Commercial Refrigeration Equipment

I saw this article recently involving a ruling from Pennsylvania. It caught my eye because, well it's my job. But also because this very question has come up more than once in the last year or so. And it sticks in my mind that it came up in Pennsylvania. So, you PA folks out there, pay attention.

For some of you, this might be interesting as a guide to how YOUR state might treat this equipment. And for the rest of you, who are wondering why you should care about commercial refrigeration (haven't typed this word yet without misspelling it) equipment, the theory itself is interesting.

The problem involves installing those big units in grocery stores. Do they become real property or not? In other words, is the sale of the equipment treated as a sale of installed TPP and therefore taxable. Or is the resulting installation considered RP (real property)? In which case, the contractor rules kick in (contractor pays tax on building materials, does not charge customer tax).

PA came up with, what I think, is a pretty good test. If the refrigeration unit (there, I spelled it right) is self contained with the compressor being inside the unit, then it's considered the sale of TPP and the seller would charge the grocery store sales tax. However, if the compressor is located outside of the unit, probably someplace else in the store, then it's considered RP. In that case, the contractor pays tax when he buys the unit and he doesn't charge tax to the grocery store - the standard contractor treatment.

The theory, for the rest of you, is that when you are installing big equipment, one test for whether or not it's a real property contract and therefore taxable to the contractor but not to the buyer, is whether or not the equipment is self contained and can function on it's own. If so, it's a sale of TPP and therefore taxable to the buyer.

But if it still needs other equipment in the building to be able to function, then it might be considered a real property contract and treated under the normal contractor rules.

Like I said, interesting. No, fascinating!

Sales Tax Guy
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