Salt Report 3631 – TPP or Permanently Annexed? The Tennessee Department of Revenue released Letter Ruling # 15-01 on March 23, 2015. The letter ruling explains the reasoning behind the taxability of installation labor associated with a “home improvement” product. The tax determination is primarily hinged upon whether the item being installed remains tangible personal property after installation or is considered to be permanently annexed. In this case it was determined that the item did not lose its identity as tangible personal property after installation therefore the installation charges were subject to tax. The ruling goes on to discuss the circumstances where installation labor would not be taxable.
“Thus, the sale and installation of the Product will be subject to the Tennessee sales and use tax if the Product remains tangible personal property following installation. If, on the other hand, the product becomes affixed to realty upon installation, the sale and installation of the Product will not be subject to the Tennessee sales and use tax.
The issue of whether an item of tangible personal property becomes part of realty depends upon the application of the law of fixtures to the particular factual circumstances. The Tennessee Supreme Court [General Carpet Contractors, 511 S.W. 2d 241] has held that the question of when an item is considered a fixture must be resolved by ascertaining the intent of the parties. The court has explained that ‘only those chattels are fixtures which are so attached to the freehold that, from the intention of the parties and the uses to which they are put, they are presumed to be permanently annexed, or a removal thereof would cause serious injury to the freehold.'”
Clearly, the event of installation and the intent of the parties sets a stage for varying conclusions when dealing with installations of fixtures and components in Tennessee. Careful consideration should be given to the multiple variables before concluding whether tax should be charged on installation or not. Basically, when asked whether tax should be charged on installation charges in Tennessee, the old stand-by response to sales and use tax questions applies…it depends.