Scaffolding Systems as Temporary Facilities:
Over three years have passed since the Department of Taxation and Finance (“Department”) was definitively informed in the L&L Painting decision that it had been incorrectly interpreting its own regulation regarding temporary facilities on construction sites. In response, the Department recently issued a Technical Memorandum (“TM”) clarifying its position regarding “scaffolding systems” as temporary facilities in light of the L&L Painting decision. To the extent that any of the policies stated in the TM are new, they will become effective on January 1, 2015.
As defined in the TM, scaffolding systems refers to temporary scaffolding, temporary protective pedestrian walkways and temporary hoisting systems. In order for a scaffolding system to be considered a temporary facility, it must be a fixed structure “used to support, protect or convey people or materials” on a construction site. Included as qualifying scaffolding systems are shoring, suspended scaffolding, hoisting systems similar to elevators and other conveyance systems found in permanent structures. Excluded items include moveable equipment such as scaffolding on wheels or casters.
The Department recognizes in the TM that “scaffolding systems are necessary components of most major construction projects.” It also acknowledges that subcontracts to furnish, install and dismantle scaffolding systems constitute agreements to furnish a service. Whether or not these subcontracts are for temporary facilities that are a necessary prerequisite to the construction of a capital improvement depends on the nature of the underlying project. If the project is a capital improvement, the end result of the scaffolding system installation is also a capital improvement and vice versa.
The TM states that most scaffolding system subcontracts are typically composed of rental charges and labor charges for installation and removal. The subcontracts are billed either on a lump sum or separately stated basis. Does the inclusion of a rental charge change the nature of the transaction from the sale of a service to an equipment rental? According to the Department, the answer is no. The subcontract to furnish, install and dismantle the scaffolding system will be viewed as an agreement to provide a service regardless of the fact that rental charges are a component part of the transaction. Subcontractors providing these services on capital improvement projects should be given a copy of the ST-124 Certificate of Capital Improvement obtained from the project owner.
Subcontractors providing scaffolding systems are treated as contractors for sales tax purposes. This means that they must pay sales tax on their purchases of the scaffolding system materials.
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