Department of Revenue v. Imperial Builders & Supply, Inc.

Citations: 519 So. 2d 1030; 13 Fla. L. Weekly 144; 1988 Fla. App. LEXIS 23; 1988 WL 200Docket: No. 87-190

Court: District Court of Appeal of Florida; January 6, 1988; Florida; State Appellate Court

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The Department of Revenue, State of Florida, appeals a judgment favoring Imperial Builders Supply, Inc., which invalidated a sales and use tax assessment related to greenhouse materials and their exemption under section 212.08(5)(a), Florida Statutes. Imperial sells greenhouse materials both directly to growers and as part of contracts for completed greenhouse structures, sometimes providing labor for assembly. The court determined that Imperial's practice of not collecting sales tax on materials used in the greenhouses was justified, ruling that sales tax should be based on the cost of materials rather than the sales price charged to growers. The exemption under section 212.08(5)(a) was found to pertain to the end use of the materials, meaning that the cloth and plastic used in the greenhouses were exempt from sales tax, regardless of whether Imperial or the grower erected the structures. However, the court disagreed with the trial court’s broad interpretation of the exemption, asserting that not all component parts of greenhouses are exempt. Citing previous department rulings, the court noted that items like wooden tomato stakes do not qualify for the exemption and emphasized that tax exemptions should be strictly interpreted against the taxpayer. The court also rejected the Department's argument that contracts without erection labor merely involve the sale of tangible personal property, affirming that the tax should be based on the cost of materials.

The department asserts that the trial court incorrectly classified both of appellee's contracts as the same type of transaction for sales tax purposes, specifically as contracts for the improvement of real property. Section 212.05 of the Florida Statutes establishes that anyone selling tangible personal property at retail incurs a taxable privilege, with a sales tax of five percent levied on the sales price, as defined in section 212.02(4) to include the total payment for tangible personal property and related services. The department argues that appellee's contracts, which do not involve erection labor, should be taxed solely on the materials sold, despite the inclusion of design services. However, evidence indicates these contracts result in a finished greenhouse, which constitutes an improvement to real property. The trial court correctly recognized that these contracts should not be treated merely as sales of materials, as they also involve erection methods and labor arrangements.

Furthermore, the department contends that for contracts including erection labor, appellee is the ultimate consumer of materials and thus ineligible for a sales tax exemption for cloth and plastic under section 212.08(5)(a). The department's strict interpretation of tax exemptions would allow direct purchasers to claim exemptions while denying those who use contractors for the same purpose. This interpretation contradicts the statutory intent, which the trial court appropriately rejected. Lastly, the department claimed appellee did not properly execute exemption certificates, but the court did not address this issue, nor was it raised previously. The ruling is partially affirmed and partially reversed, with the department's interpretation of its own rule regarding farm-use exemptions deemed overly restrictive and not aligned with the statute.