Response October 3, 1996






August 23, 1996


Utah Tax Commission

210 North 1950 West

Salt Lake City, UT 84134


Attention: XXXXX



Re: Advisory Opinion: Electronic Security Companies




We have reviewed sections of the Utah Sales & Use Tax law for the taxability of transactions

pertaining to security companies. The law does not seem to address the security industry. After

speaking with a representative in the technical unit, it was suggested that we ask for an advisory



XXXXX (hereafter referred to as "XXXXX") is a national security company. We do not have a location in Utah but a few of our National accounts have locations in Utah. These locations would like XXXXX to provide the security. There are several different transactions that may occur. The following is a brief description of the possible transactions.


1. Installation of a security system (fire, burglar, card access, closed circuit TV etc.), XXXXX retains the ownership. XXXXX would subcontract this installation to a company located in Utah (XXXXX may dropship the equipment to the contractor or the contractor may supply all or part of the system). Is the installation of a security system, in which the system remains the property of XXXXX a taxable transaction?


2. Same transaction as #l but the system is sold to the customer. Is the sale and installation of a security system a taxable transaction?


3. XXXXX charges the customer an annual charge (billed annually, semiannually, quarterly or monthly) for the monitoring of an alarm which is connected to the XXXXX alarm center in Omaha, Nebraska. This charge is a lump sum charge that may include monitoring, maintenance, repair and lease (if XXXXX owned). Is this charge a taxable transaction?


4. Same transaction as #2 but there is no monitoring involved. The system is a local or a proprietary system (customer monitors system themselves with their personnel). Is this charge a taxable transaction?


5. Maintenance contracts. The customer may purchase a maintenance contract on the security system that is purchased from XXXXX (maintenance contract is included with the annual charge when XXXXX retains the ownership). Are maintenance contracts taxable?


6. Service Run/charge: If the customer has a problem with the system, XXXXX will send a serviceman (from a company in Utah) to check out the system. The serviceman may need to reset the alarm, test the alarm, etc. No equipment involved. Would this be a taxable transaction?


7. Time & Material Billing: The customer has a problem with the system or wants some additional protection. XXXXX will send a serviceman to check out the system. The serviceman discovers that a piece of the equipment is broken (customers fault) or the customer requests additional protection like an additional door secured. Is this a taxable transaction?


8. XXXXX has contracted to have a system installed and XXXXX retains the ownership. Two years later the customer decides that he wants to own the system and requests to purchase the existing system. Is this a taxable transaction?


The above briefly outlines the possible transactions. Could you please review the above and give

us Utah's opinion of the taxability? If you should need any further information, please do not hesitate to contact me. Thank you in advance for your assistance in this matter.







October 3, 1996




Advisory opinion - Application sales tax to alarm systems and services




We have received your request for tax guidance regarding the alarm systems and services sold by your company to Utah customers. We advise as follows:


1. Equipment sales and leases. Sales or leases of alarm equipment are taxable as sales or leases of tangible personal property and subject to sales or use tax in Utah. 59-12-103 Utah Code Ann. As a general rule, the customer is liable for the tax. However, if the equipment is

converted to real property upon installation, the contractor is regarded as the final consumer of the property for sales tax purposes. In that case, it is the contractor who must pay sales tax on his purchase of the item from your company. If the contractor purchased equipment from your company tax free under the resale exemption, the contractor must report and remit the tax to the Tax Commission. If the equipment is converted to real property and the contractor merely acts as an installation agent for your company, your company, as the real property contractor, is liable for the sales tax. See Utah Administrative Rule R865-19S-58 (attached).


2. Charges for installation. Charges for installation labor are exempted from taxation if the equipment is installed in conjunction with or affixed to real property. See Utah Administrative Rule R865-19S-78 (attached). If the equipment is installed in conjunction with other items of tangible personal property or as stand-alone items, charges to install are taxable.


3. Service, repair and maintenance. If the equipment installed is treated as real property for purposes of Utah Administrative Rule R865-19S-78, labor charges for service, repairs and maintenance are exempt from taxation. If the equipment is not considered real property under that rule, labor charges are taxable. The sale of parts and replacement parts is taxable as indicated under rule R865-19S-58.



4. Maintenance agreements or prepaid warranties. Sales of warranty agreements covering items of tangible personal property are subject to sales tax, and the tax is due at the time of the sale of the agreement. As explained in rule R865-19S-78, such an agreement is considered to be prepayment for taxable repairs, and tax need not be collected when warranty service is performed at a later date. If the warranty covers items that have been converted to real property under R865-19S-78, the sale of the warranty agreement is not taxable. Subsequent sale of parts are taxable in accordance with R865-19S-58 and R865-19S-78.


5. Monitoring service. Although you did not describe the monitoring service, we assume that the service includes a service for receiving notification of an alarm and dispatching an employee or police officers to respond. Charges for such service are not taxable if separately stated on the bill, invoice or receipt.


Your transactions may include a combination of taxable and non-taxable sales or leases. Non-taxable charges must be separately stated or the entire amount charged is subject to tax.



Please let us know if you have other questions.


For the Commission,


Alice Shearer,