STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
FLORIDA HOME BUILDERS ASSOCIATION, INC.; FLORIDA
A.G.C. COUNCIL, INC.; AND WACKENHUT CORRECTIONS CORPORATION,
Petitioners,
and
FLORIDA SCHOOL BOARDS ASSOCIATION,
Intervenor,
vs.
DEPARTMENT OF REVENUE,
Respondent.
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FINAL ORDER
A formal hearing was conducted in this case on March 12, 2003, in Tallahassee, Florida, before Suzanne F. Hood, Administrative Law Judge with the Division of Administrative Hearings.
APPEARANCES
For Petitioners: Martha Harrell Chumbler, Esquire
Joseph C. Mellichamp, Esquire Carlton Fields Law Firm
Post Office Drawer 190 Tallahassee, Florida 32302-0190
For Respondent: J. Clifton Cox, Esquire
Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050
For Intervenor: No Appearance
STATEMENT OF THE ISSUE
This issue is whether proposed amendments to Rules 12A-1.094(1) and 12A-1.094(4), Florida Administrative Code,
constitute a valid exercise of delegated legislative authority.
PRELIMINARY STATEMENT
Respondent Department of Revenue (Respondent) published a Notice of Rule Development Workshop in the Florida Administrative Weekly, Volume 28, Number 3, January 18, 2002. The notice stated, in part, that Respondent would conduct the workshop on February 5, 2002, to address proposed guidelines regarding the taxability of public works contracts for the repair, alteration, improvement, or construction of real property.
According to the notice, the purpose of the proposed amendments to Rule 12A-1.094, Florida Administrative Code, included the following: (a) to incorporate legislative changes to Sections 212.06(14), 212.08(6), and 212.08(7)(bbb), Florida Statutes; (b) to remove obsolete and unnecessary guidelines for public works contracts; and (c) to provide simple guidelines for taxpayers and tax administrators regarding the taxability of
public works contracts for the repair, alteration, improvement, or construction of real property.
In accordance with the January 18, 2002, notice, Respondent conducted a rule development workshop on February 5, 2002.
Respondent published a Notice of Proposed Amendments to Rule 12A-1.094, Florida Administrative Code, in Florida Administrative Weekly, Volume 28, Number 27, July 5, 2002.
According to the notice, the proposed amendments to
Rule 12A-1.094, Florida Administrative Code, will: (a) revise the definition of the terms "contractor," "governmental entity," "public works, " and "real property," as used in the rule;
provide that contractors who purchase supplies and material for sale and for use by the contractor may buy such items tax exempt and remit tax when the items are withdrawn from inventory for use in a public works contract; (c) provide guidelines for when property purchased or manufactured for resale to a governmental entity is exempt from tax; (d) provide that contractors who manufacture asphalt for incorporation into public works projects are liable for tax pursuant to
Rule 12A-1.051(12), Florida Administrative Code, and Section 212.06(1)(c), Florida Statutes; and (e) provide
guidelines regarding the exemption for the purchase of people mover systems, or components of such systems, installed by contractors in public works projects.
On July 31, 2002, Respondent conducted a hearing on the proposed rule amendments.
On August 12, 2002, Petitioners Florida Home Builders Association, Inc., Florida A.G.C. Council, Inc., and Wackenhut Corrections Corporation (Petitioners) filed a Petition Seeking an Administrative Determination of the Invalidity of a Proposed Rule. The petition alleged that the proposed rule amendments constituted an invalid exercise of delegated legislative authority.
On August 16, 2002, Intervenor Florida School Boards Association, Inc. (Intervenor) filed a Request for Leave to Intervene. This request was granted by Order dated August 27, 2002.
On August 19, 2002, the undersigned issued a Notice of Hearing. The notice scheduled the hearing for September 10, 2002.
On August 28, 2002, the parties filed a Joint Motion for Continuance. In an Order dated August 29, 2002, the undersigned granted the motion and rescheduled the hearing for October 11, 2002.
On October 2, 2002, Petitioners filed an unopposed Status Report and Motion for Abeyance. The motion was granted in an Order dated October 3, 2002.
Respondent published a Notice of Change in Florida Administrative Weekly, Volume 28, Number 41, October 11, 2002. The notice set forth changes to the proposed rule amendments. The changes involved subsections (1), (2), and (3), of
Rule 12A-1.094, Florida Administrative Code.
On October 21, 2002, Petitioners filed a Motion for Leave to Amend Petition and an Amended Petition Seeking an Administrative Determination of the Invalidity of a Proposed Rule. That same day, Intervenor filed a Notice of Adoption of Motion for Leave to Amend Petition and Amended Petition Seeking an Administrative Determination of the Invalidity of a Proposed Rule. An Order dated October 28, 2002, granted the motions.
Respondent filed a Status Report on November 1, 2002. The Status Report stated that the parties jointly requested further abeyance. The undersigned issued an Order Continuing Case in Abeyance on November 7, 2002.
Petitioners filed a Status Report on December 2, 2002, requesting a hearing date in February 2003. In response to this request, the undersigned issued a Notice of Hearing dated December 3, 2002, scheduling the hearing for February 7, 2003.
On January 27, 2003, Respondent filed an Unopposed Motion for Continuance. In an order dated January 27, 2003, the undersigned rescheduled the hearing for March 12, 2003.
On March 6, 2003, the parties filed a Joint Prehearing Stipulation. On March 10, 2003, Respondent filed a letter, noting a correction to the prehearing stipulation.
During the hearing, the parties stipulated that the Joint Prehearing Stipulation should be corrected to reflect that Respondent did "not" agree with Petitioner's statement of one issue, to wit: Whether the proposed rule amendments will impose sales and use tax on some items of tangible personal property that do not become either fixtures or appurtenances to real property. Additionally, the parties stipulated that the case did not present an issue whether the proposed rule amendments lack the support of competent substantial evidence.
During the hearing, Petitioners offered Exhibit Nos. P1-P4 and I1, which were accepted into evidence without objection.
Petitioners did not present the testimony of any witnesses.
Respondent presented the testimony of one witness.
Respondent offered five exhibits, R1-R5, which were accepted into evidence without objection.
The court reporter filed a copy of the Transcript on March 28, 2003. The parties filed their Proposed Final Orders on April 11, 2003.
FINDINGS OF FACT
Petitioners Florida Home Builders Association, Inc. (FHBA), and Florida A.G.C. Council (FAGC) are trade
associations. A substantial number of their members contract with governmental entities for construction services and related sales of tangible personal property. FHBA and FAGC were organized, in part, to represent their members on matters relating to the construction industry, including proceedings involving agency rules.
Petitioner Wackenhut Corrections Corporation (Wackenhut) frequently contracts with governmental entities. The proposed rule amendments will result in greater tax liability for Wackenhut in its performance of governmental contracts.
Intervenor Florida School Board Association, Inc. (FSBA) represents all 67 local school boards in the State of Florida. FSBA's purpose is to represent its members before governmental agencies, in part to ensure cost containment in the construction, maintenance, and improvement of school facilities.
Petitioners and Intervenor will be substantially affected if Respondent adopts the proposed rule amendments. They all have standing in this case.
Section 212.05, Florida Statutes, imposes a tax on "retail sales" or "sales at retail." The statute also imposes a companion "use tax" when a retail sale does not occur in this state but the items sold are used here.
Section 212.02(14), Florida Statutes, defines "retail sale" or "sale at retail" as a "sale to a consumer or to any person for any purpose other than resale in the form of tangible personal property."
Section 212.02(20), Florida Statutes, defines "use" as the "exercise of any right or power over tangible personal property incident to ownership thereof, or interest therein, except it does not include the sale at retail of that property in the regular course of business."
Therefore, when tangible personal property is purchased and resold while still tangible personal property, the individual or company that resells the property is a dealer and has an obligation to collect, but not to pay, sales tax. See Sections 212.06(2) and 212.07(1)(a), Florida Statutes. The obligation to pay the tax rests on the final purchaser of the items while they are still tangible personal property.
Section 212.08(6), Florida Statutes, creates a sales tax exemption for direct sales to governmental entities. The statute also creates an exception to that exemption for sales to contractors who purchase or manufacture items for the purpose of installing them in a governmental project.
At one time, governmental contractors benefited from the same sales tax exemption that governmental entities enjoyed, even when the contractor was the ultimate consumer.
Section 212.08(7), Florida Statutes (1957), stated as follows in relevant part:
(7) EXEMPTIONS; POLITICAL SUBDIVISIONS, INTERSTATE TRANSPORTATION, COMMUNICATIONS, ETC.--There shall also be exempt from the tax imposed by this chapter sales made to the United States government, the state or any county, municipality or political subdivision of this state, including sales of tangible personal property made to contractors employed by any such government or political subdivision thereof where such tangible personal property goes into and becomes a part of public works owned by such government or political subdivision thereof. (Emphasis added)
Chapter 59-402, Section 2, Laws of Florida, amended this provision by deleting the word "including" and substituting "provided, this exemption shall not include."
Section 212.08(6), Florida Statutes (1991), provided as follows in relevant part:
(6) EXEMPTIONS; POLITICAL SUBDIVISIONS.-- There are also exempt from the tax imposed by this chapter sales made to the United States Government, a state, or any county, municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity. This exemption shall not inure to any transaction otherwise taxable under this chapter when payment is made by a government employee by any means, including, but not limited to, cash, check, or credit card when that employee is subsequently reimbursed by the governmental entity. This exemption does not include sales of tangible personal property made to contractors employed either directly or as agents of any such government or political subdivision thereof when such
tangible personal property goes into or becomes a part of public works owned by such government or political subdivision thereof, except public works in progress or for which bonds or revenue certificates have been validated on or before August 1, 1959.
Rule 12A-1.094, Florida Administrative Code, which implements Section 212.08(6), Florida Statutes, was last amended on August 10, 1992. The existing rule currently provides, as follows, in relevant part:
12A-1.094 Public Works Contracts.
This rule shall govern the taxability of transactions in which contractors manufacture or purchase supplies and materials for use in public works, as that term is referred to in Section 212.08(6),
This rule shall not apply to non- public works contracts as those contracts are governed under the provisions of
Rule 12A-1.051, F.A.C. . . . In applying this rule, the following definitions are used.
"Contractor" is one who is engaged in the repair, alteration, improvement or construction of real property. Contractors include, but are not limited to, persons engaged in building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier or billboard work. This definition includes subcontractors.
"Public works" are defined as construction projects for public use or enjoyment, financed and owned by the government, in which private persons undertake the obligation to do a specific piece of work. The term "public works" is not restricted to the repair, alteration,
improvement, or construction of real property and fixed works where the sale of tangible personal property is made to or by
contractors involved in public works contracts. Such contracts shall include, but not be limited to, building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier or billboard contracts.
"Real property" within the meaning of this rule includes all fixtures and improvements to real property. The status of a project as an improvement or affixture to real property is determined by the objective and presumed intent of the parties, based on the nature and use of the project and the degree of affixation to realty. Mobile homes and other mobile buildings are deemed fixtures if they
(1) bear RP license tags, or (2) have the mobile features (such as wheels and/or axles) removed, and are placed on blocks or footings and permanently secured with anchors, tie-down straps or similar devices.
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(4) The exemption in subsection (3)(a) is a general exemption for sales made to the government. The exception in subsection (2)(a) is a specific exception for sales to contractors. A determination of whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction, rather than the form in which the transaction is cast. The Executive Director or the Executive Director's designee in the responsible program will determine whether the substance of a particular transaction is governed by subsection (2)(a) or is a sale to a governmental body as provided by subsection
(3) of this rule based on all of the facts and circumstances surrounding the transaction as a whole. The Executive Director or the Executive Director's designee in the responsible program will
give special consideration to factors which govern the status of the tangible personal property prior to its affixation to real property. Such factors include provisions which govern bidding, indemnification, inspection, acceptance, delivery, payment, storage, and assumption of the risk of damage or loss for the tangible personal property prior to its affixation to real property. Assumption of the risk of damage or loss is a paramount consideration. A party may be deemed to have assumed the risk of loss if the party either: bears the economic burden of posting a bond or obtaining insurance covering damage or loss; or enjoys the economic benefit of the proceeds of such bond or insurance. Other factors that may be considered by the Executive Director or the Executive Director's designee in the responsible program include whether: the contractor is authorized to make purchases in its own name; the contractor is jointly or severally liable to the vendor for payment: purchases are not subject to prior approval by the government; vendors are not informed that the government is the only party with an independent interest in the purchase; and whether the contractors are formally denominated as purchasing agents for the government. Sales made pursuant to so called "cost-plus", "fixed-fee", "lump sum", and "guaranteed price" contracts are taxable sales to the contractor 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 sales to the government.
Section 212.08(6), Florida Statutes, was last amended by Chapter 98-144, Laws of Florida. The statute currently states, as follows, in pertinent part:
(6) EXEMPTIONS; POLITICAL SUBDIVISIONS.-- There are also exempt from the tax imposed by this chapter sales made to the United States Government, a state, or any county, municipality, or political subdivision of a state when payment is made directly to the dealer by the governmental entity. This exemption shall not inure to any transaction otherwise taxable under this chapter when payment is made by a government employee by any means, including, but not limited to, cash, check, or credit card when that employee is subsequently reimbursed by the governmental entity. This exemption does not include sales of tangible personal property made to contractors employed either directly or as agents of any such government or political subdivision thereof when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision. A determination whether a particular transaction is properly characterized as an exempt sale to a government entity or a taxable sale to a contractor shall be based on the substance of the transaction rather than the form in which the transaction is cast. The department shall adopt rules that give special consideration to factors that govern the status of the tangible personal property before its affixation to real property. In developing these rules, assumption of the risk of damage or loss is of paramount consideration in the determination.
Chapter 98-144, Laws of Florida, was the result of Respondent's "map-tracking" exercise to ensure that its rules were supported by appropriate legislation.
Proposed amendments to Rules 12A-1.094(1)
and 12A-1.094(4), Florida Administrative Code, are at issue
here. Those rules, as revised by the proposed amendments, read as follows:
This rule shall govern the taxability of transactions in which contractors manufacture or purchase supplies and material for use in public works contracts, as that term is referred to in Section 212.08(6), F.S. This rule shall not apply to non-public works contracts for the repair, alteration, improvement, or construction of real property, as those contracts are governed under the provisions of Rule 12A-1,051, F.A.C. In applying this rule, the following definitions are used.
1. "Contractor" is one that supplies and installs tangible personal property that is incorporated into or becomes a part of a public facility pursuant to a public works contract with a governmental entity exercising its authority in regard to the public property or facility. Contractors include, but are not limited to, persons engaged in building, electrical, plumbing, heating, painting, decorating, ventilating, paperhanging, sheet metal, roofing, bridge, road, waterworks, landscape, pier, or billboard work. This definition includes subcontractors.
"Contractor" does not include a person that furnishes tangible personal property that is not affixed or appended in such a manner that it is incorporated into or becomes a part of the public property or public facility to which a public works contract relates. A person that provides and installs tangible personal property that is freestanding and can be relocated with no tools, equipment, or need for adaptation for use elsewhere is not a contractor within the scope of this rule.
"Contractor" does not include a person that provides tangible personal property that will be incorporated into or becomes part of a public facility if such property will be installed by another party.
Examples.
A vendor sells a desk, sofas, chairs, tables, lamps, and art prints for the reception area in a new public building. The sales agreement requires the vendor to place the furniture according to a floor plan, set up the lamps, and hang the art prints. The vendor is not a contractor within the scope of this rule, because the vendor is not installing the property being sold in such a way that it is attached or affixed to the facility.
A security system vendor furnishes and install low voltage wiring behind walls, motion detectors, smoke alarms, other sensors, control pads, alarm sirens, and other components of a security system for a new county courthouse. The components are direct wired, fit into recesses cut into the walls or other structural elements of the building, and are held in place by screws. The vendor is a contractor within the scope of this rule. The security system is installed and affixed in such a manner that it ha been incorporated into the courthouse.
A vendor enters an agreement to provide and install the shelving system for a new public library. The shelves are built to bear the weight of books. The shelf configuration in each unit maximizes the number of books the shelves can hold. The number and size of the units ordered is based on the design for the library space. The units will run floor to ceiling and will be anchored in place by bolts or screws.
The vendor is a contractor within the scope of this rule. The shelving system will be affixed in such a manner that it becomes a part of the public library.
e. A manufacturer agrees to provide the prestressed concrete forms for a public parking garage. A construction company is awarded the bid to install those forms and build the garage. The manufacturer is not a contractor within the scope of this rule, because the manufacturer will not install any tangible personal property that becomes
part of the garage. The construction company is a contractor within the scope of this rule.
"Governmental entity" includes any agency or branch of the United States government, a state, or any county, municipality, or political subdivision of a state. The term includes authorities created by statute to operate public facilities using public funds, such as public port authorities or public-use airport authorities.
"Public works" are defined as construction projects for public use or enjoyment, financed and owned by the government, in which private persons undertake the obligation to do a specific piece of work that involves installing tangible personal property in such a manner that it becomes a part of a public facility. For purposes of this rule, a public facility includes any land, improvement to land, building, structure, or other fixed site and related infrastructure thereon owned or operated by a governmental entity where governmental or public activities are conducted. The term "public works" is not restricted to the repair, alteration, improvement, or construction of real property and fixed works, although such projects are included within the term.
"Real property" within the meaning of this rule includes all fixtures and improvements to real property. The status of a project as an improvement or fixture to real property will be determined by reference to the definitions contained in Rule 12A-1.051(2), F.A.C.
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(4)(a) The exemption in s. 212.08(6), F.S., is a general exemption for sales made directly to the government. A determination whether a particular transaction is properly characterized as an exempt sale to a governmental entity or a taxable sale to or
use by a contractor shall be based on the substance of the transaction, rather than the form in which the transaction is cast. The Executive Director or the Executive Director's designee in the responsible program will determine whether the substance of a particular transaction is a taxable sale to or use by a contractor or an exempt direct sale to a governmental entity based on all of the facts and circumstances surrounding the transaction as a whole.
The following criteria that govern the status of the tangible personal property prior to its affixation to real property will be considered in determining whether a governmental entity rather than a contractor is the purchaser of materials:
Direct Purchase Order. The governmental entity must issue its purchase order directly to the vendor supplying the materials the contractor will use and provide the vendor with a copy of the governmental entity's Florida Consumer's Certification of Exemption.
Direct Invoice. The vendor's invoice must be issued to the governmental entity, rather than to the contractor.
Passage of Title. The governmental entity must take title to the tangible personal property from the vendor at the time of purchase or delivery by the vendor.
5. Assumption of the Risk of Loss. Assumption of the risk of damage or loss by the governmental entity at the time of purchase is a paramount consideration. A governmental entity will be deemed to have assumed the risk of loss if the governmental entity bears the economic burden of obtaining insurance covering damage or loss or directly enjoys the economic benefit of the proceeds of such insurance.
Sales are taxable sales to the contractor unless it can be demonstrated to the satisfaction of the Executive Director or the Executive Director's designee in the responsible division that such sales are, in
substance, tax-exempt direct sales to the government.
Respondent's staff assisted various industry groups in drafting proposed legislation for the 2001 and 2002 legislative sessions that would expand the sales tax exemption for public works contracts. The Legislature did not enact any of these proposals.
The proposed rule amendments reflect Respondent's current practice regarding tax exemptions for public works contracts. The proposed amendments detail all factors, criteria, and standards that Respondent considers in determining whether transactions qualify for the exemption set forth in Section 212.08(6), Florida Statutes. The existing version of Rule 12A-1.094, Florida Administrative Code, as revised in 1992, does not reflect these factors.
In drafting the proposed revisions to Rule 12A-1.094, Florida Administrative Code, Respondent's staff considered statutory language, questions asked by taxpayers, and cases involving protests of audit assessments. Respondent's staff also considered areas that it believed failed to provide clear guidance as to how taxpayers could structure transactions to avoid the tax. Finally, Respondent's staff considered the decisions in Housing by Vogue, Inc. v. Department of Revenue,
403 So. 2d 478 (Fla. 1st DCA 1981), and Housing by Vogue, Inc. v. Department of Revenue, 422 So. 2d 3 (Fla. 1982).
As a general rule, a for-profit corporation instead of the contractor is liable to pay sales tax when the contractor agrees to purchase items and to resell the items to the corporation such that the corporation takes possession and ownership thereof. This would be true regardless of whether the contractor or some other individual eventually installs the items on the for-profit corporation's property or in its facility. In either instance, the contractor, as a reseller of tangible personal property, is a dealer who has the obligation to collect the sales tax from the for-profit corporation. The for-profit corporation would be the ultimate consumer of the items.
If a contractor resells items to a non-governmental customer, who enjoys tax-exempt status, while the items are still tangible personal property, no sales tax is due. In such a case, it makes no difference whether the contractor or some other individual later installs the items.
The taxability of sales to or by contractors who repair, alter, improve and construct real property pursuant to non-public works contracts is governed by Rule 12A-1.051, Florida Administrative Code, which states as follows in relevant part:
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. . . .
Definitions. For purposes of this rule, the following terms have the following meanings:
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(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. . . .
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(g) "Real property" means land, improvements to land, and fixtures. It is synonymous with the terms "realty" and "real estate."
Pursuant to the statute and the proposed rule amendments, contractors who purchase tangible personal property that goes into or becomes a part of a public works are not entitled to an exemption from paying sales tax. Such a
contractor would be the ultimate consumer of the tangible personal property and not a dealer.
The statute and the rule at issue here require Respondent to look at the substance instead of the form of each transaction to determine when sales tax is due. To say that no tax is due anytime a contractor agrees to purchase and resell items to a governmental customer, such that the governmental customer takes possession and ownership thereof before the same contractor installs the items, would be contrary to the statute. To find otherwise would place form over substance, allowing the contractor and the governmental entity to avoid the statutorily imposed tax by casting the transaction as a resale.
The proposed rule amendments do not expand the sales and/or use tax imposed by Chapter 212, Florida Statutes. Instead, they implement the statutory provision requiring governmental contractors to pay sales tax when they supply and install items in a governmental project pursuant to a public works contract.
Depending on the circumstances, "public works" include a construction project on a job site where the governmental entity owns the real property. It also includes a construction project on a job site where the governmental entity owns a public facility located on real property owned by a private individual. The term "public works" includes a public facility
which is owned and operated by a governmental entity for the purpose of conducting governmental activities regardless of who owns the real property on which it is located.
According to the statute, Respondent's rules must give special consideration to the status of tangible personal property "before its affixation to real property." This provision does not mean that a transaction is not taxable unless the tangible personal property becomes a "fixture" or "appurtenance" to real property. Instead, Respondent's proposed rule amendments properly implement the broader legislative intent to tax any sale to a contractor who supplies and installs tangible personal property in public works.
Respondent looks first to see whether the tangible personal property will be a fixture or improvement to real property. Next, Respondent must determine whether the tangible personal property will be permanently attached and function as a part of a public works project that does not fit the definition of real property. For example, a port authority may operate an office out of a permanently docked ship.
The statute directs Respondent to consider the assumption of risk of damage or loss to be most important but not the only factor in determining whether the sale of tangible personal property is taxable. In addition to the assumption of risk of loss, the proposed rule amendments require a nontaxable
sale to show the following: (a) a direct purchase order to the vendor who will supply materials to the contractor; (b) a direct invoice from the vendor rather than the contractor; (c) direct payment to the vendor; and (d) passage of title at time of purchase or delivery. The five factors are inclusive of the elements that Respondent will consider when determining whether of a sale is, in substance, a direct nontaxable sale to a governmental entity.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. Section 120.56, Florida Statutes.
Regarding the burden of proof in this proceeding, Section 120.56(2)(a), Florida Statutes, states as follows in pertinent part:
. . . The petitioner has the burden of going forward. The agency has the burden to prove by a preponderance of the evidence that the proposed rule is not an invalid exercise of delegated legislative authority as to the objections raised.
Section 120.52(8), Florida Statutes, defines "invalid exercise of delegated legislative authority" to mean:
. . . action which goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one of the following applies:
The agency has materially failed to follow the applicable rulemaking procedures or requirements set forth in this chapter;
The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(3)(a)1.;
The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(3)(a)1.;
The rule is vague, fails to establish adequate standards for agency decisions, or vests unbridled discretion in the agency;
The rule is arbitrary or capricious;
The rule is not supported by competent substantial evidence; or
The rule imposes regulatory costs on the regulated person, county, or city which could be reduced by the adoption of less costly alternatives that substantially accomplish the statutory objectives.
A grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement or interpret the specific powers and duties granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious or is within the agency's class of powers and duties, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy. Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the same statute.
Section 120.536(1), Florida Statutes, states as follows:
A grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement or interpret the specific powers and duties granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious or is within the agency's class of powers and duties, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy. Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the same statute.
In this case, Petitioners challenge the proposed rule amendments based on Sections 120.52(8)(b), 120.52(8)(c), 120.52(8)(d), and 120.52(8)(e), Florida Statutes. Each of those potential bases for invalidating the proposed rule amendments is addressed below.
Section 120.52(8)(b), Florida Statutes
First, the proposed rule amendments do not exceed Respondent's grant of rulemaking authority. Section 212.08(6), Florida Statutes, contains specific authority for the proposed rule amendments, which clarify the existing rules and provide guidance as to whether a particular transaction is an exempt sale to a governmental entity or a taxable sale to a contractor.
Specifically, the proposed rule amendments do not exceed Respondent's rulemaking authority by imposing a tax on sales for resale. Instead, they implement the legislative purpose of taxing any sale to a contractor who supplies and installs items in public works. Respondent correctly interprets public works to include a public facility owned and operated by a governmental entity.
The proposed rule amendments do not exceed Respondent's rulemaking authority by taxing items that do not become real property or a fixture to real property. Pursuant to the statute and proposed rule amendments, a sale to a contractor is taxable in those rare cases where items go into and become part of a public works project that does not fit within the real property category.
The proposed rule amendments do not exceed Respondent's rulemaking authority by including direct pay criteria not set forth in the rule or by altering the priority to be given to such criteria. The proposed rule amendments include all factors necessary to ensure that a sale, in substance, is a direct sale to a governmental entity and not a taxable sale to a contractor. Additionally, the proposed rule amendments follow legislative directives to place substance over form when determining the character of a sale and to give
paramount consideration to "assumption of the risk of damage or loss" as one factor.
Section 120.52(8)(c), Florida Statutes
Second, the proposed rule amendments do not modify, contravene, or expand Section 212.08(6), Florida Statutes, by imposing a tax on sales for resell, by imposing a tax on the sale of items that are never affixed to real property, by imposing a tax on sales of items affixed to property but not owned by a governmental entity, or by elevating the form of a transaction over its substance. Rather, the proposed rule amendments are consistent with the legislative intent to eliminate the tax exemption for sales to governmental entities when a contractor is supplying and installing the items in the public project.
As stated above, the tangible personal property does not have to become a fixture or an appurtenance to real property in order for a sale to be taxable. There may be some incidences where the sale is taxable because the items are installed in a project not involving real property. Similarly, some public works may involve a public facility, owned and operated by a governmental entity, but located on private property. Under the statute and the proposed rule amendments, such sales would be taxable.
Next, the proposed rule amendments do not put form over substance in any regard. The criteria set forth in the rule clearly spell out the substance of a direct sale to a governmental entity. If anything, the proposed rule amendments prevent contactors and governmental entities from placing form over substance by casting a transaction as a resale rather than a taxable sale to a contractor.
Sections 120.52(8)(d) and 120.52(8)(e), Florida Statutes
In the Joint Prehearing Stipulation, Petitioners allege that the proposed rule amendments are vague and vest unbridled discretion in Respondent by expressly providing it the ability to consider criteria and factors not delineated in either the statute or rule. In the same document, Petitioners allege that the proposed rule amendments are arbitrary and capricious in that they include internally inconsistent provisions. Petitioners have not renewed these arguments in their Proposed Final Order.
In any event, the rule as revised by the proposed rule amendments is not vague and does not vest unbridled discretion in Respondent. To the contrary, the proposed amendments specifically set forth adequate standards and criteria for Respondent to use in making decisions.
Finally, the rule as revised by the proposed amendments is not arbitrary or capricious. The proposed rule
amendments are consistent with the plain language of the statute and there are no internal inconsistencies within the rule as revised by the proposed rule amendments.
The proposed rule amendments do not constitute an invalid exercise of delegated legislative authority.
ORDER
Based on the foregoing Findings of Fact and Conclusions of Law, it is
ORDERED:
The Amended Petition Seeking an Administrative Determination of the Invalidity of a Proposed Rule is dismissed.
DONE AND ORDERED this 1st day of May, 2003, in Tallahassee, Leon County, Florida.
SUZANNE F. HOOD
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 1st day of May, 2003.
COPIES FURNISHED:
Wayne Blanton, Executive Director Florida School Boards Association
South Monroe Street Tallahassee, Florida 32301
Martha Harrell Chumbler, Esquire Joseph C. Mellichamp, Esquire Carlton Fields Law Firm
Post Office Drawer 190 Tallahassee, Florida 32302-0190
J. Clifton Cox, Esquire
Office of the Attorney General The Capitol, Tax Section Tallahassee, Florida 32399-1050
J. Bruce Hoffmann, General Counsel Department of Revenue
Carlton Building Post Office Box 6668
Tallahassee, Florida 32314-6668
James Zingale, Executive Director Department of Revenue
104 Carlton Building Tallahassee, Florida 32399-0100
Carroll Webb, Executive Director
Joint Administrative Procedures Committee
120 Holland Building Tallahassee, Florida 32399-1300
Liz Cloud, Chief
Bureau of Administrative Code The Elliot Building Tallahassee, Florida 32399-0250
NOTICE OF RIGHT TO JUDICIAL REVIEW
A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original notice of appeal with the Clerk of the Division of Administrative Hearings and a copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the Appellate District where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 22, 2004 | Mandate | |
| Mar. 04, 2004 | Opinion | |
| May 01, 2003 | DOAH Final Order | Proposed amendments to public works contractor rule are not an invalid exercise of delegated legislative authority. |
