Does Utah sales tax apply to installed swimming pool cover systems, and does an out-of-state auto-parts locator service with no Utah office or employees owe Utah franchise or income tax?

Plain-English summary

This record bundles two separate Commission advisory opinions, responded to on September 2, 1994 and June 7, 1995.

Pool cover systems. A manufacturer and installer of swimming pool cover systems asked how sales tax applies to its sales and installations. The Commission concluded that once installed, the covers become an integral, effectively permanent part of the pool — they're customized to the specific pool, protect it from the elements, reduce heat loss and chemical evaporation, and generally can't be removed and reused elsewhere without substantial modification. That makes installation a conversion of personal property into real property. Under Rule R865-19S-58, the party who converts personal property into real property (here, the installer) is treated as the consumer and owes sales/use tax on the cost of the materials — not the customer, and not as a separately stated tax on the installed job. If the same items are sold without installation (no responsibility for installing them), the seller instead collects sales tax from the buyer on the full price, including fabrication labor.

Computerized auto-parts locator service. An out-of-state company operated a phone-based locator service: insurance companies called an (800) number, the company's staff searched salvage yards nationwide, and results were reported back — the insurance companies never touched any computer equipment or bought parts through the service directly. The Commission held the locator service itself is not subject to sales or use tax. But if the company ever actually purchases the parts and resells them to the insurer, the service charge becomes part of the taxable "sales price" of the parts. Separately, because the company had no office, employees, or other physical presence in Utah — its calls to salvage yards and its central computer were both located out of state — the Commission found it was not "doing business" in Utah and therefore owed no Utah corporate franchise or income tax.

What this means for you

Pool and other custom-installation contractors

If what you install becomes a permanent, non-removable part of real property, you — not your customer — are the one who owes sales/use tax, calculated on your cost of materials, not the retail price. Keep clean records that separate installed jobs (materials taxed to you) from stand-alone product sales (tax collected from the customer on the full price including labor).

Service businesses that never take title to goods

A pure referral/locator service that doesn't sell the underlying goods is not itself a taxable sale. The line shifts the moment you start actually purchasing and reselling the product — at that point your service fee gets folded into the taxable sales price.

Out-of-state service companies with no Utah footprint

Having customers in Utah doesn't create Utah franchise or income tax nexus by itself. What mattered here was the total absence of a Utah office, employees, or other physical presence — everything (staff, computer, phone bank) operated from outside the state.

Common questions

Q: Who pays sales tax on an installed pool cover — me or the installer?
A: The installer pays sales/use tax on the materials, as the party converting personal property to real property. You should not be separately billed sales tax on an installed job.

Q: If I buy pool cover parts but install them myself, does the seller charge me tax?
A: Yes — when items are sold without the seller's installation, the seller collects sales tax on the full selling price, including fabrication labor.

Q: Does having customers in Utah automatically create tax nexus?
A: Not by itself. This ruling found no Utah corporate franchise or income tax nexus because the service provider had no office, employees, or other physical presence in the state — the analysis turns on physical presence, not just where customers are located.

Q: Does this ruling apply to my business?
A: Not automatically. This is a private letter ruling binding only on the Commission as to the specific taxpayers and facts presented. Another taxpayer can't rely on it as binding, though it may carry weight in a later appeal if the facts closely match.

Citations and references

Statutes and rules:

• Utah Admin. Rule R865-19S-58 (converting personal property to real property makes the installer the taxable consumer)
• Utah Admin. Rule R865-19S-23 (resale exemption for uninstalled items)
• Utah Admin. Rule R865-19S-51 (fabrication labor included in taxable sales price)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/94-013.pdf

Original ruling text

94-013

Responses
June 7, 1995 and September 2, 1994

Chairman

Tax Commission

160 E. 300 South

Salt Lake City, UT
84134-0001

Dear Chairman,

I am writing to you to determine whether our company�s
business services would be taxable in your state. XXXXX is a computerized auto
parts locator system and service.

Operating Method: XXXXX provides a service whereby
insurance companies telephone XXXXX customer service representatives with auto
parts requests. The customer service representatives then key punch the parts
requested into a central computer, located in XXXXX, and telephone salvage
yards, trying to located the auto parts for the insurance companies. The
responses received by the customer service representatives are then entered
into the central computer. The insurance companies only contacts are through
(800) telephone calls. The insurance companies utilizing this service do not
use computer equipment. Is this service a taxable operation?

I would request that a written ruling on this operating
method be sent to XXXXX. If there are any questions or problems concerning this
request, please contact me at XXXXX, Extension XXXXX to discuss this matter.
Your consideration and assistance in this matter is appreciated.

Sincerely,

XXXXX

Re: Advisory Opinion - - Sales Tax Application
to Sales and Installations of Pool Cover Systems

Dear XXXXX:

You requested an advisory
opinion as to how sales tax applies to transactions involving your manufacture,
sale, and installation of swimming pool cover systems.

Our research indicates
as follows:

1.
Sales or use tax treatment of your transactions depends on whether the
pool covers and their primary components become part of the realty upon
installation or if they retain their status as tangible personal property after
installation.

2.
Installed pool covers as described in your letter and as shown in your
brochure for XXXXX appear to meet the following criteria:

a.
When installed, the pool covers become an integral part of the pool.

b.
The installations are intended to be permanent improvements to the pool.

c.
The covers and components are customized for the particular pool and
would not generally be removable or adaptable to use in another pool without
substantial modification.

d.
The cover services the pool in that it protects the pool from damage by
the elements, reduces heat loss, increases natural heating from the sun,
prevents entry of foreign matter, reduces chemical evaporation, prevents
unauthorized use or accidental entry, etc.

e.
Provisions for some types of installations must be considered in the
pool design and construction itself.

3.
Consequently, in the absence of evidence to the contrary, we conclude
that the installation of pool covers as described constitutes the conversion of
personal property to realty.

4.
As indicated in Rule R865-19S-58 (copy attached), the person who
converts personal property to real property is considered the consumer of such
property and is responsible for the sales or use tax on his cost of materials
so consumed.

5.
You should, therefore, pay the sales or use tax on your purchase of
materials for installed jobs at the time of purchase. You should purchase tax free any items that will be sold in
transactions for which you (your employees or subcontractors working for you)
have no responsibility for installation as indicated in Rule R865-19S-23 (copy
attached). If you are unable at time of purchase to segregate items for your
own consumption (installed jobs) from items for resale as tangible personal
property (no installation), then you should purchase all such items tax free. You must then report items consumed in real
property installation (as goods consumed on your sales and use tax return) at
the time their use is determined.

6.
The sale of real property is not subject to tax, so you must not collect
tax as a separate item from your customer on installed jobs involving pools
which are real property.

7.
When you sell pool covers or parts (not installed) to taxable final
consumers in Utah you must collect the sales tax on the full selling price and
show that tax as a separate item on the sale document. The total sales price includes fabrication
labor as indicated in Rule R865-19S-51 (copy attached).

8.
In the absence of evidence to the contrary, and to the extent that your
competitors are performing the same work, providing similar materials, and
operating in the same way, this opinion applies to their situations as well.

This opinion is based
upon the facts presented in your letter.
Obviously, if there are deviations from these facts, this opinion may be
negated.

If you do not agree
with this determination, you may appeal to the Tax Commission for a formal
hearing. The results of that hearing
would constitute a declaratory judgement and be appealable to the Utah State
Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.

For The Commission,

Alice Shearer

Commissioner

Re: Advisory Opinion - Sales or Use Tax
Application to XXXXX for Franchise - Income Tax

Dear XXXXX:

Your request for an
advisory opinion as to whether the Utah sales or use tax applies to charges for
XXXXX was referred to the Auditing Division for their analysis.

The division's staff
recommendations are as follows:

1.
The XXXXX service as described in your letter is not subject to the
sales or use tax in and of itself.

2.
However, if XXXXX actually purchases the auto parts and sells them to
the insurance company, the charge for the service is considered as part of the sales
price of the parts and is subject to the tax.
The words �sales price� mean the total sum for which tangible personal
property is sold, including any services that are a part of the sale, valued in
money, without any deduction on account of the cost of the property sold, the
cost of materials used, labor or service cost, or other expenses.

3.
For Utah corporation franchise tax purposes, it is our understanding
that XXXXX has no office, employees or other presence within the state of
Utah. The service it provides is
conducted at its office in XXXXX. This
service consists of making telephone calls to salvage yards located both inside
and outside of Utah in order to assist insurance companies located in Utah in
locating specific auto parts and entering information into a central computer
located in XXXXX. XXXXX. receives a fee
for the service it provides but is not involved in the sale of any of the
parts.

4.
Please be advised that based upon the above facts, XXXXX. is not conducting
business in Utah and therefore would not be subject to the Utah corporation
franchise or income tax based upon the present statute.

Based upon the facts
presented in your letter, we are in agreement with the Auditing Division's
recommendations. Obviously, if there
are deviations from these facts, this opinion may be negated.

If you do not agree
with this determination, you may appeal to the Tax Commission for a formal
hearing. The results of that hearing
would constitute a declaratory judgment and be appealable to the Utah State
Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.

For The Commission,

Alice Shearer

Commissioner