The Utah Tax Commission recently addressed the taxability of the sale of custom storage solutions and separately-stated installation charges. The taxpayer, a seller of component parts for unassembled storage solutions, used a computer program to help customers design individualized storage solutions, typically for their residences. After determining a design for a customer’s space, individually packaged component parts comprising the storage solution were sold to the customer. The customers could either install the solutions themselves, hire their own contractor, or pay a seprate charge to have the taxpayer’s independent contractor install the solutions. Under Utah law, sales of tangible personal property are subject to sales and use tax, while sales of real property improvements are not subject to sales and use tax. However, if the storage solutions were sales of real property improvements, the taxpayer would be considered a real property contractor subject to sales and use tax on the items converted to real property. Accordingly, the key issue in the ruling was whether the taxpayer was selling tangible personal property or was acting as a real property contractor when it sold and installed the solutions for customers.
In a lengthy and thorough ruling, the Commission concluded that the taxpayer’s sale of custom storage solutions constituted the sale of tangible personal property. Specifically, the Commission determined that the storage solutions did not become part of the real property upon installation. The storage solutions were not customized for each underlying residence in which they were installed, did not become an indistinguishable part of the walls, could generally be removed without causing permanent damage, and could be moved to another location without the need for repairs or replacement parts. The Commission also ruled that the storage solutions were not a fixture akin to an air-conditioning system or carpet because they did not become integral part of the real property improvement upon installation. Lastly, the Commission concluded that the separately-stated installation charges were not subject to sales and use tax. Please contact Michael Larkin at 801-237-1335 with questions on Private letter Ruling No. 17-002.