How Florida Real Estate Contractors Survive Sales and Use Tax Audits by Carl Richie, CPA
Posted on October 07, 2025
by
Carl Richie
Sales and use tax audits of Florida construction and building contractors are becoming increasingly common, due, in part, to the complexity of the state’s laws governing the taxability of their services and the nature of the work they do. While no business wants to be audited, there are key issues contractors must understand to help them remain compliant with state law and avoid a potential audit.
Real Property vs. Tangible Personal Property
For purposes of sales and use tax collection, Florida law generally separates construction work into real property improvements and sales of tangible personal property (TPP).
Real property improvements refer to items that contractors permanently install and affix to a building or other structure. This can include masonry and carpentry work, door and window installations, roofing, plumbing, HVAC and electrical systems, and permanent flooring that would likely remain on the property when the building is sold, or that cannot be removed without altering the real property. Under the law, contractors generally pay sales tax on the purchase of materials they use to construct, improve, repair and install real property. However, they do not collect sales tax from their customers for the finished products they provide.
By contrast, tangible personal property (TPP) includes sales of communication service equipment, appliances, window coverings, furniture and other items that are not permanently attached to a building. For these items, contractors may be considered dealers and generally do not pay sales tax on the purchase of these materials. However, they may be required to collect sales tax from the end consumer.
Real Property: Permanently Affixed Assets
Contractors generally do pay sales tax on purchases of supplies and materials; they do not collect sales tax from customers.
TPP: Not Permanently Affixed Assets
Contractors generally do not pay sales tax on purchases of supplies and materials; they do collect sales tax from customers on the full installation price, including labor.
For illustration purposes, consider a contractor who constructs and installs a custom kitchen island. The contractor would pay Florida sales tax on the purchase of real property fixtures, such as cabinets, countertops, hardware (i.e., knobs) and sinks, that they permanently affix to the house. However, if the contractor constructs an island on wheels, those supplies may be considered TPP, and the contractor may be required to collect tax on those items from the homeowner.
Ultimately, the determination of whether the installation of an item constitutes real property or TPP is made on a case-by-case basis. It requires consideration of several factors, including how the item is affixed to the property, the contractor’s intended use of the item, whether the contractor is considered the customer or end-user of the item, the structure, language, and pricing arrangements detailed in the contract, and the origin of the materials.
Tax on Real Property Assets Based on Types of Contracts
When contractors’ work is performed under lump-sum contracts, cost-plus contracts, fixed-fee contracts, guaranteed-price contracts and time-and-material contracts, Florida considers them to be the ultimate consumers of the materials they purchase. As such, they may be required to pay sales tax on those purchases without collecting tax from their customers. Although they may include this amount in their customer contracts, they may not charge customers sales tax on the final product they deliver.
Conversely, with a retail-sales plus installation contract, the contractors’ customers may be considered the end-users. Under these circumstances, contractors buy materials and supplies from vendors exempt from tax for resale. In their customer contracts, itemize, price and apply state sales tax to each item of TPP they sell to customers as a separate transaction from the total installation or repair contract.
Special Circumstances
The distinction between real property and TPP can be blurred by a myriad of issues beyond its permanent attachment to a building or land. For example, subcontractors, such as electricians, plumbers, cabinetmakers or masons, generally pay sales tax on most of the real property materials they purchase for a particular job. For general contractors (GCs), Florida sales tax is only required on materials purchased directly for construction improvements or repairs.
GCs may be responsible for paying sales tax on the rental of portable toilets, trailers, fencing, storage containers, scaffolding and other temporary equipment they lease on a project site, as well as the machinery they rent, which can include backhoes, cranes and utility vehicles that the contractor operates. However, if the GC also contracts with the leasing company for a person to operate the machinery, it may be considered a service that is exempt from sales tax.
Another area that can complicate sales tax issues for Florida construction contractors and has become a growing focus of sales tax audits relates to imported products. Generally, contractors are required to pay sales tax on their purchases of imported materials and do not collect sales tax on these items from their customers. However, sales tax is not handled as part of the customs process at the port where the imports arrive in Florida. Instead, contractors are required to remit use tax to the state voluntarily. When these materials arrive at a Florida port, the contractor is often listed as the importer or other party responsible for the materials. The federal government supplies the state with these lists, and during sales-and use-tax audits, contractors must prove that they did, in fact, pay required taxes.
Finally, a different set of rules exists for construction contracts on qualified public works through a U.S. government entity. Assets purchased by contractors for public works or other projects involving government organizations may be subject to sales tax unless the contractor follows specific procedures. However, if the government entity acquires construction materials directly from a supplier, sales tax is usually not due.
About the Author: Carl Richie, CPA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he helps individuals and businesses comply with a complex and often conflicting web of state and local income, franchise, sales and use tax issues. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.
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