LSN-90-5

Special Notice - Resale of Services

This LSN is obsoleted by AN 2000(8)

I. GENERAL STATEMENT

Effective July 1, 1990, services subject to tax under C.G.S. Sec. 12-407 (2) (i) purchased in the performance of another service subject to tax may be purchased without paying the sales tax, i.e. by issuing a resale certificate, under certain circumstances.

The purpose of this notice is to define and illustrate the circumstances under which a taxable service may be purchased for resale.

II. GENERAL RULES

The sale of any taxable service shall be considered a sale for resale if the service which is being purchased is to become an INTEGRAL, INSEPARABLE COMPONENT PART of the service to be resold to an ULTIMATE CONSUMER. An INTEGRAL, INSEPARABLE COMPONENT PART is one which is essential to complete the performance of the final service being sold. Once such service is incorporated into the final service being sold, it cannot again be incorporated into another service separate from the one for which it was originally purchased.

The reseller of the service must SEPARATELY STATE on the invoice to the ultimate consumer the COST of the service TO SUCH RESELLER.

The purchaser must issue a completed resale certificate to the original seller of the service.

The purchaser may not use or consume the service purchased for resale other than to incorporate it into the service intended for sale to the ultimate consumer. Furthermore, where the service being sold to the ultimate consumer is not a taxable service, the purchaser of the initial service may not purchase it for resale even though such service is to become an integral, component part of the service sold to the ultimate consumer.

III. ILLUSTRATIONS

A. An architect is hired to design a building for a developer. The architect purchases building engineering services necessary to complete the building design. The result is that the architect can purchase such engineering services on a resale basis. The reasons for this result are that:

1. Architectural services are taxable services, and

2. The building engineering services will become an integral, inseparable component part of the architectural services to be sold to the developer, i.e., once incorporated into such architectural services, these specific engineering services cannot also be incorporated into the performance of separate architectural services unrelated to the services being sold to the developer.

Services which are used in the production of tangible personal property may not be purchased on a resale basis.

B. Assume further that the engineer in example A hires a landscaping service to provide the landscape planning component of the engineering service. The engineering firm pays the landscaping firm $1,000 for such services. The result would be as follows:

1. The engineering firm could purchase the landscape planning service on resale, and

2. The architect could purchase the engineering and landscaping services on a resale basis. The invoice to the ultimate customer would read as follows:

C. A general contractor hires an architect to design a new building. The architect hires a building engineer to provide engineering services necessary to complete the architectural service. The engineer hires three office workers from a personnel agency temporarily to help out in completing this project. The results are as follows:

1. The engineer must pay the sales tax on the services of the personnel agency in providing people to assist the engineer in completing this work. The engineer is consuming these services in the rendering of his service to the architect.

2. The architect may purchase the building engineering services on resale provided the architect separately states the cost of such services on the invoice to the general contractor without markup.

3. (a) In the case of new construction, the general contractor is the ultimate consumer and must therefore pay the sales tax on the total of all separately stated amounts rendered on the invoice of the architect.

(b) In the case of renovation, the general contractor is not the ultimate consumer. Therefore, the general contractor may purchase such services on a resale basis. The general contractor must separately state the cost of these services without markup on the bill to the ultimate consumer.

(c) Where the general contractor is working for a tax exempt organization, such contractor may purchase services on a resale basis.

D. An advertising service provider purchases computer and data processing services which are used in the overall operation of the advertising business. The tax must be paid at the time these services are purchased by the advertiser because they are being consumed by the advertiser in the performance of his advertising services.

LSN 90-5 (NEW 11/90)