Were an architect's project inspections for a construction lender taxable as architectural work or business consulting?

Note -- obsolete historical guidance. DRS marks this ruling "not current" and states that it was obsoleted by Announcement (AN) 94(4).

Plain-English summary

A bank financing a construction project hired X, an architect, to inspect construction progress and verify the borrower's request for a payment certificate.

DRS ruled that X provided a taxable business consulting service. The bank hired X to protect its interests as a lender, and the advice directly concerned the bank's core business of lending money.

The service was not treated as exempt work to new construction and was not taxed on the basis that it was architectural. Its taxable character came from advising the bank about its lending operations.

What this means for you

Under the historical ruling, the professional's license did not control classification. DRS looked at the client, purpose, and benefit of the work: progress verification for the lender was consulting about the lender's core business.

Common questions

Was the service exempt because the inspected project was new construction? No.

Was it taxed as architectural work? No. DRS expressly classified it as business consulting instead.

Why was the bank's business relevant? The inspection advised the bank whether construction progress supported the borrower's payment request.

Citations and references

• Conn. Gen. Stat. § 12-407(2)(i)(J), as amended by 1989 Conn. Pub. Acts 251.
• Conn. Agencies Regs. § 12-426-26.
• Announcement (AN) 94(4) -- identified by DRS as obsoleting this ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 90-22

Original ruling text

Ruling 90-22, Consulting Services

This information is not current and is being provided for reference purposes only

Ruling 90-22

Consulting Services

This Ruling has been obsoleted by   AN 94(4)

Typically, a bank, which has extended mortgages to their client for a construction project, hires X, an architect, to inspect the project in order to verify the clients "Request for Payment Certificate" in light of the progress of construction of the project.

It is our opinion that these services are subject to the sales and use tax as a business consulting service. The Department does not view X's services as being services to new construction under Conn Agencies Reg. 26 and thus exempt from the tax.

X has been hired by the bank to represent its interests as a lending institution and, as a result, X's services are directly related to the bank's core business which is the lending of money. Therefore, X's services are subject to tax as a business consulting service, pursuant to Section 12-407(2)(i)(J) of the General Statutes, as amended by Public Act No. 89-251, because X provides advice to the bank on matters relating to the operations of its core business activities. In this instance, X's services are not subject to tax on the basis that they are architectural services.

LEGAL DIVISION

February 13, 1990