LR 7936

Taxability of Alarm System Leases and Monitoring Systems

May 09, 2018


Dear Applicant:

 

            This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated February 8, 2018.

 

            The facts as presented in your letter ruling request are summarized as follows:

 

Applicant is a Missouri for profit limited liability company. Applicant is based out of Missouri, where its 1,000,000 square foot facility is located. Out of this facility, Applicant produces nutritional beverages, food services premixes, fruit based beverages, prepared foods and other formulated dairy based beverages. At this facility there are areas for raw materials storage, manufacturing processes, finished goods storage, refrigerated warehouse, and administrative offices.

 

Applicant entered into an agreement with a security and alarm entity (“Entity”) to install security, fire, tornado, and ammonia alarm systems (“Systems”) throughout the Applicant’s building. The following systems were installed: 3 Fire Alarm Panels, 259 Fire and Audio & Visual Devices, 41 Smoke Detectors, 43 Pull Stations, 2 Ammonia Alarm Controls, 129 Weather Audio & Visual Devices, 41 Chemical Audio & Visual Devices, 7 NAC Extender Panels, 78 Speaker Only Devices, 76 Speaker Clusters with Strobes, 26 Audio Visual Celling Devices, 17 Duct Smoke Detectors. The Systems also include wiring, sensors, conduit, connectors, alarms, control panels and software. No sales tax was paid on the purchase of any of the Systems. The installation of the Systems involved wiring them into the Applicant’s facility.

 

The agreement between Applicant and the Entity is a lease for a term of 84 months to be billed monthly. Applicant does not take title to any components of the Systems installed during the term of the lease. Additionally, the lease provides that these components do not have to be returned to the Entity at the conclusion of the lease. Applicant currently has no intention of returning any of the Systems that are installed at its facility.

 

The Entity is also providing monthly alarm monitoring services through the Systems they have installed to Applicant during the term of the lease. At the conclusion of the lease, Applicant may choose to continue utilizing the Entity’s alarm monitoring services; but, Applicant will be billed monthly for those services. Currently, the Entity is charging sales tax on the monthly billing for the monitoring services and lease of the Systems by the Applicant.

 

ISSUE 1:

 

            Is the lease of the security, fire, tornado, and ammonia alarm systems (“Systems”) subject to Missouri sales or use tax?     

 

RESPONSE 1:

 

            No. The lease of the security, fire, tornado, and ammonia alarm systems is not subject to Missouri sales or use tax.

 

Section 144.020, RSMo, imposes a sales tax on the privilege of making retail sales of tangible personal property or providing certain taxable services in this state. This section provides “A tax equivalent to four percent of the amount paid or charged for rental or lease  of tangible personal property, provided that if the lessor or renter of any tangible personal property had previously purchased the property under the conditions of sale at retail or leased or rented the property and the tax was paid at the time of purchase, lease  or rental, the lessor, sublessor, renter or subrenter shall not apply or collect the tax on the subsequent lease, sublease, rental or subrental receipts from that property.” Section 144.020.1(8).

 

“A fixture is an article of personal property which has been so annexed to the real estate that it is regarded as a part of the land; its status may depend upon the facts and circumstances but the principal elements for consideration are: (1) the annexation; (2) the ‘adaption’ of the article to the location; and (3) the intent of the annexor at the time of the annexation.” Marsh v. Spradling, 537 S.W.2d 402, 404 (Mo 1976).  Annexation is the actual attachment to the real property. Id.  “Adaptation is the construction of the site or the item for affixation [.]”  Oberjuerge Rubber Co. v. State Tax Comm'n of Missouri,  674 S.W.2d 186, 188 (Mo. App., E.D. 1984). “A particular emphasis is laid on the element of intent; this means, as we understand it,—did the annexor intend to make it a permanent accession to the land? And the intent is shown generally by one's acts and conduct and not by any secret intention.” Marsh at 404.

 

Since no sales tax was paid on the Systems when they were purchased, the lease payments would normally be subject to Missouri sales and use tax. However, the Systems are considered fixtures rather than tangible personal property; therefore, the Systems do not fall within the scope of Section 144.020, RSMo, and are not subject to Missouri sales and use tax. All 810 Systems installed to Applicant’s facility are permanently affixed to the facility, meaning they meet the annexation requirement along with the adaption of the article location requirement. Finally, the annexor, Applicant, intended to make the Systems a permanent part of the land because they are all hardwired into the facility. Therefore, all 810 Systems are fixtures and not tangible personal property, but rather they are fixtures not subject to Missouri sales or use tax. 

 

ISSUE 2:

 

            Are the alarm monitoring services provide by the Entity to Applicant during the term of the lease subject to Missouri sales or use tax?

 

RESPONSE 2:

 

            No. The alarm monitoring services provided by the Entity to Applicant during the term of the lease are not subject to Missouri sales or use tax.

 

            Section 144.020, RSMo, imposes a sales tax on the privilege of making retail sales of tangible personal property or providing certain taxable services in this state.

 

            Alarm monitoring services, like the ones provided by the Entity, are not one of the enumerated services that are subject to Missouri sales and use tax.

 

ISSUE 3:

 

            Are the alarm monitoring services provided by the Entity to Applicant after the term of the lease be subject to Missouri sales or use tax?

 

RESPONSE 3:

 

No. The alarm monitoring services, provided by the Entity to Applicant after the term of the lease, are not be subject to Missouri sales or use tax.

 

See Response 2.         

 

            This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

 

            Should additional information be needed, please contact Legal Counsel Charles L. Merriweather, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (Telephone 573)-751-0961, or me.

 

Sincerely,

 

Joel W. Walters