May 4, 1988

You represent a group of cabinetmakers who have requested clarification of the Massachusetts sales tax treatment of custom cabinetmaking transactions. You state that a custom cabinetmaker typically designs, builds, and affixes cabinets made to the special order of each buyer. We conclude that charges for cabinets custom- built to the special order of the buyers are not subject to Massachusetts sales tax. We also conclude that custom cabinet- makers as you have described them are construction contractors who should pay sales tax on their purchases.

The Fact Setting

The facts you have described follow. A buyer contracts with a custom cabinetmaker for the design, building, and affixation of custom cabinets. The buyer typically selects a custom cabinetmaker because the job specifications preclude the installation of prefabricated cabinets or cabinet components. Such specifications include irregularities in the shape of the site, buyer specifications which cannot be met in prefabricated cabinets or cabinet components, and the buyer's aesthetic preferences. The buyer may be the owner of the site or a general contractor who is constructing or remodeling the site for the present or future owner of the site.

After the parties enter into the contract, the custom cabinetmaker measures the site and consults with the buyer on the location of the cabinets, the configuration and shape of the cabinets, the style, and the type of woods and finishes to be used. The custom cabinetmaker formulates a design for the buyer, discusses any modifications to the design with the buyer, and obtains final approval of the design from the buyer.

The custom cabinetmaker then purchases materials needed for the cabinets and begins the preliminary construction of the cabinets at the custom cabinetmaker's shop. Such preliminary construction usually consists of cutting large pieces of wood down to appropriate size, building the cabinet frame to the exact measurements of the site, and preliminary sanding. The partially constructed frame is by this point not suited for installation at any site other than the buyer's.
The custom cabinetmaker now moves the partially constructed frame to the job site and affixes the frame to a wall or walls. Often a wall will form one side of the cabinet; if the cabinet frame is affixed to a corner, the two corner walls will form two sides of the cabinet. The custom cabinetmaker finally attaches the countertop to the cabinet and the walls, fits and attaches all doors and drawers, sands, and applies finish to the cabinets. Once they are attached, many custom cabinets cannot be removed from their sites without being dismantled. Custom cabinets which cannot be removed without dismantling are not suited for installation at another site.

A custom cabinetmaker typically does not sell ready-made, freestanding cabinets or prefabricated cabinet components, which can be easily assembled into finished cabinets, and does not maintain a showroom or other display of cabinets as part of the cabinetmaker's business. A custom cabinetmaker does not work from standard designs. Each custom cabinet is individually and specially designed.

Legal Analysis

Massachusetts imposes a five percent sales tax on retail sales of tangible personal property in Massachusetts. G.L. c. 64H, § 2. In Massachusetts the general sales tax rule on contractors and subcontractors who construct, reconstruct, alter, improve, remodel, and repair real property ("construction contractors") is that contractors are the consumers of tangible personal property purchased by them for the performance of their contracts. See Ace Heating Service, Inc. v. State Tax Commission, 371 Mass. 254, 256-57; Letter Ruling 85-68. As the consumers, construction contractors should pay sales tax to their suppliers on their purchases of tangible personal property. See, e.g., Ace Heating, 371 Mass. at 256-57; Letter Ruling 82-122, 82-121. A construction contractor's transfer of real property to the buyer is not subject to sales tax. See G.L. c. 64H, § 2.

The Massachusetts rules on construction contractors were originally published as Massachusetts Emergency Regulation No. 12 in 1966, when the sales tax law was first enacted. Because Emergency Regulation No. 12 lapsed without a hearing and was never promulgated as a permanent regulation, the rules in Emergency Regulation do not have the force of law. But the Supreme Judicial Court and the Department of Revenue have both recognized Emergency Regulation No. 12 as a contemporaneous interpretation of the sales tax law, entitled to weight and deference. See Ace Heating Service, 371 Mass. at 256-57.
Under Emergency Regulation No. 12, the general sales tax rule on construction contractors does not apply to sales contracts in which persons act as retailers selling tangible personal property in the same manner as other retailers and are required to install a complete unit of a standard item of tangible personal property, which requires no further fabrication other than installing, applying, or connecting services. 1 Persons acting as retailers of tangible personal property are not construction contractors and should collect tax on the sales price of the item from the buyer. 2 Letter Ruling 85-68. Any separately stated charges for installation of the item are not taxable. See G.L. c. 64H, § 1(14)(c)(iii); Letter Ruling 85-25. The fact that a standard item of tangible personal property may become a fixture to real property does not alter the operation of the rule on complete units of standard items of tangible personal property. Cf. Letter Ruling 85-68, 85-25.

A contract for custom cabinets is a construction contract if it is a contract for the construction, reconstruction, alteration, improvement, remodeling, or repair of real property. See Emergency Regulation No. 12; cf. Letter Ruling 85-68. If a sales contract for cabinets requires a person merely to sell and install a complete unit of standard tangible personal property, such as prefabricated cabinets or cabinet components, that person is a vendor of tangible personal property and should charge the buyer sales tax on the full sales price of the cabinet, including labor charges and excluding reasonable and separately stated installation charges. A contract for custom cabinets, as you have described it, is not a contract for a complete unit of standard tangible personal property.

We conclude that contracts for custom cabinets as you have described them are construction contracts for the improvement of real property and that custom cabinetmakers under these contracts are construction contractors. Custom cabinetmakers should pay sales tax on their purchases of materials. The custom cabinetmakers' charges for custom cabinets to the buyers are not taxable.


Very truly yours,
Stephen W. Kidder,
Commissioner of Revenue
May 4, 1988
LR 88-8

Footnotes:

1 The following are examples of complete units of standard equipment: water softeners to be affixed to real property, Letter Ruling 85-25; wireless alarm systems to be affixed to real property, Letter Ruling 85-68; awnings and blinds to be hung, Emergency Regulation No. 12; electrical fixtures, Emergency Regulation No. 12.(1)

2 Under such circumstances, the person acting as a vendor of tangible personal property may present a resale certificate when purchasing the items for resale. See G.L. c. 64H, § 8(a)-(d).