Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 515.1183


515.1183 Monitoring Contracts. Company A contracts, usually with state or federal courts, to monitor offenders. Although tangible personal property is required to accomplish the purpose of the contract, the service component of the contract is significant. Although it is not clear what is provided, it is assumed that Company A provides the contracting agencies with reports, including telephone and written reports. If these reports are the only tangible personal property transferred, they would be regarded as transferred incidental to the providing of service. Company A uses certain equipment to accomplish these contracts which is a use of that property by Company A. The charge by company A to the contracting agencies is not subject to sales or use tax.

Company A also contracts with Company B to provide certain products and services. Company B provides a radio frequency transmitter which is, in effect, an ankle bracelet that attaches to the offender and a field monitoring device that is installed at the offender's home and is plugged into a telephone jack and power line. Company B also provides a host computer system located at Company B's office. Company B also provides sufficient field equipment supplies for up to four installations per year per unit. Supplies in excess of this amount are provided for an additional, separate charge. Field equipment units in Company A's inventory which are in excess of those needed for five working days, which excess units are pursuant to Company A's request (requested spares), are considered billable units. The primary portion of this contract is a service contract with an incidental transfer of tangible personal property.

Company B also provides to Company A sufficient field equipment supplies, such as batteries, latches, and straps for Company A to perform up to four installations per year per unit. These supplies are also transferred incidental to the monitoring service. Company B is the consumer of this property. With respect to the requested spares, Company A chooses to lease tangible personal property from Company B in order to conduct its business in the way it chooses. Assuming Company B has not paid sales tax reimbursement or use tax on the requested spares, Company A owes use tax measured by the rentals payable for these leases. With respect to any additional field supplies or any other tangible personal property provided by Company B, which is not leased, it owes use tax measured by the purchase price. 6/30/92.