Response June 23, 1998



Request Letter


May 29, 1998


Attention: Jeff McNamar

Sales Tax Audit Division

210 North 1950 West



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,






June 23, 1998






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



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