Tax Type
Retail Sales and Use Tax
Description
Construction; Storefront grilles
Topic
Taxability of Persons and Transactions
Date Issued
10-10-1995
October 10, 1995
Re: Request for Ruling: Sales and Use Tax
Dear*****************:
This will respond to your letter of July 31, 1995 requesting a ruling on the application of the sales and use tax to rolling grilles purchased and installed at retail stores leased and operated by your client (the "retailer").
FACTS
To enhance the security of the store, the retailer engages the services of a contractor for the purchase and installation of a rolling grille. The contractor subcontracts out the installation of the grille and ships it via common carrier to a local installer. After installation, the installer bills the contractor for installation charges. The contractor in turn bills the retailer for the purchase and installation of the grille.
The grille is a metal door which rolls down in front of the store during nonbusiness hours and when installed, is attached to the interior walls of the mall and to the mall's electrical system. Although the terms of the store lease may not always contain specific provisions setting out that fixtures installed in the store become the property of the lessor, you indicate that the retailer always prefers to leave such grilles in the mall when a store is vacated. This is because the grilles are customized to the particular dimensions of the store's entrance which differs from mall to mall and are too costly to remove as considerable damage to the realty would occur.
Based on these facts, you ask whether the grilles, upon installation, remain tangible personal property (for which the retailer is liable for the tax) or are permanently incorporated in the realty (for which the contractor is liable for the tax).
RULING
In determining whether an article of tangible personal property placed upon realty becomes realty or remains personalty, the department has consistently relied upon the three general tests set out by the Virginia Supreme Court in Transcontinental Gas Pipe Line Corporation v. Prince William County, 210 Va. 550 (1970). They are:
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(1) annexation of the property to the realty, (2) adaptation to the use or purpose to which that part of the realty with which the property is connected is appropriated, and (3) the intention of the parties. The intention of the party making the annexation is the chief test.
Based on the information provided, it is shown that these grilles are affixed to the realty and adapted to the property's use and that the retailer's intent is to install the rolling grilles for permanent use as a part of the retail store. As the intention of the party making the annexation is the paramount consideration, and when the lessor has agreed to retain the property as a permanent fixture to the realty, the rolling grilles are real property upon installation. In such instances, the contractor is liable for the sales or use tax on the cost of such grilles. The subcontractor is also liable for the tax on any materials used and consumed in installing the grille. See Virginia Regulation 63010-27, copy enclosed. However, the contractor's charge to the retailer for the purchase and installation of the grille is not subject to the tax.
Alternatively, if any real property lease or rental agreement or other agreement between the retailer and landlord requires the retailer to remove the security grille upon vacating the premises, the general holding will be that the grille is a temporary installation. In such instances, the transaction is a taxable sale of tangible personal property, and the retailer would be liable for the tax on the total cost of the grille's installation, including labor, unless nontaxable installation labor is separately stated on the invoice.
If you any questions concerning this response, please contact******** in my Office of Tax Policy at ***************..
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10167R
Rulings of the Tax Commissioner