dispute Resolution 
Record ID: XXXX