(b)
(1) The
installation of floor covering is exempt from sales tax only if the following
criteria are met:
(i) the installation must
be of the initial finished floor covering; and
(ii) the
installation must be made in:
(a) the new construction of a building or
structure; or
(b) the new
construction of an addition to an existing building or structure; or
(c) the total reconstruction of an existing
building or structure.
(2) For purposes of this Subchapter:
(i) New construction of a building or
structure means the original construction of a building or structure that did
not exist before such construction.
(ii) New construction of an addition to an
existing building or structure means the original construction of a new room,
wing or other discrete, substantial unit of a building or structure which
enlarges the exterior of the existing building or structure.
(iii) Total reconstruction of an existing
building or structure means the complete rehabilitation or replacement of most
of the major structural elements of an existing building or structure, such as
the roof, ceiling trusses, floor joists, walls, support columns, support beams,
girders and the foundation.
(3) Floor covering installed as the initial
finished floor covering shall be deemed to be installed in new construction, a
new addition or total reconstruction where it is installed within six months of
the date of completion of the new construction, new addition or total
reconstruction.
(c)
Examples.
Example 1:A homeowner engages a contractor to remodel the
kitchen. The contract calls for replacing built-in appliances, countertops,
cabinets and floor covering. The contractor bills the homeowner for the
remodeling of the kitchen and correctly charges tax only on the sale and
installation of the floor covering. The installation of the built-in
appliances, countertops and cabinets constitutes capital improvements as
described in section
527.7
of this Title. Thus, charges for such installation are exempt from tax to the
homeowner. Since the floor covering is not the initial installation, as
described in subdivision (b) of this section, it is subject to tax.
Example 2:A new home is constructed and its owner contracts
to have hardwood floors installed in the bedrooms, living and dining rooms. In
addition, the owner will have wall-to-wall carpet installed in these rooms
before the house is occupied. The carpet qualifies as a capital improvement as
it is the initial finished floor covering and the installation occurred during
the original construction.
Example 3:Assume the same facts as in Example 2, except
that the carpet will not be installed in one of the bedrooms until three months
after the owner moves in because the carpet manufacturer cannot make timely
delivery. The installation of the carpet still qualifies as a capital
improvement since installation occurred within six months of construction in
accordance with subdivision (b) of this section.
Example 4:Assume the same facts as in Example 2, except
that the home owner does not have carpet installed until the house is a year
old. The carpet installation does not qualify as a capital improvement since it
was not made within six months of the time the home was built, and charges for
both labor and material are taxable.
Example 5:A floor covering contractor removes wall-to-wall
carpet and installs new wall-to-wall carpet padding and carpet as its
replacement. The total charge for the installation and sale of the padding and
carpet is subject to sales tax, as it is not installed as the initial finished
floor covering.
Example 6:A tenant enters into a bare-wall lease to rent
the entire third floor of a new office building. The tenant has the right to
finish the third floor of the building to suit its needs. When the lease
terminates, all improvements made by the tenant will become the property of the
owner of the building. As part of finishing the premises, the tenant arranges
with a building contractor for the installation of a suspended ceiling,
construction of offices, paneling the walls, installation of complete
electrical, plumbing, heating and air-conditioning systems and for the
installation of wall-to-wall carpet. The new ceiling, offices, paneling and
electrical, plumbing, heating and air-conditioning systems qualify as capital
improvements in accordance with section
527.7
of this Title. The new wall-to-wall carpet qualifies as a capital improvement
in accordance with subdivision (b) of this section because it is the
installation of the initial finished floor covering in new construction.
Example 7:Assume that the tenant in Example 6, in the tenth
year of the lease, hires a contractor to renovate the premises. The existing
ceiling, overhead lighting, wall paneling and carpet are to be replaced. The
new ceiling, lighting and paneling qualify as capital improvements in
accordance with section
527.7
of this Title. However, the charge by the contractor for the new carpet and its
installation is subject to sales tax because the renovation is not new
construction, an addition or a total reconstruction.
Example 8:A room in a house is damaged by a fire that
destroys the floor and causes smoke and water damage to the walls and ceiling.
The homeowner hires a contractor to make the necessary repairs. The contractor
replaces the floor, including the floor joists and plywood sub-floor. Vinyl
tile floor covering is installed over the plywood. The contractor also removes
and replaces the plaster board in the ceiling and on the walls and paints them.
The charge by the contractor for the replacement of the floor joists and
plywood sub-floor and the new walls and ceiling are exempt from tax as capital
improvements in accordance with section
527.7
of this Title. However, the charge by the contractor for the new vinyl tile
floor covering is subject to tax because it is not installed in the total
reconstruction of the customer's home. In order for the floor covering to
qualify as a capital improvement, most of the major structural elements of the
entire building must be replaced. Here, the only structural element replaced
was the floor of only one room of the building.
Example 9:A building is destroyed by fire. Only the shell
remains. Because of its historical significance, the shell is preserved and the
building is totally reconstructed. The foundation is shored up and the major
structural elements of the building, including girders, support beams and floor
joists and ceiling trusses, are replaced. The initial finished floor covering
installed throughout the building at the time of the reconstruction is a
capital improvement in accordance with subdivision (b) of this
section.
