99-017
Response
May 2, 2000
REQUEST LETTER
99‑017
Re: Request
for Ruling Concerning Installed Sales
Dear NAME:
COMPANY (ACOMPANY@) has been engaged by our client (hereinafter, the ACompany") to perform a limited multi‑state and
local tax compliance review. As part of this review, we are seeking to
determine how the Utah State Tax Commission ("Commission") applies
sales and use tax to certain "installed sale" transactions. In this
letter, the term "installed
sale" refers to any sales in which the Company (sometimes through its
unrelated agent or authorized contractor) sells delivers, and installs tangible
personal property on its customer's behalf.
The purpose of this letter is to describe the
Company's facts and to request the state's position concerning the issues set
forth herein. After you have considered the facts and issues, please provide
COMPANY with a ruling determination, complete with any citations to authorities
supporting the state's position.
Facts
The Company is a STATE corporation. The Company sells,
installs and rents tangible personal property at wholesale and retail in
Utah. A portion of the Company's sales
in Utah are made to customers that will have the tangible personal property
installed by the Company. Most installed sales are actually installed by
independent and unrelated contractors authorized by the Company.
Tangible personal property used to perform a
particular "installed sales" contract is often pulled from an
independent installer's inventory for use. The Company is concerned that it may
be collecting and/or paying two levels of sales and/or use tax on such sales.
For example, if the independent installer uses inventory from their own stock
to perform the installation, the Company is concerned that it may be both, (I)
paying sales or use tax to the installer (either by virtue of the installer's
billing of sales tax to the Company, or on account of the installer's own
payment of use tax then passed through to the Company), and (ii) collecting and
remitting sales
tax received from the end customer or accruing and
remitting use tax on the installation of the tangible personal property.
To resolve this double-tax dilemma, the Company is
contemplating the inclusion of a provision in its contracts with independent
installers that would contractually place all sales and use tax compliance
burdens on the independent installers. In such event, the Company would cease
collecting and remitting sales tax from its retail customers, and the independent
installers would accrue and pay use tax
at the time of installation.
The Company is aware that sales tax should generally
be collected on all sales of tangible personal property unless statutory law
specifically exempts the sale of such property. Some states specifically exempt
installation from sales and use tax. On
both a single- and multi-state basis, the applicable of sales and use taxes in
this context (involving independent contractors, retail stores, and end
customers) is quite confusing, particularly in light of the special rules that
many states apply to contractors. For clarity purposes, we respectfully request
your response to the questions listed after the following fact pattern:
Scenario
A customer enters the Company's retail establishment
and purchases the installation of tangible personal property. The customer
requests that the Company install the tangible personal property. The Company
contracts with an independent contractor or agent to complete the installation.
The independent contractor or agent maintains their own stock of this type of
tangible personal property, removes the tangible personal property from their
personal inventory, and installs it for the customer. The Company prepares a
sales invoice to bill the end customer. The independent contractor or agent
prepares a sales invoice to bill the Company. Both invoices reference the
tangible personal property purchased, as well as the installation services.
$ Is the
independent contractor or agent responsible for paying use tax on tangible
personal property removed from their inventory for use in completing the
installation?
$ Is the
end customer required to pay sales tax to the Company on the tangible
personal property installed?
$ Is the installation
service subject to sales tax?
$ Should
the installation cost be separately stated on the various invoices?
$ Can the
Company contract with the independent contractor or agent to transfer all sales
and use tax compliance requirements to the independent contractor or agent?
Please forward your response to the following address:
NAME
ADDRESS
Thank you in advance for your prompt attention to our
request for ruling. If you need any additional information or have any questions
or comments, please contact me at #####.
Very truly yours,
NAME
RESPONSE
LETTER
May 2, 2000
NAME
ADDRESS
RE: Taxation
of Installation Sales
Dear NAME,
We have received your request for an advisory opinion concerning
the application of sales tax on sales made by your client (the ACompany@). We understand that you are asking how the
sales tax is to be collected and reported when the Company makes the sale, but
an independent contractor is hired by the Company to deliver and install the
item. Let us first address when sales
tax is due on installation charges, then address the specific questions that
concern sales tax collection and reporting.
Sales Tax on Installation Charges. Utah Admin.
Code R865-19S-78(A) provides that charges for labor to install tangible
personal property to other tangible personal property are taxable. However, if the tangible personal property
is installed to real property, the labor charges are nontaxable even if the
personal property does not become part of the real property. There may even be circumstances where the
installation should be broken out into a taxable portion (part of the
installation was to personal property) and a nontaxable portion (part of the
installation was to real property). The
results are the same whether it is the Company or the independent contractor
that is charging or collecting taxes.
Should the installation charge be nontaxable, it
should be separately stated on the customer=s
invoice. Otherwise, the entire amount
charged for tangible personal property and its installation is subject to
tax. You have not described the type of
property installed by the Company nor the circumstances under which it is
installed. Accordingly, we can not
assess whether the installation of property sold by the Company is taxable or
not.
Collecting and Reporting Sales Tax. You have
stated that the Company will make two types of sales in Utah. First, the Company will sell or lease an
item of personal property and install it itself. On this type of sale or lease, the Company is the vendor and
would be responsible to collect and report the sales tax on the price charged
the client.
Second, and most commonly, the Company will sell an
item of personal property, but contract with an independent and unrelated
contractor to deliver and install the item that was sold by the Company. In this circumstance, the independent
contractor provides the item directly to the consumer out of its own
inventory. In Utah, it is the vendor, defined
in Utah Code Ann. '59-12-102(29) as any person receiving any payment or
consideration upon a sale of tangible personal property or to whom such payment
or consideration is payable, who is responsible for collecting sales tax from
the purchaser. Sales tax is due on the
purchase price paid by or charged to the customer. Thus, if the customer has bought the item from the Company, which
may be evidenced by the Company either billing the customer or receiving payment
from the customer, the Company is responsible for collecting and remitting the
sales tax. If the Company only charges
the customer for the item of personal property while the independent contractor
separately charges the customer for its delivery and installation of the item,
then both the Company and the independent contractor have duties to collect and
remit sales tax on their respective charges to the customer.
Generally, the vendor (the Company) is responsible for
collecting and reporting sales tax on the charges made to its customers. However, by terms of their contract, the
independent contractor may act as an agent for the Company with regard to sales
tax reporting, even though the Company is ultimately responsible for reporting
sales tax. In any transaction in which
the Company has the independent contractor collect sales tax on its behalf, we
suggest that you clearly delineate each party=s responsibilities for collecting and reporting sales tax. A breach by the party who is acting as an
agent for the vendor may give rise to a cause of action between the two
parties, but from the Tax Commission=s
perspective, the vendor, in this case the Company, is ultimately responsible
for collecting and remitting the tax on those charges for which it is
considered the vendor.
You have also asked whether the independent contractor
is responsible for paying use tax when it delivers and installs out of its own
inventory an item sold by the Company.
Under the following circumstances, the answer is no: If the Company has made a retail sale to the
customer, then hires the independent contractor to deliver and install the
item, the Company, not the independent
contractor, has sold the item to the customer. Accordingly, when the Company reimburses the independent
contractor for the item that was delivered to Company=s customer, the Company has bought the item from the
independent contractor to resell to its customer. The transaction between the Company and the independent
contractor is exempt from sales tax because of the resale exemption if the
Company provides the independent contractor with a TC-721 exemption certificate
at the time of purchase. Under these
circumstances, the independent contractor should not be self-accruing any use
tax on this item. Sales tax should be
charged to the customer based on the price the Company charges the customer,
even if the independent contractor collects the sales tax as the agent of the
Company.
Please contact us if you have any other questions.
For the Commission,
Marc B. Johnson
Commissioner
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