When a custom millwork company sells and installs cabinetry and similar products, is the sale and installation taxable -- and does it matter whether the finished product stays movable personal property or becomes permanently attached to the building?

Plain-English summary

The Taxpayer is an out-of-state custom woodworking and millwork company that manufactures cabinetry, wall paneling, moldings, and furniture to customer specifications, then delivers and (when needed) installs those products at job sites, including in Tennessee. Some of what it installs remains tangible personal property after installation (like freestanding furniture); other items become attached to real property (like built-in cabinetry or paneling) — and the company didn't ask the Department to determine which category any specific item falls into, only what the tax consequences are once that fixtures-law determination is made.

The Department drew a clean three-way line:

1. Items that stay personal property: fully taxable, installation included. When the Taxpayer's product remains tangible personal property after installation, the sale is a straightforward taxable retail sale under § 67-6-202(a), and any installation charge is swept into the taxable "sales price" too (§ 67-6-102(82)(A)(v)) — or, if billed as a separate installation service, that service is independently taxable under § 67-6-205(c)(6), which specifically taxes installation of TPP that remains TPP.

2. Items that become part of the building: no sale tax, but contractor's use tax instead. When the product becomes affixed to real property, there's no taxable retail sale to the customer at all — Tennessee Rule 27 confirms installation charges for items becoming part of realty aren't taxed, and § 67-6-209(c) confirms there's no "retail sale" in this scenario. Instead, the Taxpayer is treated as a contractor who is the "user and consumer" of the materials, and owes contractor's use tax under § 67-6-209(b) on the purchase price of the materials it used to manufacture and install the item — with credit available for any sales/use tax already paid on those materials. (A separate provision, § 67-6-209(a), taxing a manufacturer's own fair-market-value when it installs its own manufactured goods, doesn't apply here because the Taxpayer's installed items become mere component parts of a building, not "manufactured items" the Taxpayer is separately selling.)

3. Mixed lump-sum jobs: itemize, or the whole thing is taxed. When a single job includes both types of products, separately itemizing the charges preserves the different treatment from rulings 1 and 2 above. But if the Taxpayer charges one undifferentiated lump sum, the Department will tax the entire lump sum as a retail sale under § 67-6-202(a) — itemization is the only way to isolate the non-taxable real-property-installation portion.

What this means for you

Manufacturer-installers of cabinetry, millwork, built-ins, or similar custom products

Whether your product becomes a "fixture" (part of the real property) versus stays personal property determines your entire tax posture — and that's a fact-specific "law of fixtures" question the Department didn't even resolve here, leaving it to be determined case by case. Once you know which category applies, the tax mechanics follow automatically: sales tax on the customer for TPP-that-stays-TPP, contractor's use tax on yourself for TPP-that-becomes-realty.

Businesses billing combined material-and-installation jobs

Always itemize separately when a single job mixes taxable (TPP-remaining) and non-taxable (becomes-realty) components — a single lump-sum charge sweeps the WHOLE job into taxable territory, even the portion that would otherwise be exempt as a real-property installation.

Accountants and tax professionals

This ruling is a clean, general-purpose statement of the fixtures/contractor's-use-tax framework (Rule 27, § 67-6-209) that recurs across many TN sales/use tax rulings involving installed property — useful as a reference point distinct from any specific exemption analysis (e.g., industrial machinery rulings that also turn on installation but add an exemption layer on top).

Common questions

Q: If a contractor installs cabinetry that becomes a permanent part of a building, does the customer pay sales tax on it?
A: No — there's no taxable retail sale to the customer in that scenario. Instead, the contractor/installer owes Tennessee's contractor's use tax on the materials it used.

Q: Does billing installation as a "separate line item" avoid sales tax?
A: Only if the installed item becomes part of real property — for items that REMAIN personal property, the installation charge is taxable whether bundled into the sale price or billed separately as an installation service.

Q: What happens if I sell and install both a built-in cabinet (becomes realty) and a movable bookcase (stays TPP) for one combined price?
A: If billed as one lump sum with no itemization, the ENTIRE charge is taxable. Itemizing the two separately preserves the non-taxable treatment for the built-in cabinet portion.

Q: Can another manufacturer-installer rely on this letter ruling for its own products?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to. This summary is informational only, not legal or tax advice.

Citations and references

Tennessee statutes and rules (Tenn. Code Ann. / Tenn. Comp. R. & Regs.):

• § 67-6-205(c)(6) (Supp. 2010) (sales tax on installation of TPP that remains TPP)
• Tenn. Comp. R. & Regs. 1320-5-1-.27 (2000) ("Rule 27") (installation of items becoming part of realty not taxable)
• § 67-6-209(b) (Supp. 2010) (contractor's use tax on purchase price of materials used in a contract)
• § 67-6-209(c) (Supp. 2010) (no retail sale where property becomes part of realty upon installation)
• Tenn. Comp. R. & Regs. 1320-5-1-.07 (2000) (contractor as user/consumer of materials)
• § 67-6-209(a) (use tax on fair market value of a manufacturer's own installed goods; inapplicable to building component parts)
• § 67-6-507(a) (Supp. 2010) (credit for tax already paid on materials)
• § 67-6-202(a) (Supp. 2010) (sales tax on sales price of TPP)
• § 67-6-102(79) (Supp. 2010) (definition of "retail sale"); § 67-6-102(81)(A) (Supp. 2010) (definition of "sale"); § 67-6-102(82)(A)(v) (Supp. 2010) (sales price includes installation charges); § 67-6-102(92)(A) (definition of "tangible personal property")
• Tenn. Comp. R. & Regs. 1320-5-1-.08 (1984) (resale certificate for mixed contractor inventory)
• §§ 67-6-101 et seq. (Retailers' Sales Tax Act)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/11-13.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-13

WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
The application of the Tennessee sales and use tax to the installation of tangible personal
property.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and

(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS
[TAXPAYER] is a custom woodworking company located in [STATE – NOT TENNESSEE].
The Taxpayer manufactures and installs custom woodworking and millwork such as cabinetry,
wall paneling, base and crown moldings, [TYPE OF FURNITURE], etc. Most of the Taxpayer’s
work is done for [TYPES OF CUSTOMERS]. The products are manufactured to the customers’
specifications in the Taxpayer’s [CITY] plant and then delivered to the various job sites,
including sites in Tennessee. If the products require installation, the Taxpayer will also install
the products. The Taxpayer manufactures, sells, and installs both items that remain tangible
personal property after installation and items that become attached to real property upon
installation.1
QUESTIONS
1.

Is the sale and installation of the Taxpayer’s products, when the products remain tangible
personal property upon installation, subject to the Tennessee sales and use tax?

2.

Is the sale and installation of the Taxpayer’s products, when the products become
attached to real property upon installation, subject to the Tennessee sales and use tax?

3.

What are the Tennessee sales and use tax consequences when the Taxpayer, for a lump
sum, sells and installs both products that remain tangible personal property and products
that become attached to real property after installation?
RULINGS

1.

Yes. The sale and installation of the Taxpayer’s products, when the products remain
tangible personal property upon installation, are subject to the Tennessee sales and use
tax.

2.

No. The sale and installation of the Taxpayer’s products, when the products become
attached to real property upon installation, are not subject to the Tennessee sales and use
tax. However, the Taxpayer is subject to the contractor’s use tax on the purchase price of
the materials used to manufacture its products.

3.

If the Taxpayer sells and installs both products that remain tangible personal property and
products that become attached to real property after installation, but the charges for each

1

Whether the tangible personal property installed remains tangible personal property after installation or becomes
part of the realty must be determined on a case by case basis by applying the law of fixtures to the particular factual
circumstances that exist. The Taxpayer has not asked for that determination to be made in this ruling. The
Taxpayer has only asked about the tax consequences flowing from the characterization of the property following
installation.

2

are separately itemized, then the sales and use tax consequences are the same as under
Rulings 1 and 2. However, if the Taxpayer does not separately itemize, but rather
charges one lump sum, then the entire lump sum sales price is subject to the Tennessee
sales and use tax.
ANALYSIS
Retail sales of tangible personal property and specifically enumerated services in Tennessee are
subject to sales and use tax under TENN. CODE ANN. § 67-6-101 et seq., unless specifically
exempted from taxation. TENN. CODE ANN. § 67-6-102(79) (Supp. 2010) defines a “retail sale”
as any “sale, lease or rental for any purpose other than for resale, sublease or subrent.” The term
“sale” is defined under the Tennessee sales and use tax laws in part as “any transfer of title or
possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or
by any means whatsoever of tangible personal property for a consideration.”2 TENN. CODE ANN.
§ 67-6-102(81)(A).
TENN. CODE ANN. § 67-6-205(c)(6) (Supp. 2010) imposes the sales tax on the service of
“installing of tangible personal property that remains tangible personal property after installation
… where a charge is made for the installation, whether or not the installation is made as an
incident to the sale of tangible personal property …, and whether or not any tangible personal
property … is transferred in conjunction with the installation service.” TENN. COMP. R. & REGS.
1320-5-1-.27 (2000) (“Rule 27”) further explains that the installation of items that become part
of real property are not subject to the Tennessee sales and use tax. However, persons installing
items that become affixed to real property may be subject to the contractor’s use tax on such
items under TENN. CODE ANN. § 67-6-209(b) (Supp. 2010).
1.

Sale and installation of items that remain tangible personal property upon installation

The sale and installation of the Taxpayer’s products, when the products remain tangible personal
property upon installation, are subject to the Tennessee sales and use tax.
TENN. CODE ANN. § 67-6-202(a) (Supp. 2010) imposes the sales tax on the sales price of each
article of tangible personal property that is sold at retail in Tennessee. As stated previously, a
“sale” is a transfer of title or possession of tangible personal property for a consideration. TENN.
CODE ANN. § 67-6-102(81)(A). The Taxpayer sometimes sells to its customers in Tennessee
items, such as office furniture, that remain tangible personal property after installation. Thus,
sales of these items are considered retail sales in Tennessee and as such are subject to the
Tennessee sales and use tax under TENN. CODE ANN. § 67-6-202(a).
The sales price of the Taxpayer’s products is the total amount of consideration paid and includes
any installation charges. TENN. CODE ANN. § 67-6-102(82)(A)(v). Accordingly, when the
Taxpayer sells and installs products that remain tangible personal property after installation, the
Taxpayer must collect and remit sales and use tax on the total amount paid for its products,
including any charges for the installation of the products.
2

TENN. CODE ANN. § 67-6-102(92)(A) defines “tangible personal property” as “personal property that can be seen,
weighed, measured, felt, or touched.”

3

Alternatively, the installation of items that remain tangible personal property upon installation,
where a separate charge is made for the installation, is a taxable service under TENN. CODE ANN.
§ 67-6-205(c)(6) (Supp. 2010), which imposes the sales tax on the sales price of the installation
service. Thus, if the Taxpayer installs, as a separate service, items of tangible personal property
that remain tangible personal property, the sales price of the installation service is subject to the
Tennessee sales and use tax.
2.

Sale and installation of items that become attached to real property

The sale and installation of the Taxpayer’s products, when the products become attached to real
property upon installation, are not subject to the Tennessee sales and use tax. However, the
Taxpayer is subject to the contractor’s use tax on the purchase price of the materials used to
manufacture the products sold.
TENN. CODE ANN. § 67-6-205(c)(6) (Supp. 2010) imposes the sales tax on the retail sale of the
service of installing “tangible personal property that remains tangible personal property after
installation…, where a charge is made for the installation.” In other words, the sales tax will be
imposed when a taxpayer installs tangible personal property that does not become affixed to
realty following installation. Conversely, the sales tax is not imposed when the installed tangible
personal property becomes affixed to realty. Rule 27 clarifies this point, providing that
“[c]harges made for installing tangible personal property which becomes a part of real property,
are not subject to the Sales or Use Tax.” Additionally, when the property becomes part of realty
upon installation, there is no retail sale of tangible personal property to the taxpayer’s customer.
TENN. CODE ANN. § 67-6-209(c) (Supp. 2010). Instead, the contractor that sells and installs
tangible personal property that becomes part of real property upon installation is considered the
user and consumer of that property in fulfilling his or her contract. TENN. COMP. R. & REGS.
1320-5-1-.07 (2000). Thus, in this situation, there is no taxable retail sale of tangible personal
property to the customer and no taxable installation service.
However, TENN. CODE ANN. § 67-6-209(b) provides that when a contractor uses tangible
personal property in the performance of a contract, the contractor must pay a use tax on the
purchase price3 of the property used. When the Taxpayer sells and installs products that become
attached to real property upon installation, the Taxpayer is considered a contractor for purposes
of the Tennessee sales and use tax. Accordingly, under these circumstances, the Taxpayer must
pay Tennessee use tax on the purchase price of the materials used to manufacture and install its
products. The Taxpayer may, however, take a credit for any sales and use tax already paid on
the materials. TENN. CODE ANN. §§ 67-6-209(b) and 67-6-507(a) (Supp. 2010).4

3

TENN. CODE ANN. § 67-6-102(75) defines the term “purchase price” as having the same meaning as the term “sales
price.”

4

Note that if a contractor sold, as well as used, building materials and supplies and could not segregate upon
purchase the materials and supplies used for specific jobs from those that the contractor will sell, then the contractor
may purchase the materials and supplies on a resale certificate. However, the contractor must pay use tax on any
materials or supplies that he later withdraws from his inventory in order to use in fulfillment of a contract. TENN.
COMP. R. & REGS. 1320-5-1-.08 (1984).

4

Because the Taxpayer is a manufacturer of the products that it installs, TENN. CODE ANN. § 67-6209(a) could also potentially apply, imposing the use tax on the fair market value of the products
installed. TENN. CODE ANN. § 67-6-209(a) provides in pertinent part that “[w]here a
manufacturer … erects or applies tangible personal property, that the manufacturer … has
manufactured, … such person so using the tangible personal property shall pay the tax levied in
this section on the fair market value of such tangible personal property when used.” (Emphasis
added.) However, TENN. CODE ANN. § 67-6-209(a) does not apply to a contractor who
manufactures tangible personal property that becomes a component part of a building and is not
sold by the contractor as a manufactured item. Based on the facts provided, it appears that the
Taxpayer’s products become component parts of buildings upon installation and are not sold by
the Taxpayer as manufactured items. Under these facts, TENN. CODE ANN. § 67-6-209(a) would
not apply to the Taxpayer.
3.

Sale and installation of both items that remain tangible personal property upon
installation and items that become attached to real property

If the Taxpayer sells and installs products that remain tangible personal property upon
installation as well as products that become attached to real property upon installation, but both
types of products are separately itemized, then the sales and use tax consequences will be the
same as if the products were sold separately. However, if the Taxpayer does not separately
itemize, but rather charges one lump sum, then the entire lump sum sales price will be subject to
the Tennessee sales and use tax under TENN. CODE ANN. § 67-6-202(a) (Supp. 2010). As stated
above, however, the Taxpayer may take a credit for any sales and use tax already paid on the
materials. TENN. CODE ANN. § 67-6-209(b) (Supp. 2010).

Elizabeth Henderson
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

April 12, 2011

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