For Utah's manufacturing equipment exemption, does it matter whether the electrician or plumber installing equipment connections identifies as a 'real property contractor,' or does it matter how they actually treat the transaction?

Plain-English summary

This record is a follow-up clarification to the Commission's November 23, 1994 advisory opinion on the same aluminum extrusion manufacturer's new extrusion press (see the companion ruling, PLR 94-026): the Commission had confirmed that removable electrical and plumbing connections needed to run the press qualify for the manufacturing equipment exemption, but flagged that if the connections "were effected through a real property contract performed by a real property contractor who has considered himself a consumer of materials... under the guidelines of Rule R865-19S-58," that would show intent to convert the materials to realty and the exemption would not apply.

Counsel asked the Commission to clarify: does that mean the exemption is lost any time the installer happens to generally identify as a "real property contractor" — even for a job that's really about connecting a piece of personal property (the press)? Their example: an electrician who normally works on office buildings but is hired specifically to wire the extrusion press.

The Commission's clarification: it's not about the contractor's general label — it's about how the contractor treats that specific transaction. If the contractor treats itself as the "consumer" of the materials for the job (the standard tax posture for a real property contractor performing a real-property improvement, under Rule R865-19S-58), no sales tax is separately collected from the facility owner on that job, so there's simply no sales transaction left for an exemption to attach to — the contractor already paid tax on its own purchase of the materials as a consumer. Treating oneself as a materials consumer on a given job is itself the evidence of intent to convert personal property to realty. So an electrician who normally does real-property work can still install exempt equipment connections without losing the exemption, as long as that particular job is structured and treated as a sale of tangible personal property (with sales tax properly collected or exempted on that basis) rather than as a real-property improvement.

What this means for you

Manufacturers and their installation contractors

Structure the contract and the tax treatment of equipment-connection work explicitly as a sale of tangible personal property, not a real-property improvement — regardless of whether your electrician or plumber's broader business is mostly real-property work. What matters is how this specific job is billed and taxed, not the contractor's general trade classification.

Electricians, plumbers, and other installation contractors

If you're installing removable connections to exempt manufacturing equipment, don't default into treating yourself as the "consumer" of the materials the way you would on an ordinary real-property job — doing so establishes intent to convert the property to realty and defeats your customer's exemption, even if you personally consider yourself primarily a "real property contractor."

Accountants and tax professionals

This ruling reframes the real-property-contractor test as transactional, not categorical: look at how a specific job's materials are taxed (consumer-use-tax posture vs. sales-tax-collected posture), not at how the contractor generally describes its business.

Common questions

Q: If my electrician normally works on buildings, does that disqualify equipment-connection work from the manufacturing exemption?
A: No. What matters is whether that specific job is treated as a sale of personal property (preserving the exemption) or as a real-property improvement where the contractor is the consumer of materials (which would forfeit it) — not the contractor's general trade identity.

Q: What specifically shows "intent to convert" materials to real property?
A: A contractor treating itself as the consumer of the materials on a given job under Rule R865-19S-58 — meaning no sales tax is separately collected from the property owner on that transaction.

Q: Does this ruling apply to my situation?
A: Not automatically. This is a private letter ruling binding only on the Commission as to this taxpayer's specific facts. Another taxpayer can't rely on it as binding, though it may carry weight in a later appeal depending on how closely the facts match.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-104 and Rule R865-19S-85 (manufacturing exemption)
• Utah Code Ann. § 59-2-102 (definition of "improvement," including "fixtures")
• Utah Admin. Rule R865-19S-58 (contractor-as-consumer standard)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/94-031.pdf

Original ruling text

94-031

Response November
23, 1994 and February 3, 1995

Commissioners

Utah State Tax
Commission

210 North 1950 West

Salt Lake City, Utah
84134

Attention: Alice
Shearer

Dear Commissioners:

Regarding: Sales or
use tax exemption: Equipment for new or expanding operations.

I appreciated the
opportunity to talk with you last Thursday, Ms. Shearer. As a result of our conversation, I have
compiled the following information. I
hope it is responsive to your requests and that it gives you the information
you need in order to provide us with some guidance from the commission.

As indicated below,
XXXXX qualifies for the exemption from sales and use taxes described in UCA
59-12-101 and R865-195-35 on the sales of machinery or equipment for new or
expanding operations:

1.
The Corporate headquarters of XXXXX and the XXXXX facility is a new
physical plant location in Utah.

2.
The SIC code for the manufacturing operation is 3354.

3.
The manufacture of aluminum extrusions is accomplished by a large
extrusion press which forms the
finished products from aluminum billets.

The extrusion press
mentioned above forces a heated billet through the press, producing a finished
aluminum product formed according to a die placed in the front of the
press. Part of the press is a
closed-loop, reversed-osmosis cooling tower, without which the press could not
function.

Both the electrical
and the plumbing connections are necessary to the operation of this machine and
neither were available in the building prior to the installation of this
machine. The connections, of course, do
attach to panels in the walls, ceiling, or floor of the building; but,
typically, they are not buried in concrete otherwise made a permanent part of
the building. The connections, along
with the press, could be removed from the building without damaging the real
estate in any significant way The building itself has both a separate
electrical system and a separate water system.

We believe sales of
the piping and other parts and materials necessary to make this machine
operational qualify for the exemption because those connections are part of
tangible personal property used in new or expanding operations.

As I interpreted our
conversation on Thursday, you are in agreement with XXXXX s opinion in his
letter dated XXXXX, � . . . auditors from the personal property division of the
State Tax Commission ruled that materials needed to connect a large piece of
machinery to a source of electricity remained as tangible personal property . .
. even though attached to real property.
I consider their decision to be a sound one If the machinery qualifies
as exempt manufacturing machinery, the necessary electrical materials to
connect it to a power source and that remain . . . [tangible personal property]
qualify also.�

We are confident that
this opinion verifies our interpretation.
In order for us to proceed in advising our client, however, we need a confirmation from the
commissioners.

We realize that XXXXX
opinion would have come from you had we addressed our request to you in the
first place. Since that was not done,
we are asking for a verification at this time.

Please let us know if
we can provide further information.

Sincerely,

XXXXX

XXXXX

Re: Advisory Opinion Qualifications of
Materials for Plumbing and Electrical Connections to Manufacturing Equipment
under Sales Tax Exemption for New or Expanding Manufacturing Facilities

Dear XXXXX:

Your request for an
advisory opinion as to whether purchases of materials for plumbing and
electrical connections to manufacturing equipment qualify for sales tax
exemptions for new or expanding manufacturing facilities was referred to the
Auditing Division for their analysis.

1.
Utah Code Annotated Section 59-12-104 and Administrative Rule
R865-19S-85 describe criteria for the �manufacturing exemption� for new or
expanding manufacturing operations.
Included in the referenced rule's definition of qualifying equipment
items are �. . . devices necessary to the control or operation of machinery and
the equipment qualifying under this rule....�

2.
The rule further indicates, �The
machinery and equipment exemption applies only to tangible personal
property. It does not apply to real
property or to tangible personal property that is purchased and becomes an
improvement to real property.�

3.
While treatment of materials under personal property tax statutes is not
determinative of treatment of materials under the sales tax statute and
its corresponding administrative rules R865-19S-85 does, in fact, refer
to the property tax law with regard to the definition of �improvements� in UCA
Section 59-2-102. Under the
definition of �improvement� is included the term, �fixtures.�

4.
Electrical and plumbing connections which are not attached to the real
estate in such a manner as to become an integral part of the building, which
are not installed or attached to the realty in such; matter that removal would
substantially destroy the connections and damage the realty and which have not become fixtures or
improvements to the realty by virtue of intent of the parties or any other
relevant factor will qualify for exemption if necessary for the operation or
control of qualifying equipment. Based
upon your description of the subject connections, the exemption is appropriate.

5.
If the connections were effected through a real property contract
performed by a real property contractor who has considered himself a consumer
of materials used in performing the job under the guidelines of Rule
R865-19S-58, such performance would be indicative of intent to convert personal
property to realty; and the exemption would not be allowed.

Based upon the facts presented
in your letter, we are in agreement with the Auditing Division's
recommendations. Obviously, if there
are deviations from these facts, this opinion may be negated.

For The Commission,

Alice Shearer

Commissioner

Commissioners

Utah State Tax
Commission

210 North 1950 West

Salt Lake City, Utah
84134

Attention: Alice
Shearer

Dear Ms. Shearer:

Regarding: Advisory opinion: Qualifications of
materials for plumbing and electrical connections to manufacturing equipment
under sales tax exemption for new or expanding manufacturing facilities.

Thank you for your
letter of XXXXX. We realize that you
expedited this opinion for us, and we appreciate your efforts. There is one point, however, that may need
further clarification. It is listed as
number 5 in your letter and is quoted below:

�If the connections
were effected through a real property contract performed by a real property
contractor who has considered himself a consumer of materials used in
performing the job under the guidelines of Rule R865-195-58, such performance
would be indicative of intent to convert personal property to realty; and the
exemption would not be allowed.�

Taken in context with
the other points in your letter, our interpretation is as follows:

Since a real property
contractor may also be a personal property contractor, number 5 would seem
relevant only to a real property/personal property contractor who is
functioning in the capacity of a real property contractor.

In other words, an
electrician who installs wiring in an office building may also install wiring
to a piece of personal property like the XXXXX owned by XXXXX. Our understanding of your point number 5 is
that the allowance or disallowance of the exemption depends upon the type of
work to be performed by the contractor rather than whether or not he considers
himself a real property contractor. If
dn electrician who considers himself generally a real property contractor were
to install the wiring to the extrusion press, we believe the exemption would
still apply.

One of the things that
makes our job difficult at times is that interpretations sometimes hinge on
terminology rather than on practice.
For that reason, it would be helpful if we could get you to expand upon
this detail. For reference, I have
attached copies of our previous correspondence.

Again thank you for your timely response and your
willingness to work with us.

Sincerely,

XXXXX

XXXXX.

Re: Advisory Opinion - Clarification of Previous
Opinion on Qualification of Plumbing and Electrical Connections to
Manufacturing Equipment Under Sales Tax Exemption for New or Expanding
Manufacturing Facilities

Dear XXXXX:

You have requested
further clarification of an advisory
opinion issued XXXXX with regard to materials for plumbing and electrical
connections to manufacturing equipment under sales tax exemption for new or
expanding manufacturing facilities.

Our research indicates
as follows:

1.
The previously issued opinion indicated that if the plumbing and
electrical connections �were effected through a real property contract
performed by a real property contractor ho has considered himself a consumer of
materials used in performing the job under guidelines of Rule R865-19S-58, such
performance would be indicative of intent to convert personal property to
realty; and the exemption would not be allowed.�

2.
The intent of the parties is one of the heavily weighted criteria used
to make determinations in real property/personal property questions. A contractor who treats himself as a
consumer of materials used in performance of a job has established an intent to
convert personal property to realty.
Further, such treatment results in a transaction between the contractor
and facility owner under which there is not tax collection by the contractor
from the facility owner, and consequently no basis for refund, credit, or
exemption of the sales tax. The
contractor is a consumer, not a manufacturer, and the exemption is not
available.

This opinion is based
upon the facts presented in your letter.
Obviously, if there are deviations from these facts, this opinion may be
negated.

For The Commission,

Alice Shearer

Commissioner