In revised Information Release ST 1999-01 — Sale and Installation of Computer Cabling (released December 18, 2019), the Ohio Department of Taxation (Department) announced a change in the Department's application of sales and use tax to computer cabling. The change is effective October 22, 2019.

An information release does not carry the weight of law but represents the Department's position on a substantive issue.

Change in position

The change in position responds to the recent decision by the Ohio Board of Tax Appeals in Nationwide Mutual Insurance Co. v. McClain,¹ in which the Board overruled its previous 1998 decision in Newcome Corp. v. Tracy² (see Tax Alert 2019-1983).

The revised release treats computer cabling that is incorporated into realty as a construction contract under Ohio Rev. Code Section 5739.01(B)(5), so the sale and installation of the cabling is not subject to the sales and use tax. People that sell and install computer cabling, the release said, should incur use tax on the cost of the cabling unless customers desire specialized networks to meet their technical requirements. For specialized networks, the computer cabling would be classified as tangible personal property (i.e., a business fixture) after it is installed into realty, with sales and use tax due from the customer on materials and installation labor, unless otherwise exempt from the tax.

Implications

The Department's position will apply to: (i) all future transactions involving the installation of computer cabling; and (ii) past transactions if, at the time of the transaction, the construction contractor neither collected sales tax as a vendor nor paid sales or use tax as a construction contractor. For either a construction contractor that acted as a seller and installer of computer cabling or its customer seeking a tax refund based on the new position, that seller and installer will be expected to accrue use tax as a construction contractor.

The statute of limitations for refunds of sales/use tax is four years from the payment of the tax.

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ENDNOTES

¹ Nationwide Mutual Insurance Co. v. McClain, BTA Case Nos. 2018-313, 2018-315, 2018-316, 2018-317, 2018-318 (Ohio Bd. Tax App. October 22, 2019).

² Newcome Corp. v. Tracy, BTA Case No. 97-M-320 (Ohio Bd. Tax App. December 11, 1998).