006.05.06 Ark. Code R. § 9.17 - SERVICES SUBJECT TO TAX - INITIAL INSTALLATION

A. The initial installation of any of the following is taxable, unless one of the exemptions listed below, applies:
1. Motor vehicles;
2. Aircraft;
3. Farm machinery and implements;
4. Motors of all kinds;
5. Tires and batteries;
6. Boats;
7. Electrical appliances and devices;
8. Furniture;
9. Rugs;
10. Flooring;
11. Upholstery;
12. Household appliances;
13. Televisions and radios;
14. Jewelry;
15. Watches and clocks;
16. Engineering instruments;
17. Medical and surgical instruments;
18. Machinery of all kinds;
19. Bicycles;
20. Offices machines and equipment;
21. Shoes;
22. Tin and sheetmetal;
23. Mechanical tools; and
24. Shop equipment.
B. DEFINITIONS.
1. "Initial installation" shall mean the first time setting up for use or service of the tangible property by connecting, fastening, attaching, joining, securing, building in, mounting, or otherwise affixing the property in the required location, except when the installation is provided in connection with the construction or substantial modification of a building or other improvement or structure affixed to real estate. Initial installation does not include delivery of an electrical appliance or household appliance, even if the delivery person plugs in the appliance for the owner.
2. "Electrical appliances and devices" include items commonly understood to be appliances that have electrical components and items such as electrical signs, transformers or other items installed on electrical utility power lines, cell phone towers, and computer hardware.
3. "Flooring" shall mean tile, hardwood, vinyl, carpet, a finished surface applied to concrete or other subfloor, or any other floor covering that overlays the subfloor of a structure to provide a finished surface for the floor, including decorative finishes.
4. "Household appliances" shall mean, for purposes of this rule, any household appliance that requires installation, including dishwashers, disposals, and any other household appliance that is not an electrical appliance or device such as a hot water heater. For purposes of this rule, household appliances does not include items that are not required to be installed, such as toasters, mixers, blenders, can openers, food processors, and other items that are considered to be small household appliances that do not require installation.
C. EXEMPTIONS.
1. Initial Installation of Exempt Property. The service of initial installation of any property that may be purchased exempt from tax is not taxable.

Example: Machinery and equipment that meets the requirements for exemption as machinery and equipment used directly in manufacturing may be purchased exempt from tax. The labor to install machinery that qualifies for exemption as manufacturing machinery is not taxable.

2. Initial Installation in New Construction. The service of initial installation of flooring, motors, electrical appliances or devices, household appliances, or machinery in a newly constructed or substantially modified building or other improvement or structure affixed to real estate is not taxable. Individuals or businesses that provide labor to install flooring, motors, electrical appliances or devices, household appliances, or machinery in new construction are acting as contractors and are not providing taxable services. The contractor should either pay tax to the supplier on the materials and equipment used in the installation, or self-assess tax as a withdrawal from inventory (stock) on the purchase price of all materials.
3. Initial Installation of Nonmechanical, Passive, or Manually Operated Components. The law in effect prior to July 1, 2004 regarding the initial installation of nonmechanical, passive, or manually operated components that become part of real estate after installation has not changed. The initial installation of such nonmechanical components is not taxable. However, flooring was removed from the list of components that are considered nonmechanical, passive, or manually operated components whose installation is exempt from tax.
D. INITIAL INSTALLATION IN EXISTING BUILDING TAXABLE. Heating and air contractors, electricians, plumbers, or others who install flooring, motors, electrical appliances or devices, household appliances, or machinery for the first time (initial installation) in an existing building should collect tax on the labor charged to install the mechanical or electrical components. Any materials or parts installed are taxable to the customer. The labor to install ductwork and other nonmechanical, passive, or manually operated components that become part of the real estate is not taxable. If both taxable and nontaxable services are provided, the nontaxable charges must be separately stated on the invoice. Otherwise, the entire charge will be taxable.
E. REPAIRS AND REPLACEMENTS. The repair or replacement of flooring is taxable. The law in effect prior to July 1, 2004, regarding repair and replacement of motors, electrical appliances or devices, household appliances, or machinery has not changed. Any business or individual should continue to collect and remit tax on taxable repair and replacement services. (See Arkansas Gross Receipts Rule GR-21(E)(1)(b) - (d).)
F. PURCHASE OF MATERIALS. A business holding a sales tax permit should purchase all materials used in its construction, repair, and retail business exempt from sales tax as sales for resale. Any materials used in the performance of non-taxable services, including initial installation in new construction, are not taxed to the customer; however, the business must self-assess, report, and pay sales tax as a withdrawal from inventory (stock) on the purchase price of the materials. The business must collect sales tax from its customers on retail sales of materials. Sales tax on materials used in performing taxable services is to be collected from the customer along with the labor charges. A business that is not required to hold a sales tax permit must pay tax on all purchases of materials.

Notes

006.05.06 Ark. Code R. § 9.17

Ark. Code Ann. § 26-52-316

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