A contractor builds a fiber-optic network for a telecom company, installing cable and conduit on leased poles and in easements. Is the lump-sum charge for that construction subject to Tennessee sales and use tax?

Plain-English summary

The taxpayer is an engineering, procurement, and construction (EPC) contractor that builds a fiber-to-the-home network for a telecommunications client in Tennessee — thousands of miles of fiber optic cable and conduit, installed underground and on existing aerial poles, plus prefabricated modular "fiber huts" that house the network's switching equipment. The contractor procures all the materials, subcontracts much of the labor, and charges the client a lump-sum (or fixed-unit-rate) price that includes all labor and materials. Title to the installed materials passes to the client.

Critically, neither the contractor nor the client owns the land or the poles. The client installs on leased poles and in underground easements, and in both cases it keeps the right to remove the materials (and must remove the cable if a pole lease isn't renewed).

The question: is that lump-sum construction charge subject to Tennessee sales and use tax? The Department said yes — because the contractor sells and installs tangible personal property (TPP) that remains TPP after installation.

The taxability hinges on the law of fixtures. Installing TPP that stays TPP after installation, for a charge, is a specifically enumerated taxable service (§ 67-6-205(c)(6)) — so the whole sale-and-installation is taxable. But if the materials become affixed to the real estate (a fixture/realty improvement), the result flips: the charge to the customer is not taxed, and instead the contractor owes use tax on the materials as their consumer (§ 67-6-209(b)). So everything turned on whether the fiber network became part of the realty.

It didn't — the network stays personal property. Tennessee decides whether installed property becomes a fixture by the intent of the parties. When property is installed under a non-ownership interest in the land (a lease or easement), the key question is whether the parties intend the owner of the installed property to be able to remove it — whether it stays "separate and apart from the freehold." The Department relied on two cases:

• ANR Pipeline Co. v. Tenn. Bd. of Equalization — buried pipelines installed under easements were personal property; the ability to remove the pipe at the owner's pleasure was alone enough to show intent, and the pipeline didn't enhance or improve the freehold.
• American Fiber Systems, Inc. v. Chumley — dark fiber attached to poles and buried under a lease was removable at the owner's pleasure at the end of the lease, so it was not a fixture.

Here, the client's legal right to remove the cable, conduit, and appurtenances from the poles and ground at any time showed a clear intent to keep ownership, so the materials remain personalty after installation. Because they stay TPP, the lump-sum EPC price is subject to Tennessee sales and use tax.

The throughline: infrastructure installed under leases and easements — where the owner keeps the right to remove it — stays tangible personal property, so the turnkey sale-and-installation charge is fully taxable, and lump-sum pricing doesn't change that (installation is part of the taxable sales price).

What this means for you

Telecom, fiber, and utility-infrastructure contractors

If you build out networks or infrastructure on land or poles your customer doesn't own — installing under leases or easements with a right to remove — your installed materials likely remain tangible personal property, and your whole charge (materials + labor) is taxable as a sale-and-installation of TPP. Don't assume that burying cable or bolting equipment to poles makes it a nontaxable realty improvement; removability under a lease/easement keeps it personal property.

Taxable sale-and-installation vs. realty improvement — and who bears the tax

The two regimes lead to very different mechanics:

• TPP stays TPP → the customer's charge is taxable (you collect sales tax on the full price, including installation).
• Materials become a fixture / realty improvement → the customer's charge is not taxed, but you, the contractor, owe use tax on the materials you consume (§ 67-6-209(b); Rule 1320-05-01-.07(1)).

Mischaracterizing which regime applies means either over-collecting from customers or under-paying your own use tax. The fixtures analysis (intent + removability) decides it.

Lump-sum pricing doesn't shelter the charge

Bundling everything into one lump-sum or unit-rate price doesn't avoid tax. Installation charges are part of the taxable "sales price" when TPP is sold and installed (§ 67-6-102(79)(A); Rule 1320-05-01-.27(2)). The single price is taxable as a whole.

Accountants and tax professionals

The analysis: § 67-6-205(c)(6) taxes installing TPP that remains TPP, with installation in the sales price (§ 67-6-102(79)(A); Rule .27(2)); if instead the materials are affixed to realty, the contractor is the consumer owing use tax (§ 67-6-209(b); Rule .07(1)). The fixtures question turns on intent (Gen. Carpet Contractors; Magnavox v. King quoting Hickman v. Booth), and for property installed under a lease/easement the controlling factor is the owner's right to remove it (ANR Pipeline, 2002 WL 31840689; American Fiber Systems v. Chumley; Green v. Harper). The client's unfettered removal right kept the fiber network personalty, making the lump-sum EPC charge taxable. Compare the fixtures cluster in LR 19-06 (modular cleanroom stays TPP) and RR 19-07 (farm equipment stays TPP).

Common questions

Q: I install infrastructure on land or poles my customer doesn't own. Is my charge taxable?
A: Generally yes. If the materials are installed under a lease or easement with a right to remove them, they remain tangible personal property, and your full charge for the sale and installation (materials plus labor) is subject to Tennessee sales and use tax.

Q: What's the difference between this and a nontaxable realty improvement?
A: If the materials become a fixture / part of the real estate, the customer's charge isn't taxed, but you (the contractor) owe use tax on the materials as the consumer. If the materials stay TPP, the whole sale-and-installation to the customer is taxable. The fixtures test decides which applies.

Q: Does charging a single lump-sum price avoid the tax?
A: No. Installation is part of the taxable sales price when TPP is sold and installed, so the entire lump-sum charge is taxable.

Q: Why does buried or pole-mounted fiber count as personal property?
A: Because it's removable at the owner's pleasure under the lease/easement. Tennessee looks at the parties' intent, and an unrestricted right to remove the property shows it was meant to stay personal property, not become part of the land.

Q: Can I rely on this revenue ruling?
A: No. A Tennessee revenue ruling is advisory and is not binding even on the Department, and it interprets the law at a point in time. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-205(c)(6) (installing TPP that remains TPP after installation, where a charge is made, is an enumerated taxable service)
• § 67-6-102(79)(A) ("sales price" includes installation charges)
• § 67-6-209(b) (a contractor improving real property is the consumer of the materials and owes use tax on them)
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A) ("sale"); § 67-6-102(89)(A) ("tangible personal property")

Rules:

• Tenn. Comp. R. & Regs. 1320-05-01-.27(2) (installation provided with the sale of TPP is part of the sales price)
• Tenn. Comp. R. & Regs. 1320-05-01-.07(1) (contractors improving real property are purchasers/consumers of the materials and owe sales or use tax on them)

Case law (law of fixtures):

• Gen. Carpet Contractors, Inc. v. Tidwell, 511 S.W.2d 241 (Tenn. 1974) (whether a contractor is improving realty turns on whether the installed property becomes a fixture)
• Magnavox Consumer Electronics v. King, 707 S.W.2d 504 (Tenn. 1986) (quoting Hickman v. Booth, 173 S.W. 438 (Tenn. 1914)) (fixture test; intent of the parties)
• ANR Pipeline Co. v. Tenn. Bd. of Equalization, 2002 WL 31840689 (Tenn. Ct. App. Dec. 19, 2002), perm. app. denied (June 30, 2003) (pipelines installed under easements remained personalty — removability shows intent)
• American Fiber Systems, Inc. v. Chumley, No. 06-574-II (Tenn. Ch. Ct. Oct. 14, 2008) (dark fiber under a lease was removable and not a fixture)
• Green v. Harper, 700 S.W.2d 565 (Tenn. Ct. App. 1985)

Related Tennessee rulings: Ltr. Rul. 19-06; Rev. Rul. 19-07 (installed equipment that remains TPP — fixtures analysis).

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/17-09.pdf

Original ruling text

Revenue rulings are not binding on the Department. 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.

The application of the Tennessee sales and use tax to the engineering, procurement, and
construction of a fiber-to-the-home network infrastructure.

Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.

The Taxpayer is a company that contracts with a telecommunications company (the “Client”) for the
installation, procurement, and construction of a fiber-to-the-home network infrastructure (the
“Network”) in [REDACTED] Tennessee, enabling the Client to provide high-speed Internet access to
its customers throughout [REDACTED].
Constructing the Network requires installing thousands of miles of fiber optic cabling and conduit
underground and on existing telecommunications aerial poles, and installing fiber huts, which are
small, prefabricated modular buildings used for housing equipment that act as the main
switchboards for the Network.
Pursuant to its contract with the Client, the Taxpayer procures all of the materials necessary for
installation and primarily subcontracts with third-party contractors to perform much of the labor.
Title to the installed materials passes to the Client after the Taxpayer or its subcontractors installs
the materials.
Neither the Taxpayer nor the Client owns the land or the aerial poles on which the Taxpayer installs
the materials. Instead, with respect to the fiber optic cables installed on aerial poles, the Client
enters into [REDACTED] lease agreements with [REDACTED] renewals with the owners of the poles. If
such lease agreement is not renewed, the Client is required to remove the fiber optic cable from the
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aerial poles. With respect to fiber optic cables installed underground, the Client obtains necessary
access rights for a public right-of-way easement. For both the lease agreements and the easements,
the Client retains the right to remove the installed materials.
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The lessor of the poles may request that the fiber optic cable be relocated or removed if the lessor sells the poles or is
required to relocate the poles.

The Taxpayer charges the Client lump-sum pricing or fixed unit rate pricing for constructing the
Network, in both cases inclusive of all labor and materials. The pricing is determined based on the
type and amount of work performed.

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Is the lump-sum price that the Taxpayer charges the Client for engineering, procurement, and
construction of the Network subject to the Tennessee sales and use tax?
Ruling: Yes. The Taxpayer sells and installs tangible personal property that remains tangible
personal property after installation.

3

Under the Retailers’ Sales Tax Act, the retail sale in Tennessee of tangible personal property and
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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
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installation.” Thus, the Taxpayer’s sale and installation of the materials will be subject to the
Tennessee sales and use tax if the materials remain tangible personal property following
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installation. If, on the other hand, the materials become affixed to realty upon installation, the sale
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and installation of the materials to the Client 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
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the application of the law of fixtures to the particular factual circumstances. The question of when
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[REDACTED].

3

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN. CODE ANN.
§§ 67-6-101 to -907 (2013 & Supp. 2016)).
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“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. 2016). 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.”
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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).

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Installation charges are subject to sales and use tax as part of the sales price. See TENN. CODE ANN. § 67-6-102(79)(A) (defining
“sales price” to include installation charges); TENN. COMP. R. & REGS. 1320-05-01-.27(2) (2016) (providing that installation
services provided with the sale of tangible personal property are a part of the sales price of the tangible personal property
sold).

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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 or such items are
otherwise exempt from the sales and use tax. See TENN. CODE ANN. § 67-6-209(b) (2013); TENN. COMP. R. & REGS. 1320-05-01.07(1) (2000) (“contractors engaged in constructing or improving real property, whether on a lump sum or a cost-plus basis,
are purchasers and consumers of the materials used by them, and are required to pay the Sales or Use Tax on such materials
or equipment purchased or imported into this State for use in connection with their contracts.”).

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See, e.g., Gen. Carpet Contractors, Inc. v. Tidwell, 511 S.W.2d 241 (Tenn. 1974) (holding that sales and use tax purposes, the
dispositive issue regarding whether a contractor is improving realty is whether the property being installed becomes a fixture
to the realty).

2

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an item is considered a fixture is resolved by ascertaining the intent of the parties. “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
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would cause serious injury to the freehold.” Therefore, if the property is “intended to be removable
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at the pleasure of the owner, it is not a fixture.” However, when property is installed upon real
property pursuant to a non-ownership interest in the real property, such as a lease or easement,
Tennessee courts have determined that the key question becomes whether the parties intend that
the owner of the property being installed has the ability to remove the property from the land,
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asking whether the installed property remains “separate and apart from the freehold.“
Notably, in ANR Pipeline Co. v. Tenn. Bd. of Equalization, the Tennessee Court of Appeals reviewed
whether sub-surface pipelines used to transport petroleum products, which were installed pursuant
to easements over affected freeholds, were considered real or personal property for purposes of
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the Tennessee property tax. The pipe, typically buried under thirty inches or more of soil, was
infrequently moved after installation, and, if removed from the ground, it was not economically
14
feasible to reuse removed pipe elsewhere in the pipeline. The court concluded that the ability to
remove the pipe at the pipeline companies’ pleasure is, alone, “sufficient to prove the intent of the
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parties and thus mandate that the pipelines are personal property under Tennessee law.” The
court reached its determination because the pipeline “does not enhance the value of the freehold,
and is not an improvement to the freehold. . . . The pipeline is not affixed to the land in the legal
16
sense, because it can be, and sometimes is, moved.” Finally, the court reasoned that law of fixtures
17
concerns the relative priorities of ownership to an item of personal property, and because the
landowner did not become the owner of the installed property, the property did not become part of
the real property as a fixture.
18

In American Fiber Systems, Inc. v. Chumley, the Davidson County Chancery Court examined whether
19
the lease of a dark fiber network constituted the lease of real property for Tennessee sales and use
20
tax purposes. The court, citing ANR Pipeline Co., held that because the fiber, which was attached to
utility poles or buried underground pursuant to a lease contract, is “removable at the pleasure of
9

Id. at 242-43.

10

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

11

Id.

12

ANR Pipeline Co., et al. v. Tenn. Bd. of Equalization, Nos. M2001-01098-COA-R12-CV, M2001-01117-COA-R12-CV, M2001-01119COA-R12-CV, 2002 WL 31840689, at *3 (Tenn. Ct. App. Dec. 19, 2002), perm. app. denied, June 30, 2003.
13

Id. at *1.

14

Id. at *2.

15

Id. at *4.

16

Id. at *3.

17

Id. (citing Green v. Harper, 700 S.W.2d 565 (Tenn. Ct. App. 1985)).

18

No. 06-574-II (Tenn. Ch. Ct. Oct. 14, 2008).

19

“Fiber optic cable that is provided without the equipment to ‘light the fiber’ is referred to in the telecommunications
industry as ‘dark fiber.’” Id. at *1, n. 1.
20

Id. at *1.

3

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the owner at the end of the lease,” the company “clearly intended to maintain control and
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ownership of the cables during the useful life of the cables.” Therefore, the court concluded that
the installed dark fiber was not a fixture, and its lease did not constitute the lease of real property
for Tennessee sales and use tax purposes.
Here, the Taxpayer installs conduit, fiber, and other necessary appurtenances, on real property
pursuant to lease agreements and easements in which the Client has an interest. The Client’s legal
right to remove the materials from the aerial poles and the ground at any time shows a clear
intention for the Client to retain ownership of the materials such that the materials remain
personalty after installation. Therefore, based on the reasoning applied in ANR Pipeline Co. and
American Fiber Systems, Inc., the materials do not become affixed to the real property upon
installation and remain tangible personal property owned by the Client.
Thus, because the materials remain tangible personal property after installation, the lump-sum price
that the Taxpayer charges the Client for the engineering, procurement, and construction of the
Network is subject to the Tennessee sales and use tax.

Grant Marshall
Assistant General Counsel

21

Id. at *15.

22

Id. at *16.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

06/21/17

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