97-011
Response
March 3, 1997
Request
Dear
Mr. Oveson:
My
company is a custom fabricator of architectural metal products. Our primary market is commercial and government
construction, both new and renovation. The process we follow in securing work
is to submit a fixed-price quotation for a specific construction project to
contractors who are bidding the job. If
we are the low bidder, we are generally awarded a contract for the work. The nature of our work is such that it is
usually incorporated into a construction project near its completion. There can be up to two years between the
time of contract award and work initiation and completion.
Some
of the work we do involves installation of the item as part of the fixed-price
contract. The brass handrailings and
brass door frames in COMPANY A is an example of my company’s work. When my company does the installation of
items we fabricate, we convert personal property to real property. Therefore, my company is responsible for the
sales tax on the cost of materials included in our installed product. The applicable sales tax is include in our
fixed-price quotation.
I
request an advisory opinion on what sales tax rate is applicable on a
fixed-price contract, such as described above, given the fixed-price contract
was established using the applicable sales tax rate at the time the contract
was made and the sale is made at a time the when a different sales tax rate is
applicable. The contracts my company
has are fixed-price and allow no change in price for changes in tax rates. My opinion is the sales tax rate used when
the contract was made, in my situation 6.125%, is the rate which should be used
now when the sale is made, not the current sales tax rate of 6.225%.
Best
Regard,
NAME
NAME
ADDRESS
CITY
STATE ZIP
RE: Advisory
Opinion - Sales Tax Rate for Fixed Price Contract
Dear
NAME,
We received your request for an advisory
opinion on the applicable sales tax rate for a contract that was signed when
the tax rate was 6.125% but was performed after the tax rate had increased to
6.225%. You described your transactions
as sales to contractors. For purposes
of this opinion, so we assume that you are not converting these items to real
property and that the taxable transactions are the sales to the
contractors. We find as follows:
The applicable sales tax rate is the
rate in effect when the sales transaction is completed, not the rate in effect
when the contract for sale is signed. A
sale is completed when title to the property passes. Utah Administrative Rule R865-19S-31 states, in relevant part:
Ordinarily, the time and place of a sale are determined by the contract
of sale between the seller and buyer.
The intent of the parties is the governing factor in determining both
time and place of sale subject to the general law of contracts. If the contract of sale requires the seller
to deliver or ship goods to a buyer, title to the property passes upon delivery
to the place agreed upon unless the contract of sale provides otherwise.
Rule R865-19S-31 reflects the
statutory test for passage of title set out in the Uniform Commercial Code, Section
70A-2-401 of the Utah Code. Section
70A-2-401 states in part:
(1) . . . title to goods passes from the seller to the buyer in any
manner and on any conditions explicitly agreed on by the parties.
(2) Unless otherwise explicitly agreed title passes to the buyer at the
time and place at which the seller completes his performance with reference to
the physical delivery of the goods. . . .
In
other words, time of sale is defined as the time the product is delivered,
unless you and your customer have contractually agreed otherwise. Unless your
sale to the contractor was complete prior to the increase in the tax rate, you
must collect and remit tax calculated at the current 6.225% rate.
If you convert the fabricated items
to real property, you are acting as a real property contractor. As a real property contractor, you are
responsible for the tax on your purchases of materials used to fabricate the
item, regardless of when you perform on the contract with your customer. The applicable tax rate is the rate in
effect at the time of your purchases of supplies or materials used to fabricate
the final taxable item.
As you draft contracts with your
suppliers and customers, keep two things in mind. First, the time of sale can be controlled by the terms of your
contract. Second, tax rates are always
subject to change, and your contracts can provide for adjustment.
Please let us know if you have other
questions
For
the Commission,
Joe
B. Pacheco,
Commissioner