Tax Type
Retail Sales and Use Tax
Description
Application of tax to fire and security systems sold and installed
Topic
Basis of Tax
Collection of Tax
Property Subject to Tax
Date Issued
07-20-2005
July 20, 2005
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek a ruling on the application of retail sales and use tax to fire and security systems sold and installed by ***** (the "Taxpayer").
FACTS
The Taxpayer sells and installs fire, security, sound and safety systems. The Taxpayer also offers customers that have purchased a fire or security system the option of purchasing a separate contract or agreement for monitoring services. Customers may purchase the monitoring services from the Taxpayer or from another business that provides monitoring services. Because the Taxpayer may sell monitoring services after a fire or security system is sold, the Taxpayer asks how to apply the tax to the sale of these systems.
A typical situation described by the Taxpayer involves the sale and installation of a security system as a subcontractor for a general contractor performing real property construction. The Taxpayer does not know at the time the system is installed if it will provide the monitoring services. In some cases, the general contractor or another party contracts to provide monitoring services to the purchaser of the security system.
RULING
Title 23 of the Virginia Administrative Code (VAC) 10-210-230 addresses the application of sales and use tax to fire and security systems. Paragraph A of this regulation defines "monitored systems" as:
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burglar, security and fire alarm systems which are furnished, installed and monitored under contract with the person furnishing and installing such systems.
The regulation further states that systems monitored by persons other than the person that furnished and installed the system are not monitored systems. The Department clarified this policy in Public Document (P.D.) 96-4 (1/16/96), which states that when monitoring services are sold with a security system and the seller of the system uses a third party to actually provide the monitoring services, the system is still considered monitored if the seller of the system is contractually responsible to the customer for the monitoring services.
P.D. 96-4 also discusses a taxpayer that contracted with a general contractor for the sale and installation of security systems in new homes. When a home was sold, the homeowner could contract with the taxpayer to purchase monitoring services. The Department determined that the sale and installation of the security systems and the sale of monitoring services were separate and distinct transactions. The first transaction was the sale of the security system by the taxpayer to the general contractor and the second transaction was the sale of monitoring services by the taxpayer to the homeowner. At the time the systems were sold and installed for the general contractor, they were nonmonitored systems and considered retail sales of tangible personal property. The subsequent sale of monitoring services to the homeowners was for the provision of a nontaxable service and did not affect the tax status of the first transaction. Therefore, the taxpayer was instructed to treat the sale and installation of security systems as retail sales and charge sales tax to the general contractor.
Based on these facts, the Taxpayer is making retail sales of nonmonitored fire and security systems when monitoring services are not sold to the purchaser of the system as part of the same sales transaction. The Taxpayer should collect retail sales tax from the customer on the sales price of the system and remit the tax to the Department. Installation charges are exempt from the tax if separately stated on the customer's invoice or bill. Installation charges billed as part of a lump sum charge for a nonmonitored system are taxable. The Taxpayer should pay sales or use tax on the purchase of installation materials, such as wiring that becomes part of real property, as well as screws, nails, clamps and similar supplies used to install the systems. The Taxpayer may use the resale exemption to purchase those items that are sold as part of a nonmonitored system.
The Taxpayer is considered the user and consumer of all purchases of tangible personal property sold and installed as a monitored security system. The Taxpayer should pay sales or use tax on these purchases. In the case of both monitored and nonmonitored fire and security systems, the purchase of tools, machinery and equipment used by the Taxpayer to install the systems are subject to the tax at the time of purchase.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The public document and regulation cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions or wish to discuss the information in this letter, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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Rulings of the Tax Commissioner