Current through Register Vol. XLI, No. 38, September 20, 2024
111.1. General rule. - Installation of
tangible personal property can either be a taxable service or contracting.
Installation of tangible personal property is generally considered to be a
taxable service, unless it results in a capital improvement to a building,
structure, or real property or is performed "on or connected with" new
construction, reconstruction, alteration, expansion, or remodeling of real
property or structures which itself results in a capital improvement. When an
installation of tangible personal property results in a capital improvement to
a building, structure, or real property or is performed "on or connected with"
new construction, reconstruction, alteration, expansion, or remodeling of real
property or structures, constituting a capital improvement, it is considered to
be contracting. Guidelines for determining whether these situations exist are
given below.
111.2. Factors For
Determination of Capital Improvement. - In determining whether an installation
of tangible personal property results in a capital improvement to a building or
other structure or to real property, the following factors shall be considered.
If either of the criteria is met, the installation will be considered to be a
capital improvement to a building, structure, or real property, and will be
considered to be contracting.
111.2.1. The
installation results in a significant increase in the capital value of the
building or other structure or of the real property, and the tangible personal
property becomes part of the building or structure or real property or is
permanently affixed to or attached to the building or structure or real
property so that its removal would cause material damage to the article being
removed or to the building or structure or real property itself, and the
tangible personal property is intended to become a permanent installation or to
remain for an indefinite period of time.
111.2.2. The installation results in an
appreciable increase in the original useful life of the building or other
structure or of the real property and the tangible personal property becomes
part of the building or structure or real property or is permanently affixed to
or attached to the building or structure or real property so that its removal
would cause material damage to the article being removed or to the building or
structure or real property itself, and the tangible personal property is
intended to become a permanent installation or to remain for an indefinite
period of time.
111.3.
New Construction, Reconstruction, Alteration, Expansion or Remodeling. - The
installation of tangible personal property is contracting when it is performed
"on or connected with" new construction, reconstruction, alteration, expansion
or remodeling of real property or structures which itself results in a capital
improvement to a building, structure, or real property.
111.3.1. The term "on or connected with" as
used in Section 111.3 is broad and conveys its generally accepted meaning.
Therefore, in a specific situation, the facts relating thereto are controlling
in determining whether the service is contracting or is a taxable service. "On
or connected with" does not connote that things connected have to be primary or
subsidiary to the construction, reconstruction, alteration, expansion or
remodeling of the building or other structure, or real property.
111.3.1.1. An incidental relationship can
qualify the activity as contracting if the relationship forms an immediate
connection with the construction activity.
111.3.1.2. The presence of a time
relationship can also be a factor in determining the applicability of the
contracting exemption.
111.3.1.3.
The motive behind the activity and the course of events that could reasonably
be expected to occur would be further consideration in determining if an exempt
contracting service is involved.
111.3.1.4. A physical relationship is also a
factor that should be evaluated. If a building is constructed to house
machinery, any enumerated services relating to the installation of that
machinery would be an exempt contracting service. For example, piping joining
two pieces of equipment housed in separate buildings would be treated as tax
exempt contracting if the equipment in either building was installed while such
new construction, reconstruction, alteration, expansion or remodeling of the
structure was also taking place to house the equipment.
111.4. Installation Activities Not
Constituting Capital Improvement. - On the other hand, a capital improvement
does not include a contract providing only for the sale and installation of
tangible personal property that remains tangible personal property after its
installation. Generally, tangible personal property that is not a capital
improvement can be moved without causing damage or injury to itself or to the
structure, does not bear the weight of the structure, and does not in any other
manner constitute an integral part of the structure. Installation of tangible
personal property that does not constitute a capital improvement is considered
to be a taxable service.
111.5.
Property Remaining Tangible Personal Property After Installation. The following
is a list of property which, under normal conditions, remains tangible personal
property after installation and does not constitute a capital improvement. This
list is non-exclusive and is offered for illustrative purposes only:
111.5.1. Furnishings, radio and television
sets and antennas, washers and dryers, portable lamps, home freezers, portable
appliances and window air conditioning units.
111.5.2. Portable items such as tables,
counters, cabinets, lockers, athletic and gymnasium equipment and other similar
items.
111.5.3. Freestanding
machinery and equipment, tools, appliances, and materials used exclusively as
such by manufacturers, industrial processors and other persons performing a
processing function with the items.
111.5.4. Freestanding furniture and
equipment, including freestanding office machines, used in offices and
banks.
111.6. Property
Becoming Part of Realty After Installation. - The following is a list of
property which, under normal conditions becomes a part of realty and would be
considered to be a capital improvement, and would be treated as contracting.
This list is non-exclusive and is offered for illustrative purposes only:
111.6.1. Boilers and furnaces for space
heating.
111.6.2. Built-in
household items such as kitchen cabinets, dishwashers, sinks (including
faucets), fans, garbage disposals and incinerators.
111.6.3. Buildings and structural and other
improvements to buildings, including awnings, canopies, foundations, for
machinery, floors (including computer room floor), walls, general wiring and
lighting facilities, roofs, stairways, stairlifts, sprinkler systems, storm
doors and windows, door controls, air curtains, loading platforms, central air
conditioning units, building elevators, sanitation and plumbing systems, and
heating, cooling and ventilation systems.
111.6.4. Fixed year-round wharfs and
docks.
111.6.5. Improvements to
land including retaining walls, roads, walks, bridges, fencing, railway switch
tracks, ponds, dams, ditches, wells, underground irrigation systems, drainage,
storm and sanitary sewers, and water supply lines for drinking water, sanitary
purposes and fire protections.
111.6.6. Telephone switching equipment and
wiring.
111.6.7. Residential water
heaters, water softeners, intercoms, garage door opening equipment when it
satisfies the requirements of Section 117.8 of these regulations, pneumatic tub
systems and music and sound equipment (except portable equipment).
111.6.8. Drive-up and walk-up windows, night
depository equipment, remote TV, autoteller systems, vault and vault doors, and
camera security equipment (except portable equipment).
111.6.9. Seating in auditoriums and theatres
and theatre stage lights (except portable seating and lighting).
111.6.10. Silos and grain storage
bins.
111.6.11. Storage tanks
constructed on the site.
111.6.12.
Swimming pools (the framework or walls of which are wholly and partially
underground (except portable pools)).
111.6.13. Truck platform scale
foundations.
111.6.14. Walk-in cold
storage units becoming a component part of a building.
111.7. Tangible Personal Property Which
Become Structures by Their Basic Nature. - Items which are manufactured as
tangible personal property can, by their very nature, become structure and will
be considered to constitute a capital improvement to a building, structure, or
real property. Installation of these items will be considered to be
contracting. However, the determination is factual and must be made on an item
by item basis. The following is a list of criteria to be used in making such a
determination:
111.7.1. The degree of
architectural and engineering skills necessary to design and construct the
structure.
111.7.2. The overall
scope of the business and the contractual obligations of the person designing
and building the structure.
111.7.3. The amount and variety of materials
needed to complete the structure, including the identity of materials prior to
assembly and the complexity of assembly.
111.7.4. The size and weight of the
structure.
111.7.5. The permanency
or degree of annexation of the structure to other real property which would
affect its mobility.
111.7.6. The
cost of building, moving or dismantling the structure.
Example. A farm silo, which is a prefabricated glass lined
structure, is intended to be permanently installed. The prefabricated glass
lined structure is 70 feet high, 20 feet around, weighs 30 tons, and it is
affixed to a concrete foundation weighing 60 tons, and it is set in the ground
specifically for the purpose of supporting the silo. The assembly kit includes
105 steel sheets and 7,000 bolts. The silo can be removed without material
damage to the realty or the unit itself at a cost of $7,000. In view of its
massive size, the firm and permanent manner in which it is erected on a most
substantial foundation, its purpose and function, the expense and size of the
task and the difficulty of removing it, it is considered a structure and not
machinery and equipment.
111.7.7. The above criteria is intended only
to be summation of factors which the Tax Commissioner will consider in
determining whether or not a project involves contracting.
111.8. Installation of Tangible Personal
Property By Retailer. - Special rules apply to the sale of certain tangible
personal property by a retailer involving incidental hookup, connection or
installation. These sales may be treated as a retail sale to the consumer. See
Section 114 of these regulations for more detailed information concerning these
transactions.
111.9. Taxability of
Sales. - To determine whether consumers sales and service tax should be
collected from the customer and remitted, it is necessary to first determine
whether the type of activity involved is contracting or a taxable service by
examining the criteria set forth in this section.
111.9.1. Sales of Contracting. - A person who
engages in contracting does not charge consumers sales and service tax to the
customer. The sale of contracting is exempt from sales and use tax as set forth
in Section 9.2.17 of these regulations.
111.9.2. Sales of Service. - A person who
engages in providing of taxable service must collect consumers sales and
service tax from the customer and remit it to the state or obtain an exemption
certificate, or direct pay permit from the customer.
111.10. Taxability of Purchase. - In order to
determine whether consumers sales and use tax should be paid on purchases for
use in these types of activities, it is necessary to first determine whether
the type of activity involved is contracting or a taxable service by examining
the criteria set forth in this section.
111.10.1. Taxability of Purchases for Use in
Contracting Activity. - Beginning March 1, 1989, except as outlined in Section
108 of these regulations and relating to transition rules and Section 109 of
these regulations relating to the exemption for material used in government
contracts, a person who engages in contracting must pay consumers sales or use
tax on his purchases for use in the contracting activity. This includes
machinery, equipment, materials, and services used in the contracting activity.
It does not include labor provided by employees of the contractor. Transition
rules are provided in Section 108. Special rules are provided in Section 109 of
these regulations for contracts with the United States the State of West
Virginia, its political subdivision, or corporate entities created by the West
Virginia Legislature.
111.10.2.
Taxability of Purchases for Use in Service Activity. - On or after July 1,
1989, a person who engages in the providing of a service is taxable on
purchases for use in his taxable service activity, except for purchases for
resale.
