96-097
Response
June 17, 1996
Request
XXXXX
Utah
State Tax Commission
210
N. 1950 W.
Salt
Lake City, UT 84134
I
am writing to request a special ruling on a question of use tax as it may
pertain to manufactured “panelized” homes which are partially fabricated in a
factory and assembled on the job site. In discussing this matter with members
of the tax commission staff, no one had a clear answer so I was advised to
write to you.
I
represent XXXXX in the state of Utah. XXXXX is a company headquartered in
Atlanta, Georgia, with manufacturing facilities in South Carolina. The company
is represented in 40 states and 17 foreign countries. The product in question
is manufactured housing. Manufactured housing comes in various forms, but with
respect to this company, homes are fabricated into panels approximately 8 feet
square in the factory. The panels are labeled and shipped to the job site where
they are quickly assembled into the finished home.
The
question is what is a fair formula for computing use tax. Homes which are
entirely site built pay sales or use tax on materials only. Labor, contractor
profit and overhead are not taxed. The same applies to cabinets, plumbing,
electrical, etc. The home buyer is not charged sales tax on the work done by
these subcontractors. As I understand it, anything fully installed and
converted to real property is not subject to sales tax. Only the materials
purchased by the cabinet shop, plumber or electrician are taxed.
In
the case of panelized construction, only about 30% of the retail cost is
comprised of purchased materials. These materials are precisely the same as
those purchased for any site-built home, i.e. lumber, fasteners, windows,
doors, etc. The remaining 70% consists of labor and profit (please see enclosed
letter from XXXXX). If use tax were paid on the full price of the home, it
would be unfair relative to the comparable site built home.
I
intend to comply with the requirement to pay use tax on items purchased out of state
such as these panelized homes, but would respectfully request that the
percentage of actual material content be used in order to compute the use tax.
Only in this way will it be consistent and fair relative to existing practice
by contractors and subcontractors in the State of Utah.
Thank
you for your time and attention to this request. I look forward to your reply.
Sincerely,
XXXXX
XXXXX
Dear
XXXXX
This
will acknowledge our recent conversation regarding your request for a breakdown
of the material and labor costs for our house packages.
Based
on the suggested retail price, the materials account for approximately 30% of
costs. The remaining 70% consists of labor and profit. Using the wholesale
price, the materials cost is approximately 37.5% and labor and profit is 62.5%.
Please
contact me if you have any further questions.
Sincerely,
XXXXX
XXXXX
Advisory
Opinion - Use tax on construction materials shipped into Utah.
Dear
XXXXX,
We have received your request for
guidance concerning your company’s responsibility to pay or collect and remit
use tax on construction materials shipped into Utah from a Georgia
supplier. From the description provided
in your request letter, we cannot determine the exact nature of your
transactions with the Georgia supplier and the ultimate homeowner. However, for purposes of this opinion, we
assume that you purchase the construction materials (some of them may be
assembled in some fashion prior to shipment) from an out-of-state supplier, you
build the home, then you sell the finished home to your end customer. On that basis, we find as follows:
Utah imposes a use tax on the
storage, use or consumption of tangible personal property purchased from out-of-state
for use or consumption in this state.
With regard to construction materials, the liability for the use tax
falls on the real property contractor as the last consumer of the property
before it is converted to real property.
(See Utah Administrative Rule R865-19S-78, copy enclosed.) There is no sales tax due on the sale of
real property to the eventual homeowner.
XXXXX, as the real property
contractor is liable for use tax on items purchased for incorporation into the
finished home. Normally, your supplier
is responsible for collecting the sales tax and remitting it to the Tax
Commission. However, an out-of-state
supplier is not responsible for collecting and reporting Utah use tax unless it
has a presence in Utah sufficient to create nexus. Utah Code Section 59-12-107 (1) states, in pertinent part:
(1) (a) Each vendor shall pay or collect and remit the
sales and use taxes imposed by this chapter if within this state the vendor:
(i) has or
utilizes an office, distribution house, sales house, warehouse, service
enterprise, or other place of business;
(ii) maintains a stock of goods;
. . .
(iv) regularly
engages in the delivery of property in this state other than by common carrier
or United States mail; or
(v) regularly engages
in any activity in connection with the leasing or servicing of property located
within this state.
We cannot determine from your
description whether your supplier has such a
presence in Utah that it should be collecting and remitting use
tax. If your supplier has not collected
use tax on the materials, you must accrue the use tax and report it on your
next income tax return. The use tax due is based on your cost of any equipment
or supplies that you purchase from an out-of- state vendor for use on the job
(such as hand tools) and on your cost of construction materials purchased for
incorporation into the finished home.
The cost of the finished home and the labor to construct the home is not
taxable to the final home buyer.
You enclosed a copy of a letter from
your supplier which indicates an approximate break down of costs associated
with supplies, labor and profit. We are
not sure how this information is relevant unless you are concerned about
charges for labor to assemble the prefabricated parts. Under Utah Administrative Rule R865-19S-51,
charges for labor to fabricate a finished article of tangible personal property
must be included in the amount upon which the tax is collected. The prefabricated panels remain tangible
personal property until you, as the real property contractor, convert them to
real property. The entire charge for
assembled panels is taxable.
Please contact us again if you have
other questions.
For
the Commission,
Alice
Shearer,
Commissioner