99-016
Response February 22, 2000
REQUEST LETTER
January 30, 1999
Dear NAME:
We are writing to you on behalf of our client; a
manufacturer/refurbisher of stadium and theater seating, to request a
determination as to the proper application of sales and/or use tax.
The manufactured stadium seating is entirely completed
at the client plant location in Michigan and then shipped via company owned
vehicle or common carrier to its destination in your state. Installation is
completed by a local contractor. The refurbished stadium seating is also
entirely
completed at the plant location in Michigan.
The customer will send a sample chair to our client
who will paint, recushion, etc. the chair and return it to the customer for
approval. After the customer approves the refurbishing, a local contractor will
remove the chairs from the customer=s
location and ship them to our client via common carrier. Upon completion of the
project our client will ship the refurbished seating back to the customer and a
local contractor will install it.
Most of the sales are made to educational
institutions, entities of government, contractors, nonprofit organizations and
others. The product is marketed through dealers, independent sales
representatives, trade magazines and other news media. The client has potential
sales in your state and would appreciate guidance in determining their sales
tax liability. (Please cite the statute for future reference.)
When our client is selling manufactured seating, are
they making sales of tangible personal property or an affixation to realty?
What is the tax base? Do the exemptions apply?
If the sale of manufactured seating is considered an
affixation to realty and it is made directly to
an educational institution, entity of government, or
nonprofit organizations, is it taxable? If so, is the educational institution,
entity of government or nonprofit organization liable for use tax or is our
client liable for sales tax?
If the sale of manufactured seating is considered an
affixation to realty and it is made to a contractor or other business entity,
is it taxable? Who is liable for the use/sales tax?
If the sale of manufactured seating is considered a
sale of tangible personal property and it is made directly to a contractor or
other business entity, is it taxable? Who is liable for the use/sales tax?
If a sale of manufactured seating is made to a
contractor and resold to an educational institution, government or nonprofit
organization considered exempt does the exemption flow through to the
contractor?
If a sale of manufactured seating is made to a dealer
for resale, does our client have a potential sales tax liability?
What is the taxable base for manufactured seating?
Material plus cost plus overhead or retails selling price or some other basis?
When our client is refurbishing seating for a customer
(working on the property of others) is
this considered a service?
What is the taxable base for a servicer located in
Michigan supplying a customer in your state?
If the refurbished seating is completed for an
educational institution, government or nonprofit
organization, does a tax liability exist? Who is
liable for the use/sales tax?
If the refurbished seating is completed for a
contractor or other business entity, does a tax liability exist? Who is liable
for the use/sales tax?
If the refurbished seating is completed for a
contractor and resold to an educational institution,
government or nonprofit organization considered exempt
does the exemption flow through to
the contractor?
If the refurbished seating is completed through a
dealer-arranged sale, does our client have a sales tax liability in your state?
As you can see, our client's sales are generated in a
variety of ways, which could generate sales tax or use tax in your state. We would greatly appreciate any guidance you
can offer to allow us to remain compliant with your states rules and
regulations.
If you have any additional questions, please feel free
to contact me at #####.
Thank you for
your time and attention in this matter.
Sincerely,
NAME
RESPONSE
LETTER
February 22, 2000
COMPANY
ADDRESS
RE: Application
of Sales Tax to Sales of Stadium and Theater Seating
Dear NAME,
We have received your request for an advisory opinion
concerning the application of sales tax on your client=s sale of or refurbishing of stadium and theater
seating. You have asked how the tax
should be applied in a number of situations.
We shall first address the issue as to whether the seating, upon its
installation, is considered part of the realty. Next, we shall discuss how the sales tax should be applied in
various situations, including sales to owners, contractors, and exempt
entities. Lastly, we shall address
whether any taxation differences exist between the sale of seating that your
client manufactures as opposed to your client=s sale of services to refurbish seating.
Items Converted to Real Property. The sale of
an item that remains personal property, even when affixed to real property, is
taxable to the last purchaser of that item.
Compare that with an item that is converted to real property upon its
installation. In this latter situation,
the item is taxable to the last person to own that item before its
conversion. Thus, if a contractor is
hired by a property owner to install an item of personal property and the
contractor buys the item, the contractor must pay the tax on that item of
personal property if it becomes part of the realty. In this case, the contractor would not charge sales tax to the
property owner. On the other hand, if
the item remains personal property even after its installation, it is the
property owner who must pay the tax. In
this situation, the contractor should charge sales tax to the property owner.
Stadium or theater seating is generally considered to
be a fixture that becomes part of the realty upon its installation. Although this fixture does not lose its
separate identity upon installation to the realty, it becomes an integral and
necessary part of the real property improvement. The seating is unlike trade fixtures, which are generally considered
to remain personal property even after their installation. Trade fixtures are usually transient in
nature and, when installed on commercial property, often vary from one tenant
to another without substantial alteration of the building. Trade fixtures are common in commercial
buildings that are readily adaptable to multiple uses. However, a stadium or theater is not
adaptable to multiple uses. These
structures exist to provide seating for large groups to view events. Thus, the seating is an integral part of the
underlying realty and is considered to become part of that realty upon its
installation.
How Sale Tax is Charged. In Utah,
sales tax is applied to the amount paid by or charged to the purchaser for
retail sales of tangible personal property.
Utah Code Ann. '59-12-103(1).
We are enclosing copies of Utah Admin. Code R865-19S-58 and Utah State
Tax Commission Publication 42. Both of
these sources address the taxation of personal property that is attached to
real property and should assist you in your tax liability planning. Let us address how taxes should be charged
in the situations that you have asked about.
Sale to Owner or Contractor. As stadium
and theater seating becomes part of the realty upon installation, the seating
is taxable to the last person to own it before its conversion to real
property. Thus, if the stadium or
theater owner purchases the seating from your client, then hires a contractor
to install it, your client must charge that owner tax on the price charged for
the seating. If your client instead
sells the seating to the contractor who has been hired to supply and install
seating for the owner, the contractor is considered the last person to own the
seating before its conversion, and your client should charge the contractor
sales tax on the price charged.
Sale to Dealer. If your client sells the seating to a dealer
for resale, that dealer may buy the seating tax-free because of the resale
exemption of Utah Code. Ann. '59-12-104(26),
which exempts from taxation those items purchased for resale in Utah in the
regular course of business. The dealer
will then need to provide your client with an exemption certificate (Form
TC-721, a copy of which is enclosed) at the time of purchase; otherwise, your
client may be held responsible for the tax.
When the seating is sold tax-free because of the resale exemption, it is
the dealer who collects sales tax on his or her subsequent sale of the seating
to a final consumer. If the dealer
should instead convert this seating to his or her own use or convert it to real
property under an installation contract, the dealer would be responsible to
accrue and remit the sales or use tax on his or her purchase of the seating.
Sale to Tax Exempt Entity. In Utah,
sales to the state and its political subdivisions, including public schools,
are exempt from taxation under Utah Code Ann. ''59-12-104(2), while sales to religious and charitable organizations are
exempt under Utah Code Ann. '59-12-104.1. However, Section 59-12-104(2) provides an
exception to the exemption under certain circumstances when construction
materials are bought. The stadium or
theater seating would be considered construction materials because it is
converted to real property. The law
differs depending upon which exempt entity purchases the construction
materials. The scenarios are addressed
as follows.
Sales of construction materials made directly to an
agency of the federal government are exempt from sales tax if the federal
agency makes direct payment to the vendor or the federal agency has issued a
federal purchase order to the vendor.
The vendor should keep a copy of the direct payment or purchase order as
evidence of the exempt sale. If a
contractor for the federal agency is purchasing the seating on behalf of the
agency, but remitting payment itself, your client would charge sales tax on the
sale.
Sales of construction materials to an agency of the
State of Utah or one of its political subdivisions, including counties, cities,
and public universities, are exempt from sales tax on construction materials
only if the agency makes direct payment to the vendor and the items are
converted to real property by employees of the government entity. If the government entity meets these
criteria, it may purchase the seating tax-free upon providing you the TC-721
exemption certificate. Should one of
these entities purchase the seating under any other circumstance, the sale
would be taxable. Sales of construction
materials purchased by a contractor on behalf of one of these entities are
always taxable.
Sales of construction materials to public schools
(Grades K-12) or to organizations which have applied for and received a sales
tax exemption number because they are a religious or charitable organization
are generally exempt from taxation if the construction materials are purchased
directly by the organization. Sales of
construction materials are also exempt if purchased by a contractor on behalf
of one of these exempt entities.
However, if purchased by a contractor on behalf of the organization, the
materials must be clearly identified and segregated and actually converted to
real property owned by the organization.
Under these circumstances, either the organization or the contractor may
purchase the seating tax-free upon providing you the TC-721 exemption
certificate.
Charges to Refurbish Seating. Section
59-12-103(1)(g) provides that sales tax should be charged on services for
repairs or renovations of tangible personal property. Refurbishing seating would be considered a repair or
renovation. However, seating is
considered part of the real property upon its installation and services to
repair tangible personal property that has become part of the realty is not
taxable. [Utah Admin. Code R865-19S-78
(copy enclosed)]. Nevertheless, when
the seating is moved from the site temporarily or permanently, it reverts to
personal property and the off-site repairs or renovations are thus taxable. As the seating that your client refurbishes
will be sent to Michigan for this service, the seating will have reverted to
personal property and your client=s
charges for refurbishing it are taxable.
Your client should charge taxes on this service in the same manner as
detailed above on the sale of the manufactured seating.
Please contact us if you have any other questions.
For the Commission,
Marc B.
Johnson
Commissioner
^^