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Ruling 2019-1 Sales and Use Taxes, Services to Real Property, Installation (Real Property)


An electricity supplier (the “Company”) entered into a contract with a contractor to install a fuel cell facility (the “Facility”) on the premises of a municipal school. The municipality will lease the Facility site to the Company without charge for an initial term of twenty years. The Company will sell the heat and electricity produced by the Facility to the municipality for use in the school.

The generation component of the fuel cell is approximately twenty-eight and one-half feet long, over eight feet wide, ten feet tall, and weighs fifty-seven thousand pounds. The cooling module of the fuel cell is approximately sixteen feet long, eight feet wide, and six feet tall, and weighs over three thousand pounds. The contractor manufactured the components of the fuel cell at its offsite facility and shipped them to the Facility where the contractor set them in place.

The contractor performed the following work for the Company over a five-month period to furnish the Facility and make it operational:

  • Hired and directed an engineering firm for the creation of the design for the Facility;
  • Obtained state and local building permits;
  • Excavated and leveled the area for the foundation;
  • Applied crushed stone to prepare for the precast foundation slabs;
  • Poured concrete for the surrounding service, maintenance, access, fences, utility and lighting areas (approximately twenty-seven feet by sixty feet);
  • Used a crane to set the foundation slabs, fuel cell components, and cooling tower components in place, and anchor bolted the components to the foundation;
  • Installed connections to underground utilities, including natural gas, water, electric grid, heating water supply and return piping, and control wiring;
  • Installed new piping and conduit above and below ground with hard connections, including pavement cutting/trenching through the existing parking lot, to connect the Facility to the school building’s utility systems for heating and electricity;
  • Installed chain-link security fencing that is eight feet high with a perimeter of one hundred eighty feet, with posts embedded in concrete, around the Facility site, and with security posts to prevent damage to the Facility from vehicles;
  • Installed lighting for the site; and
  • Performed startup and final testing of all Facility systems.


  1. Is the labor performed to install the Facility considered a service to real property or the installation of tangible personal property?
  2. If the labor to install the Facility is ruled to be a service to real property, is it a service to existing real property or to a site improvement?


  1. The labor performed to install the Facility is considered a service to real property, and not the installation of tangible personal property.
  2. The Facility is a site improvement, and so the labor to install the Facility is not taxable as a service to existing real property.


Connecticut generally imposes sales tax on retail sales of tangible personal property, whereas sales of services are not subject to sales tax unless specifically enumerated as taxable in Conn. Gen. Stat. § 12-407. Sales of services to commercial, industrial or income-producing real property are so enumerated, in Conn. Gen. Stat. § 12-407(a)(37)(I).

The definitions of “sales price” and “gross receipts” in Conn. Gen. Stat. § 12-407(a)(8) and (9), respectively, exclude “the amount charged for labor rendered in installing or applying the property sold, provided such charge is separately stated and exclusive of such charge for any service rendered within the purview of [Conn. Gen. Stat. § 12-407(a)(37)(I)].” A regulation provides more detail on this exclusion, stating that:

[A] person, whether the person is a contractor, subcontractor or otherwise, acts as a retailer selling tangible personal property in the same manner as other retailers and is required to install a complete unit of standard equipment, requiring no further fabrication but simply installation, assembling, applying or connecting services. In such instances the contract will not be regarded as one for improving, altering or repairing real property. For example, the retailer of an awning or blind agrees not only to sell it but to hang it; an electrical shop sells electrical fixtures and agrees to install them; a retailer sells an electric washing machine and contracts to install the same; a dealer sells cabinets and agrees to install them. A person performing such contracts is primarily a retailer of tangible personal property and should segregate the full retail selling price of such property from the charge for installation, as the tax applies only to the retail price of the property.

Conn. Agencies Regs. § 12-426(18)-1(e).

In contrast to the “simple installation” described above, a service to real property is performed when a contract is for the installation of “systems” that are integrated into real property. Examples of such “systems” include plumbing systems, which contain pumps, tanks, and water heaters, and heating and cooling systems, which contain central air conditioning units and furnaces. When a system is being installed in new construction or in residential real property, the services are not taxable. Contractors are the consumers of the materials used when installing these systems and, therefore, must pay tax on their purchases. Informational Publication 2018(2), Building Contractors’ Guide to Sales and Use Taxes, “Installation versus Repair or Maintenance of Tangible Personal Property,” pp. 10-11.

Another example illustrating the distinction between installation and a service to real property is the construction of communications tower sites. Such towers typically are tall steel structures mounted on concrete pads on the ground and secured to the ground with guy wires. There may also be buildings constructed at the tower sites. The towers and buildings are real property, not tangible personal property, and so services performed on the towers themselves or the buildings around them are services to commercial, industrial, or income-producing real property. IP 2018(2), “Antennas and Communications Towers,” pp. 26-27.

Similar to the services involved in constructing communications tower sites, the activities that went into installing the Facility were much more complex than simply the installation of tangible personal property. The installation of the Facility required excavation to prepare the ground for a concrete foundation to be poured, and then the fuel cell was anchor bolted to the foundation. Pipes and electrical wiring were laid underground that would connect the Facility to natural gas, water, and the electric grid. Pipes and conduit were also run above and below ground, to connect the Facility to the school building’s heating and electrical systems. A security fence was installed, with its posts embedded in concrete, and site lighting was installed. Given the scope of work required and the permanent nature of the changes to the real property, the labor performed to install the Facility was a service to real property, and not the installation of tangible personal property.

Despite being located on land belonging to a municipality, the Facility is considered to be income-producing real property because the Company is leasing the land on which it operates the Facility in order to sell the electricity and heat it generates. The tangible personal property that was installed into the Facility, including the fuel cell itself, was taxable to the Contractor as the consumer of such materials.

Services are taxable under Conn. Gen. Stat. § 12-407(a)(37)(I) only if the services are rendered to existing industrial, commercial or income-producing real property, thus excluding services to new construction from taxable services. Conn. Agencies Regs. § 12-407(2)(i)(I)-1(c). The regulation defines “construction of new real property” to include site improvements:

Services involved in the making of improvements to real property that put the property affected to a new use, such as the construction of roadways, walkways (concrete or asphalt), parking lots, patios (concrete or asphalt), swimming pools, tennis courts or decks, will be considered to be rendered in the construction of new real property, whether or not the making of such improvements is directly connected with the construction of a new building. . . .

Conn. Agencies Regs. § 12-407(2)(i)(I)-1(c)(2). See also Ruling No. 92-9, which held that the construction of an interstate gas pipeline was an improvement to real property.

As the Facility was an improvement to real property that put such property to the new use of producing and supplying electricity and heat to the school building, the labor performed in the installation of the Facility is considered rendered in the construction of new real property and is not subject to sales and use taxes.

June 25, 2019