Was a burglar-alarm installation a real-property improvement when the security company retained title until payment?

Subject

Burglar Alarm Systems

Plain-English summary

The full price of the burglar-alarm equipment and installation was taxable because the security company retained title until the customer paid in full. Florida normally treated permanently affixed burglar and fire alarm systems as real-property improvements, making the contractor the consumer of materials. The retained-title clause changed that characterization by keeping the installed property capable of vendor ownership and repossession.

The contract was not a specially itemized class (2)(d) real-property contract because the materials and their prices were not agreed and itemized before work. That point did not save the transaction: retained title independently made it a sale and installation of tangible personal property, so the customer owed tax on the total equipment and installation charge.

The $50 recurring monthly monitoring charge was also taxable. Florida specifically taxed burglar protection services, including alarm monitoring and maintenance.

What this means for you

Alarm-system tax treatment can turn on who owns the equipment after installation. A contract that calls the work a real-property installation but lets the vendor retain title until payment may produce sales tax on the entire customer price rather than tax only on the contractor's materials.

Common questions

Q: Are permanently affixed burglar alarms generally real-property improvements? The ruling said yes, absent an exception such as a lease or retained-title provision.

Q: Did later invoices itemizing installed components make this a class (2)(d) contract? No. The items and agreed prices were not specifically described before the work was performed.

Q: Was monitoring taxed separately? Yes. The recurring monitoring and maintenance services were taxable burglar-protection services.

Citations and references

• Fla. Admin. Code r. 12A-1.051(2), (16) — itemized real-property contracts and alarm-system improvements
• Fla. Stat. § 212.06 — fixture definition discussed for retained-title property
• Fla. Stat. § 212.05(1)(j); Fla. Admin. Code r. 12A-1.0092 — burglar protection, monitoring, and maintenance
• Sears, Roebuck & Co. v. Florida Department of Revenue, Case No. 92-1080 (Fla. 2d Cir. Ct. 1994)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-053

Original ruling text

SUMMARY

Issue: Whether contracts for the installation of security
systems represent improvements to real property
(installation of fixtures) or sales of tangible personal
property. The contract under review does not constitute a
class "(2)(d)" contract. However, a retained title
provision does exist. This would result in the contract
being characterized as the sale and installation of
tangible personal property. The total amounts charged to
Taxpayer for the equipment and installation would be
subject to tax. Additionally, Section 212.05(1)(j), F.S.,
imposes a tax on detective, burglar protection, and other
protection services, included within these taxable services
are burglar alarm monitoring and maintenance,

Jul 14, 1998

Re: Technical Assistance Advisement 98A-053
Sales Tax; Burglar Alarm Systems
Rule 12A-1.051, F.A.C.
XXX ("Taxpayer")
XXX ("Security Company")

Dear :

This is in response to your letter of February 9, 1998,
requesting the issuance of a Technical Assistance Advisement,
pursuant to Section 213.22, F.S., and Chapter 12-11, F.A.C.,
regarding the taxation of burglar alarms systems installed in
your Florida stores. Your letter provides the following
pertinent facts:

In 1997 [the Taxpayer] executed a National Account Master
Agreement (Exhibit A) with [Security Company] of XXX to
install and monitor burglar alarms systems (affixed to real
property) in stores operated by its subsidiaries including
Taxpayer. Section 13 of the Agreement provides that until

payment in full is made by subscriber for the System, title
to the system shall remain in the [Security Company].
Addendum A to the Agreement includes the following:

• Schedule of equipment and/or services
• Total price including installation
• Total monthly recurring service price
• Note: Pricing may adjust up or down depending on
  requirements and number of devices used.
• Remark 1: To the above prices will be added the
  appropriate taxes as applicable to the municipalities
  involved.
• Remark 2: The above pricing is for standard
  installations. Situations involving union
  jurisdictioned disputes and/or requiring adherence to
  special codes or requirements will be billed in
  accordance with specifics affecting these special
  cases.

After completing the installation of the burglar alarm
system at each store, [Security Company] bills Taxpayer for
the price of all the equipment installed, in most cases
higher than the standard installation price. At Taxpayer's
request, [Security Company] provides a list of the
equipment (including the price of each component) that was
installed when submitting an invoice for payment. Taxpayer
needs the listing to verify that the amount billed is
reasonable and in accordance with the Agreement. The
invoices do not include any Florida sales tax. It is our
understanding from talking to [Security Company's] Tax
Department that [Security Company] has paid Florida
sales/use tax on the materials and equipment used in the
installation.

You further state:

[Taxpayer] has a National Account Master Agreement with
[Security Company] for standard installations, but there
was never any written contract which itemizes the price of
each and every separate item used in fulfilling the
contract between [Security Company] and taxpayer or any of
[Taxpayer's] subsidiaries in advance of the work performed.

[Security Company] cannot tell what materials will be
needed for the proper installation at each store and that
was the reason why the Agreement provides for billing in
accordance with the requirements of installation. The
Agreement cannot be construed as a class (2)(d) contract.

Discussion

The initial issue is whether contracts for the installation of
security systems represent improvements to real property
(installation of fixtures) or sales of tangible personal
property. Rule 12A-1.051(16), F.A.C., provides the following
guidance:

(16) Materials purchased for use in the performance of lump
sum, cost plus, fixed fee or guaranteed price contracts for
the improvement of real property are taxable to all
contractors, including but not limited to the following
contractors...:
...
Burglar and fire alarm system...

By way of the above rule quotation, we already have in existence
established administrative law on the sales and use tax
treatment of permanently affixed burglar and fire alarm systems.
Such systems are treated as improvements to real property for
sales and use tax purposes. The exception to the above holding
would be when the system is leased or there is a retained title
provision relating to the items being installed. Florida law
recognizes contracts having retained title clauses and covering
items to be used in improving real property as being sales of
tangible personal property. (See Standard Motor Finance Co.,
Inc. v. Central Farmers' Trust, 157 So. 520 (Fla. 1934);
Commercial Finance Co. v. Brooksville Hotel Co., 123 So. 814
(Fla. 1929); First Federal Savings and Loan Assoc. Of Okaloosa
Cty. v. Stovall, 289 So.2d 32 (Fla. 1st DCA 1974); Maas
Brothers, Inc. v. Guaranty Federal Savings and Loan Association,
157 So.2d 528 (Fla. 2d DCA 1963).) In such situations, the
entire contract price is subject to sales tax as the sale and
installation of tangible personal property.(FN 1)

In contracts where no retained title provisions exist, we would
look to Rule 12A-1.051(2)(e), F.A.C., for further guidance. The
rule provides that the contractor is the ultimate consumer of
materials and supplies it uses to perform a lump sum, cost plus,
fixed fee, guaranteed price or any other kind of contract except
an itemized contract as described in paragraph (2)(d) of the
rule ("class (2)(d) contract"). This paragraph reads as
follows:

(d) Contracts in which the contractor or subcontractor
repairs, alters, improves or constructs real property and
wherein he agrees to sell specifically described and
itemized materials and supplies at an agreed price or at
the regular retail price and to complete the work either
for an additional agreed price or on the basis of time
consumed.

The issue of what constitutes a class (2)(d) contract was
discussed in the case of Sears, Roebuck & Company v. Florida
Department of Revenue, Case No. 92-1080 (Fla. 2nd Cir. Ct.
1994). The court in Sears interpreted paragraph (2)(d) of Rule
12A-1.051, F.A.C., relative to contracts wherein Sears agreed to
furnish and install appliances which became fixtures of real
property, such as hot water heaters and built-in ovens, ranges,
and dishwashers. A receipt was issued to the customer up front
which listed the appliance by name and included a cost for the
appliance and a separate cost for the installation. Sears would
than engage an independent contractor to perform the
installation. The independent installer would always supply
some additional items of tangible personal property necessary to
complete the installation. Such items were never listed on the
sales receipt, since Sears had no knowledge of what specific
materials would be used by the installer to complete the
installation, but were simply later billed as a flat sum by the
installer. Sears contended that it was not performing class
(2)(d) contracts since its receipt did not specifically itemize
and describe the unknown materials furnished by the independent
installer. Given these facts, the court agreed with Sears and
ruled that Sears had not performed (2)(d) contracts.

Accordingly, Sears was correct in not charging tax to the

customer on the appliances or the installation and was, further,
correct in having paid tax on its cost price of purchasing the
appliances from the manufacturer.

Determination

With regard to the transactions under review, the Department
agrees that the contract does not constitute a class "(2)(d)"
contract. However, a retained title provision does exist. This
would result in the contract being characterized as the sale and
installation of tangible personal property. The total amounts
charged to Taxpayer for the equipment and installation would be
subject to tax. Additionally, Section 212.05(1)(j), F.S.
imposes a tax on detective, burglar protection, and other
protection services. Included within these taxable services are
burglar alarm monitoring and maintenance. See Rule 12A-1.0092,
F.A.C. The National Account Master Agreement also includes a
$50.00 monthly recurring charge for monitoring. This monthly
charge will also be subject to tax.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Jonathan E. Swift
Tax Law Specialist
Technical Assistance and Dispute Resolution

Control #32981
cc: Debra L. McAllister

FOOTNOTE 1 Note: Effective July 1, 1998, the Legislature added a
definition of "fixture" to Section 212.06, F.S., for the purpose
of determining when there is an improvement to real property.
This definition recognizes the existing case law pertaining to
fixtures. The addition of this definition in the statute may
serve as a means of clarifying legislative intent and of
adopting existing construction of the term. The definition
provides that a "fixture" is an accessory to land or a
structure, which retains its character as an accessory when
installed, and which is permanently attached to realty. In the
case of an item under a retained title provision, it would
appear that the item would not be "permanently" attached to the
realty, and therefore not a "fixture," as the item would need to
be capable of being readily removed from the realty and
repossessed by the vendor upon nonpayment by the purchaser.
Machinery and equipment are specifically excluded from the
definition of "fixture." See Ch.98-141, s. 5, Laws of Florida.

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