Rule 12A-1.094, F.A.C. (Public Works Contracts), and Section 212.08(6), F.S., govern the taxability of transactions in which contractors and subcontractors purchase tangible personal property for use in public works contracts. Public works contracts ...

DEPARTMENT OF REVENUE
Sales and Use Tax

Rule No.: RULE TITLE
12A-1.094: Public Works Contracts
PURPOSE AND EFFECT: Rule 12A-1.094, F.A.C. (Public Works Contracts), and Section 212.08(6), F.S., govern the taxability of transactions in which contractors and subcontractors purchase tangible personal property for use in public works contracts. Public works contracts are projects for public use or enjoyment, financed and owned by the government, in which private persons install tangible personal property that becomes a part of a public facility. The exemption in Section 212.08(6), F.S., is a general exemption for sales made directly to the government. Rule 12A-1.094, F.A.C., establishes the criteria that govern whether a governmental entity, rather than the public works contractor, is the purchaser of the materials.
Effective January 2, 2011, Section 8, Chapter 2010-138, L.O.F., requires governmental entities to issue a Certificate of Entitlement to purchase tangible personal property tax-exempt for a public works project to each vendor and each contractor certifying: (1) that the tangible personal property purchased will become part of a public facility; and (2) that the governmental entity will be liable for any tax, penalty, or interest due should the Department later determine that the items purchased do not qualify for exemption under Section 212.08(6), F.S. The law excludes a federal governmental entity from these requirements.
The purpose of the proposed amendments to Rule 12A-1.094, F.A.C., is to: (1) maintain, without change, the current criteria governing whether a governmental entity is the purchaser of tangible personal property that qualifies for exemption under Section 212.08(6), F.S.; (2) provide the requirements and format of the Certificate of Entitlement required by Section 8, Chapter 2010-138, L.O.F., effective January 2, 2011; and (3) provide that the governmental entity is prohibited from transferring the liability for tax, penalty, and interest to another party by contract or agreement. When in effect, the rule will provide for the taxability of transactions in which contractors and subcontractors purchase tangible personal property for use in public works contracts.
SUMMARY: The proposed amendments to Rule 12A-1.094, F.A.C. (Public Works Contracts), incorporate the provisions of Section 212.08(6), F.S., as amended by Section 8, Chapter 2010-138, L.O.F., to provide that a governmental entity, excluding any agency or branch of the United States, is required to issue a Certificate of Entitlement, with the entity’s purchase order attached, to each vendor and to each contractor to affirm that: (1) the tangible personal property purchased from the vendor will go into and become a part of a public works; and (2) the governmental entity will be liable for any tax, penalty, and interest determined to be due if the Department determines that the tangible personal property purchased does not qualify for exemption.
The proposed amendments also provide: (1) that the governmental entity is prohibited from transferring the liability for tax, penalty, and interest to another party by contract or agreement; (2) that contracts with agencies or branches of the federal government, which are not required to issue a Certificate of Entitlement, must meet the criteria established in paragraph (4)(b) of the rule for the purchase of the tangible personal property for the public works to be tax-exempt; and (3) contractors who manufacture or fabricate tangible personal property must pay tax on the articles produced and may not accept a Certificate of Entitlement for these articles.
SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 212.08(6), 212.17(6), 212.18(2), 212.183, 213.06(1) FS.
LAW IMPLEMENTED: 92.525(1), 212.02(4), (14), (15), (16), (19), (20), (21), 212.06(1), (2), (14), 212.07(1), 212.08(6), (7)(bbb), 212.085, 212.18(2), 212.183, 213.37 FS.
A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW:
DATE AND TIME: November 2, 2010, 10:30 a.m.
PLACE: Room 1220, 2450 Shumard Oak Blvd., Tallahassee, Florida. The public can also participate in this hearing through a simultaneous electronic broadcast of this event by the Department of Revenue using WebEx, and conference calling technology. The requirements to participate are access to the Internet and a telephone. The public can participate in this electronic workshop by accessing the broadcast from their home or office. Specific information about how to participate in this electronic meeting from your home or office will be included in the Agenda for this workshop posted on the Department’s Proposed Rule site at www.myflorida.com/dor/rules.
Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 48 hours before the workshop/meeting by contacting: Sarah Wachman at [phone]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Gary Gray, Revenue Program Administrator I, Technical Assistance and Dispute Resolution, Department of Revenue, P. O. Box 7443, Tallahassee, Florida 32314-7443, telephone [phone]

THE FULL TEXT OF THE PROPOSED RULE IS:

12A-1.094 Public Works Contracts.

(1) through (3) No change.

(4)(a) through (b) No change.

(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. 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 determines that 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 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 is issued directly to the vendor supplying 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 affirms that 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)(c) Sales are taxable sales to the contractor are subject to tax unless it can be demonstrated to the satisfaction of the Executive Director or the Executive Director’s designee in the responsible program that such sales are, in substance, tax exempt direct sales to the government.

(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 materials for incorporation into public works are shall be 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.

(6) through (8) No change.

Rulemaking Specific Authority 212.08(6), 212.17(6), 212.18(2), 212.183, 213.06(1), 221.08(6), FS. Law Implemented 92.525(1), 212.02(4), (14), (15), (16), (19), (20), (21), 212.06(1), (2), (14), 212.07(1), 212.08(6), (7)(bbb), 212.085, 212.18(2), 212.183, 213.37 FS. History–New 6-3-80, Amended 11-15-82, Formerly 12A-1.94, Amended 1-2-89, 8-10-92, 6-28-04,________.

NAME OF PERSON ORIGINATING PROPOSED RULE: Gary Gray, Revenue Program Administrator I, Technical Assistance and Dispute Resolution, Department of Revenue, P.O. Box 7443, Tallahassee, Florida 32314-7443, telephone [phone]
NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Governor and Cabinet
DATE PROPOSED RULE APPROVED BY AGENCY HEAD: September 28, 2010
DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: A Notice of Rule Development was published in the Florida Administrative Weekly on July 30, 2010 (Vol. 36, No. 30, pp. 3462-3463). Comments were received at the rule development workshop held on August 25, 2010. In response, changes have been made to the proposed amendments to Rule 12A-1.094, F.A.C.