Florida Administrative Code › 12 - DEPARTMENT OF REVENUE › 12A - Sales and Use Tax › Chapter 12A-1 - SALES AND USE TAX › Section 12A-1.051 - Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property

Current through Reg. 50, No. 138; July 16, 2024
(1) Scope of the
				rule. This rule governs the taxability of the purchase, sale, or use of
				tangible personal property by contractors and subcontractors who purchase,
				acquire, or manufacture materials and supplies for use in the performance of
				real property contracts other than public works contracts performed for
				governmental entities, which are governed by the provisions of Rule
				12A-1.094, F.A.C. If a real
				property project involves multiple subcontractors, each subcontractor is
				responsible for paying, accruing, collecting, and remitting tax on his
				subcontract in accordance with this rule.
(2) Definitions. For purposes of this rule,
				the following terms have the following meanings:
(a) "Fabricated cost" means the cost to a
				real property contractor of fabricated items, as defined in the following
				paragraph. The elements of cost included in fabricated cost are set forth in
				Rule 12A-1.043, F.A.C. Fabricated
				cost does not include the cost of transporting fabricated items from the
				contractor's plant to the job site or the cost of labor at the job site where
				the fabricated items are incorporated into the real property
				improvement.
(b) "Fabricated items"
				means items contractors manufacture, produce, process, compound, or fabricate
				for their own use in performing contracts for improvements to real property.
				The term applies only to items the contractor manufactures, produces,
				processes, compounds, or fabricates at a plant or shop maintained by the
				contractor. For this purpose, a temporary facility established at a job site
				that is used exclusively in connection with performing a contract for a real
				property improvement at that job site is not considered to be a plant or shop
				maintained by the contractor.
(c)
1. "Fixture" means an item that is an
				accessory to a building, other structure, or to land, that retains its separate
				identity upon installation, but that is permanently attached to the realty.
				Fixtures include such items as wired lighting, kitchen or bathroom sinks,
				furnaces, central air conditioning units, elevators or escalators, or built-in
				cabinets, counters, or lockers.
2.
				In order for an item to be considered a fixture, it is not necessary that the
				owner of the item also own the real property to which the item is attached. A
				retained title provision in a sales contract or in an agreement that is
				designated as a lease but is in substance a conditional sales contract is not
				determinative of whether the item involved is or is not a fixture. Similarly,
				the fact that a lessee or licensee of real property rather than the
				lessor/owner enters into a contract for an item to be permanently attached to
				the real property does not prevent that item from being classified as a
				fixture.
3. The determination
				whether an item is a fixture depends upon review of all the facts and
				circumstances of each situation. Among the relevant factors that determine
				whether a particular item is a fixture are the following:
a. The method of attachment. Items that are
				screwed or bolted in place, buried underground, installed behind walls, or
				joined directly to a structure's plumbing or wiring systems are likely to be
				classified as fixtures. Attachment in such a manner that removal is impossible
				without causing substantial damage to the underlying realty indicates that an
				item is a fixture.
b. Intent of the
				property holder in having the item attached. If the property holder who causes
				an item to be attached to realty intends that the item will remain in place for
				an extended or indefinite period of time, that item is more likely to be a
				fixture. That intent may be determined by reviewing all of the property
				holder's actions in regard to the item, including how the item is treated for
				purposes of ad valorem and income tax purposes. For example, if a property
				owner reports the value of the item for purposes of ad valorem taxation of the
				realty and depreciates the item for tax and financial accounting purposes as
				real property, that indicates an intent that the property is permanently
				attached as a fixture.
c. Real
				property law. If an interest in an item arises upon acquiring title to the land
				or building, the item is more likely to be considered a fixture. For example,
				if the seller of real property would be expected to leave an item behind when
				vacating the premises for a new owner without the contract specifically
				requiring that it be left, that item is likely to be classified as a
				fixture.
d. Customization. If items
				are custom designed or custom assembled to be attached in a particular space,
				they are more likely to be classified as fixtures. Customization indicates
				intent that the items are to remain in place following installation.
e. Permits and licensing. If installation of
				an item requires a construction permit or licensing of the contractor under
				statutes or regulations governing the building trades, that item is more likely
				to be regarded as a fixture.
f.
				Legal agreements. The terms of any purchase agreement, deed, lease, or other
				legal document pertaining specifically to an item may be relevant in
				determining whether that item is a fixture of real property.
The foregoing list of factors relevant to determining whether
				  an item is a fixture is intended to be illustrative only. Additional factors
				  may exist in any particular case, and the weight to be given to the factors
				  will also vary in each case.
4. The term "fixture" does not include the
				following items, whether or not such items are attached to real property in a
				permanent manner:
a. Titled
				property.
b. Machinery or
				equipment.
(d)
				"Improvement to real property" or "real property improvement" includes the
				activities of building, erecting, constructing, altering, improving, repairing,
				or maintaining real property.
(e)
1. "Machinery or equipment" means and
				includes property that:
a. Is intended to be
				used in manufacturing, producing, compounding, processing, fabricating,
				packaging, moving, or otherwise handling personal property for sale or other
				commercial use, in the performance of commercial services, or for other
				purposes not related to a building or other fixed real property improvement;
				and,
b. May, on account of its
				nature, be attached to the real property but which does not lose its identity
				as a particular piece of machinery or equipment.
2. "Machinery or equipment" generally does
				not include junction boxes, switches, conduits, wiring, valves, pipes, and
				tubing incorporated into the electrical, cabling, plumbing, or other structural
				systems of fixed works, buildings, or other structures, whether or not such
				items are used solely or partially in connection with the operation of
				machinery and equipment.
3.
				"Machinery or equipment" serves a particular commercial activity that is
				carried on at a location rather than serving general uses of land or a
				structure. Examples of machinery or equipment include conveyor systems,
				printing presses, drill presses, or lathes. Examples of items that are not
				machinery or equipment because they are integrated into the structure or realty
				and retain their usefulness no matter what activity is carried on at the site
				include heating and air conditioning system components or water heaters. Any
				property that would be classified as machinery or equipment under Section
				212.08(5),
				F.S., or any other provision of Chapter 212, F.S., is considered to be
				machinery or equipment for purposes of this rule. In the case of property used
				in the production of electrical or steam energy, any item that would qualify as
				exempt machinery or equipment under Section
				212.08(5)(c),
				F.S., is considered to be machinery or equipment for purposes of this
				rule.
(f) "Manufacture,
				produce, compound, process, or fabricate" means:
1. To convert or condition tangible personal
				property by changing the form, composition, quality, or character of the
				property;
2. To make, build,
				create, produce, or assemble components or items of tangible personal property
				in a new or different manner;
3. To
				physically apply materials and labor necessary to modify or change the
				characteristics of tangible personal property.
The terms do not include activities that do not result in any
				  change in the character or quality of tangible personal property. For example,
				  a repair or restoration of property to return it to its original state and
				  level of functionality is not included within the defined
				  activities.
(g)
				"Real property" means land, improvements to land, and fixtures. It is
				synonymous with the terms "realty" and "real estate."
(h)
1.
				"Real property contract" means an agreement, oral or written, whether on a lump
				sum, time and materials, cost plus, guaranteed price, or any other basis, to:
a. Erect, construct, alter, repair, or
				maintain any building, other structure, road, project, development, or other
				real property improvement;
b.
				Excavate, grade, or perform site preparation for a building, other structure,
				road, project, development, or other real property improvement; or
c. Furnish and install tangible personal
				property that becomes a part of or is directly wired or plumbed into the
				central heating system, central air conditioning system, electrical system,
				plumbing system, or other structural system that requires installation of
				wires, ducts, conduits, pipes, vents, or similar components that are embedded
				in or securely affixed to the land or a structure thereon.
2. The term "real property contract" does not
				include:
a. A contract for the sale or for the
				sale and installation of tangible personal property such as machinery and
				equipment; or
b. A contract to
				furnish tangible personal property that will be installed or affixed in such a
				way as to become a fixture or improvement to real property if the person
				furnishing the property has not also contracted to affix or install
				it.
3. A contract is a
				real property contract if described in subparagraph 1. above, whether or not
				such agreement also involves providing property or services that would not be
				considered improvements to real property. See subsection (8) of this rule for
				discussion of such contracts.
4. A
				contract contains the terms of the agreement between the contractor and the
				owner (or other interest holder) of the real property and is entered into in
				advance of any work being undertaken. A proposal prepared by a contractor prior
				to entering an agreement is not a contract. Statements, invoices, or other
				billings submitted after work has begun are not contracts. For example, a
				developer solicits bids on the plumbing work for a project. A contractor
				prepares a proposal that lists all the materials anticipated to be necessary,
				with unit pricing, labor costs, and a markup based on a percentage of the total
				material and labor costs. The developer accepts the proposal. The parties enter
				into an agreement that requires the contractor to provide all the materials and
				labor necessary to supply the plumbing system for the project for a single lump
				sum price. When the work is completed, the contractor sends an invoice for the
				lump sum amount that shows a breakdown into materials and labor. Neither the
				proposal nor the invoice is a contract under which the developer agrees to pay
				separately for materials and labor. They are documents prepared by the
				contractor to explain or justify the price. The contract is the agreement
				between the parties that an entire installed plumbing system will be provided
				for a single lump sum.
(i) "Titled property" means property that
				must be registered, licensed, titled, or documented by this state or by the
				United States, such as airplanes, boats, and motor vehicles. A houseboat, even
				if permanently docked and used as a primary residence, is not real property.
				Mobile homes are titled property unless they are assessed for ad valorem tax
				purposes as real property. Owners may report mobile homes as real property and
				have them assessed as such for ad valorem tax purposes. These mobile homes are
				issued special decals. Classification of a mobile home as personal property by
				a seller or a lender does not prohibit the owner of the mobile home from having
				the property assessed as real property. A mobile home that is issued a real
				property decal is treated as real property for purposes of this
				rule.