94-022
Request
Tax Commissioner
Utah State Tax
Commission
Heber M. Wells
Building
160 East 300 South
Salt Lake City, UT
84134-0300
Dear Sirs,
We are writing to you
in order to resolve a sales/use tax issue regarding a contract that we have
recently been awarded. We are a XXXXX
and are trying to determine the applicable sales and use tax regulations for
XXXXX contractors.
XXXXX has recently
been awarded a prime contract with the XXXXX to provide XXXXX Switch Systems
throughout the United States. XXXXX
receives delivery orders form the XXXXX under the prime contract. The work to be performed includes: providing
replacement of components\parts and repair-return of components\parts at fixed
hourly rates; and travel and miscellaneous items as incurred. All services are performed at our facility
or at the XXXXX facility.
Our request is whether
we are exempt from Utah sales and use tax on parts\materials that are purchased
for the repair and maintenance portion of the contracts? All parts\materials become the property of
the XXXXX . All purchase orders are
received directly from the XXXXX.
Secondly, if we are
exempt, would this exemption be applicable to any subcontractors that we
utilize in completing the contract?
Thirdly, if we are not
exempt from sales\use taxes, what are the appropriated tax rates for the
following location: XXXXX.
We appreciate your
help in resolving these issues and in providing an expeditious response. If you have any questions or require
additional information, please feel free to call me at XXXXX.
Sincerely,
XXXXX
XXXXX
Re: Advisory Opinion -- Applicability of Utah
Sales or Use Tax to Parts and Materials Used in Repair and Maintenance
Contracts
Dear XXXXX:
You requested an advisory
opinion as to how sales tax applies to your purchases or sales of parts and
materials used in your performance of a contract for repair and maintenance of
electronic digital switch systems for the XXXXX.
Our research indicates
as follows:
1.
Charges for parts, materials, labor and related services performed in
repairing tangible personal property are subject to the tax as indicated in the
attached copy of Administrative Rule R865-19S-78 if the customer is taxable. However, Rule R865-19S-41 (copy attached)
describes the exemption provided for sales to the federal government. Consequently, charges to the U.S. government
for repairs of tangible personal property are exempt from the sales or use
taxes. Rule R865-19S-23 (copy attached)
describes your responsibility for verification of exempt sales.
Please not that you
are responsible for the payment of tax on any purchases for rentals of tools,
test equipment, and other supplies used by you in performance of repairs to
tangible personal property when such items do not become a component of the
item repaired.
Labor to repair real
property is exempt from the tax. The
repairman of real property, however, is considered the consumer of materials
used in performance of repairs on real property and, as such, is responsible
for payment of the tax on materials so consumed. See attached copy of
R865-19S-58.
2.
Charges to you by your subcontractors for repairs they perform on your
behalf to tangible personal property are exempt as being for resale. You should issue a resales exemption
certificate to such subcontractors. An
application for the required sales tax licensing is attached (TC-69) as is a
Form TC-721, exemption certificate. As
indicated above, a subcontractor working on real property is the consumer of
items used in such performance and will be responsible for tax on purchases of
items so used or consumed.
3.
The general sales or use tax rate in XXXXX City is 6.125%, and in most
unincorporated areas of XXXXX County it is 5.875%.
This opinion is based
upon the facts presented in your letter.
Obviously, if there are deviations from these facts, this opinion may be
negated.
If you do not agree
with this determination, you may appeal to the Tax Commission for a formal
hearing. The results of that hearing
would constitute a declaratory judgment and be appealable to the Utah State
Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.
For the Commission,
Alice Shearer
Commissioner