Items Purchased for Installation on Public Highways and Freeways Not Exempt in Utah

A subcontractor’s purchases of items for installation on Utah Department of Transportation (UDOT) public freeways and highways were not exempt since the items did not remain personal property once they were installed but rather, became real property subject to Utah sales and use tax. The items installed included sign structures, signage (on and off the freeway), guardrails, and crash cushions. In Utah, sales of tangible personal property are taxable and sales of real property are exempt. Sales of tangible personal property that is not converted to real property are exempt if sold to Utah, its institutions, or its political subdivisions. UDOT is a state entity. However, the items installed by the subcontractor became real property upon installation because:

  • They are not removable without harm to the underlying freeways and/or highway that are the primary essence, purpose, or object of the contracts at issue.
  • They were not manufactured with the idea that they could be used elsewhere.
  • They were inseparately meshed into the freeway and highway system; and
  • They were either embedded in the ground, attached to real property by bolts, or attached to structures or posts that were themselves attached to real property.

The contracts between the subcontractor and UDOT did not contemplate that the freeway and/or highway system that was the primary essence, purpose, or object of these transactions would be removed for repair and replacement. The subcontractor and UDOT both treated the contracts as real property contracts, not contracts for the purchase of real property.

For all of the above reasons, the items became real property upon installation and therefore qualify as taxable sales of real property. (Commission Decision, Appeal No. 15-761, Utah State Tax Commission, February 27, 2018, released October 2018)

Posted on March 11, 2019