April 7, 2006

You request a letter ruling concerning the application of the Massachusetts sales and use tax, G.L. c. 64H and c. 64I, to the sale and installation of storage sheds by ********** Corporation ****. Specifically, you ask whether **** is a construction contractor providing real property improvements or a vendor of tangible personal property for purposes of the Massachusetts sales and use tax.

I. FACTS

You describe the facts as follows. **** constructs four basic styles of sheds in an unlimited number of sizes and customizable options including: number and location of doors and windows, cedar or asphalt roof shingles, standard rough sawn pine board and batten siding, cedar shingles or clapboard siding. Once an order for a shed has been placed and the proper permits have been approved (state building code requires a permit for 120 square feet or more), **** schedules the construction of the shed. In the meantime, **** cuts to length and/or angle as much of the materials as possible in an effort to save construction time on the customer's property. In addition, concrete footings are installed on site if required by the town, and **** is listed as the contractor on all permits.

On the scheduled day of construction and installation of the shed, **** transports all the necessary materials and equipment, including compressors, pneumatic nail guns, saws, screw guns, ladders, staging and levels to the site location. ****'s staff, and occasionally their hired subcontractors, completely construct the shed starting with the pressure treated wood floor frame and finishing with the installation of doors, windows, roofing and siding. **** does not assemble any of the framework or sidewall prior to arriving on the customer's property.

II. RULING

For the reasons discussed below, we rule that when **** constructs and installs storage sheds that are custom designed and installed in a manner intended to be permanently affixed to real property, **** is a construction contractor providing real property improvements and is responsible for the sales and use tax on the materials it buys and consumes in executing its contracts.

III. DISCUSSION

Massachusetts imposes a five percent sales tax on retail sales of tangible personal property in Massachusetts by any vendor. G.L. c. 64H, § 2. The general sales tax rule for 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, 256-257; Letter Rulings 94-6, 88-8, 85-68. As consumers of tangible personal property, construction contractors pay sales tax to their suppliers on their purchases. See Ace Heating, 371 Mass. 256-257; Letter Ruling 94-6. The transfer of real property by a construction contractor to a buyer is not subject to sales tax. See G.L. c. 64H, § 2.

The general sales tax rule for 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 install a complete unit of a standard item of tangible personal property, which requires no further fabrication other than installing, applying or connecting services. Persons acting as retailers of tangible personal property are not construction contractors and must collect tax on the sales price of the item from the buyer. See Letter Rulings 94-6, 88-5 and 85-68. Any separately stated charges for installation of the item are not taxable. See G.L. c. 64H, § 1; Letter Rulings 94-6, 88-5, 85-25.

A contract for a custom storage shed is a construction contract if it is a contract for the construction, reconstruction, alteration, improvement, remodeling, or repair of real property. See Letter Ruling 94-6. If a sales contract for a storage shed requires a person merely to sell and install a complete unit of standard tangible personal property, such as a prefabricated storage shed that is simply transported to the purchaser's property, that person is a vendor of tangible personal property and should charge the purchaser sales tax on the full sales price of the storage shed. Id.

IV. CONCLUSION

Under the facts you have presented, we conclude that ****'s contracts for storage sheds that are custom designed and installed in a manner intended to be permanently affixed to real property are construction contracts for the improvement of real property. Therefore, for the purposes of these contracts **** is a construction contractor. Pursuant to G.L. c. 64H, **** must pay sales tax on its purchase of construction materials. The cost of the storage sheds paid to **** by its customers is not taxable.

Very truly yours,

/s/Alan LeBovidge

Alan LeBovidge
Commissioner of Revenue

AL:MTF:wm

LR 06-3