Sales Tax State Activity Update - June 2005

Florida Generates Savings for Contractors Using Generators

In a recent Technical Assistance Advisement, the Florida Department of Revenue ruled that a City and its contractors and subcontractors may purchase certain systems and machinery and equipment exempt pursuant to a contract for the installation of electric generating units.

A contractor and a City entered into a fixed price agreement for the installation of electric generating units. The generating units will be fueled by natural gas as a primary fuel and distillate oil (#2 oil) as a secondary fuel. In addition, as part of the installation, certain facilities will be purchased to enclose, provide shelter, or control environments for some of the machinery and equipment.

Florida sales and use tax law allows for an exemption on machinery or equipment that is used at a fixed location for the purpose of generating electric or steam energy assuming the machinery burns fuels other than residual oil. In facilities where machinery and equipment are necessary to burn both residual and nonresidual fuels, the exemption shall be prorated.

The natural gas and distillate oil fuels to be burned in the generating units are not residual oil fuels. Electrical energy is the tangible personal property that is produced for sale.

Therefore, the Contractor's and the City's purchases of machinery and equipment used in the process of generating electrical energy will be exempt at the time of the purchase transaction. The exemption does not extend to real property improvements. Structures or facilities whose only purpose is to enclose, provide shelter, or control environments for qualifying items of machinery and equipment are considered to be an integral part of that machinery and equipment and do not constitute real property improvements. Such items qualify for exemption. In order to purchase the systems and machinery and equipment exempt, the City, contractor and subcontractors must adhere to the appropriate affidavit procedures.

The full text can be viewed here.

(Florida Department of Revenue, Technical Assistance Advisement No. 05A-017, 03/23/2005)

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