Sales tax on invoices in Utah

In Utah, when you furnish and install materials that become real property, you pay sales tax on the materials when you buy them, and your charge to the property owner isn’t taxable, so your invoice shows no tax.

Utah sales tax: who owes it, and who needs a license

The Utah State Tax Commission’s Publication 25, posted as a draft pending a public meeting, says the buyer is the actual taxpayer, and the seller collects the tax and holds it in trust for Utah. The same draft says every seller with an established presence in Utah must have a Utah Sales Tax License.

For contractors and repairmen of real property, Rule R865-19S-58 is more specific: if you buy all your materials and supplies from vendors who collect Utah tax, you need no sales tax license unless you also make direct sales of tangible personal property. If you do, get a license, collect tax on your sales to final consumers, and accrue and remit tax on anything you bought tax-free and then converted to real property.

Real property work: you’re the consumer, on any contract

Publication 42 says construction materials such as lumber, bricks, nails and cement, and fixtures such as furnaces, built-in air conditioning, hot water heaters, water softener and filtration systems, sinks and tubs, become real property once installed. The sale of property that has become real property isn’t taxed; whoever converts it pays tax on buying the materials.

• Any contract type: under Rule R865-19S-58, the contractor or repairman who converts personal property to real property is its consumer, whether the contract is lump sum, time and material or cost-plus. Neither the sale of real property nor labor performed on real property is taxed.
• Owner-supplied materials: if the property owner buys the construction materials for a third-party contractor to install, the owner, not the contractor, pays the sales tax.
• Materials you sell without installing: buy them tax-free for resale and collect sales tax from the end consumer. If you install them instead, you pay use tax on them.
• Exempt customers: materials for public schools and religious or charitable organizations are exempt when the organization, or a contractor working for it, buys them. Give your supplier form TC-721RC (religious or charitable) or TC-721G (public schools), naming yourself as the buyer.

Services: a listed set, and labor on real property isn’t taxed

Utah Code §59-12-103 taxes tangible personal property and a listed set of services, including repairs or renovations of tangible personal property unless an exemption applies, assisted cleaning or washing of it, and laundry and dry cleaning.

Publication 42 lists what’s exempt: labor to service, repair, renovate or improve real property; installation, if separately stated on the invoice; and diagnostics, testing, inspection or service that don’t result in a repair, renovation or installation to tangible personal property. Labor to repair, clean, wash or renovate tangible personal property is taxable, and so are the parts used unless an exemption applies.

Some items stay tangible personal property even when they’re permanently attached to real property, meaning they must be attached to work correctly and will stay attached over their useful life; their sale is taxable to the last buyer. Labor to service, repair or renovate such an item is exempt only if it’s separately stated on the invoice; if not, the whole labor and parts charge is taxable. Movable property attached only for convenience, stability or an obviously temporary purpose isn’t permanently attached.

Tax line on the invoice: separate, except on furnish-and-install

• Taxable sales: Rule R865-19S-4 says an invoice or receipt must state the sales tax collected separately; if it doesn’t, the tax is assessed on the seller or the purchaser based on the invoice amount. When a purchase mixes exempt and taxable items, all of it is taxable unless you separately state the exempt items on the invoice or can identify them from your regular books and records.
• Furnish-and-install contracts (the property becomes real property): Publication 42 says you may not collect sales tax, and may not show the tax you paid on materials, or any amount that looks like tax, as a separate item on the customer’s invoice or contract. Tax collected on such a contract by mistake must be paid to the Tax Commission unless it’s refunded to the buyer.

Plumbing, HVAC, cleaning and appliances

• Water heaters: in Publication 42’s table of examples, a hot water heater is real property taxable to the seller under a furnish-and-install contract, but personal property taxable to the final buyer when it’s sold for someone other than the seller to install.
• Cleaning: cleaning and washing real property isn’t taxed, but washing or cleaning tangible personal property is, including property permanently attached to real property.
• Appliances: a dishwasher, freezer, microwave, refrigerator, stove, washer, dryer or similar item isn’t permanently attached even when it’s affixed, so all repair charges, labor and parts, are taxable. An attached item repaired off site reverts to tangible personal property, and its repairs are taxable.

Local tax: rates by community

The draft Publication 25 says Utah tax rates vary by community, depending on the taxes each imposes. Its sourcing chart sends a retail sale of tangible personal property to the seller’s fixed place of business, whether or not the goods are delivered, but a seller who sells from mobile inventory uses the place where that inventory is warehoused. A taxable service goes to the customer’s location if you sell no tangible personal property; if you do, you may choose your fixed place of business or the customer’s location, and a service on the same invoice as tangible personal property goes to your fixed place of business. The same draft says rates and boundaries can change quarterly.

Sheds and garages: foundation or not

Publication 42 treats a building, shed or garage as real property only when it’s permanently built into a foundation. Resting on piers, blocks or skids, or on a 4-inch concrete slab, driveway, patio, asphalt or gravel, it stays tangible personal property, and its sale is taxable to the buyer.