Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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190.0000 CONSTRUCTION CONTRACTORS—Regulation 1521

Annotation 190.1055


190.1055 Telephone System. A company purchases a telephone system from a contractor who will furnish and install the system at the company's client's location. The sales agreement between the company and the contractor showed that the lump-sum selling price included sales tax. A subsequent breakdown furnished to the company by the contractor showed an allocation for cost of fixtures and materials plus sales tax thereon and an amount for the remainder of the contract. Company planned to lease the equipment or sell it to its client.

If the agreement is a true lease between the company and its client, it would be a lease of fixtures that are attached to real property not owned by the lessor. Since the company did not provide the contractor with a resale certificate and sales tax was paid with respect to the telephone system to company, no tax would be due with respect to the company's lease of the system to its client. If the company thereafter sold the system to its client, i.e., upon exercise of an option by the client, sales tax would apply measured by the sales price.

If the agreement between the company and its client were an outright sale and the contract was in place prior to the installation of the system by the contractor, and title passed to the client immediately upon installation, the transaction would be regarded as a construction contract and the installed property would constitute real property. No further tax would be due other than that included in the agreement between the company and contractor. 1/20/88.

(Note: The classification of certain telephone equipment was modified by an amendment to Regulation 1521 effective July 1, 1988. An example of the change is contained in Annotation 190.1050.) (Am. M98–3).