Tennessee ~ Sales and Use Tax: Construction of Fiber-to-the-Home Network Infrastructure Is Taxable

The lump-sum price that a taxpayer charges for the engineering, procurement, and construction of a fiber-to-the-home network is subject to Tennessee sales and use tax. The issue of whether an item of tangible personal property becomes part of realty depends upon the application of the law of fixtures to the particular factual circumstances. Whether an item is considered a fixture is determined by the intent of the parties. Fixtures are so attached to the freehold that, from the intention of the parties and the uses to which they are put, they are presumed to be permanently annexed, or a removal of the fixtures would cause serious injury to the freehold. If the property is intended to be removable at the pleasure of the owner, it is not a fixture. However, when property is installed upon real property pursuant to a non-ownership interest in the real property, such as a lease or easement, the key question is whether the parties intend that the owner of the property being installed has the ability to remove the property from the land, so that the installed property remains separate and apart from the freehold. In the instant case, the taxpayer sells and installs tangible personal property that remains tangible personal property after installation. The taxpayer installs conduit, fiber, and other necessary appurtenances, on real property under lease agreements and easements in which the taxpayer’s client has an interest. The client’s legal right to remove the materials from the aerial poles and the ground at any time shows, according to the Tennessee Department of Revenue, a clear intention that the client retain ownership of the materials so that the materials remain personalty after installation. Consequently, the materials do not become affixed to the real property upon installation and remain tangible personal property owned by the client.

Revenue Ruling No. 17-09, Tennessee Department of Revenue, June 21, 2017, ¶401-692



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