Florida Sales Tax Overview for Contractors

Date October 11, 2023

Sales and use tax rules in Florida can be challenging and require interpretation for the construction industry. How your activity is classified – real property improvement or sale of tangible personal property (TPP) – will determine your sales (and use) tax obligations. The first step in evaluating a transaction is to determine whether it is a real property improvement or the sale of tangible personal property.

The state’s sales tax rule on sales by contractors, Rule 12A-1.051, which includes the relevant definitions related to real property contracts, is a good starting point for determining your tax implications. Generally, activities to real property such as building, constructing, repairing, and maintaining are considered improvements to real property. Real property contracts include any agreement to:

  • 12A-1.051(2)(h)a. Erect, construct, alter, repair, or maintain any building, other structure, road, project, development, or other real property improvement;
  • 12A-1.051(2)(h)b. Excavate, grade, or perform site preparation for a building, other structure, road, project, development, or other real property improvement; or
  • 12A-1.051(2)(h)c. Furnish and install tangible personal property that becomes a part of or is directly wired or plumbed into the central heating system, central air conditioning system, electrical system, plumbing system, or other structural system that requires installation of wires, ducts, conduits, pipes, vents, or similar components that are embedded in or securely affixed to the land or a structure thereon.
  • The last section warrants attention as the method in which property is affixed is often critical for determining how the sale or contract is classified for Florida sales tax purposes.

    Real property contracts do not include situations where the seller does not (also) install the property, even when the tangible personal property will be permanently affixed to the realty. For example, if you sell countertops but do not install them that is not a real property contract even though the countertops will eventually be permanently installed into a home. Sales of machinery and equipment are also not real property contracts.

    Types of Contracts

    There are five contract price structures addressed in Florida’s rule on contractors. The first four: lump sum contracts; cost plus or fixed fee contracts; upset or guaranteed price contracts; and time and material contracts all follow the same rules in terms of the sales tax considerations. The contractor is considered the consumer and pays sales tax to the vendor (or accrues use tax) on the materials. In these scenarios, the contractor does not charge the customer sales tax on the contract price or any of its elements. The contract price (or bid) should include sales tax paid by the contractor on materials.

    The fifth contract type, retail sale plus installation contract, does not apply to many contractors due to the requirements involved in qualifying. First, a retail sale plus installation contract must itemize and price all materials being incorporated into the real property. This is not common amongst or practical for contractors. Second, the purchaser is required to assume title and risk of loss on the materials as they are delivered. Typically, title does not pass until the contractor’s work is complete which makes retail sales plus installation contracts unappealing to customers. Under a retail sale plus installation contract, the contractor purchases the materials exempt from sales tax as a sale for resale, but bills sales tax to the customer for the tangible personal property sold but not for the installation charges.

    Anyone, including contractors, that sells and installs tangible personal property (that remains tangible personal property) must collect sales tax on the charge for the property and the installation, unless the contract is a retail sale plus installation contract previously discussed. The fact that a seller separately itemizes the installation charges does not impact the taxability – the installation is taxable. Florida Rule 12A-1.016 addresses several activities that are considered the sale and installation of tangible personal property. Common examples applicable to contractors may include the following: carpets, drapes, blinds, shades; household appliances; mirrors; and window air conditioning units. There are exceptions to the examples listed if the items become real property, for example, carpets that are permanently attached as contrasted to throw rugs or carpets set in place.

    Mixed Contracts

    The most demanding area of taxation for contractors is mixed contracts. Mixed contracts include real property improvements along with the sale of tangible personal property. The default treatment of mixed contracts is based on the predominant nature of the contract. If most of the contract is for real property, then the contract follows the real property sales tax rules. The classification of the contract predominance will control the sales tax rules on purchases related to the contract. Contractors have the option of allocating contract price within a mixed contract between real property and tangible personal property and following the applicable tax rules for each type of contract.

    The examples provided in Florida’s rule involve a home builder that also includes free standing appliances in its contract to construct a home. If the contract separately states the price for the sale and installation on the appliances, that sale is treated under the rules for the sale of tangible personal property, meaning the contractor buys the appliances exempt as a sale for resale, but charges sales tax to the homeowner on the sale and installation. If the same contractor provides free standing appliances as part of the cost to construct a new home, the contractor is treated as the consumer, under real property contract rules, of the appliances and pays sales tax on the appliances. The homeowner is not billed sales tax separately.

    Specific Activities

    Florida’s rule on contractors specifies activities and whether they are generally considered real property contracts or not. The complete listing can be viewed in section 17 of the rule (Rule 12A-1.051). Common activities for homebuilders that are classified as real property contracts include: block, brick, and stone masonry; burglar and fire alarm system installation; cabinetry; carpeting with tacks or glue; door and window installation; electrical system installation and repair; foundations; HVAC systems; plumbing work; roofing work; solar systems; and water, sewer, and drainage systems.

    Activities not classified as real property contracts include the sale, installation, maintenance, or repair of the following: area rugs and carpets; freestanding cabinets or shelving; drapes, curtains, blinds, shades; entertainment systems; furniture; appliances (unless built in and directly wired); equipment used to provide communication services; and window air conditioning units.


    Contractors that manufacture, produce, or fabricate items for use in real property contracts owe use tax on the fabricated cost of these items. This issue is common for many contractors that produce all or part of the materials used in their contracting activities (for example, cabinetry or countertops). The use tax is based on the cost of the property produced including materials, labor, services, and transportation. Labor provided at the job site and transportation costs from the plant to the job site may be excluded from the fabrication costs. If fabrication costs are an issue for your contracting business, review Rule 12A-1.043 for a complete explanation of the calculation for use tax purposes. The rule contains a detailed explanation of items included by category with examples.

    Discretionary Sales Surtax

    Florida’s discretionary sales surtax applies to purchases and sales made in Florida. From a contractor’s perspective, the vendor should charge sales tax on materials based on where the materials are delivered. Contractors that purchase taxable materials from an out of state seller or through the internet do not owe surtax if they are not required to be registered as a dealer in Florida.

    There is a limit on the discretionary sales surtax to the first $5,000 on sales of tangible personal property. The exemption applies to a single sale, which generally includes items sold as a set (dining room set), multiple quantities of a single item, or the items that are component parts of no use until assembled as part of a working unit. The $5,000 limit does not apply to services, sales of service warranties, or leases of real property. A full explanation of the discretionary sales tax surtax is included in Florida guideline GT-800019.


    Florida taxes a limited number of services including detective and other protection services; fingerprinting services; nonresidential cleaning services; and nonresidential building pest control services. Within the detective and other protection services category, the state taxes burglar and fire alarm monitoring and maintenance which some contactors may provide. More information is available in Florida guideline GT-800018.

    In addition, repairs to tangible personal property are subject to tax if any property is incorporated into the repair. If the repair charge is for labor only then it is not subject to tax, but it is important to emphasize that if any parts or materials are part of the repair the entire charge is subject to tax.


    If you or your company have questions or issues surrounding Florida sales or use tax, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com. We assist clients with state and local tax (SALT) consulting, controversy, and compliance. We are always willing to schedule a no-cost initial call to review your SALT needs.

    Citations and Resources

    Rule 12A-1.006, Charges by Dealers Who Adjust, Apply, Alter, Install, Maintain, Remodel, or Repair Tangible Personal Property

    Rule 12A-1.016, Sales; Installation Charges

    Rule 12A-1.051, Sales to or by Contractors Who Repair, Alter, Improve and Construct Real Property

    Rule 12A-15.004, Specific Limitations, Discretionary Sales Surtax

    Rule 12AER21-16, Construction Contractors Who Repair, Alter, Improve, and Construct Real Property

    GT-800007: Sales and Use Tax on Building Contractors

    GT-800010; Sales and Use Tax Repairs to Tangible Personal Property

    GT-800018; Sales and Use Tax on Detective, Burglar Protection, and other Protective Services

    GT-800019; Discretionary Sales Surtax

    GT-800067; Sales and Use Tax on Construction, Improvements, Installations and Repairs

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