98-031
Response
May 6, 1998
REQUEST
LETTER
April
20, 1998
Irene
Rees
Tax
Policy Analyst
Utah
State Tax Commission
210
North 1950 West
Salt
Lake City, Utah 84134
RE:
COMPANY A
In
regards to our telephone conversation with myself and Jeff Maclamear on
clarifying the issue of charging sales tax for services rendered.
COMPANY
A owns the office trailers, water tanks,
sewer tanks, garbage containers, and chemical toilets which they rent out.
COMPANY B is hired by COMPANY A, and other oil companies to dismantle the above
equipment and move to their different location sites and hook equipment back
up. While on location of moving this
equipment it takes COMPANY B drivers 1 -2 hours to dismantle and 1- 2 hours to
hook equipment back up and the remaining time is driving and moving equipment
cross country. COMPANY B is also responsible for pumping out sewage and dumping
garbage, and hauling drinking water to water tanks. Our question is does COMPANY B charge sales tax on these
services?
Please
send us a ruling and a letter to clarify this problem if one exists. Copies of our invoices are enclosed for you
to look at. Please let us know as soon
as possible.
Thank
you,
NAME
May
6, 1998
NAME
ADDRESS
CITY
STATE ZIP
RE: Advisory
Opinion - Taxable Services Associated with the Delivery of Personal Property
Dear
NAME,
We have received your request for an
advisory opinion concerning the total services you provide when delivering
personal property and whether these services are subject to sales tax. You operate two separate corporations:
(1)COMPANY A (“COMPANY A”), which leases personal property, such as office
trailers, water tanks, sewer tanks, garbage containers, and chemical toilets,
to oil drilling sites; and (2)COMPANY B (“COMPANY B”), which delivers,
installs, disassembles, and cleans the personal property leased by COMPANY A.
You specifically ask if COMPANY B’s
charges for installing, disassembling, and cleaning the leased personal
property are taxable. You also ask if
COMPANY B’s charges to haul drinking water to the sites are taxable. Let us address each of these situations
separately after first discussing whether or not the delivery charges
themselves are taxable.
Common Carrier. Intrastate delivery charges for the movement
of freight by common carrier are exempt from taxation. Utah Code Ann. §59-12-104(17)(a). Common carrier is defined in Utah Code Ann.
§59-12-102(5) as a “person engaged in or transacting the business of
transporting passengers, freight, merchandise, or other property for hire
within the state.
COMPANY A leases the personal
property and COMPANY B delivers it. If
COMPANY B is adequately insulated from COMPANY A to show that it separately
functions for hire to transport the personal property, then it would qualify as
a common carrier. The invoices supplied
by COMPANY B and COMPANY A show that COMPANY B does bill the lessee of the
personal property for its delivery services separately from the lease billing
sent to the lessee by COMPANY A. Also,
both companies have different mailing addresses. Because of these facts, it would appear that COMPANY B is
adequately insulated from COMPANY A administratively to be considered a
“person” engaged in the business of transportation of freight for hire. Accordingly, COMPANY B’s charges for
delivering the leased personal property are exempt from taxation.
Installing personal property. Utah Admin. Code R865-19S-78(A) provides
that
personal
property installed to real property is exempt from taxation, while other
installations of personal property are taxable. The leased personal property installed by COMPANY B is not
installed to real property; thus, COMPANY B’s installations are subject to
sales tax. Your invoices list the total
amount of time your drivers spend making the delivery and installation. Should the total time be four hours and the
time to install the property takes up ˝ hour of the total, then the 3˝ hours
spent delivering the property would not be subject to sales tax, but the ˝ hour
spent installing the property would be subject to sales tax.
Please remember that the taxable
charges would need to be separated on the invoice from the nontaxable
ones. Otherwise, the entire amount of
charges may be deemed taxable.
Disassembling personal property. While there is specific statutory authority
to apply sales tax when installing personal property, this authority does not
specifically refer to the disassembly of personal property. Nevertheless, labor must often be performed
on personal property either before or after delivery, where the extent of the
taxable charges for labor is dependent upon the intent of the installation
itself. Some personal property is
installed after its delivery without the intent to have it removed. The total labor associated with the
installation is taxable.
On the other hand, some personal
property is installed only temporarily, such as leased personal property, where
disassembly may be required at the end of the lease. In this case, the total labor involved for both the installation
and disassembly are taxable because the future disassembly was imminent at the
time of installation. Because of the
nature of the transaction, the installation and disassembly are related
functions, and both are taxable. The
disassembly labor provided by COMPANY B is directly related to the installation
of the leased property. Accordingly,
any hourly fees charged by XXXXX to disassemble the leased personal property
that it transports are subject to sales tax and would need to be separated on
the invoice from nontaxable charges.
Pumping out sewage. One of the services provided by COMPANY B is
pumping the sewage out of, presumably, the leased sewer tanks. Rule 865-19S-78(B)(1) provides that charges
for labor to repair, renovate, wash, or clean tangible personal property are
subject to sales tax. The labor
performed by COMPANY B (pumping the sewage out) is a service to remove waste and is not one to repair, renovate,
wash, or clean. As such, this service
is not taxable.
However, please be aware that any
labor that restores the sewage tanks to a renovated state would be a taxable
service. Maintenance, repair or
cleaning that may be needed to prolong the functional life of this equipment
would be the type of service subject to sales tax and would need to be
separated on the invoice as a taxable charge.
Dumping garbage. Picking up garbage from the leased garbage
containers is also a service to remove the waste product. It is not a service intended to restore the
property to a former state or prolong
its functional life. As such, charges
to dump garbage are not subject to sales tax.
However, please be advised that should your employees charge for time
spent repairing or cleaning the garbage containers, then these charges would be
taxable and should be stated separately.
Hauling water. Again, as COMPANY B is a common carrier,
charges to transport water to the drilling sites would not be taxable. However, if COMPANY B is also charging a fee
for the water itself, the price paid for the water is taxable. You have provided one invoice where 2000
gallons of water were transported to a site and pumped into an on-site
tank. You have charged the client for
six hours of delivery time plus an additional $25.00 charge for the water. As the delivery charges are listed
separately, it appears that you have made a sale of the water for $25.00. This sale of water is a taxable sale of
personal property and should be listed separately as such.
Please contact us if you have any
other questions.
For
the Commission,
Joe
B. Pacheco
Commissioner
^^