Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises; Security systems
Topic
Taxability of Persons and Transactions
Date Issued
01-16-1996
January 16, 1996
Re: Ruling Request: Retail Sales and Use Tax
Dear********
This is in response to your letter of December 7, 1995 seeking a ruling on the correct application of the sales and use tax to monitored security systems.
FACTS
The Taxpayer is in the business of selling and installing monitored security systems. The Taxpayer requests a ruling on three specific transactions: (i) sales and installation of monitored security systems, (ii) commercial sales to contractors, and (iii) lease/Purchase transactions. I will address each transaction below.
RULING
Sales and installation of monitored security systems: As indicated in the your letter, the Taxpayer contracts with the customer for the sale and installation of a monitored security system in which the Taxpayer is contractually bound to provide monitoring services. However, the Taxpayer subsequently contracts with an unrelated company to provide the monitoring services.
Virginia Regulation (VR) 630-10-17.1 (copy enclosed) provides that charges for the sale and installation of monitored burglar, security, and fire alarm systems represent nontaxable service transactions. Conversely, the sale of non-monitored systems represent taxable sales or leases of tangible personal property.
In the instant case, the Taxpayer contracts for the sale and installation of a monitored security system and also to provide the monitoring services. This transaction represents the sale of an exempt service. The fact that the Taxpayer does not actually provide the monitoring services itself, but contracts the monitoring service to an unrelated company, does not have a bearing on the exempt status. However, the Taxpayer is deemed to be the user and consumer of all property used in providing this service and must pay the tax on such property at the time of purchase. The enclosed P.D. 91-60 (March 29, 1991) further addresses this issue.
On the other hand, if the Taxpayer contracts for the sale and installation of a monitored security system where the Taxpayer is not bound by the contract to provide the customer with monitoring services, the transaction is a sale and installation of a non-monitored system and is subject to the tax. Tax should be charged on the transaction because the sale of a non-monitored system is deemed to be the sale of tangible personal property.
Commercial sales to contractors: In this case, the Taxpayer contracts with a general contractor for the sale and installation of security systems in new homes. Upon the sale of the home, the homeowner enters into a contract with the Taxpayer to provide monitoring services. Again, the Taxpayer contracts with an unrelated company to provide the monitoring services.
In this situation there are two separate and distinct transactions. The first is the contract between the Taxpayer and the contractor for the sale and installation of security systems in new homes. The second is the contract between the Taxpayer and the homeowner for monitoring services.
The transaction involving the sale and installation of a security system between the Taxpayer and the contractor constitutes a sale of a non-monitored system even though the system will be monitored at some later date. As noted above, the sale of a non-monitored system is the sale of tangible personal property. Therefore, the total charge to the contractor is subject to the tax. However, separately stated installation charges are not subject to tax.
The subsequent transaction between the Taxpayer and the homeowner for monitoring services is a sale for the provision of a nontaxable service. This is true even if the Taxpayer contracts with an unrelated company to provide the monitoring services.
Lease/purchase of security systems: In this situation, the Taxpayer contracts with a homeowner for the lease and installation of a monitored security system. The Taxpayer collects a deposit from the customer and then sells the contract to a leasing company that will also provide the monitoring services. It is my understanding that the deposit collected at the time of the transaction constitutes the cost of installing the security system. Upon receipt of the customer's deposit, and after the contract is sold to the leasing company, the Taxpayer is no longer involved in the transaction.
As in the previous situation, this scenario involves two separate and distinct transactions. The first is the contract between the Taxpayer and the homeowner for the lease and installment of a monitored security system. The second is the sale of the lease contract to the leasing company.
The transaction involving the contract between the Taxpayer and the homeowner for the lease and installation of the monitored security system represents a sale for the provision of a nontaxable service. The fact that the monitored system is sold to the leasing company has no bearing on the exempt status. As in the first scenario, the Taxpayer is deemed the user and consumer of all property in providing this service and must pay the tax on such property at the time of purchase.
The subsequent sale of the contract to the leasing company is also the sale of a monitored security system and represents the sale of an exempt service. As in the above transaction, the true object is to secure the monitored security system from the Taxpayer.
I trust the foregoing has responded to your questions. If you should have any further questions regarding this ruling, you may contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10671T
Rulings of the Tax Commissioner