Current through Register Vol. XLI, No. 38, September 20, 2024
115.1. General
rule. - Maintaining, servicing and repairing are terms used to cover all
activities that relate to keeping tangible personal property in a condition of
fitness, efficiency, readiness, or safety or restoring it to such condition.
The activity of maintaining, servicing, or repairing of tangible personal
property can either be a taxable service or contracting. The activity of
maintaining, servicing or repairing of tangible personal property is generally
considered to be a taxable service, whether or not any tangible personal
property is transferred in conjunction with the service. However, the
maintaining, servicing or repairing of tangible personal property will be
considered to be contracting if it involves either a capital improvement or is
performed on or connected with new construction, reconstruction, alteration,
expansion, or remodeling which itself results in a capital improvement to a
building, structure or real property. Guidelines for determining whether these
situations exist are given below.
115.1.1.
Capital Improvement. - The maintenance, service or repair of tangible personal
property is considered to be contracting if both of the following two
conditions are met:
115.1.1.1. Tangible
Personal Property was Capital Improvement. - The maintenance, service or repair
is performed on tangible personal property which constituted a capital
improvement to a building, structure, or real property when installed, (See
Section 111 of these regulations for detailed information regarding when
installation of tangible personal property constitutes a capital improvement to
a building, structure or real property) and;
115.1.1.2. Maintenance, Service or Repair
Constitutes Capital Improvement. - The maintenance, service or repair itself
constitutes a capital improvement to the building, structure, or real property
to or in which the tangible personal property is affixed or
incorporated.
115.1.1.3. Factors
for Determination of Capital Improvement. - In determining whether maintaining,
servicing or repairing tangible personal property results in a capital
improvement to a building or other structure or to real property to or in which
the tangible personal property is affixed or incorporated, the following
factors shall be considered. If either of the criteria is met, the maintenance,
service or repair will be considered to be a capital improvement and will be
considered to be contracting.
115.1.1.3.a. The
maintenance, service, or repair results in a substantial increase in the
capital value of the building or other structure or of the real property to or
in which the tangible personal property is affixed or incorporated;
115.1.1.3.b. The maintenance, service or
repair results in a appreciable increase in the original useful life of the
building or other structure or of the real property to or in which the tangible
personal property is affixed or incorporated.
115.1.2. New Construction, Reconstruction,
Alteration, Expansion or Remodeling. - The maintenance, service, or repair of
tangible personal property is contracting when it is performed "on or connected
with" new construction, reconstruction, alteration, expansion or remodeling of
real property, buildings or structures which itself results in a capital
improvement thereto.
115.1.2.1. The term "on
or connected with" as used in Section 115.1.2 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, which results in a capital improvement thereto.
115.1.2.1.a. An incidental relationship can
qualify the activity as contracting if the relationship forms an immediate
connection with the construction activity.
115.1.2.1.b. The presence of a time
relationship can also be a factor in determining the applicability of the
contracting exemption.
115.1.2.1.c.
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.
115.1.2.1.d. 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.
115.2. Examples of
Maintenance, Service or Repair of Tangible Personal Property Constituting a
Taxable Service.
Example 1. The repair or tuning of a piano is a taxable
service.
Example 2. The service of lubricating a motor vehicle is a
taxable service.
Example 3. Washing an automobile is a taxable service,
whether the washing is performed manually or by a money machine.
Example 4. A company operates a diagnostic service in which
it tests an appliance for a set fee. The diagnostic service is a taxable
service.
Example 5. A company-operated central station burglar alarm
system charges its customers a fee for repairs to the system necessitated by
damage beyond the control of the company. The repair of the system is a taxable
service.
Example 6. The replacing of a thermocouple on a furnace is a
taxable service. The repair is not contracting because it does not constitute a
capital improvement to a building, structure or real property. It does not
constitute a capital improvement, because it does not increase the capital
value of the furnace, nor extend the original useful life of the
furnace.
Example 7. The repair of a hole in the lining of a boiler is
a taxable service. The repair is not contracting because it does not constitute
a capital improvement to a building, structure, or real property. It does not
constitute a capital improvement because it does not increase the capital value
of the boiler or extend the original useful life of the furnace.
115.3. Examples of Maintenance,
Service or Repair of Tangible Personal Property Constituting Contracting.
Example 1. The replacement of the lining of a boiler is
contracting because it constitutes a capital improvement to a building,
structure or real property. It constitutes a capital improvement because the
original useful life of the boiler has been extended.
Example 2. The repair of a faucet is normally considered to
be a taxable service. However, if the repair of the faucet is performed with or
connected to the remodeling of a kitchen, it will be contracting, because the
overall activity involves a capital improvement to a building, structure or
real property.
115.4.
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 Section 115 of these
regulations.
115.4.1. 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.
115.4.2. Sales of Service. - A person who
engages in providing of taxable service must collect and remit consumers sales
and service tax from the customer or obtain an exemption certificate or direct
pay permit.
115.5.
Taxability of Purchases. - 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 the
previous Section 115 of these regulations.
115.5.1. Taxability of Purchases for Use in
Contracting Activity. - Beginning March 1, 1989, except as outlined in Section
108 of these regulations 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 of these regulations. 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.
115.5.2. 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.
