United States

Ohio: Installation of a Golf Course Irrigation System Was Subject to Sales and Use Tax

Oct 05, 2015
From KPMG TaxWatch

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Recently, the Ohio Court of Appeals affirmed an Ohio Board of Tax Appeals ruling that amounts paid for the installation of a golf course irrigation system were subject to tax. In Ohio, services to install tangible personal property are subject to sales and use tax. However, if the tangible personal property installed becomes part of the real property, the installation services are not subject to sales and use tax. The taxpayer at issue argued that amounts paid to install the irrigation system should not be taxable because the system constituted a fixture on real property. Under Ohio law, a fixture is defined as tangible personal property that has become permanently affixed to the land and that primarily benefits the realty. Ohio law distinguishes a “fixture” from a “business fixture,” which is tangible personal property permanently affixed to land which primarily benefits the business conducted on the premises, not the realty. Charges to install business fixtures are subject to sales and use tax. The Ohio Board of Tax Appeals determined that the irrigation system was a business fixture and therefore its installation was subject to tax.

On appeal, the court affirmed the Board of Tax Appeals decision, holding that the irrigation system was designed and installed to benefit the business conducted on the land (i.e., the golf course) rather than to benefit the land itself. The taxpayer installed the irrigation system to meet the varying water needs of the different types of turf found on the golf course. The system enhanced playability and decreased the need for spot watering, thereby improving business by minimizing player inconvenience. As such, the court determined the system was intended to benefit the golf course, not the underlying land. The court also rejected the taxpayer’s reliance on an earlier Board of Tax Appeals decision in which the Board ruled that extensive renovations to a golf course as a whole constituted site improvements to real estate. In the court’s view, the earlier decision was not controlling because it did not address whether an irrigation system standing alone, constituted a business fixture.  For more information regarding Hoffman Properties, LP v. Testa, please contact Dave Perry at 513-763-2402.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.