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ST 1999-01 - Sale and Installation of Computer Cabling - March, 1999
This Information Release is being issued to announce a change in the Department of Taxation's application of sales and use tax to the sale and installation of computer cabling. This change is made in response to a recent decision of the Ohio Board of Tax Appeals in the case Newcome Corporation v. Tracy (December 11, 1998), B.T.A. Case No. 97-M-320.
Prior to this decision, the Department considered computer cabling installed in a building to be incorporated into the real property. Any person installing computer cabling within walls, above ceilings, or under floors of a building was considered a construction contractor. As a contractor, the installer was the consumer of all materials purchased for use in the performance of the contract.
In the Newcome case, the Board of Tax Appeals determined that computer cabling was not a type of communication line that was "common to buildings." The Board also found computer cabling primarily benefits the business conducted by the occupant of the building rather than the building itself. Therefore, the Board ruled that installed computer cabling is a business fixture, within the meaning of section 5701.03(B) of the Revised Code, and is to be treated as tangible personal property, not realty.
The effect of this decision is to change the Department's position on the application of sales and use tax. Since computer cabling retains its status as tangible personal property after it is installed, the sale and installation of such cabling is a sale subject to the sales tax. Persons who sell and install computer cabling should be licensed as vendors and collect sales tax from customers on the price of the cabling and the installation charge unless the customer provides a valid exemption certificate.
For audit purposes, this interpretation will be applied to all future transactions involving the sale and installation of computer cabling. It will also be applied to any past transactions if, at the time of the transaction, the seller and installer of computer cabling neither collected tax as a vendor nor paid tax as a construction contractor. If a seller and installer of computer cabling that paid tax as a construction contractor seeks a refund of the tax paid on a past transaction, that person will be expected to collect and remit tax from the consumer unless the consumer has a valid claim of exemption.
The provisions of this release apply only to the sale and installation of computer cabling. It does not apply to other communication lines, such as telephone cables, that are "common to buildings" and serve the realty rather than the specific business occupant. Such communication lines are not business fixtures within the meaning of section 5701.03(B) of the Revised Code. Installation of communication lines is a construction contract for an improvement to the real property. Taxpayers whose business consists of installing both computer cabling and other communication lines simultaneously are cautioned to identify the portions of the transaction that relate to each aspect of the installation and apply the tax accordingly.
If you have any questions regarding this matter, you should call us at 1-888-405-4039.
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