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SUMMARY QUESTION: Is the Baggage Conveyor System Classed

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SUMMARY QUESTION: Is the Baggage Conveyor System Classed SUMMARY QUESTION: Is the baggage conveyor system classed as an improvement to real property? ANSWER: The baggage conveyor system is classed as an improvement to real property, since Aviation Authority owns the land and the conveyor system, and it is Aviation Authority’s intention that the baggage conveyor system be permanently attached. This response does not apply to the other equipment included in the baggage handling system, such as the closed circuit television system, scanners and coders. Taxpayer owes Florida use tax on its cost price or the fabricated cost of the materials used in the performance of the contract. October 31, 2007 XXX XXX XXX XXX Re: Technical Assistance Advisement 07A-039 Sales and Use Tax – Baggage Conveyor Systems Section: 212.06, Florida Statutes Rules: 12A-1.070, 12A-1.094, Florida Administrative Code Petitioner: XXX (herein “Taxpayer”) FEI: XXX Dear XXX: This letter is a response to your petition dated July 13, 2007, for the Department’s issuance of a Technical Assistance Advisement (“TAA”) concerning the above referenced party and matter. Your petition has been carefully examined and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, Florida Administrative Code. This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22, Florida Statutes. PRESENTED FACTS The petition sets forth the following information: Taxpayer is a specialty contractor registered to do business in the State of Florida. Taxpayer has entered into a $XXX million [lump sum] written agreement with a general contractor to design, manufacture and install a new baggage handling system at [] Airport. The general contractor is engaged by the [] XXX XXX to construct an addition to the current airport to house the new baggage system and related explosive detection machines. Taxpayer is contracted to furnish and install a complete baggage handling system for this Technical Assistance Advisement Page 2 airport security improvement project. The [] XXX XXX is the owner of the property into which the system will be permanently installed and will own the system once it is installed. Baggage Handling System A baggage handling system is a series of conveyors and other equipment assembled and permanently installed in an airport to make one working unit. The system utilizes high speed belt conveyors to move thousands of bags per hour from the airport check-in areas, through government security equipment, and then on to departing flights. The system is supervised by high technology controls and computer monitored conveyor systems which ensure timely and accurate processing of baggage. The baggage handling system is made up of various components. These components include but are not limited to high-speed transport conveyors, high-speed baggage diverters, tray sorters, ticketing and scale conveyors, slope plate/flat plate devices, custom counter and agricultural stations, bar code scanners, unmanned automatic bag screening equipment, motor control panels, closed circuit television, early bag storage systems and bag tag identification systems. All of the components are assembled into one integrated system. Each baggage handling system is unique, since every airport has a different physical layout and different operational requirements. Using the airport’s architectural designs and the customer’s detailed specifications and drawings, Taxpayer’s engineers and architects design the system to meet these requirements. The main components of the baggage handling system and the specifications of such system are detailed in the written agreement. The delivery period and installation guidelines are also specified in this agreement. Due to the size and complexity of the project, Taxpayer will make multiple deliveries of the components of the baggage handling system. The components will be assembled and installed at the airport. When installed, these components will be a single working baggage handling unit. *** The physical components of the conveyor systems [] are permanently affixed in place using screws and bolts, either to the floor or to the structural steel. The conveyor motors, bar code scanners, and other electrical equipment are then wired to the “motor control panels” – electrical boxes somewhat similar to fuse boxes – that are in turn directly wired to the main power supply. All of this work is within Taxpayer’s Scope of Work as defined in the Contract. *** The baggage handling system is part of an overall construction contract valued at over $XXX million. The baggage handling system represents approximately XXX% of this contract, including conveyor systems exceeding a mile in length. The building was designed specifically to hold the security equipment to existing airport operations. Technical Assistance Advisement Page 3 The baggage handling system will be custom engineered to be installed within specific “right-of-ways” delineated on the architectural drawings and to connect seamlessly to the explosive detection equipment being installed by the federal government. Further, funding for this project will come in large part through usage fees to be paid by future airport passengers over many years, this demonstrating that the Owner intends that the baggage handling system will remain in place for an extended period of time. *** It is unlikely that public transportation infrastructure like the [] Airport would ever be sold. However, if a decision was made to privatize the airport, then it would be absolutely essential that the airport be sold with the baggage handling system intact. It is a critical component of overall airport operations. In addition, since the system is custom designed for the buildings at [] Airport, the existing owner would have no use elsewhere for the baggage handling system, whose components have minimal resale value compared to the contract price. The cost of removal of the baggage handling system would likely exceed its resale value. *** Installation of airport baggage handling systems does not require a state-wide construction license, or a local license in [City/County of installation]. An additional letter dated September 25, 2007, states in pertinent part as follows: . The bid documents [] submitted include several construction projects, such as a baggage conveyor system, closed circuit television system and scanners and coders, and the general contractor is responsible for all of these projects. However, the contract between [Taxpayer] and the general contractor, which is the contract at issue [], is only for the installation of a baggage conveyor system and not for the installation or construction of other systems that are part of the greater construction project. REQUESTED ADVISEMENT Advice is requested whether the baggage handling system is classed as an improvement to real property. LAW AND DISCUSSION Section 212.06(14), Florida Statutes, provides the following information: (14) For the purpose of determining whether a person is improving real property, the term: (a) "Real property" means the land and improvements thereto and fixtures and is synonymous with the terms "realty" and "real estate." Technical Assistance Advisement Page 4 (b) "Fixtures" means items that are an accessory to a building, other structure, or land and that do not lose their identity as accessories when installed but that do become permanently attached to realty. However, the term does not include the following items, whether or not such items are attached to real property in a permanent manner: property of a type that is required to be registered, licensed, titled, or documented by this state or by the United States Government, including, but not limited to, mobile homes, except mobile homes assessed as real property, or industrial machinery or equipment. For purposes of this paragraph, industrial machinery or equipment is not limited to machinery and equipment used to manufacture, process, compound, or produce tangible personal property. For an item to be considered a fixture, it is not necessary that the owner of the item also own the real property to which it is attached. (c) "Improvements to real property" includes the activities of building, erecting, constructing, altering, improving, repairing, or maintaining real property. (Emphasis Supplied) Although not specifically on point, Rule 12A-1.070, Florida Administrative Code, discusses the leases and licenses to use real property, and it provides the following information concerning jetways (passenger boarding bridges) and baggage conveyor systems: (1)(a) Every person who rents or leases any real property or who grants a license to use, occupy, or enter upon any real property is exercising a taxable privilege unless such real property is: *** 6.a. Property used at an airport exclusively for the purpose of aircraft landing or aircraft taxiing or property used by an airline for the purpose of loading or unloading passengers or property onto or from aircraft or for fueling aircraft. See subsection (3). b. Property which is used by an airline for loading or unloading passengers onto or from an aircraft is exempt. This property includes: common walkways inside a terminal building used by passengers for boarding or departing from an aircraft, ticket counters, baggage claim areas, ramp and apron areas, and departure lounges (the rooms which are used by passengers as a sitting or gathering area immediately before surrendering their tickets to board the aircraft). Departure lounges commonly known as VIP
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