TAA 21A-005 Discretionary Sales Surtax
QUESTION: Based on the documentation and facts provided in this TAA request, does the entire purchase amount reflected in the Purchase Agreement qualify for the $5,000 discretionary sales surtax limitation?
ANSWER: From the documentation provided, it does not appear that the single sale test has been met. Furthermore, it did not appear that all of the documentation clearly specified the quantity to be purchased and the time period in which delivery would occur. Lastly, there were three change orders, and each change order would have been a separate sale for purposes of the single sale test. Consequently, the $5,000 discretionary sales surtax limitation does not apply to the entire purchase amount reflected in the Purchase Agreement.
March 24, 2021
Technical Assistance Advisement 21A-005
Statute Cite(s): Sections 212.054 and 212.055, Florida Statutes (F.S.)
Rule Cite: Rule 12A-15.004, Florida Administrative Code (F.A.C.)
XXXXXXX ("Taxpayer")
FEIN: XXXXXXX
BP#: XXXXXXX
Dear XXXXXXX:
This is in response to your letter received July 31, 2020, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the matter referenced below. An examination of your letter has established you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
Facts
The facts outlined below were provided either in actual documents provided by Taxpayer or in electronic mail exchanges with XXXXXXX:
XXXXXXX (“XXXXXXX) operates as a general contractor. The Taxpayer provides preconstruction, construction, designing, building, owners representative, construction management, and warranty services to education, commercial office, retail, commercial, and special use facilities.
Taxpayer entered into a Subcontract Agreement with XXXXXXX, which held a contract with XXXXXX, to perform work for the construction of XXXXXXX (“Project”) located in XXXXXXX, Florida. The Subcontract Agreement was signed and dated January 17, 2020.
Taxpayer and XXXXXXX (“Vendor”) entered into a Purchase Agreement for concrete materials that Taxpayer contends meets the $5,000 discretionary sales surtax limitation. The Purchase Agreement was signed and dated on January 23, 2020. The Vendor recognized each invoice as an individual sale because the Purchase Agreement was not signed.
There was then a Subcontract Agreement entered into between Taxpayer and XXXXXXX dated July 31, 2019. This agreement was to acknowledge that XXXXXXX managed the concrete deliveries and XXXXXXX purchased the concrete.
There was an Addendum to the Subcontract Agreement. The Addendum was signed and dated on July 31, 2019. The Addendum clarified that Taxpayer was the subcontractor, XXXXXXX was the contractor, and XXXXXXX was the sub-subcontractor.
There were three change orders on the following dates: June 12, 2020, July 22, 2020, and September 16, 2020.
Requested Advisement
Based on the documentation and facts provided in this TAA request, does the entire purchase amount reflected in the Purchase Agreement qualify for the $5,000 discretionary sales surtax limitation?
Law and Discussion
Under section 212.054(2)(a), F.S., the basic principle in applying discretionary surtaxes is that they piggyback the state sales and use tax. If a transaction is subject to sales tax and occurs at a location where surtax is imposed, the surtax also applies. The surtax is imposed on all transactions that are subject to sales tax, and it is not limited to sales of tangible personal property. Section 212.054(2)(b), F.S., limits application of that principle when there is a sale of an item of tangible personal property for over $5,000. The surtax in that case applies only to the first $5,000. Subparagraph (b)1. of the statute then sets out very specific circumstances in which more than one item can be aggregated for purposes of application of the surtax. That provision reads:
... For purposes of administering the $5,000 limitation on an item of tangible personal property, if two or more taxable items of tangible personal property are sold to the same purchaser at the same time and, under generally accepted business practice or industry standards or usage, are normally sold in bulk or are items that, when assembled, comprise a working unit or part of a working unit, such items must be considered a single item for purposes of the $5,000 limitation when supported by a charge ticket, sales slip, invoice, or other tangible evidence of a single sale or rental.
The statute requires application of the $5,000 limitation on an item-by-item basis, except for very specific circumstances when multiple items will be viewed as a single item. In order for the exception to apply, two tests must be satisfied. There must be a single sale in which one purchaser buys all the items at the same time, with a purchase order or other documentary evidence that there has been such a single transaction. Second, the multiple items reflected on that documentation will be aggregated for purposes of applying the $5,000 limitation only if they fall into one of two categories. They must either be items that are normally sold in bulk, or they must be items that will be assembled into a working unit or a part of one.
Single Sale
Test Items that meet the bulk sale/working unit standard cannot be aggregated if they are not purchased in a single sale. The single sale requirement addresses the character of the transaction itself, whether there has been one discrete transaction to which the limitation can be applied or multiple sales that are separately subject to the limitation. Meeting this requirement is a matter of documenting that there was one buyer, and one seller, and that the agreement to buy and sell occurred at the same time as to all of the items involved.
The relevant provision for guidance with the single sale requirement is Rule 12A-15.004(3)(a), F.A.C. Rule 12A-15.004(3)(a)2.b., F.A.C., provides that if delivery of all items does not occur at the same time, the purchase order must provide for a specific time period within which delivery of the tangible personal property will be made to the purchaser. Otherwise, each delivery or each invoice will be considered to be a single sale.
An example is provided in Rule 12A-15.004(3)(a)4.a., F.A.C., in which a developer is purchasing 250 refrigerators from an appliance distributor. The purchase order specifically provides that delivery will be in 10 loads of 25 refrigerators, with invoicing to follow each delivery and final delivery to occur no later than 10 months after the contract is signed. In this example, the 250 refrigerators would be considered purchased in a single sale because the purchase agreement clearly specified the quantity to be purchased and the time period in which delivery would occur.
Also, when analyzing the single sale test, bear in mind that a change order is a new order, and it constitutes a separate sale for purposes of the single sale test. It must meet both the single sale test and the bulk sale/working unit test on its own for purposes of applying the $5,000 discretionary sales surtax limitation.
The rule does not state that all the items on a qualifying purchase order will be aggregated, only that they will be treated as sold in a single sale. This provision of the rule is not concerned with what types of items can be aggregated and viewed as a single item and does not address that issue.
Bulk Sale/Working Unit Test
Items cannot be aggregated solely because they are purchased in a single sale. The bulk sale/working unit test must also be met. This requirement addresses the character of the items purchased. Items may be viewed as a single item only if they are items that fall within one of two categories. The category of items usually sold in bulk encompasses multiple quantities of items ordinarily sold in such quantities rather than one at a time. A bulk sale is a sale of multiple quantities of a single item the seller normally sells in bulk or the purchaser normally purchases in bulk. A bulk sale is simply multiple quantities of a single item. A single item would generally be identified as items with the same model number, part number, etc. The category of items usually assembled into a working unit addresses items that are commonly purchased together because their utility is dependent upon their assembly into some larger unit.
The relevant provision for guidance in application of the bulk sale/working unit standard is Rule 12A-15.004(3)(b), F.A.C., which provides that where two or more taxable items of tangible personal property are sold to the same purchaser at the same time and, under generally accepted business practice or industry standards or usage, are normally sold in bulk or are items which, when assembled, comprise a working unit or part of a working unit, such items shall be considered a single item for purposes of the $5,000 limitation when supported by a charge ticket, sales slip, invoice, or other tangible evidence of a single sale or rental.
Conclusion
As stated above, a transaction must pass two tests, single sale test and bulk sale/working unit test, for the $5,000 discretionary sales surtax limitation to apply. As for the “single sale” test, Rule 12A-15.004(3)(a)2.b., F.A.C., provides that that if delivery of all items does not occur at the same time, the purchase order must provide for a specific time period within which delivery of the tangible personal property will be made to the purchaser. Otherwise, each delivery or each invoice will be considered to be a single sale. Furthermore, a change order is a new order, and it constitutes a separate sale for purposes of the single sale test. It must meet both the single sale test and the bulk sale/working unit test on its own for purposes of applying the $5,000 discretionary sales surtax limitation.
From the documentation provided, it does not appear that the single sale test has been met. The documents were not signed and dated at the same time. The Purchase Agreement between XXXXXXX and XXXXXXX was signed on January 23, 2020, the Subcontract Agreement between XXXXXXX and XXXXXXX was signed on January 17, 2020, and the Subcontract Agreement between XXXXXXX and XXXXXXX was signed July 31, 2019. Furthermore, it did not appear that all of the documentation clearly specified the quantity to be purchased and the time period in which delivery would occur.
Lastly, there were three change orders, and each change order would have been a separate sale for purposes of the single sale test. Consequently, the $5,000 discretionary sales surtax limitation does not apply to the entire purchase amount reflected in the Purchase Agreement.
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.
Leigh L. Ceci
Tax Law Specialist
Technical Assistance and Dispute Resolution
