98-034
Response
June 23, 1998
Request
Letter
May 29, 1998
Attention: Jeff McNamar
Sales
Tax Audit Division
210
North 1950 West
SALT
LAKE CITY, UT 84134
Dear
Mr. McNamar:
I am writing to request a
clarification on the Sales & Use Tax Regulations regarding the services and
sales that we provide.
COMPANY A performs services in the
installation & maintenance of Personal Home Theaters, Security Systems
(excluding Monitoring), and Home Automation products. These items include CRT
Ceiling Mounted Television Projectors; Ceiling or Wall Mounted Projector Screens; Audio/Video Equipment/Components
(which is usually installed within custom made cabinets or included into built
in wall units), also includes Universal Remotes that control whole room
environment from dimming lights to turning on home theater equipment; Inwall
intercom systems and all wiring throughout the houses.
COMPANY A is not set up on a
"Retail Store Basis", in fact most, if not all jobs, are referrals
from previous customers and builders. We do not have a store front with products available to purchase like
normal retail stores provide. Considering this, most Audio/Video Equipment sold in a retail setting would be
considered Sales Taxable items, as a rule the houses that we install the
equipment in, usually within a personal home theater, becomes a feature to that
house. It generally is considered and
sold as part of the house itself and is invariably included in the value of the
house. It is highly unusual for our
customers to take the equipment with them should they sell and move. This
maybe considered as real property installed regardless if the product
could be removed. It would be
confidently said that all equipment is specific in function and would be
useless if removed part by part. One
would not work without the other.
It is therefore our request that
clarification on what should be considered Sales Taxable and Use Taxable be
provided. If it is, that all products
installed are considered Real Property, we therefore, will be on a Use Tax
basis and our accounting should adjust to that for Sale & Use Tax Payable
each quarter.
I look forward to hearing your clarification
on this matter. For further
documentation or should you have any
concerns please don't hesitate to contact either myself of NAME at the above
address and telephone number.
Yours
sincerely,
NAME
June
23, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Sales Tax on Personal and Real Property
Dear
NAME,
We have received your request for
information concerning the application of sales tax on various equipment
installed in homes, including personal home theaters, security systems, and
automation products. Specifically, you
have asked whether these properties are considered personal property or real
property for sales tax purposes.
The Commission looks at several factors
to determine if personal property installed to real property retains the
characteristics of personal property or if it instead becomes part of the real
property. Utah Admin. Code
R865-19S-58(E) (copy attached) provides some examples of items that are
considered tangible personal property even when attached to real property. These include:
1. moveable items that are attached to real
property merely for stability or for an obvious temporary purpose;
2. manufacturing equipment and machinery and
essential accessories appurtenant to the manufacturing equipment and machinery;
and
3. items installed for the benefit of the trade
or business conducted on the property that are affixed in a manner that
facilitates removal without substantial damage to the real property or to the
item itself.
Further, Utah Admin. Code
R865-19S-78 (copy enclosed) provides additional criteria to differentiate
between the two when applying sales tax for labor to repair property. Section B of that rule provides that
portable or movable items that are attached merely for convenience, stability
or for an obvious temporary purpose are considered personal property, even when
attached to real property. However,
personal property will be treated as real property if the item is considered
permanently attached, which occurs when:
1. attachment is essential to the operation or
use of the item and the manner of attachment suggests that the item will remain
affixed in the same place over the useful life of the item
or
2. removal would cause substantial damage to
the item itself or require substantial alteration or repair of the structure to
which it is affixed.
Using these guidelines, we can set
forth some general premises. First,
equipment installed to real property does not necessarily become part of that
realty for sales tax purposes. Instead,
the manner and purpose of the affixation and the ease with which the equipment
can be removed are factors used to determine whether the property is classified
as real or personal property after its installation. Unfortunately, the equipment you install is not all installed in
the same manner, and some can be removed from the real property without causing
significant damage, while other items cannot.
Thus, we need to separately discuss each item of equipment you have
listed to address whether it remains personal property or becomes real property
upon its installation.
CRT
Ceiling Mounted Television Projectors.
This item is designed to project an image onto a screen. To do so, the projector is mounted to the
ceiling for stability and convenient placement. If the projector is attached by bolts into the ceiling studs or
other similar manner, so that its removal will not significantly damage the
ceiling, then the projector would still be considered personal property after
its installation.
Ceiling or Wall Mounted Projector
Screens. Again, if these items are
attached to the ceiling or wall in a manner so that their removal would result
in only minor damage to the house, then the screens would remain personal
property after their installation.
However,
where a projector screen is incorporated into the house so that the screen
descends and retracts into a ceiling recess, then the screen would be
considered permanently attached and becomes part of the real property after its
installation. In this case, removal of
the screen would result in a ceiling hole that would probably require
additional carpentry and wallboard work to repair. Such damage would be significant enough to warrant property
installed in this manner to become part of the realty.
Audio/Video
Equipment/Components. You letter
states that this equipment is usually installed in custom made cabinets or
included into built-in wall units. In
would be unlikely that removal of this equipment would significantly damage the
realty. This property would remain
personal property after its installation.
One
component that might become part of the realty would be speakers that are mounted
into the ceiling or the wall in such a way so that their removal would leave
large holes. The resulting carpentry
and wallboard repairs would be significant enough so that speakers installed in
this manner become part of the realty.
Universal
Remotes. If the universal remote is a piece of freestanding equipment or is
merely attached to the realty, it would remain personal property. Should its installation be incorporated into
the wall of the house, so that its removal would leave a hole requiring repair,
it would become part of the realty.
Inwall
Intercom Systems. This equipment’s
name implies that it is installed in the walls of the home instead of merely
being attached to the wall. If this is
the case, then removal of the equipment would also leave holes in the walls
requiring repair. The system would thus
become part of the realty.
Wiring. Wiring incorporated into the walls or
ceilings becomes part of the realty.
Wiring placed in a room by either tacking it to a wall or laying it on
the floor would remain personal property.
Lastly, we wish to clarify your
sales tax obligations that arise from your equipment sales. In your letter, you mention changing to a
use tax accounting basis should all installed items be considered real property. Let us point out that sales tax is due on
all the equipment you install, whether it remains personal property or becomes
part of the realty. If it remains
personal property, you collect sales tax from your client and remit it to the
Commission.
However, if an item you install
becomes part of the realty, you are considered the ultimate consumer of the
product and you are required to pay sales tax when you purchase the
equipment. Should you instead collect this
sales tax from your customers, please remember that state law requires you to
remit all sales tax collected from your customer, even if it exceeds what your
tax liability would have been had you originally paid it to your supplier.
Please contact us if you have any
other questions.
For the
Commission,
Joe
B. Pacheco
Commissioner
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