Tax Type
Retail Sales and Use Tax
Description
Monitored security systems
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
08-04-1989
August 4, 1989
Re: Request for Ruling/Sales and Use Tax
Dear*****************
This will reply to your original letter dated February 22, 1989 and follow-up letter dated June 30, 1989 in which you request a ruling as to the application of the Virginia Retail Sales and Use Tax to specific types of sales by your organization.
FACTS
**************("Taxpayer") is involved in the sale, servicing and installation of burglar alarms, fire alarms and other security systems and devices. The Taxpayer wishes to know if it sells a security system to someone for which it breaks down the hardware and labor charges separately and offers the customer the option of having his system monitored, and the customer accepts the entire package, what portion of the charges, if any, are subject to the sales and use tax.
Additionally, the Taxpayer incorporates in the monthly monitoring service fee a fee for maintenance, for both parts and labor, if the customer desires this additional service. The Taxpayer has not been charging the tax on the maintenance portion and desires to know if this is correct. The Taxpayer also desires to know whether maintenance contracts entered into subsequent to the original installation of the system are subject to the tax.
RULING
Virginia Retail Sales & Use Tax Regulation 630-10-17.1 (copy enclosed) provides that charges for the sale or lease and installation of monitored burglar, security, and fire alarm systems represent nontaxable service transactions, while the sale or lease and installation of non-monitored systems of the same type represent taxable sales or leases of tangible personal property.
Therefore, when the Taxpayer sells a monitored security system to a customer, regardless of whether the hardware and labor charges are separately stated, the total transaction represents charges for a service which is not taxable. However, if a customer selects to purchase a non-monitored system, the Taxpayer is engaged in making a retail sale and the total charge, except separately stated installation charges, is taxable. See the enclosed ruling letter dated July 11, 1986 for a more in-depth explanation of the application of the tax to monitored and non-monitored security systems.
VR 630-10-62.1 (copy enclosed) addresses the Taxpayer's questions regarding the taxability of maintenance contracts. It provides that maintenance contracts, the terms of which provide both repair or replacement parts and repair labor such as those offered by the Taxpayer, represent a sale of tangible personal property. The total charge for such contracts is subject to the tax since at the time the contract is entered into it is impossible to ascertain what portion of future repair transactions will represent parts and what portion will represent labor.
Since the Taxpayer incorporates in the monthly monitoring service fee a fee for servicing (maintaining) the system, for both parts and labor if the customer desires such additional service, the maintenance portion of the monthly fee is subject to the tax. Additionally, regardless of the time at which a maintenance agreement is entered into, whether at the time of original purchase of the system or subsequent thereto, the Taxpayer should charge the tax on the monthly fee for such.
If you have any further questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner