By Mike Kerman and Jonathan Feldman

The Florida Department of Revenue advised that certain materials and labor a taxpayer plans to use to construct a combined heating and power plant will be exempt from Florida sales and use tax. The plant will produce electricity for sale. Florida exempts purchases of machinery and equipment necessary to produce electrical or steam energy from burning fuels when such energy is primarily used to produce tangible personal property for sale. In this scenario, the electricity itself would constitute the tangible personal property produced for sale. Under the “integrated plant theory,” Florida courts have interpreted this exemption to apply to all machinery, equipment, and integral components used in the generation, but not the distribution of electricity and steam. The Department therefore advised that all of the taxpayer’s machinery and equipment will be exempt (including, among others, machinery foundations and platforms, generators, a cooling tower, electrical building and control room, and the first step-up transformers) with the exception of subsequent transformers and a pipeline that will distribute steam energy from the plant to a purchaser, because they are related to distribution. Additionally, the Department explained that labor to construct the plant is exempt to the extent it is for buildings or subsurfaces directly related to exempt machinery and equipment.  Fla. Dep’t of Revenue, Tech. Assistance Advisement No. 16A-010 (July 21, 2016) (released Sept. 20, 2016).