Sales Tax State Activity Update - October 2004

Maintaining Electronic Security Systems Taxable in Ohio

The Ohio Board of Tax Appeals ruled that the tax commissioner properly assessed sales and use tax on charges for maintaining electronic security systems. The audit period was January 1, 1997 through June 30, 2000.

The taxpayer was in the business of selling, installing, and maintaining electronic security systems for commercial, industrial, and residential customers. As part of the service customers were offered the ability to have a new system connected to a non-related third party signaling service. The third party would notify a pre-identified list of contact persons should the installed system be triggered. The signals are conveyed over the telephone lines.

After accepting payments for the service from his customers, and transmitting payments to the third party, the taxpayer had no futher participation in the notification service.

The taxpayer took the position that the services, which were assessed in the audit, were not described as those subject to tax as outlined in the Ohio Revised Code. Specifically, they did not meet the definition of a security service as described in section 5739.01(EE) which the commissioner had asserted. In addition the taxpayer argued that neither his personnel nor his equipment are involved in the monitoring. The customer must set the alarm to initiate the system, and the third party is obligated to respond to the signal if it receives one.

The Board argued that the taxpayer testified during the proceedings that the security system encompassed more than just intruder protection. Smoke detectors and temperature sensors are also installed, and remain active whether or not the system is activated. In addition, the Board took the position that the taxpayer by accepting payment for these services now fell within the definition of a vendor as outlined in Section 5739.01(C), and this activity also constituted a sale as defined in Section 5739.01(B)(3)(f), which encompasses all transactions for which consideration is received, including security service, which is provided or “ is to be provided “ (emphasis added).

This ruling is available at: http://bta.ohio.gov/03m1257.pdf

(Ohio Board of Tax Appeals, Case No. 2003-M-1257, August 20, 2004)

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