TAA 22A-005 Exemptions

QUESTION: Does the affidavit received from Customer exempt Taxpayer from collecting or paying Florida sales and use tax? 

ANSWER: The exemption provided by section 212.08(5)(c), F.S., is based on the use of machinery and equipment for the exempt purpose described in the section. A selling dealer is required to document the exempt nature of a sale at the time of the transaction. The affidavit received from the Customer serves as the necessary documentation to be presented to a dealer in order to document the exempt nature of the transaction. As provided, Taxpayer should issue its own affidavit to vendors and subcontractors, along with a copy of Customer’s affidavit. Taxpayer should provide the affidavit to vendors when making purchases of qualifying exempt machinery and equipment. 

QUESTION: If Taxpayer’s contract with Customer is dated before the affidavit, does Taxpayer need to acquire a new affidavit dated to match the contract start date? 

ANSWER: No. The affidavit is to be presented to a selling dealer at the time qualifying exempt items are purchased as described in the response to question 1. 

QUESTION: Should Taxpayer pass the Customer competed affidavit to its vendors and subcontractors or must Taxpayer complete and supply its own copy of the affidavit? 

ANSWER: Taxpayer should issue its own affidavit to vendors and subcontractors, along with a copy of Customer’s affidavit.

March 8, 2022

Technical Assistance Advisement No. 22A-005

Sales and Use Tax – Exemptions, Manufacturing

XX (“Taxpayer”)

FEI No. XX

BPN: XX

Sections 212.05(1), 212.055, 212.06(4), 212.08(5)(c), and 212.085, 212.21, Florida Statutes

(“F.S.”)

Rules 12A-1.038, 12A-1.051 and 12A-1.063(1)(b), Florida Administrative Code (“F.A.C.”)

Dear XX: 

This letter is a response to your petition on behalf of XX (“Taxpayer”), dated April 20, 2021, for the Florida Department of Revenue’s (the “Department’s”) issuance of a Technical Assistance Advisement ("TAA") with regard to the taxability of Taxpayer’s constructing and installing a cooling tower for XX (“Customer”) at its XX, Florida location. 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 section 213.22, F.S. 

Facts 

In an email dated October 22, 2020, Taxpayer provided that it is a contractor constructing and installing a cooling tower for Customer and Taxpayer is incorporating tangible personal property into realty. The cooling tower is a component part of an electrical power generation facility. Taxpayer provided that work did not commence until October 2020 and is ongoing. Customer provided Taxpayer with an affidavit and indicated that Taxpayer could complete and provide it to Taxpayer’s vendors. Taxpayer requested advisement regarding the correct procedure for presenting affidavits in order to make exempt purchases of items for the project.

On December 18, 2020, the Department issued a Letter of Technical Advice (LTA). Taxpayer provides the following as its understanding regarding the advice received in the LTA:

. . . Customer met the requirements of section 212.08(5)(c), F.S., by providing an affidavit to Taxpayer for the purchase of qualifying machinery and equipment used in the production of electricity or parts used for repair to be incorporated into Customer’s facility and that the sales transaction would be exempt from sales and use tax.

. . . [P]ursuant to section 212.08(5)(c), F.S., Taxpayer should not fill out its own affidavit but should pass along Customer’s affidavit to its vendors¹ . . . . [T]he Customer (who is the plant facility owner) should provide a valid affidavit to Taxpayer and then Taxpayer would pass the same affidavit to the machinery and equipment or materials vendor at the time of the purchase transaction. If the affidavit is taken in good faith by Taxpayer from the Customer, Taxpayer would be relieved of its responsibility to collect sales and use tax on the transaction. ² . . . Taxpayer should not fill out its own affidavit and should pass Customer’s affidavit to its vendors.

Along with the October 2020, and April 2021, requests for Advisement Taxpayer provided, among other things, copies of the following for review: 

• XX (Purchase Agreement), executed by the Taxpayer and Customer on September 27, 2019 
• An Affidavit, dated October 13, 2020, issued by the Customer to the Taxpayer referencing Agreement No. XX 

* * *

The Purchase Agreement provides the following in part: 

EQUIPMENT TO BE PROVIDED; WORK TO BE PERFORMED: Seller shall provide Cooling Tower, as more fully described In Exhibit C, Technical Specification (the "Equipment”). Seller shall provide all labor, supervision, materials (except materials specifically Identified as being furnished by XX), design and professional services, shop, facilities, tooling, equipment, consumables, and any and all other Items and services required to fully perform and complete manufacture or fabrication of the Equipment and fully perform Its obligations to provide field services and training, as more fully described In Exhibit C, Technical Specification (all the foregoing, Including the Equipment, referred herein as the "Work").

Exhibit A, “General Conditions,” provides the following in part: 

31.0 TAXES, DUTIES AND FEES 31.1 Seller acknowledges that when It repairs, alters, improves or constructs real property, it is the ultimate consumer of material and supplies used In the Work. Seller further acknowledges that it is responsible for the payment of any and all applicable Florida State and Local Sales and/or Use Taxes on all items of tangible personal property incorporated into and becoming part of the realty in connection with the Work.

31.2 

Seller Is responsible for all customs and duties to be paid on the Equipment and for any taxes incurred prior to Delivery (including taxes that may apply upon title transfer) and all such customs, duties and taxes are included in the Agreement Price. [The Customer] is responsible for any sales or use taxes imposed by the State of Florida and its local jurisdictions, or for obtaining an exemption therefrom. 

31.3 

Chapter 212.08(5)(c), Florida Statutes, exempts machinery and equipment used in the production of electrical or steam energy resulting from the burning of boiler fuels other than residual all from Florida State Sales and Use Taxes. [The Customer] shall identify in Exhibit B, Commercial Terms all such machinery and equipment considered to be exempt from Florida State Sales and Use Taxes and provide Seller with an affidavit with respect thereto. In the event such machinery and equipment is not exempt from Florida State Sales or Use Taxes, Seller shall add such tax to its invoice and shall collect such taxes from [the Customer] and pay such taxes to the State of Florida; provided however, that, if Seller is not registered in the State of Florida and is not required to collect Florida State Sales or Use Taxes, no such amount shall show on the invoice and [the Customer] shall pay such taxes directly to the State of Florida. 

* * *

Exhibit B, “Commercial Terms,” provides the following in part: 

3.0 TAXES 

3.1 

The Florida Department of Revenue has issued a Direct Pay Certificate to [the Customer}, which enables the company to self-accrue Florida sales tax due on purchases occurring within this Agreement. The Direct Pay Certificate will be issued to Seller at the inception of this Agreement, and Seller and [the Customer] each agree that the price set forth inthe Agreement, does not includeany Florida salesorusetaxes. 

3.2 

Seller remains responsible for payment of all other taxes as described in the Clause 31.0 T A X E S , DUTIESAND FEES, of Exhibit A General Conditions. 

* * *

Review of Exhibit B reveals that the exhibit does not include identification of “all such machinery and equipment considered to be exempt . . . .” 

* * *

Exhibit C, “Technical Specification,” provides the following in part: 

102. 

Description of the Project and General Background 

102.1

 XX Modernization project consists of the design and installation of a combined cycle (CC) electric power plant at the existing XX Power Station. . . . 

102.2 

The existing Unit 1 cooling tower will be demolished and replaced with a new crossflow cooling tower. .

* * *

The Customer’s affidavit provides in part: 

That the machinery and equipment being purchased from Taxpayer under Agreement # [XXX] will be incorporated into/or become a component part of the Electrical Power Generation Facility known as [XXXX] located in [XXXX] County, Florida. Further, that said machinery and equipment is necessary for the production of electric or steam energy resulting from the burning of boiler fuels other than residual oil and is exempt from the tax imposed by Chapter 212, Florida Statutes, Sales and Use Tax Act, pursuant to Section 212.08(5)(c) Florida Statutes.

Requested Advisements 

Taxpayer’s representative is seeking a binding Technical Assistance Advisement (“TAA”) addresses following questions: 

1. Does the affidavit received from Customer exempt Taxpayer from collecting or paying Florida sales and use tax? 

2. If Taxpayer’s contract with Customer is dated before the affidavit, does Taxpayer need to acquire a new affidavit dated to match the contract start date? 

3. Should Taxpayer pass the Customer competed affidavit to its vendors and subcontractors or must Taxpayer complete and supply its own copy of the affidavit?

Applicable Law and Discussion 

The legislature has declared its intention in s. 212.21(2), F.S., that each and every sale, use, storage, consumption, or rental of tangible personal property in Florida is taxable, subject only to the exemptions and exclusions contained within Chapter 212, F.S. Section 212.05, F.S., provides that tax is due and payable at the rate of 6 percent, plus any applicable surtaxes imposed under s. 212.055, F.S., on the total consideration received for each item or article of tangible personal property when sold at retail or repaired in this state. Exemptions from tax are strictly construed against the claimant. See Wanda Marine Corp. v. Dep’t of Revenue, 305 So. 2d 65, 69 (Fla. 1st DCA 1974).

Rule 12A-1.038(1), F.A.C., provides that the exempt nature of a transaction must be established by the selling dealer and that unless the selling dealer shall have taken from the purchaser the required documentation as provided by the Department, the sale shall be deemed to be taxable. Rule 12A1.038(5)(b), F.A.C., provides that a purchaser who may qualify for an exemption on account of use of property must extend an exemption certificate to the selling dealer in lieu of paying tax. The Rule requires that an exemption certificate must contain the purchaser’s name, address, the reason for which the use of the property or service qualifies for exemption based on its use, and the signature of the purchaser or an authorized representative of the purchaser. 

Section 212.08(5)(c)1., F.S., provides that the purchase of machinery and equipment for use at a fixed location, “which machinery and equipment are necessary in the production of electrical or steam energy resulting from the burning of boiler fuels other than residual oil” is exempt from Florida sales and use tax. Such electrical or steam energy must be primarily for use in manufacturing, processing, compounding, or producing for sale items of tangible personal property in Florida in order to qualify for this exemption.

The sale of electric power is considered to be the sale of tangible personal property. See Rule 12A1.063(1)(b), F.A.C. As long as Customer will be producing electricity from the burning of boiler fuels other than residual oil, the machinery and equipment that would go into the construction of the Cooling Tower would be exempt under the “integrated plant theory.”³ See Jacksonville Electric Auth. v. Dep’t of Revenue, 486 So. 2d 1350, 1354 (Fla. 1st DCA 1986).

Under the “integrated plant theory,” machinery and equipment necessary in the production of electrical or steam energy would be considered a component part of the manufacturing process, even if such equipment and machinery were not intrinsically necessary for the generation of electrical energy (e.g., pollution control equipment). See s. 212.08(5)(c)1., F.S.; Jacksonville Electric Auth., 486 So. 2d at 1355. 

The exemption does not extend to switchyard, distribution, or transmission machinery and equipment at a facility. Generally, the exemption is considered to end at the first step-up transformer or at that point where the electrical power is at such a voltage level that it is necessary for there to be transmission to the main grid. The exemption would also include all such electrical equipment that was necessary for internal plant purposes, such as, cabling, rack systems, ducts, instrumentation, monitoring equipment, grounding, cathodic protection and interconnect facilities. Structures or facilities whose only purpose is to enclose, provide shelter, or control environments for qualifying items of machinery and equipment would also be considered an integral part of the machinery and equipment necessary in the production of electrical or steam energy and would qualify for the exemption. However, site improvements that did not constitute foundations or sub-surface improvements for foundations for machinery and equipment integral to the production of electrical energy would not qualify for the exemption and would be considered real property improvements. Contractors performing real property improvements are subject to the tax provisions of Rule 12A-1.051, F.A.C.

It should be noted that the exemption under s. 212.08(5)(c), F.S., is only applicable to items that are installed as permanent parts of the machinery and equipment considered integral to the production of electrical energy. Accordingly, the rental of any construction equipment, such as cranes, scaffolding, or movers, etc., would remain fully taxable to Taxpayer and/or its subcontractors. It should also be noted that the exemption in s. 212.08(5)(c)1., F.S., is subject to audit verification by the Department and that Taxpayer must be able to substantiate its eligibility for the exemption with proper documentation and records of its transactions. 

With regard to affidavits, s.212.08(5)(c)3., F.S., provides, in relevant part:

Purchasers of machinery and equipment qualifying for the exemption provided in this paragraph shall furnish the vendor with an affidavit stating that the item or items to be exempted are for the use designated herein. Any person furnishing a false affidavit to the vendor for the purpose of evading payment of any tax imposed under this chapter shall be subject to the penalty set forth in s. 212.085 and as otherwise provided by law. Purchasers with self-accrual authority shall maintain all documentation necessary to prove the exempt status of purchases. 

In this specific situation, the benefit of the exemption inures to Customer, Taxpayer and to Taxpayer’s subcontractors and subcontractors. In order to exempt the qualifying purchases, Customer should provide an affidavit to the contractor, i.e., Taxpayer, and Taxpayer should issue its own affidavit to its subcontractors, along with a copy of Customer’s affidavit. This process would continue from Taxpayer’s subcontractors to any sub-subcontractors until the actual purchase order and affidavits were issued to the vendor or supplier for the qualifying machinery and equipment or materials. In order for an affidavit to meet the requirements of the exemption, it is the Department of Revenue’s position that a statement to the following effect be incorporated into the affidavit:

I understand any person furnishing a false affidavit to a vendor for the purpose of evading any tax imposed under Chapter 212, Florida Statutes, shall be subject to the penalty set forth in Section 212.085, Florida Statutes, and as otherwise provided by law. 

See s. 212.085, F.S.

The affidavits may be separate documents attached to the purchase order or they may be incorporated in the purchase order itself. If the affidavits are incorporated in the purchase order, a statement that would have the same effect as the statement regarding a false affidavit in the indented paragraph immediately above must also be incorporated in the purchase order. Further, it is the position of the Department that the affidavits must be notarized, even if they are incorporated in the purchase order. 

Conclusions 

1. Does the affidavit received from Customer exempt Taxpayer from collecting or paying Florida sales and use tax?

The exemption provided by s. 212.08(5)(c), F.S., is based on the use of machinery and equipment for the exempt purpose described in the section. A selling dealer is required to document the exempt nature of a sale at the time of the transaction. The affidavit received from Customer serves as the necessary documentation to be presented to a dealer in order to document the exempt nature of the transaction. As provided, Taxpayer should issue its own affidavit to vendors and subcontractors, along with a copy of Customer’s affidavit. Taxpayer should provide the affidavit to vendors when making purchases of qualifying exempt machinery and equipment.

2. If Taxpayer’s contract with Customer is dated before the affidavit, does Taxpayer need to acquire a new affidavit dated to match the contract start date? No. The affidavit is to be presented to a selling dealer at the time qualifying exempt items are purchased as described in the response to question 1. 

3. Should Taxpayer pass the Customer competed affidavit to its vendors and subcontractors or must Taxpayer complete and supply its own copy of the affidavit? 

As provided, Taxpayer should issue its own affidavit to vendors and subcontractors, along with a copy of Customer’s affidavit.

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.

Brinton Hevey 

Technical Assistance & Dispute Resolution

^{(1) The LTA provided that Taxpayer should give its own affidavit and the Customer’s affidavit to the equipment or materials vendor at the time of purchase.} 

^{(2) It should be noted that use tax is not collected from a customer. Use tax is tax Taxpayer would pay to its vendors or accrue if tax were owed on an item Taxpayer purchased. See s. 212.06(4), F.S.}

^{(3) Use of a de minimis amount of residual fuel to facilitate the burning of nonresidual fuel will not reduce the exemption. See s. 212.08(5)(c)1., F.S. However, in facilities where machinery and equipment are necessary to burn both residual and nonresidual fuels, the exemption would need to be prorated. See s. 212.08(5)(c)2., F.S.}