98-043
Response June
23, 1998
REQUEST
LETTER
May
29, 1998
Dear
Irene:
My
research of the laws and inquiries of two different representatives at the tax
commission has
led
me to the following conclusion about a unique set of circumstances in regards
to sales tax. I
am
requesting a determination letter to further clarify my findings.
If
a contractor installs underground gas tanks and the attached pumps, those are
considered real
property
and therefor, sales and use tax is paid by the contractor. Parts and labor are
not subject
to
sales tax to the end user (gas station owner).
Repairs on these systems, if completely done
on-site,
are also not subject to sales tax to the end customer, but rather, parts purchased by the
contractor
for the repairs are subject to sales and use tax when purchased by the contractor.
Publication
42, Sales, Installation and Repair of Tangible
Personal Property Affixed to Real
Property
lists two examples that seem to support this: underground tanks, and ATM
machines
attached
to real property. The ATM machine was the closest example to a gas pump.
If
the tank and connected pump are real property, what about the equipment that
controls the
pump
from inside the store? This equipment is integrally part of the overall pumping
system and
connected
through underground lines. How would the sale and repairs of the "inside equipment"
be
treated for sales tax purposes?
Call
me if you have any questions. Thank you.
Sincerely,
NAME
June
23, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Sales Tax Application to Real and Personal Property
Dear
NAME,
We have received your request for
information concerning the classification of property as either real or
personal property for sales tax purposes.
You have asked about three different properties that are installed in
the business of selling gasoline, specifically underground tanks, gas pumps,
and in-store control equipment. You
have also asked whether the parts and labor to repair each of these properties
are subject to sales tax. Let us
address each of these questions separately.
Classification of Property for
Sale and Installation. Utah Admin.
Code R865-19S-58(E) (copy attached) provides some examples of items that remain
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.
Using
these guidelines, let us discuss whether the properties at issue here remain
personal or real property upon their installation and the resulting sales tax
implications.
Underground tanks. These tanks are large and not easily moved,
particularly after they are buried underground. Removing them after installation would involve a great deal of
effort and cause substantial damage to the real property in which they are
buried. For these reasons, we consider
underground tanks to be real property after their installation and, thus, are
taxable to the contractor who installs them.
Gas pumps. Gas pumps, needed to retrieve the gasoline stored in the
underground tanks, are attached to real property mainly for stability. It is reasonably easy to remove gas pumps,
either to relocate them or replace them, without substantially damaging either
the pumps or the real property to a significant degree. For these reasons, we consider gas pumps to
remain personal property after their installation and are taxable to the final
consumer.
You stated in your letter that gas
pumps should be considered real property after installation because the Sales
Tax Guidelines published by the Commission show that an ATM machine is
considered real property after installation.
This is only true if the ATM machine is incorporated into the building
in such a manner that removal would substantially damage the building. Free-standing ATMs installed on a concrete
pad merely for stability or convenience retain their personal property
characteristics. So would similarly
installed gas pumps.
In-store control equipment. For the same reasons stated above for gas
pumps, we find that the control equipment installed in the store can be removed
without causing significant damage and retains its personal property characteristics,
even after installation. This equipment
is taxable to the final consumer.
Classification for Repair Costs.
Labor. Utah Admin. Code R865-19S-78 (copy attached) provides guidance as
to which labor charges are subject to sales tax. Charges for labor to repair items attached to real property so as
to be considered real property and any accessories to these items are not
taxable. On the other hand, charges for
labor to repair an item that remains personal property are generally taxable.
While we believe the gas pumps and in-store control equipment remain personal
property after their installation, we also believe they are accessories to the
underground tank, which is considered real property after its installation. Accordingly, the labor charges to repair the
underground tank and its accessories, the gas pumps and in-store control
equipment, are not subject to sales tax.
Repair parts. Sales tax on repair parts is assessed in the
same manner as sales tax on the sale and installation of an item itself. Accordingly, sales tax should be charged to
the customer and collected by the repairman for any parts used to repair the
gas pumps or the in-store control equipment.
As to the underground tank, it is considered real property upon its installation
and the repairman does not collect sales tax on any parts used to repair
it. Instead, the repairman is
considered the ultimate consumer of parts used to repair the underground tank
and should pay sales tax on these parts at the time he or she purchases them.
Please contact us if you have any
other questions.
For
the Commission,
Joe
B. Pacheco
Commissioner
^^