12A-1.051. Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property

(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.

(3) Classification of contracts by pricing. The taxability of purchases and sales by real property contractors is determined by the pricing arrangement in the contract. Contracts generally fall into one of the following categories:

(a) Lump sum contracts. These are contracts in which a contractor or subcontractor agrees to furnish materials and supplies and necessary services for a single stated lump sum price.

(b) Cost plus or fixed fee contracts. These are contracts in which the contractor or subcontractor agrees to furnish the materials and supplies and necessary services in exchange for reimbursement of costs plus a fee that is fixed in advance or calculated as a percentage of the costs.

(c) Upset or guaranteed price contracts. These are contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services based on costs plus fees but with an upset or guaranteed maximum price which may not be exceeded.

(d) Retail sale plus installation contracts. These are contracts for improvements to real property in which the contractor or subcontractor agrees to sell specifically described and itemized materials and supplies at an agreed price or at the regular retail price and to complete the work either for an additional agreed price or on the basis of time consumed. In order for a contract to fit in this category, all the materials that will be incorporated into the work must be itemized and priced in the contract before work begins. If a contract itemizes some materials but does not itemize other materials that will be incorporated into the work, the contract is not included in this category. Because the sale of the materials is a separable transaction from the installation, the purchaser must assume title to and risk of loss of the materials and supplies as they are delivered, rather than accepting title only to the completed work. The contractor may remain liable for negligence in handling and installing the items.

(e) Time and materials contracts. These are contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services for a price that will be calculated as the sum of the contractor’s cost or a marked up cost for materials to be used plus an amount for services to be based on the time spent performing the contract. These contracts are similar to cost plus or fixed fee contracts, because the final price to the property holder will be determined based on the cost of performance. A time and materials contract may or may not also have a guaranteed or upset price clause. Time and materials contracts differ from contracts described in paragraph (d), because the materials are not completely identified, itemized, and priced in the contract in advance and because the property owner is contracting for a finished job rather than the purchase of materials.

(4) General rule of taxability of real property contractors. Contractors are the ultimate consumers of materials and supplies they use to perform real property contracts and must pay tax on their costs of those materials and supplies, unless the contractor has entered a retail sale plus installation contract. Contractors performing only contracts described in paragraphs (3)(a), (b), (c) or (e) do not resell the tangible personal property used to the real property owner but instead use the property themselves to provide the completed real property improvement. Such contractors should pay tax to their suppliers on all purchases. They should also pay tax on all materials they fabricate for their own use in performing such contracts, as discussed in subsection (10). They should charge no tax to their customers, regardless of whether they itemize charges for materials and labor in their proposals or invoices, because they are not engaged in selling tangible personal property. Such contractors should not register as dealers unless they are required to remit tax on the fabricated cost of items they fabricate to use in performing contracts.

(5) Rule for paragraph (3)(d) contractors. Contractors who perform retail sale plus installation contracts described in paragraph (3)(d) do sell tangible personal property. They should register as dealers and provide a copy of their Annual Resale Certificate (Form DR-13) to the selling dealer to purchase tax exempt materials that are itemized and resold under paragraph (3)(d) contracts. They should not provide the certificate to purchase tax exempt items that they use themselves rather than reselling, such as hand tools, shop equipment, or office supplies. They must charge their customers’ tax on the price paid for tangible personal property but not on the charges for installation labor. See Rule 12A-1.038, F.A.C., for tax exempt sales made to entities that hold a valid Consumer’s Certificate of Exemption.

(6) Sales of tangible personal property. Contractors, manufacturers, or dealers who sell and install items of tangible personal property, including those enumerated in Rule 12A-1.016, F.A.C., must collect tax on the full selling price, including any installation or other charges, even though such charges may be separately stated. The items listed in Rule 12A-1.016, F.A.C., are tangible personal property even after installation, and their sale with installation is not classified as a real property contract. Contractors, manufacturers, or dealers who sell property over-the-counter without performing installation services must collect tax on the full sales price of such items, even though those items will become improvements to real property upon installation by the purchaser. At the point at which they are sold in over-the-counter transactions, those items are tangible personal property.

(7) Repairs to machinery and equipment. Any owner or lessee that engages another to make repairs to or perform maintenance services on machinery and equipment that, because of its size, configuration, method of attachment, or other characteristics, has the appearance of real property, must inform the service provider that the machinery or equipment is tangible personal property. Unless the repair is exempt from taxation under Chapter 212, F.S., the owner or lessee should pay sales tax on the full price of the repair or maintenance to any service provider that is a registered dealer. If the service provider ordinarily operates as a real property contractor and is not a registered dealer, the owner or lessee must remit tax on the full price of the repair or maintenance directly to the state.

(8) Mixed contracts. A real property contract may also include materials and labor that are not real property improvements. A contract that includes both real property work and tangible personal property is referred to in this subsection as a mixed contract. A mixed contract is not the same as a contract described in paragraph (3)(d) of this rule. Paragraph (3)(d) deals with a real property contract in which the contractor separately itemizes and prices all the materials that will be incorporated as part of the real property. A mixed contract is one that involves a real property improvement, maintenance, or repair and also involves providing tangible personal property that remains tangible personal property and does not become part of the real property. In the case of a mixed contract, taxability depends upon the predominant nature of the work performed under the contract and upon the contract terms.

(a) If the predominant nature of a mixed contract is a contract for real property improvements, taxability will be determined as if the contract were entirely for real property. For example, a residential developer routinely provides some items of tangible personal property, such as free standing appliances, with new homes sold under cost-plus contracts. The predominant nature of the contract is for a dwelling. The developer should pay sales or use tax on the appliances. A contractor constructs a factory under a turnkey contract that includes providing and installing machinery and equipment that is not exempt from sales and use tax. The contract is predominantly for a factory, a real property improvement, and the contractor should pay use tax on the cost of the machinery and equipment. No tax is collected from the property owner in either case, even though some tangible personal property is included in the project.

(b) If the predominant nature of a mixed contract is a contract for tangible personal property, taxability of the contract will be determined as if the contract were entirely for tangible personal property. For example, a vendor of a mechanical conveyor system for a warehouse provides reinforced concrete foundations and embeds steel plates in the concrete to permit installation of the equipment by bolting it to the plates. The contract is predominantly for the sale of equipment. The contractor should buy the equipment, concrete, and steel plates tax exempt by extending a copy of the contactor’s Annual Resale Certificate (Form DR-13) to the selling dealer and charge tax on the full price charged to the customer.

(c) The determination of the predominant nature of a contract will depend upon the facts and circumstances of each case. Consideration will be given to the description of the project and the responsibilities of the contractor as set forth in the contract. Consideration will also be given to the relative cost of performance of the real property and tangible personal property components of the contract.

(d) If a mixed contract clearly allocates the contract price among the various elements of the contract, and such allocation is bona fide and reasonable in terms of the costs of materials and nature of the work to be performed, taxation will be in accordance with the allocation. For example, a residential developer builds and sells a home on a cost plus basis, but the contract provides separately stated prices for the sale and installation of certain optional free standing appliances that are tangible personal property and are not classified as real property fixtures. The contractor may purchase those appliances by issuing a copy of the contractor’s Annual Resale Certificate (Form DR-13) to the selling dealer and charge sales tax on the price paid for the appliances, including installation, by the home buyer. The contractor is responsible for paying tax on all the materials that are included in the cost plus price of the home, other than the separately itemized appliances. Similarly, a manufacturer who sells and installs a mechanical conveyor system in a warehouse could state a separate charge in the contract for providing reinforced concrete with embedded steel plates in the warehouse floor to support the conveyor. The conveyor system is machinery or equipment and is therefore tangible personal property. The concrete and plates would be considered a real property improvement. The contractor should pay tax on the materials used for the real property part of the contract and not charge tax to the customer on the related charge. The customer should pay tax on the rest of the contract price allocable to the conveyor machinery itself.

(e) This subsection does not affect any exemption provided in Chapter 212, F.S., for machinery or equipment that may be claimed by a contractor based on a temporary tax exemption permit, affidavit, or other authorized certification by the owner of real property. For example, purchases of certain equipment for generating electrical power or of certain machinery for manufacturing tangible personal property for sale are exempt from sales and use taxes. In order for the property owner to receive the benefit of these exemptions, it has been specifically provided that contractors who purchase and install the exempt items may claim the exemption based on the property owner’s providing the required documentation of entitlement. The guidelines on mixed contracts are not intended to impact these exemptions. In the case of a mixed contract that is treated as a real property contract, the contractor is still entitled to purchase the qualified equipment or machinery tax-exempt. In the case of a mixed contract treated as a sale of tangible personal property, the contractor would purchase the equipment or machinery by issuing a copy of the contractor’s Annual Resale Certificate (Form DR-13) to the selling dealer and accept the property owner’s authorized documentation of exemption in lieu of charging tax on the subsequent sale of the equipment or machinery to the property owner. See Rule 12A-1.038, F.A.C., for tax exempt sales made to entities that hold a valid Consumer’s Certificate of Exemption.

(9) Dual operators. Some contractors both use materials themselves in the performance of contracts and resell materials either in over-the-counter sales or under contracts described in paragraph (3)(d). Those contractors should register as dealers. When they purchase materials that they may either use themselves or that they may resell, they may issue a copy of the contractor’s Annual Resale Certificate (Form DR-13) to the selling dealer. Florida tax should be remitted when a subsequent event determines the appropriate taxation of the materials. If the materials are subsequently resold, tax should be collected from the buyer and remitted to the state. If the materials are used by the contractor, use tax should be paid to the state instead.

(10) Use tax on fabrication costs. Contractors may maintain shops, plants, or similar facilities where they manufacture, produce, compound, process, or fabricate items for their own use in performing contracts. Contractors are required to pay use tax on the fabricated cost of those items. The elements that must be included in the taxable cost of such items are set forth in Rule 12A-1.043, F.A.C. In the case of real property contractors, the taxable cost of an item manufactured, produced, compounded, processed, or fabricated for use in performing a contract does not include labor that occurs at the job site where the item will be incorporated into a real property improvement or transportation from the plant where an item was fabricated to the job site. Examples of real property contractors who are subject to tax under this subsection include cabinet contractors who build custom cabinets in their shops, roofing contractors who operate tile plants, or heating/air conditioning/ventilation contractors who maintain sheet metal shops for making ductwork. Real property contractors that are required to remit use tax on fabricated items must register as dealers for purposes of remitting such tax if they are not already registered as dual operators.

(11) Percent of contract price method.

(a) The Department is authorized to adopt rules that establish an elective percent of contract price method for calculating use tax obligations of real property contractors that manufacture, produce, compound, process, or fabricate tangible personal property for their own use in performing contracts. For example, a rule could be adopted to provide that cabinet makers that build cabinets at their own shops and install them could elect to pay use tax on a certain percentage of the contract price paid by the real property holder, rather than keeping track of the elements of taxable cost of the fabricated cabinets.

(b) In order to initiate a rulemaking project to adopt the percent of contract price method for an industry group, the Department must receive a petition from the majority of the members of the group or from a statewide association representing the group. The petition must be accompanied by a proposal setting forth the percent of contract price the group believes should be adopted in the rule and by sufficient information and documentation to establish that the proposed percentage is based on the taxable costs incurred by members of the petitioning group. The industry group may propose alternative percentages for members of the group who are registered dealers and do not pay tax on purchases of direct materials that are incorporated into fabricated items and for members of the group who pay sales tax on those purchases. The Department will consider the information supplied with the petition, as well as any other relevant information that is available. Petitions should be submitted to Department of Revenue, Agency Clerk, Post Office Box 6668, Tallahassee, Florida 32314-6668.

(c) The Department will review rules adopted at the petition of industry groups and amend them to adjust the percentage to insure it continues to reflect the taxable costs for that industry group. The percentage of contract price established in a rule described in this subsection can not be amended during the first five years after its adoption. After that time, the Department will review and, if the taxable costs of the industry group are no longer accurately reflected by the percentage provided, amend the rule. All such reviews must be at least five years apart. In conducting a review, the Department will consider any information submitted by the industry group affected, as well as any other available information.

(d) If the Department adopts a percent of contract price rule for an industry group, members of that group may elect to apply the method on a contract-by-contract basis or to apply it to all contracts in any period by timely accruing and remitting tax using the method. Timely accrual and remittance means accrual as of the time invoices are issued based on applying the established percentage to the amount invoiced to calculate the taxable cost and remittance with a timely filed return filed in the reporting period immediately after the accrual (i.e., in the month following the issuance of the invoice and accrual of the tax for a contractor who is required to file on the regular monthly schedule). The contractor must maintain records to document the timely accrual and payment of the tax on each contract for which the method is used.

(e) Application of the established percentage to the contract price is intended to capture the taxable cost of fabricated items used in performing the contract. If the contractor pays sales tax on purchases of materials incorporated into the fabricated items, the use tax due on the fabricated cost under the percent of contract method should be reduced to reflect the tax already paid on those materials. For example, a real property contractor who fabricates some of the items used in performing contracts is entitled by rule to use a 50% of contract price method to compute use tax on fabricated cost. The contractor agrees to fabricate and install items for a lump sum price of $10,000. The contractor pays sales tax on all purchases of materials and supplies. The cost of materials incorporated into the fabricated items for the contract is $3,000, on which the contractor has already paid $180 ($3,000 x 6%) in sales tax to the supplier. Those materials costs on which tax has already been paid are subtracted from the taxable percentage of the contract price before calculating the use tax due on the finished item. The use tax to be accrued and remitted under the percent of contract method is $120 (50% of $10,000 = $5,000 - $3,000 = $2,000 x 6% = $120).

(f) Use of the percent of contract price method applies only to the use tax owed on fabricated items. Other taxes may also be owed in connection with performance of a contract. For example, a real property contractor who fabricates some of the items used in performing contracts is entitled by rule to use a 50% of contract price method to compute use tax on fabricated cost. The contractor agrees to fabricate items, install those items, and supply materials and labor for on-site work that does not require shop fabrication. The contract is for a lump sum price of $10,000. The contractor also makes over-the-counter sales. He is therefore a registered dealer and buys all the materials involved using a resale certificate. The cost of materials used for the on-site work is $1000. Use tax must be remitted on 50% of the contract price for the fabricated items and on $1,000 for the on-site materials. The total tax owed is $360 ($5,000 + $1,000 = $6,000 x 6% = $360).

(g) The percent of contract price method involves an alternative way to calculate the use tax owed and alternative timing for accrual and payment of tax. It does not change the nature of the tax liability. The tax involved is still a use tax on fabricated cost. It is not a tax on the income earned from contracts. Election of the method, therefore, does not affect the jurisdiction where the tax is owed.

(12) Asphalt contractors. Contractors that manufacture asphalt for their own use in the performance of improving real property must calculate the tax on that asphalt based on the sum of the following:

(a) The cost of materials that become a component part or that are an ingredient of the finished asphalt multiplied by 6%; plus,

(b) The costs of transportation of such components and ingredients to the plant site multiplied by 6%; plus,

(c) An indexed tax per ton representing all other costs associated with the manufacture of the asphalt.

If sales tax has been paid on the purchase of materials or transportation in paragraph (a) or (b) above, the cost of such materials or transportation is not included in computing the total use tax due. The indexed tax is computed based on the “materials and components for construction” series of the producer price index, as calculated and published by the United States Department of Labor, Bureau of Statistics. The indexed tax is revised annually, effective each July 1. The Department is responsible for publishing the new rate each year in time to permit timely accruals and payment of use tax by asphalt contractors.

(13) Use tax on rock, shell, fill dirt, or similar materials. A real property contractor is taxable on the cost of rock, shell, fill dirt, or similar materials the contractor uses to perform a real property contract for another person.

(a) If the contractor acquires the materials from a location the contractor owns or leases, the contractor must remit use tax based on one of the following methods:

1. The fair retail market value, which means either the price the contractor would have to pay on the open market or the price at which the contractor would sell the materials to third parties; or

2. The cost of the land plus all costs of clearing, excavating, and loading the materials, including labor, power, blasting, and similar costs.

(b) If the contractor purchases the materials and as part of the agreement excavates and removes them from the seller’s land (including state-owned submerged land), the taxable cost is the purchase price paid to the seller plus all the costs incurred by the contractor in clearing, excavating, and removing the materials, including labor.

(c) When rock, shell, fill dirt, or similar materials are secured from a location owned by the contractor for use on his or her own property, the contractor does not owe tax on these materials. For purposes of this paragraph, a contractor that is a corporation is considered to own any location that is owned by any corporation in the same affiliated group as the contractor. “Affiliated group” shall have the meaning provided in Section 220.03(1), F.S.

(d) A contractor on a road project owes no tax on borrow materials that are provided at no charge by the Department of Transportation, including materials extracted from pits that are provided at no charge by that department.

(14) Mobile homes. A contractor who makes improvements or repairs to a mobile home is required to ascertain the status of that home as real property or as tangible personal property to determine how tax should be paid. If the mobile home has a real property decal, the contract should be treated as a real property contract. In that case, the contractor generally will be subject to tax on the materials used, and the customer will pay no tax. If the mobile home does not have a real property decal, improvements or repairs are generally treated as contracts to improve or repair tangible personal property. The contractor should charge tax on the full price paid by the customer, including charges for labor. In that case, the contractor is not subject to tax on the materials that are incorporated into and become a part of the improvement or repair of the mobile home. Upon initial installation of a mobile home, classification is dependent on the method of installation and whether title to the land and the mobile home are held by the same person. See Rule 12A-1.007, F.A.C., for further discussion on the taxation of contracts involving mobile homes.

(15) Contracts performed for nongovernmental tax-exempt entities. Contractors who perform lump sum, cost-plus, guaranteed price, or time and materials contracts for nongovernmental entities that are exempt from sales taxes, such as private schools, hospitals, or churches, are taxable on materials the contractor purchases for use in performing those contracts. Such contractors are not permitted to use the consumer’s certificate of exemption issued to the exempt entity in order to purchase materials for the contract exempt from taxes. The entity’s exempt status is not relevant, because it applies only to sales of tangible personal property to the entity, not to the contractor. The contractor, not the exempt entity, is the taxable consumer of the materials the contractor purchases to use in performing that contract. The fact that an exempt entity will bear the economic burden of the taxes paid by the contractor in the form of a higher contract price does not change the contractor’s tax liabilities.

(16) Subdivision and similar improvements.

(a) Subdivision owners and developers or their contractors are subject to tax on purchases of materials for use in the construction of streets, roadways, water distribution systems, sewers, and similar improvements that the owner or developer subsequently transfers to a municipality or other governmental unit. These transfers are not donations or sales of tangible personal property to a governmental unit.

(b) If a municipality or other governmental unit purchases and installs water mains and distribution pipes for a property owner, including a subdivision developer, under an arrangement whereby the municipality retains ownership, possession, and control of the mains and pipes, but recovers all or part of its cost from the property owner through the collection of an installation charge, such installation charge is equivalent to an assessment for benefits. It is not taxable.

(17) Specific activities classified as real property contracts. Contractors who are engaged in the following activities are generally considered to be real property contractors, although any particular job may be determined not to involve an improvement to real property:

(a) Awning installation;

(b) Block, brick, and stone masonry;

(c) Bridge construction;

(d) Burglar and fire alarm system installation;

(e) Cabinetry (built-in only);

(f) Carpentry;

(g) Carpeting installed with tacks, glue, or other permanent means and serving as the finished floor;

(h) Cement and concrete work;

(i) Closet system installation;

(j) Dock, pier, seawall, and similar construction, maintenance, or repair;

(k) Door and window installation or on-site repair;

(l) Driveway installation or repair;

(m) Electrical system installation and repairs, including structural wiring and cabling, meter boxes, switches, receptacles, wall plates, and similar items;

(n) Elevator and escalator installation and maintenance;

(o) Fencing and gates installation intended for permanent use;

(p) Flooring;

(q) Foundations;

(r) Glass and mirror installation if installed in a permanent manner;

(s) Heating, ventilating, and air conditioning system work;

(t) Insulation of structures or structural components;

(u) Iron work, such as railings, banisters, and stairs, incorporated into buildings;

(v) Landscaping work, including walls, walkways, permanent structures such as greenhouses, arbors, or gazebos, and permanent plantings such as trees, perennial shrubs, and lawns;

(w) Lathing;

(x) Painting of buildings, decks, and other real property structures;

(y) Paving and surfacing work, including driveways, parking lots, patios, roadwork, and sidewalks;

(z) Plastering;

(aa) Plumbing work;

(bb) Radio and telephone transmission towers;

(cc) Roofing work;

(dd) Septic tank installation or maintenance;

(ee) Sheet metal/ductwork;

(ff) Siding installation;

(gg) Site work, including clearing, grading, demolition, and excavation;

(hh) Signs that are permanently attached to realty;

(ii) Solar systems;

(jj) Sprinkler system installation for lawn and garden irrigation or for fire prevention;

(kk) Stucco;

(ll) Structural steel and concrete installation;

(mm) Swimming pool installation, including accessories and parts that are permanently attached or are plumbed or wired into plumbing or electrical systems;

(nn) Tile work;

(oo) Utility poles and lines installation and maintenance;

(pp) Wallpaper installation;

(qq) Water, sewer, and drainage systems;

(rr) Waterproofing of structures, decks, driveways, and other real property components; and

(ss) Well drilling and installation.

The determination whether any particular job involves a contract for an improvement to real property will be based on the criteria set forth in paragraphs (c), (d), (e), (g), (h), (i) and (j) of subsection (2).

(18) Specific activities not classified as real property contracts. The sale, installation, maintenance, or repair of the following items is not considered to be a real property contract.

(a) Area rugs and carpets;

(b) Art work (paintings, statuary);

(c) Cabinets and shelving (freestanding);

(d) Computer system components;

(e) Drapes, curtains, blinds, shades, etc.;

(f) Entertainment system (e.g., stereo systems, home theater systems) components;

(g) Furniture;

(h) Household appliances (unless built in and directly wired);

(i) Lawn markers;

(j) Mail boxes;

(k) Mirrors (freestanding);

(l) Radio and television antennas;

(m) Sprinkler systems for lawns or gardens if made up of unburied hoses or tubing and movable sprinkler heads;

(n) Stepping stones;

(o) Equipment used to provide communications services, as defined in Section 202.11(2), F.S., that is installed on a customer’s premises;

(p) Temporary fencing and gates (e.g., for construction sites); and

(q) Window air conditioning units.

(19) Cross references.

(a) For partial exemption of tax on the cost of asphalt manufactured for one’s own use in performing contracts for governmental entities, see Section 212.06(1)(c), F.S.

(b) For exemption of charges for repairs of industrial machinery and equipment, see Section 212.08(7)(eee), F.S.

Rulemaking Authority 212.17(6), 212.18(2), 213.06(1) FS. Law Implemented 212.02(4), (7), (16), (19), (21), 212.06(1), (14), (15)(a), 212.07(1), (8), 212.08(6), 212.14(5), 212.183 FS. History–New 10-7-68, Amended 1-7-70, 6-16-72, 2-3-80, 3-27-80, 6-3-80, 8-26-81, 11-15-82, 6-11-85, Formerly 12A-1.51, Amended 1-2-89, 8-10-92, 7-27-99, 3-30-00, 10-2-01(18), 10-2-01(5), (8), (9), (13), 4-17-03.