Re: Sales Tax Treatment of Goods That a Vendor Both Furnishes and Installs to Real Property 

The purpose of this Tax Bulletin is to instruct vendors on the correct sales and use tax treatment of furnish and install contracts as set forth in Tax Commission rule R865-19S-58 ("Rule 58").

A furnish and install contract is a contract under which a vendor not only sells tangible personal property to a purchaser, but in addition, installs or arranges the installation of that tangible personal property to real property.

• Example: A vendor agrees to sell and install carpet for Customer A. The vendor will install the carpet in Customer A's home. This is a furnish and install contract, regardless of whether the vendor's charges for the sale and installation of the carpet are billed on a single invoice or on multiple invoices.
  
• Example: A vendor agrees to sell a jetted bathtub to Customer B, and to arrange for the installation of the tub in Customer B's home. The vendor then contracts with a third party to install the tub for Customer B. This is a furnish and install contract. 
  
• Example: A vendor agrees to make custom seat covers and install those seat covers in Customer C's classic Mustang. This is not a furnish and install contract because the seat covers are installed in personal property (a car), not real property.
  
• Example: A vendor sells tile to Customer D. The sale does not provide for installation of the tile. Customer D contracts separately with a tile layer to lay that tile in Customer D's home. This is not a furnish and install contract because the vendor that sells the tile to the purchaser does not install the tile for the purchaser.

The types of tangible personal property that may be provided in a furnish and install contract include, but are not limited to, the following: 

• floor coverings;
• heating and air conditioning units and parts;
• plumbing and electrical supplies;
• wallpaper and other wall coverings;
• windows;
• fencing;
• built-in appliances; and
• memorial markers.

Sales and Use Tax Obligations

Rule 58 provides that under a furnish and install contract, the vendor converts the tangible personal property into real property and, as such, becomes a real property contractor. Pursuant to Rule 58, the real property contractor is the consumer of the tangible personal property converted to real property -- whether by that contractor or someone working on that contractor's behalf. Accordingly, the vendor, as a real property contractor, is required to pay sales and use tax on the vendor's purchase of the tangible personal property.

In addition, because real property contracting work in Utah is not subject to sales and use tax, the vendor may not collect sales and use tax on the vendor's sale of the property to the purchaser.

In contrast with a furnish and install contract, a vendor that merely sells items of tangible personal property, and does not install that tangible personal property to real property, is not considered a real property contractor. The vendor in this instance should not pay sales tax on its purchase of that tangible personal property, but should purchase the tangible personal property exempt from sales and use tax as a purchase for resale. A vendor must, of course, collect sales and use tax on the vendor's subsequent sale of the tangible personal property to the purchaser, unless that sale is exempt from sales and use tax under some other specific exemption in Utah law.

Example: A vendor sells fencing materials to Customer D. Customer D, who is not eligible for a sales and use tax exemption, will build the fence himself, or will contract with a third party to build the fence. This is not a furnish and install contract. The vendor should not pay sales and use tax on the vendor's purchase of the fencing materials, but must collect sales and use tax on the sale of the fencing materials to Customer D.

Example: A vendor agrees to sell fencing materials to Customer E and build a fence for Customer E with those fencing materials. This is a furnish and install contract. The vendor must pay sales and use tax on the vendor's purchase of the fencing material, and may not collect sales and use tax on the sale of the fencing materials to Customer E.

If, at the time of purchasing the tangible personal property, a vendor is unsure whether the tangible personal property will be sold under a furnish and install contract, the vendor should, pursuant to Tax Commission rule R865-19S-23, purchase all of the tangible personal property exempt from sales and use tax as a purchase for resale. In that case, the vendor must accrue and report the sales and use tax on the purchase price of any goods that the vendor later sells and installs under a furnish and install contract. Sales and use taxes accrued by the vendor must be reported on the line "goods purchased tax free and used by you" on the vendor's sales and use tax return.

Incorrect Vendor Practices

It has come to the attention of the Tax Commission that not all vendors understand the sales and use tax requirements for tangible personal property sold under a furnish and install contract. A vendor that sells tangible personal property under a furnish and install contract may not:

(1) collect sales tax on that tangible personal property; or

(2) offset the sales and use tax the vendor owes on its own purchase of the tangible personal property by any sales tax the vendor inappropriately collected on the sale of that property.

A vendor that inappropriately collects sales and use tax on property the vendor sells under a furnish and install contract is required by Utah law to remit that tax to the Tax Commission unless the vendor recognizes the error and refunds the tax to the purchaser.

Effective January 1, 2002, the Tax Commission will disallow a vendor's offset of inappropriately collected sales and use tax against the vendor's sales and use tax liability on the purchase of the tangible personal property. In instances where the offset has been disallowed, the vendor will be assessed sales and use tax for the vendor's purchases of tangible personal property sold under a furnish and install contract.