Sales and Use Tax on Building Contractors

How does sales and use tax apply to building contractors?

Definitions

Fixture

An item that is attached to real property in a permanent manner and becomes an accessory to a building, other structure, or land but does not lose its identity when installed. Mobile homes are not fixtures unless assessed as real property. Industrial/commercial machinery and equipment are not treated as fixtures regardless of the method of attachment.

Real Property

The land, improvements thereto, and fixtures; also called "realty" and "real estate".

Tangible Personal Property

Personal property that may be seen, weighed, measured, or touched or is in any manner perceptible to the senses, including electric power or energy.

What is Taxable?

Purchase of Construction Materials and Supplies

The purchase of materials and supplies used to improve, alter, or repair land, buildings, homes, or other real property is subject to tax. The taxability of purchases and sales by real property contractors is determined by the pricing arrangement in the contract.

Contractors who perform lump sum, cost plus, fixed fee, guaranteed price, or time-and-materials real property contracts do not resell tangible personal property to the real property owner, but instead use the property to provide the real property improvement. Contractors should pay sales tax to their suppliers on all purchases for these types of contracts. Tax should also be paid on all materials fabricated for the contractor's own use in performing such contracts. Contractors should not charge tax to their customers, because they are not engaged in selling tangible personal property. This is regardless of whether charges for materials and labor in the proposals or invoices are itemized. These contractors should not register as dealers unless they are required to remit tax on the cost of items fabricated for use in fulfilling contracts. However, a dual operator who performs real property contracts and sells tangible personal property at retail must register as a dealer.

Contractors are the ultimate consumers of materials and supplies used to perform real property contracts and must pay tax on the costs of those materials and supplies, unless the contractor has entered into a retail sale plus installation contract. Contractors who perform taxable fabrication can either pay tax to their suppliers when purchasing materials for fabrication or pay use tax when the materials are incorporated into a fabricated item.

Sale of Materials

Retail sale plus installation contracts 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 regular retail price, and
• Complete the work for either an additional agreed price or on the basis of time consumed.

In order for a contract to fit in this category, all materials that will be incorporated into the work must be itemized and priced in the contract before the work begins. If the contract itemizes only some of the materials, the contract is not included in this category. Because the sale of the materials is a separate transaction from the installation, the purchaser must assume title and risk the loss of the materials and supplies as they are delivered, rather than accepting only title to the completed work.

A contractor who performs retail sale plus installation contracts must collect sales tax from customers and remit the taxes to the Department. See "Registering to Collect Sales Tax."

Use of Materials

Tax is due on the use of goods by the contractor. If sales tax was not paid at the time of purchase, the contractor becomes responsible for the tax. If a contractor purchases materials from an out-of-state business that is not a registered to collect Florida sales tax, the contractor is liable for tax when the materials are imported into Florida.

Contractors may manufacture or fabricate a finished product from raw materials for use in a contract. Contractors owe tax on the manufactured cost of such products. For example, a cabinet maker is required to pay sales tax, plus any county-imposed tax (discretionary sales surtax), on the manufactured cost of the cabinet.

If a product is fabricated at the job site, fabrication labor is exempt from tax. Only the cost of the materials is subject to tax.

Construction for Tax-Exempt Entities

Florida law provides that the purchase of construction materials or supplies by a contractor is subject to Florida sales tax at the time of the sale, even if the purchase is for or on behalf of a tax-exempt or governmental entity.

In order for construction materials or supplies to be purchased exempt from Florida sales tax, a purchase order and a copy of an exemption certificate issued directly from the tax-exempt entity must be received by the vendor prior to shipment or delivery. If this documentation is not presented to the vendor, the vendor must collect sales tax from the contractor that placed the order. For more information on public works contracts, see Rule 12A-1.094, Florida Administrative Code.

Reversing and/or rebilling an otherwise taxable purchase after shipment or delivery is contrary to Florida law.

Discretionary Sales Surtax

Florida counties are authorized to levy a discretionary sales surtax on most transactions in the county that are subject to sales and use tax. The tax is calculated using the tax rate of the county in which the consumer, usually the contractor, takes delivery of the tangible personal property. In the case of retail sale plus installation contracts, tax is calculated using the tax rate of the county in which the improvements or repairs are made. If a contractor pays use tax upon using materials to fabricate items at the contractor's shop, the tax is calculated using the tax rate of the county in which the fabrication occurs. For more information, ask the Department for a Discretionary Sales Surtax brochure (Form GT-800019) and a list of surtax counties and rates (DR-15DSS).

Registering to Collect Sales Tax

You can register to collect and remit sales tax via the Department's Internet site; go to www.myflorida.com/dor and click on e-Services. If you do not have Internet access, you can complete a paper Application to Collect and/or Report Tax in Florida (Form DR-1). See "For Information and Forms."

After your registration application is approved, you will receive a Certificate of Registration (Form DR-11), an Annual Resale Certificate (Form DR-13), and your tax return forms. The Annual Resale Certificate may be used to purchase materials tax-exempt that will be itemized and resold. You must present a signed copy of your certificate to your supplier when making the purchase.

If materials purchased for resale are later used (not resold), you must report and pay use tax on those items, plus any applicable penalties and interest. There are additional liabilities for intentional misuse of a resale certificate.

Reference Material

Tax Laws - Contact Taxpayer Services to request a copy of Rule 12A-1.051, Florida Administrative Code, Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property. Tax laws are also available on the Department's Internet site. Look for the Florida Tax Law Library.

Brochures - The following brochures are available from your local DOR service center, the DOR Distribution Center, or Taxpayer Services:

• Florida's Sales and Use Tax
• Discretionary Sales Surtax
• Repair of Tangible Personal Property

For Information and Forms

Persons with hearing or speech impairments may call the TDD at 800-367-8331 or 850-922-1115.

• Order multiple copies of forms from our Internet site, or
• Mail form requests to:
  Distribution Center
  Florida Department of Revenue
  168A Blountstown Hwy
  Tallahassee FL 32304-3761