Exemption Requirements & Public Works Projects (Sales & Use Tax)
Under Florida law, real property contractors and subcontractors are considered to be the ultimate consumers of tangible personal property when those materials are installed or consumed in real property contracts. As such, material purchases for real property contracts are subject to sales tax, even when used in conjunction with public works construction contracts.
Under Florida law, governmental entities are allowed to direct purchase materials to be installed in a public works construction project, effectively escaping SUT on these direct materials. In order for this transaction to hold up under audit, Rule 12A-1.094 of the Florida Administrative Code requires that certain criteria be documented in order for the transaction to meet exemption requirements.
The following guidance is provided by the Florida Department of Revenue listing the required elements of the Public Works Contract:
- Direct Purchase Order. The government entity must issue its purchase order directly to the vendor supplying the materials along with a copy of its Florida issued Consumer’s Certificate of Exemption.
- Direct Invoice. The supplying vendor must issue its invoice directly to the government entity, rather than to the contractor.
- Direct Payment. The government entity must make payment directly to the vendor from public funds.
- Passage of Title. The government entity must take title to the tangible personal property at the time of purchase or delivery by the vendor. This should be evidenced by language in the contract.
- Assumption of Risk of Title. The government entity must demonstrate that it has assumed risk of loss or damage to the tangible personal property upon delivery of tangible personal property. This can be demonstrated through a separate insurance policy naming the government entity as insured.
- Certificate of Entitlement. The government entity must issue each vendor and general contractor a copy of this certificate which affirms that the tangible personal property purchased will become a part of a public work. Any purchases made by the government entity for a public works construction contract without a certificate of entitlement are subject to tax.
All of the above criteria must be documented and verifiable upon audit or the exemption does not apply rendering all of the material purchases as taxable to the selling entity.
It is important to note that in some cases, a governmental entity may not be able to use its tax exempt status on the purchase of materials even when direct purchases are made. Cases where the supplier of the materials is also the installer of the materials do not qualify for exemption. This is true even if the above criteria are met.
Other Cases Include:
- When the contractor is also the manufacturer of the tangible personal property.
- When the contractor or subcontractor has exclusive rights from the manufacturer of the materials to furnish and install the materials.
- When the contractor or subcontractor has already purchased the materials.
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