How did Connecticut Ruling 89-21 apply the July 1, 1989 commercial-renovation tax to existing contracts and carpet installation?

Plain-English summary

Connecticut's new 8% sales tax on services renovating commercial, industrial, or income-producing real property applied to all renovation services performed on or after July 1, 1989, including work under existing contracts without escalation clauses.

The ruling rejected a claimed 90-day delay. The cited transition rule allowed a 7.5% rate for certain tangible-property sales contracted before July 1 and delivered within 90 days, but it did not delay the new renovation-service tax.

For carpet installation, the entire charge was taxable when the carpet was permanently affixed to real estate, such as by cementing. When installed by the nonpermanent stick-and-pad method, the carpet remained tangible personal property and separately stated installation labor was not taxable.

What this means for you

The historical ruling separated a service-tax effective date from a product-sale transition rule and made carpet affixation and invoice presentation important. Its rates and dates were specific to 1989 and do not establish current law.

Common questions

Did existing renovation contracts escape the new tax? No, for services performed on or after July 1, 1989.

Was there a 90-day delay for renovation services? No.

When was the full carpet charge taxable? When the carpet was permanently affixed to real estate.

When was installation labor not taxable? For nonpermanent stick-and-pad installation when labor was separately stated.

Citations and references

• Conn. Gen. Stat. § 12-408(1), as cited in the ruling.
• Conn. Agencies Regs. § 12-426-26, as cited in the ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 89-21

Original ruling text

Ruling 89-21, Renovations

Ruling 89-21

Renovations

You have requested a ruling from our office on the application of the sales and use tax to commercial renovations taking place on or after July 1, 1989 as well as how the new law pertains to your company's existing floor covering contracts containing no escalation provision.

The new sales tax on services rendered in the renovation of commercial, industrial or income producing real property is effective July 1, 1989 and applies to all renovations performed on or after the effective date at the rate of 8%.

You are incorrect in your understanding that the law provides for a ninety day delay in the payment of the tax. Section 12-408(1) of the Connecticut General Statutes permits existing retail sales contracts prior to July 1 to be taxed at the rate of 7.5% so long as delivery of the product is made within ninety days of the rate change. The Connecticut General Assembly has imposed a new sales tax on renovations to commercial, industrial or income-producing real property. The new tax at the rate of 8% applies to all renovation services, including those performed under existing contracts, which are rendered on or after July 1, 1989.

With respect to the installation of carpets, the entire charge is subject to the sales tax under section 12-426-26 of the Regulations of Connecticut State Agencies when the carpet is permanently affixed, to the real estate by such methods as cementing. If the carpet is installed by the "stick and pad method" and is not permanently affixed to the real estate, the carpet retains its characteristics as tangible personal property, and there is no tax on the installation labor so long as it is separately stated on the bill to the customer.

LEGAL DIVISION

July 7, 1989