Current through Register Vol. 49, No. 9, September, 2024
A. The initial installation of any of the
following is taxable, unless one of the exemptions listed below, applies:
1. Motor vehicles;
2. Aircraft;
3. Farm machinery and implements;
4. Motors of all kinds;
5. Tires and batteries;
6. Boats;
7. Electrical appliances and
devices;
8. Furniture;
9. Rugs;
10. Flooring;
11. Upholstery;
12. Household appliances;
13. Televisions and radios;
14. Jewelry;
15. Watches and clocks;
16. Engineering instruments;
17. Medical and surgical
instruments;
18. Machinery of all
kinds;
19. Bicycles;
20. Offices machines and equipment;
21. Shoes;
22. Tin and sheetmetal;
23. Mechanical tools; and
24. Shop equipment.
B. DEFINITIONS.
1. "Initial installation" shall mean the
first time setting up for use or service of the tangible property by
connecting, fastening, attaching, joining, securing, building in, mounting, or
otherwise affixing the property in the required location, except when the
installation is provided in connection with the construction or substantial
modification of a building or other improvement or structure affixed to real
estate. Initial installation does not include delivery of an electrical
appliance or household appliance, even if the delivery person plugs in the
appliance for the owner.
2.
"Electrical appliances and devices" include items commonly understood to be
appliances that have electrical components and items such as electrical signs,
transformers or other items installed on electrical utility power lines, cell
phone towers, and computer hardware.
3. "Flooring" shall mean tile, hardwood,
vinyl, carpet, a finished surface applied to concrete or other subfloor, or any
other floor covering that overlays the subfloor of a structure to provide a
finished surface for the floor, including decorative finishes.
4. "Household appliances" shall mean, for
purposes of this rule, any household appliance that requires installation,
including dishwashers, disposals, and any other household appliance that is not
an electrical appliance or device such as a hot water heater. For purposes of
this rule, household appliances does not include items that are not required to
be installed, such as toasters, mixers, blenders, can openers, food processors,
and other items that are considered to be small household appliances that do
not require installation.
C. EXEMPTIONS.
1. Initial Installation of Exempt Property.
The service of initial installation of any property that may be purchased
exempt from tax is not taxable.
Example: Machinery and equipment that meets the requirements
for exemption as machinery and equipment used directly in manufacturing may be
purchased exempt from tax. The labor to install machinery that qualifies for
exemption as manufacturing machinery is not taxable.
2. Initial Installation in New Construction.
The service of initial installation of flooring, motors, electrical appliances
or devices, household appliances, or machinery in a newly constructed or
substantially modified building or other improvement or structure affixed to
real estate is not taxable. Individuals or businesses that provide labor to
install flooring, motors, electrical appliances or devices, household
appliances, or machinery in new construction are acting as contractors and are
not providing taxable services. The contractor should either pay tax to the
supplier on the materials and equipment used in the installation, or
self-assess tax as a withdrawal from inventory (stock) on the purchase price of
all materials.
3. Initial
Installation of Nonmechanical, Passive, or Manually Operated Components. The
law in effect prior to July 1, 2004 regarding the initial installation of
nonmechanical, passive, or manually operated components that become part of
real estate after installation has not changed. The initial installation of
such nonmechanical components is not taxable. However, flooring was removed
from the list of components that are considered nonmechanical, passive, or
manually operated components whose installation is exempt from tax.
D. INITIAL INSTALLATION IN
EXISTING BUILDING TAXABLE. Heating and air contractors, electricians, plumbers,
or others who install flooring, motors, electrical appliances or devices,
household appliances, or machinery for the first time (initial installation) in
an existing building should collect tax on the labor charged to install the
mechanical or electrical components. Any materials or parts installed are
taxable to the customer. The labor to install ductwork and other nonmechanical,
passive, or manually operated components that become part of the real estate is
not taxable. If both taxable and nontaxable services are provided, the
nontaxable charges must be separately stated on the invoice. Otherwise, the
entire charge will be taxable.
E.
REPAIRS AND REPLACEMENTS. The repair or replacement of flooring is taxable. The
law in effect prior to July 1, 2004, regarding repair and replacement of
motors, electrical appliances or devices, household appliances, or machinery
has not changed. Any business or individual should continue to collect and
remit tax on taxable repair and replacement services. (See Arkansas Gross
Receipts Rule GR-21(E)(1)(b) - (d).)
F. PURCHASE OF MATERIALS. A business holding
a sales tax permit should purchase all materials used in its construction,
repair, and retail business exempt from sales tax as sales for resale. Any
materials used in the performance of non-taxable services, including initial
installation in new construction, are not taxed to the customer; however, the
business must self-assess, report, and pay sales tax as a withdrawal from
inventory (stock) on the purchase price of the materials. The business must
collect sales tax from its customers on retail sales of materials. Sales tax on
materials used in performing taxable services is to be collected from the
customer along with the labor charges. A business that is not required to hold
a sales tax permit must pay tax on all purchases of materials.
Ark. Code Ann. §
26-52-316
