REQUEST LETTER

01-001

Response 3/16/01

Dear Kerry Chapman:

We at COMPANY are taking apart moving and setting up shelving for a State of Utah agency. Our contract is with the contractor who the state has chosen. Are we correct that there is no state tax involved? Please advise in writing.

Thanks

NAME

RESPONSE LETTER

March 16, 2001

RE: Advisory Opinion – Taxation of Movable Shelving Systems

Dear NAME

We have received your request for an advisory opinion concerning the taxation of services to disassemble, move, and reassemble previously installed shelving systems. While you mentioned in a recent telephone conversation that the specific government transaction referred to in your letter is no longer an issue, you did inquire whether, in general, you should collect sales tax on your sale and installation of the shelving systems.

Critical to our analysis and resolution of these issues is a description of the shelving systems and your services, which you provided by telephone as follows. The shelving systems consist of multiple, upright shelves installed on tracks that are bolted to the floor. The tracks are attached to the floor with ¼” bolts spaced approximately one foot apart, with individual, movable shelves attached to the tracks by rollers. You invoice a single charge for the sale, delivery, and installation of a shelving system, with an average system costing around $$$$$.

It takes 50 to 80 man-hours to assemble and install an average system to real property. Movable shelving systems have historically remained in place for the entirety of their economic lives, but in the past five years, the tracks have been redesigned to allow for easier relocation of the systems. In fact, you assert that it is now fairly commonplace that a company moving to a new location will relocate its shelving system, also. The only damage to the real property when a system is removed is to the floor and floor covering, where holes are left upon removal of the bolts.

In addition to selling and installing these systems, you also provide a service to move previously installed systems to new locations. This service consists of disassembling the system at the original site, moving it, and reassembling it at the new site. The cost of this service is approximately $$$$$ for an average system and requires 100 to 150 man-hours to accomplish. Again, you only invoice one charge for this service. Most of these man-hours are spent disassembling and reassembling the individual shelves.

Sale and Installation of Movable Shelving Systems

Should the systems become part of the realty after their installation, your sale and installation of them would be nontaxable, as you would be considered a real property contractor for sales tax purposes. In this case, you would pay sales tax on your purchase of the shelving system from your supplier. On the other hand, if the systems remain tangible personal property after their installation, you would collect sales tax on the sale to your customer after purchasing the systems tax exempt for resale.

During installation, the shelving system’s tracks are attached to the real property. Utah Admin. Rule 865-19S-58(E) gives example of items that remain tangible personal property even when attached to real property and include:

1. moveable items that are attached to real property merely for stability or for an obvious temporary purpose;

2. manufacturing equipment and machinery and essential accessories appurtenant to the manufacturing equipment and machinery; and

3. items installed for the benefit of the trade or business conducted on the property that are affixed in a manner that facilitates removal without substantial damage to the real property or to the item itself.

The shelving systems you sell and install possess several of the characteristics found in these examples. As the systems are frequently moved, we believed they are attached to the real property not for permanence, but for stability. Also, neither the systems themselves nor the underlying realty are substantially damaged when the systems are removed. Lastly, as it is common that such systems are moved when a business relocates, we believe that they are not generally considered to have become part of the underlying realty. For these reasons, we find that the shelving systems you have described remain personal property even though attached to the underlying realty.

Accordingly, you should collect sales tax on your single charge to sell, deliver, and install the systems. As will be discussed below, any charge for installing these systems would be nontaxable if separately invoiced. However, because you combine the taxable sales and delivery charges and the nontaxable installation charge, the entire charge is taxable.

Moving and Installing a Shelving System You do not Sell

In addition to selling and installing shelving systems, you frequently relocate previously purchased shelving systems. In this case, your service consists of disassembling, moving, and reassembling the systems. To determine if this service is taxable, we must consider its component parts, specifically the moving service and the assembly service.

Moving freight or, in this case, a shelving system is a nontaxable event in Utah, unless there is an accompanying sale of the shelving system. Accordingly, when you relocate previously purchased systems, the moving service is nontaxable. As for the assembly service, Utah Admin. Rule 865-19S-78(A)(2) provides that:

Separately stated charges for labor to install personal property to real property are not subject to tax, regardless of whether the personal property becomes part of the real property. On-site assembly that does not involve affixing the tangible personal property to real property is not installation within the meaning of this rule.

As a result, any separately itemized assembly charge that involves affixing the shelving systems to real property will be nontaxable, whether or not there is an accompanying sale of the system.

An issue, however, is whether the entire shelving system is installed to real property. While it is obvious that the system’s tracks are affixed to realty, the tracks remain personal property after their installation. Thus, installing the individual shelves to the tracks could be considered the installation of personal property to personal property, a taxable event. However, for the shelving system you have described, we reject this view. As the tracks and the individual shelves are part of an integrated unit for sale and relocation purposes, we consider all of the system’s parts, including the individual shelves, to be installed to the underlying realty for purposes of Rule 78. Accordingly, any charge to install the shelving systems to real property is nontaxable, if stated separately from taxable charges. As the installation and moving charges are both nontaxable under these circumstances, your single relocation charge to disassemble, move, and reassemble a shelving system is nontaxable.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson