Is running (or removing) telephone/data cabling behind walls and above ceilings a taxable service to real property, or is it excludible installation of tangible personal property?

Plain-English summary

Connecticut taxes "services to industrial, commercial or income-producing real property" under Conn. Gen. Stat. § 12-407(2)(i)(I) — things like electrical, plumbing, painting, carpentry. Separately, when a retailer just installs equipment it sells, the separately stated installation labor is excluded from the taxable price (§§ 12-407(8) and (9)), so long as that labor isn't itself a taxable service to real property. This ruling draws the line for cable installation.

The company sells and installs (and relocates) telephone and data/voice systems — equipment plus cabling run through buildings. A typical job runs cable above dropped ceilings (tied to piping/conduit), snaked down inside wall studs, and out through an opening cut in the wall to a mounted faceplate. Relocating means pulling the cable back up through the wall.

DRS ruled this cabling work is a taxable service to real property when done to existing commercial property. The controlling simple rule: where wiring or cabling is run behind a wall — so its location isn't obvious and it isn't readily accessible — its installation (or removal) is a service to real property, not the installation of tangible personal property. The reasoning aligns with treating complete wiring/rewiring, permanent telephone/alarm wiring built into the structure, and wiring repair/maintenance as services to real property.

The contrast DRS drew: wiring run along the edges of rooms and stapled in place, which stays visible and can be easily pulled up by removing the staples, is "simply installation, assembling, applying or connecting" of equipment under Regs. § 12-426-18(c). For that kind of work, when done in connection with selling the equipment, the separately stated installation charge is excludible from tax.

Note the "existing" qualifier: § 12-407(2)(i)(I) reaches services to existing commercial real property. (Companion rulings such as Ruling No. 96-2 address when a project is instead new construction, which is outside this taxable category — described in prose, not linked.)

What this means for you

Telecom, data-cabling, and IT-infrastructure installers

If you conceal cable behind walls or above ceilings so it isn't readily accessible, that installation — and later removal/relocation — is a taxable service to real property when the building is existing commercial property. Tax it accordingly; don't treat it as excludible equipment-installation labor. Visible, easily removable wiring (stapled runs) is different and can qualify for the installation-labor exclusion if separately stated.

Separate your charges — but know the exclusion has limits

The installation-labor exclusion (§§ 12-407(8), (9)) only helps when the labor is genuinely "simply installation" of the equipment and not a service within § 12-407(2)(i)(I). Concealed cabling is such a service, so separately stating it won't make it exempt. Reserve the exclusion for the visible, surface-mounted work.

New vs. existing property matters

Services to real property are taxable under (I) only for existing commercial/industrial/income-producing property. If cabling is part of genuine new construction, a different analysis applies (see the new-construction line, e.g., Ruling No. 96-2). Pin down whether the building is existing or new.

Accountants and tax professionals

The distinguishing test is accessibility/visibility: concealed, not-readily-accessible cabling = service to real property (§ 12-407(2)(i)(I)); visible, easily removable cabling = installation of tangible personal property (Regs. § 12-426-18(c); exclusion under §§ 12-407(8), (9)). Repair/maintenance of wiring is a service to real property (Regs. § 12-407(2)(i)(I)-1(b)(2)); see IP 95(1.1) for building-contractor guidance.

Common questions

Q: Is installing network/telephone cabling taxable in Connecticut?
A: If the cable is run behind walls or above ceilings (concealed, not readily accessible) in existing commercial property, yes — it's a taxable service to real property under § 12-407(2)(i)(I). Removing or relocating such cable is likewise taxable.

Q: When is cabling installation NOT a taxable service to real property?
A: When the wiring is visible and easily removable — e.g., stapled along the edges of a room. That's "simply installation" of tangible personal property, and the separately stated installation charge is excludible from tax.

Q: Does separately stating the labor make concealed-cable installation exempt?
A: No. The installation-labor exclusion doesn't apply to labor that is itself a taxable service to real property. Concealed cabling is such a service, so separate statement won't exempt it.

Q: Does it matter whether the building is new or existing?
A: Yes. § 12-407(2)(i)(I) taxes services to existing commercial real property. Work that is part of genuine new construction is analyzed differently (see the new-construction rulings).

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-407(2)(i)(I) (services to industrial, commercial, or income-producing real property — taxable when rendered to existing such property)
• Conn. Gen. Stat. §§ 12-407(8) and (9) (definitions of "sales price"/"gross receipts"; exclusion for separately stated installation labor not within § 12-407(2)(i)(I))

Regulations and guidance:

• Conn. Agencies Regs. § 12-426-18(c) (installing a complete unit of standard tangible personal property — "simply installation" — vs. improving/altering real property)
• Conn. Agencies Regs. § 12-407(2)(i)(I)-1(b)(2) (repair and maintenance of wiring is a service to real property)
• IP 95(1.1), Guide for Building Contractors (permanent telephone/alarm wiring built into real property treated as a service to real property)

Related ruling:

• Ruling No. 96-2 (new-construction vs. services to existing commercial real property line)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 96-3

Original ruling text

Ruling 96-3, Sales and Use Taxes / Installation / Services to Real Property

FACTS:

The Company sells and installs, and sometimes relocates, telephone and networked data and voice communication systems in new and existing business locations in Connecticut. Such systems consist of equipment, such as telephone sets, computer network equipment and other computer hardware, as well as cable wiring used to connect the hardware items within a building and to outside telephone lines. A typical installation or relocation of cable is accomplished as follows:

Cable is run from each room or office of a building above the dropped ceiling found in most business offices.

In order to prevent the cable from resting directly on top of the dropped ceiling, the cable is fastened to any available piping or conduits above the ceiling by the use of plastic tie wraps. In certain buildings, cables alternatively can be snaked through existing conduit tubes used for other wiring.

Cable is then snaked down the wall studs of a particular room or office and guided down towards the hardware to which it will be connected.

An opening is made at a convenient location in the wall for the cable to be connected to a faceplate. The faceplate is then mounted into the wall opening. The equipment (e.g. personal computer or telephone) is then connected to the faceplate.

The cable is often moved or replaced after installation by disconnecting the cable from the faceplate and pulling the cable back up through the holes in the wall studs and through the plastic tie wraps.

ISSUE:

Whether the cable installation and relocation services provided by the Company are taxable services enumerated in Conn. Gen. Stat. §12-407(2)(i)(I) as services to industrial, commercial or income-producing real property, or are excludible from the gross receipts and sales price for the sale of the equipment under Conn. Gen. Stat. §§12-407(8) and (9) as charges for the installation of tangible personal property.

DISCUSSION:

The definitions of "sales price" and "gross receipts" in Conn. Gen. Stat. §§12-407(8) and (9), respectively, exclude "the amount charged for labor rendered in installing or applying the property sold, provided such charge is separately stated and exclusive of such charge for any service rendered within the purview of [Conn. Gen. Stat. §12-407(2)(i)(I)]." Subsection (c) of Conn. Agencies Regs. §12-426-18 elaborates on this rule with regard to the installation of tangible personal property into real property:

[The regulation] is not applicable to sales contracts whereby a person, whether he is a contractor, subcontractor or otherwise, acts as a retailer selling tangible personal property in the same manner as other retailers and is required to install a complete unit of standard equipment, requiring no further fabrication but simply installation, assembling, applying or connecting services. In such instances, the contract will not be regarded as one for improving, altering or repairing real property. For example, the retailer of an awning or blind agrees not only to sell it but to hang it; an electrical shop sells electrical fixtures and agrees to install them; a retailer sells an electric washing machine and contracts to install the same; a dealer sells cabinets and agrees to install them. A person performing such contracts is primarily a retailer of tangible personal property and should segregate the full retail selling price of such property from the charge for installation, as the tax applies only to the retail price of the property.

Thus, if the Company's cable installation services rendered in connection with the sale of the telephone and communications systems are not services to existing industrial, commercial or income-producing real property enumerated as taxable services under Conn. Gen. Stat. §12-407(2)(i)(I), they are not taxable.

Section §12-407(2)(i)(I) enumerates as taxable services "services to industrial, commercial or income-producing real property, including but not limited to such services as management, electrical, plumbing, painting and carpentry. . . ." The complete wiring or rewiring of a structure, or an upgrade to the electrical service of a structure, is a service to real property and is taxable when rendered to existing industrial, commercial or income-producing real property. Similarly, the permanent installation of telephone wiring and alarm systems, in which the wire, keypads or control boards and sensor devices are built into the real property, is considered to be a service to real property. See IP 95(1.1), Guide for Building Contractors, pp. 23, 27, 44. Also, the repair and maintenance of wiring is considered to be a service to real property. Conn. Agencies Regs. §12-407(2)(i)(I)-1(b)(2).

These conclusions are based on a simple rule--where wiring or cabling is run behind a wall, so that its location is not obvious and it is not readily accessible, its installation is a service to real property, and not the installation of tangible personal property. In addition, for the same reason, the removal of such wiring or cabling is also a service to real property. Therefore, the installation or removal of wiring or cabling, whether it is part of a structure's electrical system, climate control system or communications system, is taxable if performed on existing industrial, commercial or income-producing real property. These installations can be contrasted to installations where, for example, telephone wires are run along the edges of rooms and are stapled in place. The wires remain visible after installation and can be easily pulled up by removing the staples. Services rendered in such installations are considered "simply installation, assembling, applying or connecting services" within the meaning of Conn. Agencies Regs. §12-426-18(c), and, when performed in connection with the sale of the telephone equipment, the separately stated charges therefore are excludible from the measure of tax.

RULING:

The cable installation and relocation services provided by the Company are taxable services enumerated in Conn. Gen. Stat. §12-407(2)(i)(I) when rendered to existing industrial, commercial or income-producing real property.

LEGAL DIVISION

Issued March 18, 1996