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Sales and Use Tax TAA 18A-008 Fire Alarm System Repairs and Inspections

QUESTION: ARE “LABOR ONLY” SERVICES, WHERE NO MATERIALS OR PARTS ARE INVOLVED, TO INSPECT AND/OR REPAIR FIRE ALARM SYSTEMS, FIRE SPRINKLER SYSTEMS, AND FIRE EXTINGUISHERS, SUBJECT TO SALES TAX?
ANSWER: “LABOR ONLY” SERVICES PROVIDED TO INSPECT AND/OR REPAIR FIRE ALARM SYSTEMS ARE SUBJECT TO SALES TAX. “LABOR ONLY” SERVICES PROVIDED TO FIRE SPRINKLER SYSTEMS AND FIRE EXTINGUISHERS ARE NOT SUBJECT SALES TAX, PROVIDED THESE SERVICES ARE NOT PART OF THE FIRE ALARM SYSTEM. TAXPAYER MUST SHOW PROOF THAT NO PARTS WERE ADDED TO REPAIR THE FIRE EXTINGUISHER.

May 16, 2018

Re: Technical Assistance Advisement
Florida Sales and Use Tax
Fire Alarm Systems, Fire Sprinkler Systems, and Fire Extinguisher Repairs and Inspections
Section 212.05(1)(i)1.a., Florida Statutes (F.S.), and
Rules 12A-1.0092(1), (2)(a), 12A-1.016, and 12A-1.051, Florida Administrative Code (F.A.C.)

This letter is a response to your petition XXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX, for the Department of Revenue’s (“Department”) issuance of a Technical Assistance Advisement (“TAA”) concerning the above-referenced petitioner and matter. Your petition has been carefully examined and the Department finds it to be in compliance with the requisite requirements 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 Section (“s.”) 213.22, F.S.

STATED FACTS PRESENTED:

Taxpayer is in the business of providing fire safety and security services to its customers. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. Taxpayer also has a location in Florida. Services performed by Taxpayer include fire alarm system inspections and repairs, fire sprinkler system installation and repairs, and fire extinguisher inspections and repairs. The services performed by Taxpayer entail adding materials and parts necessary to repair the system, or making repairs that consist of “labor only” services where no materials or parts are added. Repairs to fire extinguishers may consists of only an inspection check with no materials or parts added other than a “tag” that certifies the date of the inspection.

REQUESTED ADVISEMENTS

Taxpayer seeks an opinion from the Department on whether “labor only” services, where no materials or parts are involved, to inspect and/or repair fire alarm systems, fire sprinkler systems, and fire extinguishers are subject to sales tax.

LAW & DISCUSSION:

Section 212.05, F.S., provides every person is engaged in a taxable privilege when engaging in the business of selling or leasing, at retail, tangible personal property in this State. In order to exercise such a privilege, tax is levied at a rate of 6%. See s. 212.05(1)(a)l.a., F.S.

Section 212.05(1), F.S., enumerates transactions that are subject to sales and use tax. In relevant part, it provides as follows:
* * *
(1) . . . [A] tax is levied on each taxable transaction or incident, which tax is due and payable as follows: . . .
(i)1. At the rate of 6 percent on charges for all:
a. Detective, burglar protection, and other protection services (NAICS National Numbers 561611, 561612, 561613, and 561621). . ..
* * *
2. As used in this paragraph, “NAICS” means those classifications contained in the North American Industry Classification System, as published in 2007 by the Office of Management and Budget, Executive Office of the President.

This U.S. industry code for establishments primarily engaged in selling security alarm systems, such as burglar and fire alarms, along with installation, repair, or monitoring services, are included under the NAICS National Number 561621. The following services are included under the 2007 NAICS National Number 561621:
o Alarm system monitoring services o Alarm systems sales combined with installation, repair, or monitoring services

o Burglar alarm monitoring services o Burglar alarm sales combined with installation, repair, or monitoring services o Fire alarm monitoring services

o Fire alarm sales combined with installation, repair, or monitoring services

o Security alarm systems sales combined with installation, repair, or monitoring services

o Security system monitoring services

Rule 12A-1.0092, F.A.C., has been promulgated to administer and provide guidance on the scope of the activities that are protection services taxable under s. 212.05(1)(i), F.S.

Rule 12A-1.0092(2)(a), F.A.C., provides in part:
(2)(a) Detective, burglar protection, and other protection services are those services which are rendered to minimize or prevent loss or damage to life, limb, or property and are of a kind typically performed by security or alarm system companies, or are those investigative services which are rendered to obtain evidence or other information for legal, business, employment, or personal purposes of a kind typically performed by detective or investigative agencies. Illustrative examples of taxable services are:
* * *
3. Burglar or fire alarm or other security system devices monitoring and maintenance;
a. The installation of alarm or security systems that remain tangible personal property is governed by the provisions of Rule 12A-1.016, F.A.C.
b. The installation of alarm or security systems that become a part of real property is governed by the provisions of Rule 12A- 1.051, F.A.C. 1
c. The monitoring or maintenance of alarm or security systems is a taxable service whether such systems are considered tangible personal property or a part of real property. The term maintenance includes any inspection of an alarm or security system to confirm its proper working order. The term maintenance does not include the expansion or upgrade of an existing system, but it does include the replacement of defective components.

The law provides that charges for monitoring, maintenance, repairs, and inspections of an existing security system, which include burglar and fire alarm systems, are subject to sales tax based on the total charge to the customer. The taxability of these services applies regardless of whether the security system itself would be considered tangible personal property or a real property improvement. See Rule 12A-1.0092(2)(a)3.c., F.A.C. Thus, taxable fire alarm system services include “labor only” charges for inspections and repairs.

Regarding fire sprinkler systems, Rule 12A-1.051(17), F.A.C, provides a list of specific activities which are classified as real property. Paragraph (jj) of this rule section includes fire sprinkler systems as being improvement to real property. The basic components of a fire sprinkler system are the sprinklers (heads), the system piping, and a water source. Most systems also require various system control valves and an alarm. The alarm may be activated by a change in water pressure or by sensing water flow. The alarm component alerts building occupants and emergency forces (e.g., fire department) when a sprinkler system is expelling water. A contractor who installs, services, repairs or maintains a fire sprinkler system is generally considered to be a real property contractor, and the contractor must pay tax to its supplier on the purchase of all materials and supplies used to perform the work and charges no tax to the customer. As real property improvements, such activities are taxable, as provided under Rule 12A-1.051, F.A.C. Thus, repairs to a fire sprinkler system are not taxable as a security service.

Moreover, the protection services that are subject to tax are those that are enumerated in NAICS National Numbers 561611, 561612, 561613, and 561621. Fire sprinkler systems are not expressly listed as an activity under any of these code numbers. The installation of sprinkler systems is specifically listed under NAICS code 238220, "Plumbing, Heating and Air-Conditioning Contractors" which is an industry number that is not subject to tax. The NAICS code (238220) expressly provides that the work performed by contractors under this classification number "may include new work, additions, alterations, maintenance, and repairs." Therefore, repairs to fire sprinkler systems are not considered to be services that are "other protection services" or "other security system devices," as provided in Rule 12A-1.0092(2)(a), F.A.C. Accordingly, repairs and maintenance provided to fire sprinkler systems are not taxable security services under s. 212.05(l)(i)l.a., F.S., or Rule 12A-1.0092, F.A.C., including “labor only” repairs or inspections of a sprinkler system.

Regarding fire extinguishers, in any case where a fire extinguisher is serviced, and the service provided is not related to or a part of the fire alarm system, such service is not subject to sales tax as a taxable security service. Under NAICS code 423990, fire extinguisher sales combined with rentals and/or service are an included activity for this classification code. However, the exclusion from sales tax on repairs to fire extinguishers as a taxable security service does not apply to taxation of fire extinguishers as a repair of tangible personal property. Rule 12A-1.006, F.A.C., provides that the entire charge for repairing tangible personal property, which also includes adjusting, applying, installing, maintaining, and remodeling, is subject to sales tax when parts are included in the repair(s) made by the repairer. Sales tax is due on the entire charge for the repair of fire extinguishers where parts are added to the repair. Where parts are not added to the repair (i.e., “labor only”), and the repairman can prove no parts were added, the repair is not subject to sales tax.

CONCLUSION:

The Department concludes the charge for “labor only” services provided to inspect and/or repair fire alarm systems are subject to sales tax. “Labor only” services provided to fire sprinkler systems and fire extinguishers, are not subject sales tax provided these services are not part of the fire alarm system. Taxpayer must show proof that no parts were added to repair the fire extinguisher.
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, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your response should be received by the Department within 10 days of the date of this letter.

Sincerely,
Joseph D. Franklin III
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850)717-6729
Record ID: 59705

End Notes:

1 Rule 12A-1.051(4), F.A.C., provides:
(4) General rule of taxability of real property contractors. Contractors are the ultimate consumers of materials and supplies they use to perform real property contracts and must pay tax on their costs of those materials and supplies, unless the contractor has entered a retail sale plus installation contract. Contractors performing only contracts described in paragraphs (3)(a), (b), (c), or (e) do not resell the tangible personal property used to the real property owner but instead use the property themselves to provide the completed real property improvement. Such contractors should pay tax to their suppliers on all purchases. They should also pay tax on all materials they fabricate for their own use in performing such contracts, as discussed in subsection (10). They should charge no tax to their customers, regardless of whether they itemize charges for materials and labor in their proposals or invoices, because they are not engaged in selling tangible personal property. Such contractors should not register as dealers unless they are required to remit tax on the fabricated cost of items they fabricate to use in performing contracts.

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