Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
190.0000 CONSTRUCTION CONTRACTORS—Regulation 1521
(a) IN GENERAL—ACTIVITIES CONSTITUTING CONTRACTING OR MAKING OF IMPROVEMENTS
190.0150 Communication Systems, Security and Fire Alarm Systems.
Taxpayer is in the business of selling and installing communication systems, security and fire alarm systems, and other electronic devices in various types of buildings. Taxpayer's lump-sum installation contract sales are categorized as follows:
(1) Paging and music systems for retail chain stores.
(2) Special systems, such as security monitoring systems for office and bank buildings.
(3) Sound systems.
(4) Nurse call systems for hospitals.
Classification of property as an improvement to realty depends on: (1) the manner of its affixation to the realty, (2) its adaptability to the use and purpose for which the realty is used, and (3) the intent with which the annexation is made (Property Tax Regulation 122.5 and San Diego TES Bank v. San Diego (1940) 16 Cal.2d 142).
Except for the nurse call station, the above listed items are all properly classified as fixtures. Affixation is generally by bolts, nails, and similar means to realty. Electrical components are connected to permanent wiring. Any unattached tangible personal property which is a necessary, integral or working part of the physically annexed items is considered to be constructively annexed to the realty.
Taxpayer's systems are generally adapted to serve basic functions (security, file protection, etc.) of the building where they are installed.
The manner of annexation, the adaptability of the items to the use and purpose for which the buildings are used, and other objective manifestations of permanence leads to the conclusion that the system the taxpayer installs (other than nurse call stations) are permanent parts of the building.
Nurse call stations are properly classified as machinery and equipment under Regulation 1521(c)(8). They are generally affixed such that removal would not cause damage. Neither the call stations nor the facilities in which they are installed appear to be designed or modified for each other. And, the intent of the parties, as ascertained by the physical facts and outward appearances, is not to make a permanent improvement to real property. 3/4/94.