When a company installs home theater, security, and automation equipment into a house, does each item stay taxable personal property, or does it become part of the real estate?

Plain-English summary

A company that installs personal home theaters, security systems, and home automation products (CRT ceiling-mounted projectors, projector screens, audio/video components in custom cabinets or built-in units, universal remotes, in-wall intercoms, and house wiring) asked whether these installations count as taxable personal property or become part of the house's real property -- since it thought the equipment was so integrated into each home that it effectively became a feature of the house.

The Commission rejected a one-size-fits-all answer and instead applied Utah Admin. Code R865-19S-58(E) and R865-19S-78(B), which turn on how each item is attached and how easily it can be removed:

• Items attached "merely for stability or convenience or an obvious temporary purpose" stay personal property, even when physically attached to the house.
• An item becomes part of the realty only if attachment is essential to its operation and it's meant to stay put for its useful life, or removing it would cause substantial damage or require significant repair to the structure.

Applying that item by item:

• CRT ceiling-mounted projectors -- personal property, if bolted into ceiling studs in a way that removal won't significantly damage the ceiling.
• Projector screens -- personal property if simply wall/ceiling mounted with minor removal damage; become real property if built into a retracting ceiling recess, since removal would leave a hole requiring carpentry/wallboard repair.
• Audio/video components in custom cabinets or built-in units -- personal property, since removal is unlikely to significantly damage the house. Exception: speakers mounted into a ceiling or wall that would leave large holes on removal become real property.
• Universal remotes -- personal property if freestanding or merely attached; become real property if built into the wall in a way that leaves a hole needing repair.
• In-wall intercom systems -- installed in the walls (not just attached to them), so removal leaves holes requiring repair -- these become part of the realty.
• Wiring -- wiring incorporated into walls or ceilings becomes part of the realty; wiring merely tacked to a wall or laid on the floor stays personal property.

Finally, the Commission clarified the sales tax mechanics either way: sales tax is due on all the equipment regardless of its classification. If an item stays personal property, the installer collects sales tax from the customer and remits it. If an item becomes part of the realty, the installer is the ultimate consumer of that item and must pay sales tax when purchasing the equipment itself -- and if the installer collects tax from the customer anyway on a real-property item, state law still requires remitting everything collected, even beyond what would have been owed if the installer had simply paid tax to its own supplier.

What this means for you

Home theater, security, and automation installers

Don't classify an entire installation job as either "personal property" or "real property" -- go item by item, based on how each component is physically attached and whether removing it would damage the house. Recessed/built-in items (retractable screens, in-wall speakers, in-wall intercoms, embedded wiring) become real property; cabinet-mounted or lightly-attached items usually don't.

Businesses that become the "ultimate consumer" of real-property-classified items

If an item you install becomes part of the realty, you owe sales tax on your own purchase of that equipment -- you don't charge your customer sales tax on it as a retail sale. But be careful: if you do collect tax from the customer regardless, you must remit the full amount collected to the Commission, even if it's more than your own liability would have been.

Accountants and tax professionals

This ruling is a clean, item-by-item application of the R865-19S-58(E)/R865-19S-78(B) removability test to a modern (for 1998) product category, and a useful companion to other installed-goods rulings in this backlog that apply the same fixture-classification framework to different equipment types.

Common questions

Q: Is all home theater equipment taxed the same way once installed?
A: No. Each component is evaluated separately based on how it's attached and whether removing it would damage the house.

Q: Who pays sales tax on an item that becomes part of the real property?
A: The installer, as the ultimate consumer, pays sales tax when purchasing that equipment -- not the homeowner as a retail buyer.

Q: What if I collect sales tax from my customer on an item that should have been taxed to me as the consumer?
A: You must still remit everything you collected to the Commission, even if it exceeds what your actual tax liability would have been.

Q: Does this ruling apply to my installation business?
A: No. It binds the Commission only for the requesting company and the facts described. Another taxpayer can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Rules:

• Utah Admin. Code R865-19S-58(E) (property that stays personal property despite attachment)
• Utah Admin. Code R865-19S-78(B) (permanent-attachment criteria for repair-labor tax purposes)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-034.htm

Original ruling text

98-034

Response
June 23, 1998

Request
Letter

May 29, 1998

Attention: Jeff McNamar

Sales
Tax Audit Division

210
North 1950 West

SALT
LAKE CITY, UT 84134

Dear
Mr. McNamar:

I am writing to request a
clarification on the Sales & Use Tax Regulations regarding the services and
sales that we provide.

COMPANY A performs services in the
installation & maintenance of Personal Home Theaters, Security Systems
(excluding Monitoring), and Home Automation products. These items include CRT
Ceiling Mounted Television Projectors; Ceiling or Wall Mounted Projector Screens; Audio/Video Equipment/Components
(which is usually installed within custom made cabinets or included into built
in wall units), also includes Universal Remotes that control whole room
environment from dimming lights to turning on home theater equipment; Inwall
intercom systems and all wiring throughout the houses.

COMPANY A is not set up on a
"Retail Store Basis", in fact most, if not all jobs, are referrals
from previous customers and builders. We do not have a store front with products available to purchase like
normal retail stores provide. Considering this, most Audio/Video Equipment sold in a retail setting would be
considered Sales Taxable items, as a rule the houses that we install the
equipment in, usually within a personal home theater, becomes a feature to that
house. It generally is considered and
sold as part of the house itself and is invariably included in the value of the
house. It is highly unusual for our
customers to take the equipment with them should they sell and move. This
maybe considered as real property installed regardless if the product
could be removed. It would be
confidently said that all equipment is specific in function and would be
useless if removed part by part. One
would not work without the other.

It is therefore our request that
clarification on what should be considered Sales Taxable and Use Taxable be
provided. If it is, that all products
installed are considered Real Property, we therefore, will be on a Use Tax
basis and our accounting should adjust to that for Sale & Use Tax Payable
each quarter.

I look forward to hearing your clarification
on this matter. For further
documentation or should you have any
concerns please don't hesitate to contact either myself of NAME at the above
address and telephone number.

Yours
sincerely,

NAME

June
23, 1998

NAME

ADDRESS

CITY,
STATE ZIP

RE: Advisory
Opinion - Sales Tax on Personal and Real Property

Dear
NAME,

We have received your request for
information concerning the application of sales tax on various equipment
installed in homes, including personal home theaters, security systems, and
automation products. Specifically, you
have asked whether these properties are considered personal property or real
property for sales tax purposes.

The Commission looks at several factors
to determine if personal property installed to real property retains the
characteristics of personal property or if it instead becomes part of the real
property. Utah Admin. Code
R865-19S-58(E) (copy attached) provides some examples of items that are
considered tangible personal property even when attached to real property. These include:

1. moveable items that are attached to real
   property merely for stability or for an obvious temporary purpose;

2. manufacturing equipment and machinery and
   essential accessories appurtenant to the manufacturing equipment and machinery;
   and

3. items installed for the benefit of the trade
   or business conducted on the property that are affixed in a manner that
   facilitates removal without substantial damage to the real property or to the
   item itself.

Further, Utah Admin. Code
R865-19S-78 (copy enclosed) provides additional criteria to differentiate
between the two when applying sales tax for labor to repair property. Section B of that rule provides that
portable or movable items that are attached merely for convenience, stability
or for an obvious temporary purpose are considered personal property, even when
attached to real property. However,
personal property will be treated as real property if the item is considered
permanently attached, which occurs when:

1. attachment is essential to the operation or
   use of the item and the manner of attachment suggests that the item will remain
   affixed in the same place over the useful life of the item

or

2. removal would cause substantial damage to
   the item itself or require substantial alteration or repair of the structure to
   which it is affixed.

Using these guidelines, we can set
forth some general premises. First,
equipment installed to real property does not necessarily become part of that
realty for sales tax purposes. Instead,
the manner and purpose of the affixation and the ease with which the equipment
can be removed are factors used to determine whether the property is classified
as real or personal property after its installation. Unfortunately, the equipment you install is not all installed in
the same manner, and some can be removed from the real property without causing
significant damage, while other items cannot.
Thus, we need to separately discuss each item of equipment you have
listed to address whether it remains personal property or becomes real property
upon its installation.

CRT
Ceiling Mounted Television Projectors.
This item is designed to project an image onto a screen. To do so, the projector is mounted to the
ceiling for stability and convenient placement. If the projector is attached by bolts into the ceiling studs or
other similar manner, so that its removal will not significantly damage the
ceiling, then the projector would still be considered personal property after
its installation.

Ceiling or Wall Mounted Projector
Screens. Again, if these items are
attached to the ceiling or wall in a manner so that their removal would result
in only minor damage to the house, then the screens would remain personal
property after their installation.

However,
where a projector screen is incorporated into the house so that the screen
descends and retracts into a ceiling recess, then the screen would be
considered permanently attached and becomes part of the real property after its
installation. In this case, removal of
the screen would result in a ceiling hole that would probably require
additional carpentry and wallboard work to repair. Such damage would be significant enough to warrant property
installed in this manner to become part of the realty.

Audio/Video
Equipment/Components. You letter
states that this equipment is usually installed in custom made cabinets or
included into built-in wall units. In
would be unlikely that removal of this equipment would significantly damage the
realty. This property would remain
personal property after its installation.

One
component that might become part of the realty would be speakers that are mounted
into the ceiling or the wall in such a way so that their removal would leave
large holes. The resulting carpentry
and wallboard repairs would be significant enough so that speakers installed in
this manner become part of the realty.

**Universal
Remotes. ** If the universal remote is a piece of freestanding equipment or is
merely attached to the realty, it would remain personal property. Should its installation be incorporated into
the wall of the house, so that its removal would leave a hole requiring repair,
it would become part of the realty.

Inwall
Intercom Systems. This equipment�s
name implies that it is installed in the walls of the home instead of merely
being attached to the wall. If this is
the case, then removal of the equipment would also leave holes in the walls
requiring repair. The system would thus
become part of the realty.

Wiring. Wiring incorporated into the walls or
ceilings becomes part of the realty.
Wiring placed in a room by either tacking it to a wall or laying it on
the floor would remain personal property.

Lastly, we wish to clarify your
sales tax obligations that arise from your equipment sales. In your letter, you mention changing to a
use tax accounting basis should all installed items be considered real property. Let us point out that sales tax is due on
all the equipment you install, whether it remains personal property or becomes
part of the realty. If it remains
personal property, you collect sales tax from your client and remit it to the
Commission.

However, if an item you install
becomes part of the realty, you are considered the ultimate consumer of the
product and you are required to pay sales tax when you purchase the
equipment. Should you instead collect this
sales tax from your customers, please remember that state law requires you to
remit all sales tax collected from your customer, even if it exceeds what your
tax liability would have been had you originally paid it to your supplier.

Please contact us if you have any
other questions.

For the
Commission,

Joe
B. Pacheco

Commissioner

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