Florida Sales Tax Rules for Construction Materials
Understand Florida's sales tax on construction materials. Learn how project agreements and circumstances determine which party is ultimately liable for the tax.
Florida’s sales and use tax laws for construction materials depend on the project specifics and the contractual agreement with the property owner. These factors determine who pays the tax and when. For contractors, understanding these regulations is necessary to correctly manage tax responsibilities and ensure compliance.
Determining the Taxable Party
In Florida, the distinction between “real property” and “tangible personal property” is a key concept for sales tax. Real property is land and anything permanently attached to it, like buildings and their structural components. Tangible personal property includes items that are not permanently affixed and can be moved. This distinction defines who is considered the end user of construction materials.
A real property contractor builds, repairs, or alters improvements on land. When working on real property, Florida law considers the contractor the final consumer of the materials they incorporate into the project. This means the contractor must pay sales tax to their suppliers when purchasing materials, as they are for the contractor’s own use, not for resale.
For example, a contractor building a new home must pay sales tax on lumber, nails, and drywall at the time of purchase. After these taxed materials are incorporated into the home, the final charge to the homeowner is not subject to sales tax because it was already paid on the components.
This approach differs from that of a typical retailer, who buys inventory tax-free using a resale certificate. The retailer then collects sales tax from the customer on the final price. In most construction scenarios, the contractor is treated as the end user of the materials, not a retailer.
Tax Rules by Contract Type
The structure of the contract with the property owner can alter the tax rules. Florida law recognizes several contract types, each with different sales tax implications.
With a lump-sum contract, a contractor agrees to a single, fixed price for a project. Under this arrangement, the contractor pays sales tax on all materials at the time of purchase. The invoice to the property owner shows only the total price, with no sales tax separately stated.
Cost-plus and guaranteed price contracts are treated the same as lump-sum contracts for tax purposes. The price is the contractor’s cost plus a fee, but the contractor still pays sales tax on materials when they are purchased. The final charge to the customer does not list sales tax separately.
Time and materials contracts can vary. If the contract bills for labor and material costs without a markup on materials, it is taxed like a lump-sum contract. However, if the contract itemizes materials and includes a markup, it may be treated as a retail sale. In that case, the contractor can buy materials tax-free with a resale certificate and must then charge the customer sales tax on the marked-up price of the materials.
Retail sale plus installation contracts involve selling and installing tangible personal property. For this to apply, the contract must itemize the property, and the customer must take title and risk of loss before installation. The contractor acts as a retailer, collecting sales tax from the customer on the items. If the item is still considered tangible personal property after installation, the installation charge is also taxable.
Handling Tax-Exempt Projects
Contractors working for a tax-exempt entity can purchase construction materials tax-free. Qualifying entities include government bodies and certain non-profits like public schools, churches, and charities with a valid exemption status.
To execute a tax-exempt purchase, the exempt organization must provide the contractor with its Florida Department of Revenue Consumer’s Certificate of Exemption. The contractor is then required to present a copy of this certificate to each supplier when purchasing materials specifically for that exempt project.
The purchase must be made directly by the tax-exempt entity. This requires the purchase order to be issued by the entity to the supplier. The supplier must also invoice the entity directly, and payment must come from the entity’s funds.
The exemption must be applied on a project-by-project basis and cannot be used for non-exempt jobs. This tax-free status applies only to materials physically incorporated into the exempt entity’s real property. It does not cover the contractor’s tools, equipment, or other supplies not permanently part of the project.
Use Tax and Fabrication Cost Considerations
When sales tax is not collected at the time of purchase, contractors must self-assess and remit a use tax. This often occurs when a contractor buys materials from an out-of-state seller who does not collect Florida sales tax. In this situation, the contractor is responsible for paying the tax.
The contractor must calculate the use tax due, which includes both the state sales tax and any applicable local discretionary sales surtax, on the total cost of the materials. This calculated amount must then be remitted directly to the Florida Department of Revenue. The surtax rate is determined by the county where the materials are delivered and first used.
Self-assessment also applies to fabrication costs. If a contractor fabricates items for their own use in a real property project, tax is due on the item’s fabricated cost. For example, a contractor with a cabinet shop must pay tax on the cost to build custom cabinets for a home they are constructing.
The fabricated cost includes the price of all raw materials and component parts used in the manufacturing process, as well as the cost of any labor involved in the fabrication. The tax is based on the total cost to produce the item, not its final market value. The applicable surtax rate for fabricated items is based on the location where the fabrication occurs.