00-020

Response January 4, 2001

REQUEST LETTER

TO: Kerry Chapman

FROM: NAME

DATE: May 15, 2000

One of our clients manufactures control panels that are used to monitor water treatment facilities, such as water purification plants and waste water treatment plants. We believe these control panels remain tangible personal property after installation and herein request your advisory opinion on this matter.

There are basically two types of panels that are manufactured: floor panels and wall panels.

Floor Panels

The floor panels vary in size, but are typically about 8 feet tall, 10 feet wide and two feet in depth and are enclosed in a full metal casing. A six inch hole is located in the bottom of these panels through which several wires come through that go to various electrical components outside the panel. Included in these components may be a dozen or more personal computers which are used to monitor and control several other devices (via the control panel), including thickener tanks, agitators, pumps, motors, etc. Inside the panel, the wires are attached to the electrical components in manner similar that phone wires are plugged into a telephone.

At the base of the control panel is a concrete slab (which we consider realty). The control panel is set upon the slab and is anchored by six bolts. The purpose of these bolts is for stability so the panel does not tip over.

Wall Panels

The wall panels are similar in purpose to the floor panels but are much smaller. A typical wall panel is about four feet by four feet and contains a much smaller number of electrical circuits. These panels are connected to a wall by four 1/4" bolts and can be easily removed and relocated or sent back to the manufacturing facility for service.

We believe both types of panels remain tangible personal property after attachment, and are therefore, subject to tax on the total sales price (excluding the cement slab upon which tax is due on material cost). If sold to the government, however, we believe the sale of the panels would exempt from tax.

Advisory Opinion Request

We request your advisory opinion on whether these units remain personal property attached to realty or whether they actually become realty.

Also, if the units are considered personal property, what would the tax ramifications be if our client were considered a subcontractor._ Many contractors who primarily convert personal property to realty do not have a sales tax license. How can our client (acting as a subcontractor) sell a unit tax exempt to a contractor (who does not have a sales tax license), who in turn sells the unit tax exempt to the government? Is it possible for the contractor to obtain a temporary sales tax license and buy the unit from our client tax exempt?

If you have questions or would like to discuss other alternatives, please contact NAME

Sincerely,

RESPONSE LETTER

January 4, 2001

RE: Sales Tax Treatment of Water Treatment Control Panels

Dear NAME,

You have requested the Commission to issue an advisory opinion on whether control panels used to monitor water treatment facilities remain personal property after their installation. If the Commission considers the control panels to remain personal property, their sale is taxable to the final purchaser, unless he or she is exempt from taxation. If, instead, we consider the control panels to become part of the realty, their sale is taxable to the contractor.

From your request letter and telephone conversations with you, we understand the control panels to possess the following characteristics. The floor control panels are typically eight feet tall, 10 feet wide and two feet in depth and are enclosed in a full metal casing. Floor panels are anchored for stability by six bolts onto a concrete slab. The wall control panels are typically four feet by four feet and are attached to the wall with four bolts.

Both types of control panels are connected to computers, which are used in concert with the panels to control the concrete thickener tanks, agitators, pumps, and motors found in a water treatment facility. While the control panels are considered to have a life expectancy of five to 10 years, they are not typically depreciated for income tax purposes because the facilities are usually government-owned. In addition, the computers attached to the control panels have an estimated lives of three years. As to the items controlled by the panels, the concrete thickener tanks have a 20-year estimated life, while the agitators, pumps and motors each have a five-year estimated life.

These characteristics suggest that both types of control panels may be moved without substantial difficulty or damage to the underlying realty and are attached for stability and convenience. Also, they appear to be appurtenant accessories to the facility=s tanks, agitators, pumps, and motors, not an integral part of the facility=s buildings. For these reasons, the Commission considers the control panels to be personal property after their installation. Accordingly, the control panels are taxable to the owner purchasing the panels, not to the contractor selling and installing them. If a water treatment facility is government-owned and, thus, tax-exempt, the contractor may purchase the control panels tax-free using the resale exemption, then sell them to the government agency tax-free, upon receiving a properly executed exemption certificate from the agency.

Lastly, if a contractor purchases tangible personal property tax-free using the resale exemption, the Commission requires him to obtain a Utah sales tax license and include the account number on any exemption certificate he executes. Typically, temporary sales tax licenses, such as special events license, are not issued to Utah contractors who only have occasional need of a license. Instead, such a contractor should obtain a sales tax license and account number to purchase items for resale. Then, for each reporting period the account is active, he would file a sales tax report of the gross sales minus the exempt sales. If all sales are reported as exempt sales, there would be zero tax due. Two weeks after opening the sales tax account, the contractor can then choose to close it.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

00-020