The Tennessee Department of Revenue (DOR) has issued a ruling discussing the application of sales and use tax to the installation of household appliances. The taxpayer addressed in the ruling is a major manufacturer of household appliances. The taxpayer sells appliances to residential customers and building owners who rent or lease residential property units. The taxpayer contracts with a third party to install appliances for end users. The taxpayer’s intent upon installation of all the appliances for both types of end users is that the appliances remain in place for the duration of their useful life. The ruling addresses whether installation of the different types of appliances is subject to Tennessee sales tax. The DOR ruled that if an appliance remains tangible personal property upon installation, the installation of the appliance will be subject to tax. If an appliance becomes affixed to realty upon installation, the installation of the appliance is exempt.
The DOR stated that in determining whether an appliance becomes a part of realty or remains tangible personal property upon installation, it is important to consider both the expressed intent of the parties as well as factors such as the mode of attachment, whether removal would cause injury to the real property on which the appliance is installed, and whether removal of the appliance would destroy its essential character as personal property.
Taking the above factors into consideration, the DOR ruled that in the taxpayer’s case, the following appliances remain taxable tangible personal property upon installation:
Taking the above factors into consideration, the DOR ruled that the following appliances become affixed to realty upon installation, and the installation of these appliances is exempt:
This ruling is a valuable example in seeing how state Departments of Revenue can determine whether seemingly similar items are subject to tax or exempt based on how they are affixed or installed and defined as tangible or real property. (Revenue Ruling #20-11, Tennessee Department of Revenue, November 2, 2020)