Tesla Tunnel Construction Cost Could Be Sales-Tax Exempt

Dec. 8, 2021, 9:45 AM

Elon Musk’s Boring Co. has completed a tunnel project under the Las Vegas Convention Center loop. Now, the Boring Co. is negotiating another tunnel project, which is proposed to link downtown Fort Lauderdale and Fort Lauderdale beach.

Nevada Sales Tax Law

In the 1985 case of Nevada Tax Comm’n v. Harker & Harker, Inc., 101 Nev. 229 (S. Ct. Nev. 1985), the Nevada Supreme Court held that where the purchase orders for the construction materials identified the government entity as the purchaser from the vendor, the private contractor that installed those materials was not subject to use tax on those materials. Since 2015, however, NSA Section 338.1423 generally prohibits Nevada government agencies from entering into public works contracts with private contractors that provide that construction materials—other than certain specially enumerated items—will be purchased by the government agency so as to avoid Nevada sales and use taxes. See Nevada Department of Taxation Technical Tax Bulletin SUT 16-0002 (2016).

The construction contract between the Las Vegas Convention and Visitors Authority and The Boring Co. posted by the Authority states that the project will be designed, constructed and operated in accordance with NRS Chapter 338. The contract also contemplates that The Boring Co. will issue the purchase orders to the vendors; The Boring Co. will only assign such purchase orders to the Authority in the event that the contract terminates prematurely. Accordingly, it appears that The Boring Co. was generally subjected to sales or use tax on the materials it used to build the tunnel under the Las Vegas Convention Center.

Florida Sales Tax Law

In contrast to the situation in Nevada, the Florida sales and use tax law and regulations specifically provide a methodology whereby a Florida city or other governmental entity can create a public-owner direct purchase program, which program avoids Florida sales and use taxes on construction materials incorporated by a private contractor into a governmental project. The practical advantage to a Florida city (“the City”) from such a program is that it avoids the City needing to dip into its program funds to in effect reimburse the private contractor for the 6% Florida state sales and use tax and any Florida county surtax.

Under FSA 212.08(6), FAC 12A-1.094(4)(b), and Florida Technical Assistance Advisement 19A-005 (2019), achieving the Florida sales and use tax exemption consists of five program requirements:

  1. The City issues a purchase order directly to the vendor for the materials the private contractor will install, and provides the vendor a copy of the City’s sales tax exemption certificate;
  2. The vendor issues its invoice directly to the City;
  3. The City pays the vendor’s invoice directly from public funds;
  4. The City takes title at the time of purchase or delivery by the vendor; and
  5. Under the purchase order, the City has the risk of loss from the time of purchase. The City will be deemed to have such risk of loss if it bears the economic burden of obtaining insurance covering damage or loss or directly enjoys the economic benefit of the insurance proceeds.

The City issues a Certificate of Entitlement both to the vendor and to the private contractor, to confirm that the 5 requirements of FAC Rule 12A-1.094(4)(b) are met and stating that the construction material is incorporated into the final public work. The Certificate of Entitlement also acknowledges that if the Florida Department of Revenue establishes that the claimed exemption did not apply, the Department will look solely to the City for recovery of the sales and use taxes.

The proposed tunnel construction contract between the City of Fort Lauderdale and The Boring Co. has not yet been released. Like many Florida public works construction projects, it may well contain the elements of the sales tax exemption program described in FAC Rule 12A-1.094(4)(b).


Governmental project owners and private contractors should review the existence and requirements of any applicable sales and use tax exemption programs.

This column doesn’t necessarily reflect the opinion of The Bureau of National Affairs Inc. or its owners. 

Author Information

Alan S. Lederman is a shareholder at Gunster, Yoakley & Stewart, P.A. in Fort Lauderdale, FL.

To contact the reporter on this story: Kelly Phillips Erb in Washington at kerb@bloombergindustry.com

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