The Massachusetts Department of Revenue ruled that the sale and installation of a ski lift was a construction contract rather than the installation of tangible personal property. Therefore, the construction company had to pay sales tax on materials purchased to perform the contract.
The taxpayer was a construction company ("Seller") who contracted with a ski lift operator ("Purchaser") to install a ski lift. The transaction was composed of two separate contracts, a supply and installation agreement and an engineering agreement. The contracts obligated the Seller to provide materials, labor, and engineering services. Construction of the lift required the Seller to install concrete foundations and permanent towers. The contract sale price was one lump sum that included all subcontracted work, material, and labor.
A "construction contract" is "a contract for the construction, reconstruction, alternation, improvement, remodeling, or repair of real property." Construction contracts include sales of goods and services. Contractors who perform construction contracts must pay sales tax on materials purchased for the contract because they are the consumers of the contract materials.
A contract for the sale and installation of pre-fabricated goods is a sale of tangible personal property. Pre-fabricated goods are complete units of standard equipment requiring no further fabrication but simply installation, assembly, application, or connection services. Contractors who only sell and install pre-fabricated tangible personal property are retailers. Retailers are exempt from paying sales tax on goods they purchase for resale. Retailers must collect sales tax from their customers.
The contracts together constituted a construction contract; therefore, the Seller had to pay sales tax on materials purchased to complete the contracts. The contracts were not a mere sale of tangible personal property because the lift was not "a complete unit of standard equipment requiring no further fabrication but simply installation, assembly, application, or connection services." The contracts included all goods and services required to install custom equipment on the Purchaser's property.