96-134
Response October 3, 1996
Request
August 23, 1996
Utah Tax Commission
210 North 1950 West
Salt Lake City, UT 84134
Attention: XXXXX
Attorney
Re: Advisory Opinion: Electronic Security Companies
Dear XXXXX:
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
opinion.
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.
Sincerely,
XXXXX
XXXXX
Advisory opinion - Application sales tax to alarm
systems and services
Dear XXXXX
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,
Commissioner