The Ohio Board of Tax Appeals issued its decision in Nationwide v. McClain, Case Nos. 2018-313, 2018-315, 2018-316, 2018-17, 2018-318, on October 22, 2019, holding that CAT-5 and CAT-6 cabling installed into Nationwide’s office building was not subject to sales tax because it qualified as real property upon installation.
Nationwide engaged contractors to install CAT-5 and CAT-6 cabling as part of a rehabilitation of its headquarters buildings. Nationwide paid sales tax to its vendors who installed the CAT-5 and CAT-6 cabling for Nationwide’s communication lines – voice over internet protocol (VoiP) and internet. Nationwide filed refund claims arguing that the cabling was incorporated into the real property, which made Nationwide’s purchases of both the cabling and the installation exempt from sales tax.
The Commissioner denied the refund claims at the audit level. On appeal, the Commissioner issued a final determination affirming the denial of the refund claims, holding that the cabling and the installation of the cabling were subject to sales tax because the cabling remained tangible personal property upon installation. The Commissioner relied on the BTA’s decision in Newcome Corp. v. Tracy, BTA No. 97-M-320 (Dec. 11, 1998), which held that (in 1998) data cabling installed at a customer’s location was a business fixture (tangible personal property) because such cabling was not common to buildings.
In Nationwide, the BTA agreed with Nationwide that the installed data cabling was now common to buildings and qualified as real property. As a result, the purchase of the cabling and the installation of the data cabling was not a “sale” subject to sales tax and Nationwide’s refunds should be approved.
While the impact Nationwide will have on purchasers of installed data cabling that is common to buildings is clear, it is not clear that all installation of data cabling is the installation of real property. Further, it is unclear as to the impact Nationwide will have on the installers of data cabling.
Taxpayers that have purchased installed data cabling or are a construction contractor should consider taking action, including the following:
- Owners of buildings that have had major installations of cabling and other communication networks should review their purchases, analyze the impact of Nationwide, and consider filing refund claims.
- Construction contractors and other installers of cabling should immediately review their sales and purchases to determine how to proceed with sales and use tax compliance. For instance, if installers collected sales tax on their sale and installation of cabling, they may have customers contacting them to obtain refunds. Further, the Ohio Department of Taxation may also be contacting installers for the underlying use tax due as a consumer, creating the potential for significant tax, penalties and interest.
Please keep in mind that the Commissioner has 30 days to appeal the BTA’s decision. However, we do not anticipate the Department will appeal the decision.
If you have questions about how to respond to the Board’s reversal of the Department of Taxation’s treatment of data cabling installation, please contact John Trippier, Rich Farrin, or any other professional at Zaino Hall & Farrin LLC. The Firm represented Nationwide in this appeal and has a thorough understanding of how this case may impact other taxpayers.