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
190.0177 Doors Installed in Construction Contracts. The application of sales tax to transactions with various fact patterns regarding doors installed in construction contracts is as follows: The sequential steps involved are:
(1) "Scheduling and detailing," i.e., reviewing plans and specifications for the construction project and listing each door on the job and determining the proper location for the hinges and the lock or latch set, the type of hinges and lock set, whether or not door closures are involved.
(2) Acquisition of the doors.
(3) Machining of the doors to receive the hardware.
(4) Installation of the doors.
The following parties may be involved:
(A) The contractor.
(B) A subcontractor of "A."
(C) A second subcontractor of "A."
The above steps and parties combine to create the following possible fact patterns:
(I) A alone is involved.
(II) A does steps 1, 2 and 4, subcontracts "B" to do step 3.
(III) A contracts to be responsible for final installation but in fact only does steps 1 and 2 and subcontracts B to do steps 3 and 4.
(IV) A does steps 2 and 4 and subcontracts B to do steps 1 and 3.
(V) A does steps 2 and 4 and contracts step 1 to C and step 3 to B.
Applying the law to the above patterns, the sales tax application is as follows:
(I) "Doors" are regarded as "materials." In their installed condition, they become a part of an improvement to real property. Thus, A, who furnishes and installs doors is a construction contractor. Therefore, pursuant to Regulation 1521, the sales tax would apply to the sale of the doors to A as a consumer thereof.
(II) There are two taxable transactions: (1) the acquisition of the unmachined doors by A and (2) the processing, i.e., "machining" of the doors by B, the doors having been furnished by A, see section 6006(b).
(III) The sales tax would apply to the sale of the doors to A, see Regulation 1521 (a)(1)(B)(2) and Annotation 190.0980.
(IV) There are two taxable transactions: (1) the acquisition of the doors by A and (2) the "machining" of the doors by B for A. As to the latter transaction, there must be included in the measure of tax, i.e., the gross receipts not only the charges for "machining," but also the charges for "scheduling and detailing." This is because the latter is a service provided by B which is a part of B's sale to A.
(V) There are two taxable transactions: (1) the acquisition of the unmachined doors by A and (2) the machining of the doors by B for A. Since step 1 was separately subcontracted to C, it was not associated with a sale or processing considered a sale of tangible personal property. Standing alone, it remains a service and is not subject to the tax. 10/29/76.