Sales Use and Tax TAA 19A-007 Public Works Contract
City of Daytona Beach
TAX: Sales and Use Tax
TAA NUMBER: 19A‐007
ISSUE: Public Works
STATUTE CITE(S): Section(s) 212.08(6), F.S.
RULE CITE(S): Rule 12A‐1.094, F.A.C.
QUESTIONS: Does Taxpayer’s contract comply with the requirements for the exemption for political subdivisions to purchase materials directly from suppliers for public works projects?
ANSWER: Yes. Taxpayer’s contract amendments include the requirements of Rule 12A‐ 1.094(4), F.A.C.
March 19, 2019
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
Subject: Technical Assistance Advisement (“TAA”)
TAA 19A‐007
AMS#: 7000161036
Sales and Use Tax‐Public works
Section(s) 212.08(6), Florida Statutes (“F.S.”)
Rule(s) 12A‐1.094(4), Florida Administrative Code (“F.A.C.”)
XXXXXXXXXXX (“Petitioner”)(“Taxpayer”)
Business Partner Number: XXXXXXX
FEIN: XX‐XXXXXXX
XXXXXXXXXXXXXX (“Contract Amendment”)
Dear XXXXXX:
This letter is a response to your petition dated January 31, 2019 for the Department’s issuance of a Technical Assistance Advisement (“TAA”) to Petitioner, regarding public works. Your petition has been carefully examined, and the Department finds it to be in compliance with the requisite criteria set forth in Rule Chapter 12‐11, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of section 213.22, F.S.
Facts:
Taxpayer plans to build a XXXXXXXXXXXXXXXX. Taxpayer enclosed a copy of general terms to be used in the contract. In addition, Taxpayer supplied a copy of the Contract Amendment incorporated with the contract. Similar provisions of the Contract Amendment were included in a previous TAA issued to Taxpayer for another public works project.
The Contract Amendment provides Taxpayer with the option to purchase certain materials directly from the supplier. The general contractor will identify items to be purchased directly by Taxpayer. The Contract Amendment provides that Taxpayer will issue a purchase order to the supplier for the purchases identified by the contractor. The Contract Amendment allows for a change order regarding the direct purchases.
The Contract Amendment provides that Taxpayer will acquire title to and assume responsibility for materials directly purchased by Taxpayer upon delivery to the job site. The Contract Amendment requires suppliers to directly invoice Taxpayer. The Contract Amendment requires Taxpayer to directly pay the supplier with Taxpayer’s check. Taxpayer will provide the supplier a Certificate of Entitlement for each purchase order.
The Contract Amendment provides that Taxpayer will bear the economic burden of obtaining insurance covering damage or loss. It also provides that Taxpayer is to receive the insurance proceeds from certain damage when assuming the risk. Taxpayer will issue a copy of the Consumer’s Certificate of Exemption to each supplier.
Applicable Statutes and Rules
Section 212.08(6), F.S., provides:
(6) EXEMPTIONS; POLITICAL SUBDIVISIONS.— (a) There are also exempt from the tax imposed by this chapter sales made to the United States Government, a state, or any county, municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity…. (b) The exemption provided under this subsection does not include sales of tangible personal property made to contractors employed directly to or as agents of any such government or political subdivision when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision. A determination of whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based upon the substance of the transaction rather than the form in which the transaction is cast. However, for sales of tangible personal property that go into or become a part of public works owned by a governmental entity, other than the Federal Government, a governmental entity claiming the exemption provided under this subsection shall certify to the dealer and the contractor the entity’s claim to the exemption by providing the dealer and the contractor a certificate of entitlement to the exemption for such sales. If the department later determines that such sales, in which the governmental entity provided the dealer and the contractor with a certificate of entitlement to the exemption, were not exempt sales to the governmental entity, the governmental entity shall be liable for any tax, penalty, and interest determined to be owed on such transactions. Possession by a dealer or contractor of a certificate of entitlement to the exemption from the governmental entity relieves the dealer from the responsibility of collecting tax on the sale and the contractor for any liability for tax, penalty, or interest related to the sale, and the department shall look solely to the governmental entity for recovery of tax, penalty, and interest if the department determines that the transaction was not an exempt sale to the governmental entity. The governmental entity may not transfer liability for such tax, penalty, and interest to another party by contract or agreement. (e) The department shall adopt rules for determining whether a particular transaction is properly characterized as an exempt sale to a governmental entity or a taxable sale to a contractor which give special consideration to factors that govern the status of the tangible personal property before being affixed to real property. In developing such rules, assumption of the risk of damage or loss is of paramount consideration in the determination. The department shall also adopt, by rule, a certificate of entitlement to exemption for use as provided in paragraph (b). The certificate shall require the governmental entity to affirm that it will comply with the requirements of this subsection and the rules adopted under paragraph (b) in order to qualify for the exemption and that it acknowledges its liability for any tax, penalty, or interest later determined by the department to be owed on such transactions.
Rule 12A‐1.094(4) and (5), F.A.C., provide:
(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. (e)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. This requirement does not apply to any agency or branch of the United States government. 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. 3. The governmental entity will also affirm that if the Department determinesthat tangible personal property sold by a vendor tax‐exempt pursuant to a Certificate of Entitlement does not qualify for the exemption under Section 212.08(6), F.S., and this rule, the governmental entity will be liable for any tax, penalty, and interest determined to be due. 4. The following is the format of the Certificate of Entitlement to be issued by the governmental entity:
CERTIFICATE OF ENTITLEMENT
The undersigned authorized representative of_________________ (hereinafter “Governmental Entity”), Florida Consumer’s Certificate of Exemption Number____________________, affirms that the tangible personal property purchased pursuant to Purchase Order Number______ from ___________ (Vendor) on or after _______ (date) will be incorporated into or become a part of a public facility as part of a public works contract pursuant to contract # ___________ with ______________ (Name of Contractor) for the construction of _____________________________. Governmental Entity affirms that the purchase of the tangible personal property contained in the attached Purchase Order meets the following exemption requirements contained in Section 212.08(6), F.S., and Rule 12A‐1.094, F.A.C.: You must initial each of the following requirements.
_ 1. The attached Purchase Order isissued directly to the vendorsupplying the tangible personal property the Contractor will use in the identified public works. ____ 2. The vendor’s invoice will be issued directly to Governmental Entity. ____ 3. Payment of the vendor’s invoice will be made directly by Governmental Entity to the vendor from public funds. ____ 4. Governmental Entity will take title to the tangible personal property from the vendor at the time of purchase or of delivery by the vendor. ____ 5. Governmental Entity assumes the risk of damage or loss at the time of purchase or delivery by the vendor.
Governmental Entity affirmsthat if the tangible personal property identified in the attached Purchase Order does not qualify for the exemption provided in Section 212.08(6), F.S. and Rule 12A‐1.094, F.A.C., Governmental Entity will be subject to the tax, interest, and penalties due on the tangible personal property purchased. If the Florida Department of Revenue determines that the tangible personal property purchased tax‐exempt by issuing this Certificate does not qualify for the exemption, Governmental Entity will be liable for any tax, penalty, and interest determined to be due.
I understand that if I fraudulently issue this certificate to evade the payment of sales tax I will be liable for payment of the sales tax plus a penalty of 200% of the tax and may be subject to conviction of a third-degree felony. Under the penalties of perjury, I declare that I have read the foregoing Certificate of Entitlement and the facts stated in it are true.
__________________ Signature of Authorized Representative Title_____________________
__________________Purchaser’s Name (Print or Type) Date____________________
Federal Employer Identification Number:________________ Telephone Number:________________________
You must attach a copy of the Purchase Order to this Certificate of Entitlement. Do not send to the Florida Department of Revenue. This Certificate of Entitlement must be retained in the vendor’s and the contractor’s books and records.
(d) Sales to contractors, including subcontractors, are subject to tax. (e) The governmental entity may not transfer liability for such tax, penalty, and interest to another party by contract or agreement. (f) In the case of contracts with any agency or branch of the United States government in which the federal governmental agency or branch is not required to produce a Certificate of Entitlement, the purchase must comply with the five criteria provided in paragraph (b), for the purchase of tangible personal property to be exempt from sales and use tax. If the criteria in paragraph (b) are not met, the contractor is the ultimate consumer of such tangible personal property and is liable for sales or use tax on such purchases and manufacturing costs. (5) Contractors, including subcontractors, that manufacture, fabricate, or furnish tangible personal property that the contractor incorporates into public works are liable for tax in the manner provided in subsection (10) of Rule 12A‐1.051, F.A.C. The contractor and subcontractors, not the governmental entity, are deemed to be the ultimate consumers of the articles of tangible personal property they manufacture, fabricate, or furnish to perform their contracts and may not accept a Certificate of Entitlement for these articles.
Law and Discussion
Section 212.05(1), F.S., requires dealers to collect sales tax on sales of tangible personal property. Section 212.07(8), F.S., requires persons who purchase tangible personal property to directly remit the tax to the Department when the purchaser, such as a contractor, cannot prove that the tax was paid to the supplier.
Section 212.08(6)(a), F.S., provides for an exemption for sales of tangible personal property made directly to Florida political subdivisions, such as Taxpayer. Section 212.08(6)(b), F.S., provides that the exemption from tax provided by s. 212.08(6)(a), F.S., does not apply for purchases made by a contractor when the items are used in a public works project. The tax applies even if the contractor acts as an agent on the behalf of the political subdivision.
Section 212.08(6)(b), F.S., provides that for the political subdivision to claim the exemption provided by s. 212.08(6)(a), F.S., the political subdivision must issue the Certificate of Entitlement to the supplier for each purchase order, and comply with Rule 12A‐1.094(4), F.A.C. Taxpayer is required to provide the supplier a Consumer’s Certificate of Exemption.
Taxpayer will be required to issue a purchase order directly to the suppliers to qualify for the exemption. For each purchase order issued by Taxpayer, Taxpayer is required to include a separate completed Certificate of Entitlement. Each time a separate purchase order is issued by Taxpayer, Taxpayer is required to make direct payment with public funds to supplier.
Taxpayer must require the supplier to issue the sales invoice in Taxpayer’s name and it must be sent directly to Taxpayer. Taxpayer is required to take title of the property when delivery is completed by the supplier. Taxpayer must assume the risk of loss from the time delivery begins. Taxpayer will be deemed to have assumed the risk of loss and Taxpayer will bear the economic burden of obtaining insurance covering damage or loss, or directly enjoys the economic benefit of the proceeds of such insurance.
Response
Based on the documentation provided, the Contract Amendment language satisfies the requirements provided for by Rule 12A‐1.094(4), F.A.C. As such, the exemption provided by s. 212.08(6), F.S., regarding direct purchases by a political subdivision for use in public works projects applies.
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, 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.
Respectfully,
Chuck Wallace
Technical Assistance & Dispute Resolution
(850) 717‐7541
AMS #: 7000161036
