A retailer sells a custom home-improvement product that rests on the floor and is secured to walls only by small anti-tip brackets or finishing nails, then assembles and installs it at the customer's location. Are the sale and installation subject to Tennessee sales and use tax?

Plain-English summary

A retailer (its identity is redacted) planned to sell a new custom home-improvement product. The product is a floor-based unit built to each customer's measurements; it rests on the floor and is not connected to it. Depending on the room, it sits freestanding in the center or against one or more walls. When placed against a wall, it is stabilized with small "anti-tip brackets" — generally one per wall, each held by two screws — and sometimes a few finishing nails; freestanding, it needs no attachment at all. The retailer's subcontractors assemble and install it on site, and the final bill lists the assembly/installation charge separately from the cost of materials. The retailer asked whether the sale and installation are subject to Tennessee sales and use tax.

The Department said yes — both are taxable — because the product remains tangible personal property after it is installed. Tennessee taxes the retail sale of tangible personal property and a short list of specifically enumerated services. One enumerated taxable service is installing tangible personal property that remains tangible personal property after installation, where a charge is made for the installation (Tenn. Code Ann. § 67-6-205(c)(6)). So the whole question is whether the product stays personal property or instead becomes a fixture — part of the real estate. If it became a fixture, neither the sale nor the installation would be taxed (the installer would instead be treated as a contractor improving real property and would owe use tax on the materials).

Whether an item becomes a fixture turns on the intent of the parties, judged from objective factors (the type of structure, how it's attached, and its use and purpose) and any expressed intent. Property is treated as part of the realty mainly when removing it would seriously damage the building or destroy the item's essential character. Here the opposite is true: the product rests on the floor, is attached — if at all — only by small brackets and finishing nails for stability, not permanence, can be removed easily leaving just a couple of screw holes, and keeps its character and function if moved to another location. Those facts show the parties intend it to remain personal property, so the sale and the separately charged installation are both subject to Tennessee sales and use tax.

What this means for you

Retailers who sell and install products

If you sell an item and also install it, the tax depends on what the item becomes after installation. If it remains tangible personal property — it can be removed without serious damage and keeps its identity — then installing it is a taxable enumerated service (§ 67-6-205(c)(6)), and both the product and the installation charge are taxed, even when billed separately. If instead the item becomes a permanent fixture (part of the building), the transaction is treated as a real-property improvement and is not a taxable retail sale; in that case you owe use tax on the materials you consume (§ 67-6-209(b)).

How to tell whether something becomes a fixture

Tennessee looks at the parties' intent through objective signs: how the item is attached, whether removing it would seriously damage the building, and whether removal would destroy the item itself. Resting on the floor with minimal bracketing "just so it won't tip" points to personal property; pouring foundations, bolting into structure, or attaching so that removal wrecks the item or the building points to a fixture. Documenting that an item is designed to be movable helps show it stays personal property.

Accountants and tax professionals

This applies the law of fixtures to the installation-services tax. The enumerated service is § 67-6-205(c)(6) (installing TPP that remains TPP for a charge); the fixtures test comes from Tennessee case law (intent of the parties, mode/purpose of attachment, damage on removal, and whether removal destroys the item's character). The contractor/use-tax alternative is § 67-6-209(b) and Tenn. Comp. R. & Regs. 1320-5-1-.27(2). The line is fact-intensive — minimal, stability-only attachment kept this product on the taxable, personal-property side.

Common questions

Q: I sell a product and install it. Is the installation taxable?
A: It is if the product remains tangible personal property after installation — installing TPP that stays TPP, for a charge, is a specifically enumerated taxable service. If the product becomes a permanent part of the building (a fixture), the sale and installation are not taxed as a retail sale, but you owe use tax on the materials.

Q: What makes something a "fixture" instead of personal property?
A: Tennessee looks at the parties' intent, shown by how the item is attached, its use and purpose, whether removing it would seriously damage the building, and whether removal would destroy the item itself. Permanent, structural attachment suggests a fixture; minimal attachment just for stability suggests personal property.

Q: Does billing the installation separately change the answer?
A: No. Separately stating the installation charge doesn't make it nontaxable when the item remains tangible personal property; the installation of TPP that stays TPP is taxable when a charge is made for it.

Q: Can I rely on this letter ruling for my own product?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. The fixture question is highly fact-specific, so confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-205(c)(6) (installing tangible personal property that remains tangible personal property after installation, where a charge is made, is a taxable enumerated service)
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A) ("sale"); § 67-6-102(89)(A) ("tangible personal property")
• § 67-6-101 to -907 (Retailers' Sales Tax Act); § 67-6-209(b) (use tax owed by a contractor on property used to improve realty)

Tennessee rules and cases:

• Tenn. Comp. R. & Regs. 1320-5-1-.27(2) (contractor/use-tax treatment of property used in real-property contracts)
• Fixture analysis drawn from Tennessee case law, including Gen. Carpet Contractors, Inc. v. Tidwell, 511 S.W.2d 241 (Tenn. 1974); Magnavox Consumer Elects. v. King, 707 S.W.2d 504 (Tenn. 1986); Harry J. Whelchel Co. v. King, 610 S.W.2d 710 (Tenn. 1980); Keenan v. Fodor, 2012 WL 3090303 (Tenn. Ct. App. 2012); Hubbard v. Hardeman Cnty. Bank, 868 S.W.2d 656 (Tenn. Ct. App. 1993); and Process Sys., Inc. v. Huddleston, 1996 WL 614526 (Tenn. Ct. App. 1996)

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/15-01.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 15-01

Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and
circumstances presented, and is an interpretation of the law at a specific point in time. The
law may have changed since this ruling was issued, possibly rendering it obsolete. The
presentation of this ruling in a redacted form is provided solely for informational purposes,
and is not intended as a statement of Departmental policy. Taxpayers should consult with a
tax professional before relying on any aspect of this ruling.

SUBJECT

The application of the Tennessee sales and use tax to the sale and installation of a [HOME
IMPROVEMENT] product.

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] (the “Taxpayer”) is a [REDACTED] retailer [REDACTED] [OPERATING IN
TENNESSEE AND OTHER STATES]. [REDACTED].

The Taxpayer plans to introduce a new product (the “Product”) to [REDACTED — HOME
IMPROVEMENT PURPOSES]. The Product is a floor-based solution that rests on the floor but
is not connected or attached to it any manner. The Product can be enhanced to include
[ADDITIONAL HOME IMPROVEMENT] amenities the customer desires.

The Product is designed to the customer’s specifications using actual [REDACTED]
measurements provided by the customer. Depending on the customer’s preference, the Product
can be placed freestanding in the center of a room, against a single wall, or configured against
multiple walls [REDACTED].

After the Product has been designed to the customer’s specifications, the customer is billed for
50% of the total cost of the Product and related installation charges. After receipt of the initial
payment, the Taxpayer orders the Product from its supplier who custom builds the components
of the Product to the design specifications provided by the Taxpayer. The component parts are
then shipped unassembled on a pallet from the supplier directly to the customer’s location. Given
the size and weight of the Product, the Product is shipped in component pieces to be assembled
onsite by the Taxpayer. The Product is not pre-assembled and taken apart for shipment by the
supplier.

Upon arriving at the customer’s location, the Product is assembled onsite by subcontractors working
on behalf of the Taxpayer. After assembly, the Product is placed free-standing in the center of a room
or against a wall according to design specifications. [REDACTED].

When the Product is placed against walls, it utilizes “anti-tip brackets” (resembling an L-bracket)
to prevent damage and injury that could result from tipping. The Product generally requires one
bracket per wall with each bracket securing the Product to the wall with two screws. When the
Product is placed freestanding in a room, no anti-tip brackets or additional safety features are
required.

When placed against a wall, [REDACTED]. [REDACTED]. Rather than an anti-tip bracket, it is
secured using either two or four finishing nails, either one in each top corner or one in each of
the four corners, to prevent shifting and tipping. [REDACTED]. The Product’s anti-tip bracket is
secured after placement against [REDACTED].

Upon completion of the Product’s installation, the Taxpayer collects the remaining balance due
from the customer. The Taxpayer presents the customer with a final receipt stating the charges for
assembly and installation separately from the Taxpayer’s cost of materials purchased from the
supplier. Both of these stated charges include a profit markup.

Disassembly and removal of the Product is performed by reversing the steps used in the original
installation. Should the customer desire to remove the Product from its placement in the future,
damage to the realty would be limited to two screw holes for each anti-tip bracket installed and
any small holes from finishing nails used to secure [REDACTED].

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RULING
Is the sale and installation of the Product subject to the Tennessee sales and use tax?

Ruling: The sale and installation of the Product is subject to the Tennessee sales and use
tax because the Product remains tangible personal property after installation.

ANALYSIS

Under the Retailers’ Sales Tax Act,' the retail sale in Tennessee of tangible personal property
and specifically enumerated services is subject to the sales tax, unless an exemption applies.”
One specifically enumerated service taxable at retail is the installing of “tangible personal
property that remains tangible personal property after installation .. . where a charge is made for
the installation.””

Thus, the sale and installation of the Product will be subject to the Tennessee sales and use tax if
the Product remains tangible personal property following installation. If, on the other hand, the
product becomes affixed to realty upon installation, the sale and installation of the Product will
not be subject to the Tennessee sales and use tax."

The issue of whether an item of tangible personal property becomes part of realty depends upon
the application of the law of fixtures to the particular factual circumstances. The Tennessee
Supreme Court has held that the question of when an item is considered a fixture must be
resolved by ascertaining the intent of the parties.” The court has explained that “only those
chattels are fixtures which are so attached to the freehold that, from the intention of the parties
and the uses to which they are put, they are presumed to be permanently annexed, or a removal
thereof would cause serious injury to the freehold.”°

Therefore, if the property is intended to be removable at the pleasure of the owner, it is not a
fixture.’ Both objective and subjective factors may show such intent.® Objective factors include

' Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. 88 67-6-101 to -907 (2013)).

• “Retail sale” is defined as “any sale, lease, or rental for any purpose other than for resale, sublease, or subrent.”
  TENN. CODE ANN. § 67-6-102(76) (Supp. 2014). TENN. CODE ANN. § 67-6-102(78)(A) defines “sale” in pertinent
  part to mean “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.”

Tenn. Code Ann. § 67-6-205(c)(6) (2013). “Tangible personal property” includes “property that can be seen,
weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses.” TENN. CODE ANN.
§ 67-6-102(89)(A).

4 However, the Taxpayer would be liable for use tax with respect to all tangible personal property used in the
performance of its contract, unless the Taxpayer had already paid sales and use tax on the purchase of such items.
See Tenn. Code Ann. § 67-6-209(b) (2013); TENN. Comp. R. & REGS. 1320-5-1-.27(2).

° Gen. Carpet Contractors, Inc. v. Tidwell, 511 S.W.2d 241, 242-243 (Tenn. 1974).

° Magnavox Consumer Elects. v. King, 707 S.W.2d 504, 507 (Tenn. 1986) (quoting Hickman v. Booth, 173 S.W.438
(Tenn. 1914)).

” Td.

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the type of structure, the mode of attachment, and the use and purpose of the property.’ The
subjective factor is the expressed intent, if any, of the parties.’”

Courts have also found that tangible personal property becomes a part of realty if removing the
personalty would seriously damage the building to which it is affixed.'’ Further, courts have held
that tangible personal property is more akin to a fixture if removal would destroy its essential
character as personalty.’”

For example, the Tennessee Supreme Court in Harry J. Whelchel Co. looked at both the stated
intent of the farmers, as well as the objective factors noted above, and reached the conclusion
that the grain bins at issue were personalty.' Although the bins were large in size and bolted to a
concrete base, the court found that they were attached to the concrete base solely for the purpose
of preventing them from blowing over in a high wind when empty.' Additionally, the bins were
financed as personal property, sold at foreclosure as personal property, and installed by lessees
on leased farms.'” Likewise, the Tennessee Court of Appeals in Keenan found that a large
ornamental gate remained personalty despite having a substantial concrete foundation poured for
its support that would leave craters were it removed.'° The court lent greater significance to the
person’s stated intention that the gate would be moveable and that it was designed so as to be
moveable if necessary.”

On somewhat different facts, the Tennessee Court of Appeals in Hubbard reached a similar
conclusion in holding that two one-story branch bank buildings were personal property.’® It
based its ruling on the facts that the leased buildings were constructed to be portable, such that
they could be moved or sold as market conditions or need for the buildings changed, and that the
leases expressly provided that the buildings were not to become fixtures."°

In contrast, the Tennessee Supreme Court in General Carpet Contractors examined carpet that
was laid using the tackless strip method and was therefore easily removable.”° The court found

8 Hubbard v. Hardeman Cnty. Bank, 868 S.W.2d 656, 660 (Tenn. Ct. App. 1993).
° Harry J. Whelchel Co. v. King, 610 S.W.2d 710, 713-714 (Tenn. 1980).
10

Id.

"' See Process Sys., Inc. v. Huddleston, No. 101801-I, 1996 WL 614526, at *3 (Tenn. Ct. App. Oct. 25, 1996) (citing
Memphis Hous. Auth. v. Memphis Steam Laundry-Cleaner, Inc., 463 S.W.2d 677, 679 (Tenn. 1971)).

" See id. (finding that conveyor system’s essential character would be destroyed upon removal, which required
cutting system components into pieces with an acetylene torch) (citing Green v. Harper, 700 S.W.2d 565, 567
(Tenn. Ct. App. 1985)).

8 610 S.W.2d at 714.

4 Td.

® Id.

'© Keenan v. Fodor, No. M2011-01475-COA-R3CV, 2012 WL 3090303, at *8-9 (Tenn. Ct. App. July 30, 2012).
" Td.

'8 868 S.W.2d at 660.

Td.

9511 S.W.2d at 243.

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that the carpet became realty because the parties installed it with the intent that it remain in place
for the length of its useful life. The method of installation simply allowed for easy replacement
of the carpet when it was worn out.”' Similarly, the Tennessee Court of Appeals found in
Process Systems, Inc. that removal of a conveyor system would damage the building in which it
was installed and would destroy the system’s essential character.** Accordingly, the conveyer
system was held to be an improvement to real property.””

Likewise, the Tennessee Court of Appeals found in Hermann Holtkamp Greenhouses, Inc. that a
person’s greenhouses became realty upon installation based on their enormous square footage,
built-in restrooms and lunchrooms, and concrete tunnels.** The court expressed that each of these
facts reflected an intention that the greenhouses remain permanently installed on the property.”

In the Taxpayer’s case, the totality of the circumstances indicates that the Product remains
tangible personal property following installation.

In instances where the Product is placed freestanding in a room, no anti-tip brackets or additional
safety features are required. In those circumstances, the Product clearly remains tangible
personal property after installation, as it is not attached in any way to the realty.

Second, in instances where the Product is placed against a wall and stabilized through the use of
anti-tip brackets, screws, and/or finishing nails, the facts indicate that the Product remains
tangible personal property after installation. As noted above, the Tennessee Supreme Court has
held that the question of when an item is considered a fixture is resolved by ascertaining the
intent of the parties.°° In other words, tangible personal property becomes a fixture following
installation only if the relevant parties intend that it remain with the real property.”

First, and perhaps most significantly, the Product remains resting on the floor at all times. As
previously discussed, the Product’s form can range from free-standing placement [REDACTED]
to placement against every wall [REDACTED]. [REDACTED], the wall-positioned Product
remains resting on the floor throughout its various forms and is attached only by anti-tip brackets
and perhaps finishing nails.

Of course, personalty can still become a part of the realty even if its mode of attachment is quite
minimal. As discussed above, the court in General Carpet Contractors concluded that minimally
installed carpet became affixed to the realty because it was intended to remain for its useful
life.°® The facts there revealed that the carpet was installed using a tackless method just so that it

21 Td,
22 1996 WL 614526 at *3.
°3 Td.

4 Hermann Holtkamp Greenhouses, Inc. v. Metro. Nashville & Davidson Cnty., No. M2009-00345-COA-R3-CV,
2010 WL 366697, at *9 (Tenn. Ct. App. Feb. 2, 2010).

• Id.

*° Gen. Carpet Contractors, 511 S.W.2d at 242-243.

7 See Magnavox Consumer Elects., 707 S.W.2d at 507.
°511 S.W.2d at 242-243.

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could be easily replaced once it was worn out.”” Given the nature and quality of this Product,
ease-of-replacement is an improbable purpose here. Rather, much like the grain bins in Harry J.
Whelchel Co. it is clear that the Product’s “attachment is solely for the purpose of [stability] and
is not for the purpose of affixing [it] to the realty.””” Thus, the Product’s attachment, and the
purpose thereof, strongly supports a finding that it remains tangible personal property after
installation.

Second, while the Product is fabricated and installed to appear and function like a built-in
feature, it was obviously designed in a way to avoid the intrinsic permanence and immobility of
such a fixture. The intention behind this unique design choice is reaffirmed by the customer each
time he or she chooses to purchase the Product from the Taxpayer at its retail store, instead of
hiring a contractor to design and build a custom built-in feature. These deliberate acts by both
parties are reflective of a collective intention for the Product to retain its characterization as
personalty after installation.**

Third, the Product is easily removed and causes little or no damage upon removal. Unlike the
large fuels tanks determined to have become realty in Magnavox Consumer Electronics
uninstalling this Product is a straightforward and expedient process.* To do so, the customer
simply reverses the installation process by unscrewing any anti-tip brackets, [REDACTED], and
disassembling the component pieces. Anti-tip brackets are generally installed one per wall and
leave only two small screw holes once removed. [ITEM], if included, leaves but four small holes
per [ITEM] where the finishing nails are removed. This process is significantly less onerous and
damaging than that contemplated for removal of the gate found to have remained personalty in
Keenan. Therefore, the Products’ ease of removal and lack of damage caused upon removal
further indicate an intention that the Product remains tangible personal property.

Finally, the Product’s removal would not destroy its essential character as personalty.* A
customer could easily transport, reassemble, and reinstall the Product in whole or in part in
another [LOCATION] with little effort or expense and no loss of functionality.’ This factor
therefore also weighs in favor of finding that the Product remains personalty.

For the foregoing reasons, it appears that the parties intend for the Product to remain personalty
following its installation. Thus, the Product must be treated as tangible personal property and
charges for both the sale and installation of the Product are subject to the Tennessee sales and
use tax.

” Td.

°° 610 S.W.2d at 714.

3! See id. (finding the circumstances surrounding item’s sale significant).
°° 707 S.W.2d at 506-07.

°° 2012 WL 3090303, at *8-9.

34 See Process Sys., Inc., 1996 WL 614526, at *3.

°° The Product certainly retains greater mobility than the bank buildings held to have remained personalty after
installation in Hubbard, 868 S.W.2d at 661.

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APPROVED:

DATE:

Caleb Barron
Assistant General Counsel

Richard H. Roberts
Commissioner of Revenue

March 23, 2015

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