Florida – Direct Purchases for Public Works Contracts

SALT Report 2248 – The Florida Department of Revenue released a publication regarding purchases made under a public works contract. The publication addresses specific questions regarding the requirements that must be met to qualify for the sales tax exemption available for direct purchases by a government entity.

Under Florida law, contractors and subcontractors are the consumers of the materials they use to fulfill a real property construction contract. Therefore, any materials purchased by contractors and subcontractors are subject to sales tax. This also applies to contractors and subcontractors who buy materials for public works construction contracts.

Government entities can purchase goods and services tax-free if the government entity pays the vendor directly. Similarly, if a government entity directly purchases materials for use in a public works construction contract, these purchases will be exempt from sales tax so long as the government entity follows the procedures set forth in Rule 12A-1.094, F.A.C.

However, if the contractor or subcontractor, rather than the government entity, purchases the materials for use in the public works construction project, the contractor or subcontractor must pay sales tax. Therefore, to prove that the government entity, rather than the contractor or the subcontractor, is the purchaser of the materials, the Department has provided the following guidance:

Direct Purchase Order – The government entity must issue a purchase order directly to the vendor who supplies the materials that the contractor will use and provide the vendor with a copy of the government entity’s Florida Consumer’s Certificate of Exemption.

Direct Invoice – The vendor’s invoice must be issued 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 property from the vendor at the time of purchase or delivery by the vendor.

Assumption of the Risk of Loss – Assumption of the risk of damage or loss by the government entity at the time of purchase is a determining factor. A government entity will be deemed to have assumed the risk of loss if the government entity obtains insurance that covers damage or loss or if they will directly receive the proceeds of the insurance policy.

Certificate of Entitlement – To purchase materials tax exempt for a public works project, a government entity is required to issue a Certificate of Entitlement to each vendor and contractor. The certificate confirms that the property purchased from that vendor will go into, or become a part of, a public work. Any purchases made without a Certificate of Entitlement are subject to tax.

There are a few situations in which a government entity cannot use its tax exempt status on its purchases of materials. For example:

  • When the contractor or subcontractor who will install the materials sells the materials to the government entity
  • When the contractor or subcontractor is the manufacturer of the materials
  • When the contractor or subcontractor has exclusive rights from the manufacturer of the materials to furnish and install the materials, and
  • When the contractor or subcontractor has already purchased the materials

For Further Information
Florida Department of Revenue – Tax Information Publication #13A01-01