Should a Florida contractor collect sales tax from customers on installed structural cabling for telephone, computer, audio, or video systems?

Plain-English summary

Florida treated installed structural cabling as real property, not a sale of tangible personal property. The contractor therefore was the consumer of the materials: it should pay tax on their cost and should not collect sales tax from the customer on the contract price.

The result covered cabling installed behind walls, under floors, and above ceilings, including relocation, replacement, and servicing of that structural system. It did not turn on whether the customer owned or leased the building. Freestanding components such as patch cables remained tangible personal property, and a repair limited to those items could receive different treatment.

What this means for you

The location and integration of the cabling controlled the classification. A contractor installing building-integrated cabling was treated like a real-property contractor, while work on nonstructural components remained subject to the rules for tangible personal property.

Tax already collected from customers became state money. The ruling described possible offsets, customer refunds, and credit or refund claims, subject to the applicable limitations periods.

Common questions

Q: Does it matter whether the customer owns or leases the site? No. For this structural cabling, the statutory fixture definition made the customer's ownership status noncontrolling.

Q: Are patch cables also real property? No. The ruling classified patch cables as tangible personal property, although they were insignificant to the overall structural-cabling contract.

Q: What about servicing only nonstructural components? The contractor generally had to collect tax on the entire repair charge unless its records established that it furnished no incorporated materials.

Q: Could the contractor keep tax mistakenly collected from customers? No. Collected sales tax was state money; the ruling discussed remittance, possible customer refunds, and credits or offsets under the cited statutes.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, 212.06 — sales tax and real-property definitions
• Fla. Admin. Code r. 12A-1.051 — real property contractors
• Fla. Admin. Code r. 12A-1.006 — repairs of tangible personal property
• Fla. Stat. §§ 212.15, 213.576 — collected tax and refund treatment
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-043

Original ruling text

SUMMARY

Contracts to installation, relocate, or service cabling
systems for computer, audio, and video equipment systems
are contracts to improve, remodel, or repair real property
when the cabling is installed behind walls, under floors,
and above ceilings. The contractor is the consumer of the
materials used and should pay tax on their cost. No tax
should be collected from the customer. The classification
of the contract as a real property rather than a tangible
personal property transaction does not depend on the status
of the status of the contractor's customer as owner or
lessee of the real property where the job is performed. It
is a real property contract in either case.

Sep 03, 1999

Re: Technical Assistance Advisement 99A-043
Sales and Use Tax - Cabling Installation Contracts
Section 212.06, F.S.
Rule: 12A-1.051, F.A.C.

Dear :

This letter is a response to your letter of April 21, 1999, as
supplemented on April 23 and July 14, 1999, in which you ask the
Department to issue a Technical Assistance Advisement ("TAA")
concerning the sale, installation, and servicing of cable
systems for telephones, computers, audio, and video equipment.
Your petition has been carefully examined and the Department
finds it to be in compliance with the requisite criteria set
forth in Chapter 12-11, F.A.C. This response to your request
constitutes a TAA and is issued to you under the authority of s.
213.22, F.S.

DISCUSSION OF FACTS

XXX ("Taxpayer"), is a Florida corporation that sells and

installs cabling for telephone, computer, audio, and video
systems. Taxpayer does not provide the telecommunications,
computer, audio, or video equipment served by its cabling
systems. Taxpayer sometimes submits a written proposal to a
potential customer. A proposal contains a description of the
work to be performed, a single price for materials and a single
price for services. If the customer accepts, Taxpayer performs
the work for the agreed total price. In some case, a customer
requests services without requiring a written proposal. In
either case, the customer receives an invoice that is itemized
as to the key materials used, regular hours worked, and overtime
hours worked. Miscellaneous materials like screws and cable
ties are not itemized. Their cost is factored into the charges
for the major components and for labor.

The work performed varies by the job. You describe the
following common scenarios:

1. Cabling is installed behind walls, above ceilings, and under
   floors, usually without using conduits. The cabling is attached
   at one end to a patch panel, which is mounted on brackets to a
   wall or screwed to a rack. At the other end, the cabling
   usually ends with a connector at a wallplate, similar to
   electrical receptacle and receptacle cover. In some cases,
   cabling is pulled straight through a hole in a wall plate,
   routed through modular furniture and set up for connection
   directly to the telephone or computer equipment on the modular
   unit. Taxpayer usually also provides the rack, accessories for
   the rack, and patch cables that run from the wallplate
   connection to the equipment served by the cabling.

2. Cabling is relocated when a customer rearranges furniture or
   remodels. In such cases, the cable is pulled back up the wall,
   re-routed through the ceiling and dropped down at another
   location.

3. Cabling is removed and replaced with a difference type,
   typically because a customer has upgraded its computer system.

4. Service is provided for existing systems using materials
   supplied by the customer. Lubricant and small parts might be

provided by Taxpayer in these cases.

Taxpayer notes that its cabling differs from electrical wiring
or cabling in two ways. First, Taxpayer asserts that electrical
wiring or cabling is ordinarily installed in conduits. Second,
Taxpayer cites the frequency with which its cabling is
relocated, removed, or replaced.

Taxpayer treats its transactions as sales of tangible personal
property. Taxpayer therefore purchases materials using a resale
certificate and collects sales tax on the full contract price to
its customers. Taxpayer notes that a company that performs
similar contracts received a letter advising that this is the
proper tax treatment from the Department in 1992.

REQUESTED ADVISEMENTS

Taxpaxpayer requests advice on the following questions:

1. What is the proper sales and use tax treatment of its
   transactions.

2. Does the tax apply differently if the customer leases rather
   than owns the location?

3. If Taxpayer should be paying tax on materials rather than
   collecting tax from its customers, what is the proper
   disposition of taxes it has already collected but not remitted?

4. What is the statute of limitations period during which
   Taxpayer may be required to pay deficiencies in tax or able to
   seek credits or refunds of overpayments of tax?

DISCUSSION, ANALYSIS, AND CONCLUSION OF LAW

Real Property Versus Tangible Personal Property

The basic issue concerning Taxpayer's cabling systems is whether
they are tangible personal property or real property. Tax is
imposed on all retail sales of tangible personal property by
sections 212.05(1)(a) and 212.06(1)(a), F.S. The selling dealer

is responsible for collecting the tax from the buyer. The
taxable "sales price," defined in section 212.02(16), F.S., is
"the total amount paid for tangible personal property, including
any services that are a part of the sale." A retail sale is a
sale to the ultimate consumer. It does not include a sale to a
dealer who will resell the item as tangible personal property.
See section 212.02(14), F.S.

Sales and use taxes do not apply to transfers of real property.
Because the real property contractor does not resell the
materials he uses as tangible personal property, the contractor
is the taxable ultimate consumer. His purchases are therefore
taxable retail transactions within the definition in section
212.02(14), F.S. Rule 12A-1.051, F.A.C., discusses the taxation
of real property contractors. Under subsections (2) and (3) of
that rule, real property contractors who perform contracts with
pricing terms like Taxpayer's are taxable on the cost of the
materials they use and should not collect any tax from their
customers.

If a cabling system is properly classified as tangible personal
property, Taxpayer's sales tax treatment of its contracts is
correct. If a cabling system is real property, Taxpayer should
pay tax on the materials it incorporates into the system rather
than collecting tax on the price paid by its customer. "Real
property" is defined in section 212.06(14)(a), F.S., as "the
land and improvements thereto and fixtures and is synonymous
with the terms 'realty' and 'real estate.'" The term "fixture"
is defined in section 212.06(14)(b), F.S., as an accessory that
retains its character as an accessory upon installation but
which is permanently attached to realty.

Guidelines for determining whether a particular thing is a
fixture to realty were identified by the Florida Supreme Court
in Commercial Finance Co. v. Brooksville Hotel Co., 123 So. 814
(Fla. 1929). The Court concluded that in order for a particular
item to be a fixture that becomes part of realty, three factors
must be met. First, there must be actual annexation to the
realty or something appurtenant thereto. Second, the item must
be appropriate to the use or purpose of that part of the realty
to which the item is connected. Third, the intention of the

party making the annexation must be that the item shall be a
permanent accession to the freehold. The Court stated that the
owner's intention must be determined by considering not only the
declared intent but also the "character, relations, and purposes
of the property."

The first factor identified in Brooksville is the method of
annexation. In your situation, the cable systems are annexed to
the real property by installation into the walls, floors, and
ceilings of the buildings. They are attached to a patch panel
that is itself attached by screws or brackets. The cabling is
similar to the wiring or cabling installed by electricians, who
are considered to be real property contractors. See Rule 12A1.051(2), (16), F.A.C. The patch panel serves a similar function
as an electrical junction box and is integrated into the
structural cabling. Taxpayer tries to distinguish its cabling
from that installed by an electrician because it is not run
through conduits. This is unconvincing. Much electrical wiring
is bundled in heavily insulated cables that are run behind walls
and in ceilings and floors without use of conduits. Like
Taxpayer's cabling, it can be removed and relocated by pulling
and dropping it elsewhere through the ceiling. In addition,
installation behind, beneath, and above the structural
components of a building in and of itself traditionally has been
considered to indicate an item has been annexed. (The patch
cables supplied by Taxpayer would be properly classified as
tangible personal property since they are not part of the
structural cabling system. They are an insignificant aspect of
the total system, however, and would not affect the
classification of the overall contract as a real property
contract.)

The second factor cited in Brooksville is appropriateness of the
item to use of the realty to which it is attached. Taxpayer's
systems carry digital, audio, or video signals from an outside
sources through the walls, floors, and ceilings of a structure
and deliver those signals to the equipment placed in the
building appropriate to its intended use, for example, as an
office or auditorium. This is analogous to the electrical
wiring that delivers power to permit use of lighting or to the
plumbing pipes that deliver water to kitchens and bathrooms.

This factor also supports classification of the systems as
realty.

The third factor in Brooksville is intent of the property holder
that the attached items become part of the realty. As noted,
this test is to be applied by considering all the facts and
circumstances, including the method of attachment and function
of the item. Taxpayer apparently argues that since much of its
work involves relocating or replacing cabling, there is no
intent that it become part of the realty. This is an
unjustified conclusion. Real property is often are removed,
replaced or upgraded. Many real property contractors could
state that much of their work involves remodeling and
retrofitting. Structural wiring and cabling of any kind is
generally installed for an indefinite period of time and is not
intended to be moved around at will like furniture or other
tangible personal property. If a customer relocated its entire
operation to another site, it would take its computers,
telephones, and audio/video equipment. It most likely would not
pull all the cabling out of the walls to move it.

Review of the existing authorities indicates that Taxpayer's
cabling systems are real property. Taxpayer should pay tax on
the materials it uses for those systems rather than collecting
tax from its customers. The 1992 letter cited by Taxpayer that
reaches a different conclusion as to a different taxpayer was an
informal opinion and has no precedential value.

Repair and servicing jobs involving structural cabling are real
property transactions. If any repair or service job involved
only components that are not part of the structural system
(e.g., patch cables), that is a tangible personal property
transaction. Taxpayer should collect tax on the entire charge,
including labor, unless it can be clearly documented that
Taxpayer provided absolutely no materials, including lubricants,
that were incorporated into the customer's property. If
Taxpayer is required to collect tax on a repair or servicing
job, Taxpayer is not required to pay tax itself on the materials
that are incorporated into the customer's tangible personal
property. Those materials are considered to be purchased by
Taxpayer for resale. See Rule 12A-1.006, F.A.C., for discussion

of the taxability of repairs or maintenance to tangible personal
property.

Effect of Customer's Status as Lessee

Prior to July 1, 1998, case law governing the classification of
items as real property fixtures or tangible personal property
often considered the status of the customer as a commercial
lessee. As a rule, status as real property required that
ownership of the land or building and ownership of the item
attached be in the same person. When a commercial tenant paid
to have a fixture installed, its status as real property or
tangible personal property depended on whether it became part of
the realty that the tenant would leave behind at the end of the
lease term or could be removed. This is turn depended on the
terms of the lease and the amount of damage that would be done
in removing the item. See Meena v. Drousiotis, 200 So. 362
(Fla. 1941); Sweeting v. Hammons, 521 So.2d 226 (Fla. 3rd DCA
1988). Effective July 1, 1998, the statutory definition of
"fixture" was added in section 212.06(14), F.S. That definition
specifically provides that whether the person who annexes an
item to real property owns that real property will not be
controlling in determining whether the item is a fixture that
has become part of the realty. In the case of Taxpayer's
structural cabling systems that are installed behind walls and
under the floor and ceiling surfaces, real property treatment is
appropriate whether the customer owns the real property or
leases it.

Erroneously Collected Funds

Taxpayer has been collecting sales tax from customers on the
contract price for cabling systems rather than paying tax on the
cost of materials used, because Taxpayer in good faith believed
it was selling tangible personal property rather than performing
real property contracts. Those funds become the property of the
state at the moment they are collected. See section 212.15,
F.S., which provides that funds collected as sales taxes are
state monies and must be remitted as such. That will generally
result in the state receiving more tax revenue than it would
have if tax had been properly accrued and paid by Taxpayer. It

is the Department's practice in such cases to point out the
correct procedures for future compliance but to permit an offset
of the sales tax collected and remitted on a contract against
the contractor's use tax on materials for that contract.

Pursuant to section 213.576, F.S., such funds that have been
erroneously remitted will not be refunded to the vendor unless
it is established that the vendor has refunded the taxes to the
customer who paid them. If Taxpayer refunds erroneously
collected sales taxes to a customer, Taxpayer is entitled to a
credit or refund equal to the amount collected and remitted in
excess of the use tax that Taxpayer actually owed. Any such
credit or refund must, however, be claimed with the applicable
statutory time periods for which they are allowed. (Taxpayer
does have an alternative as to any funds it has collected as
sales taxes that have not yet become due to be reported and
remitted to the state. In Blackshears II Aluminum v. Department
of Revenue, 641 So.2d 928 (Fla. 5th DCA 1994), the court
indicated that a vendor that erroneously collected taxes could
either return them to the customer or remit them to the state.
Taxpayer would, of course, still be liable for its own use tax
on the materials used for contracts where erroneously collected
taxes are returned to the customer rather than remitted to the
state.)

Statute of Limitations

The Florida Statutes specify a maximum period that the
Department can look back at for purposes of assessing taxes and
that a taxpayer can look back at for purposes of applying for
refunds or credits. Through July 1, 1999, that period is five
years. For example, if the Department notified a taxpayer on
June 1, 1999, that the Department was going to audit that
taxpayer, the Department could assess tax on transactions
occurring in the prior five years. Similarly, a taxpayer who
timely remitted taxes on June 20, 1999 could file a refund
application as to those taxes through June 19, 2004. As of July
1, 1999, the statutory period applicable to both the Department
and taxpayers has been shortened to three years. (The statutes
of limitation do not run while certain audit, administrative, or
judicial proceedings are underway.)

As noted above, the Department will not make any assessment of
use tax in regard to any contract where the amount of sales tax
collected and remitted by Taxpayer equals or exceeds the amount
of use tax Taxpayer should have accrued and paid. If any
customer requests a refund from Taxpayer for erroneously
collected sales taxes within the applicable statute of
limitations, Taxpayer should refund the taxes to the customer
and take a credit or apply for a refund of the amount remitted
in excess of Taxpayer's own use tax liability on that contract.
As to any other erroneous remittance of sales tax that occurred
within the applicable statute of limitations, Taxpayer may elect
but is not required to refund the tax collected to its customer.
See Rules 12A-1.013 and 12A-1.014, F.A.C.

CONCLUSION

This response constitutes a Technical Assistance Advisement
under Section 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 Section 213.22, F.S. Our
response is predicated upon 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 from that which is expressed in this response.

You are further advised that this response, your request and
related backup documents 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 before disclosure. In an effort to protect the
confidentiality of such information, we request you provide the
undersigned with an edited copy of your request for Technical
Assistance Advisement, backup material and response within
fifteen days of the date of this advisement.

Sincerely,

Michael C. Gold, Senior Attorney
Technical Assistance & Dispute Resolution

Control #38331