95-045
Response
August 15, 1995
Request
Commissioners
Utah
state Tax Commission
210
North 1950 West
Salt
Lake City, UT 84134
Dear
Commissioner:
Regarding:
Charges for installation of machinery or equipment purchased or leased by a
manufacturer for use in new or expanding operations.
Some
questions have arisen from our in-house discussions of Section 59-12-103(1)(I)
regarding the taxability of services to install tangible personal property in
connection with other tangible personal property. We would appreciate your responding to the following requests:
1. For some time, we have been working under
the assumption that the amount paid for labor to install machinery or equipment
purchased or leased by a manufacturer for use in new or expanding operations is
exempt from sales or use taxes. We have
also assumed that the amount paid for labor to install a new segment that is
not a replacement part to an existing piece of qualifying machinery or
equipment is exempt from sales or use taxes.
Would
you verify the accuracy of these assumptions.
2. It is our understanding that the rational
for these exemptions is as follows: Since the amount paid for the tangible
personal property in both of these situations is exempt under Section
59-12-104(15) of the Utah Code, the amount paid for labor to install such
tangible personal property is also exempt.
Would
you verify the accuracy of this understanding.
3. Although it appears that R865-19S-51 was not
intended to address these exemptions, some of the provisions in that rule seem
to apply as well. For example,
Paragraph E refers to tangible personal property which is attached to real
property but remains personal property.
A piece of manufacturing machinery that remains tangible personal
property but is connected to a power source and a water source in the building
and which is bolted to the floor to keep it from vibrating could fit that
description. And the provision in
Paragraph e for exemption of installation charges would seem applicable to
manufacturing machinery. The issue of
separately stated charges, however, would be moot in this case since the
purchase or lease of the equipment itself would be exempt.
Would
you indicate whether or not Rule R865-19S-51 is appropriately applicable to the
amount paid for installation of machinery or equipment purchased or leased by a
manufacturer for use in new or expanding operations.
As
always, thank you for taking the time to advise us.
Sincerely,
XXXXX
Research
Consultant
XXXXX
RE:
Installation charges associated with manufacturing equipment
Dear
XXXXX,
We
have received your request for an opinion regarding charges for installation of
manufacturing equipment. Our research
indicates the following:
Section
59-12-104(15) of the Utah Code exempts the sale or lease of qualified
manufacturing equipment. Nothing in the
statute’s language extends the exemption to installation charges. However, our experience indicates that
installation charges are often included in the cost of the machinery or
equipment. Under such circumstances, we
have allowed the exemption for the entire charge. For purposes of consistency, we also allow the exemption if the
installation charge is stated separately.
Rule R865-19S-51 has no application to the installation of manufacturing
equipment.
The
manufacturing equipment exemption does not apply to “labor to repair, renovate,
or clean machinery or equipment.” See
Utah Administrative Rule R865-19S-85 (B).
New parts installed to repair or renovate the machinery do not qualify
for exemption, nor do charges for the installation. If a new segment is added to the existing machinery, it must
qualify for exemption under the “new or expanding operations” test as described
in R865-19S-85 (A)(3).
Tangible
personal property does not necessarily lose its character as a personal
property by mere attachment to real property.
The question of whether personal property has been converted to real
property is a case-specific determination requiring examination of the
particular facts in each situation.
If
you have further questions, please contact us.
For
the Commission,
Alice
Shearer
Commissioner