Sec. 03.06.01.19. Real Property Construction, Improvement, Alteration, and Repair

A. The sale of tangible personal property to a person who will use or resell it in the form of real property is taxable. Therefore, a person who constructs, improves, alters, or repairs real property shall pay the tax on all materials purchased, which will be incorporated into real property in such a manner that the materials will lose their identity as tangible personal property.

B. Taxability is not affected by language in a real property construction contract or subcontract such as "tax included" or "tax exempt", except as provided in §D of this regulation or by any form of payment under the real property construction contract or subcontract, whether lump-sum, cost-plus, time and material, or otherwise.

C. Determination of Material as Real Property.

(1) The determination of whether material installed or annexed to real property will become a part of the real property depends principally upon the intention of the person making the annexation.

(2) If the intention of the annexation is to permanently and substantially improve land, a building, or other real property, the material will be considered to have become real property. An installed or annexed item which is an integral, necessary, and expected part of real property constitutes a permanent and substantial improvement to the real property.

(3) If the intention of the annexation is for a temporary purpose, that is, for the enjoyment or use of the material as a chattel or personalty, the material will be considered to retain its character as tangible personal property. Machinery used in a production activity retains its character as tangible personal property without regard to the method or permanency of its annexation to real property. Farm equipment, a foundation in support of machinery and equipment used in a production activity and any machinery, device, or equipment which is required for conformance with air or water pollution laws or regulations retain their character as tangible personal property.

(4) Factors to be considered in determining the intention of the party making the annexation are the:

(a) Nature of the article annexed;

(b) Mode of annexation;

(c) Purpose for which it was annexed; and

(d) Practicality and feasibility of removal of the annexed article.

(5) As a general rule, counters, countertops, and cabinetry installed in commercial spaces will be treated as tangible personal property. Doors, windows, molding, built-ins, and kitchen cabinetry installed in residential or commercial spaces will be treated as realty.

D. A person who, because of a contractual obligation, purchases material which will be incorporated into the real property of a private, nonprofit charitable, educational, or religious organization, or volunteer fire, ambulance, or rescue company or squad, located in Maryland, may use the exemption certificate issued to the organization to purchase the material tax-free. In order to purchase the material tax-free, the buyer shall certify to the supplier, in a signed statement, that the material will be incorporated into the real property of the exempt organization. The buyer shall include in the statement the name and exemption certificate number of the organization, and the date and identification of the contract for which the materials are purchased. No specific format for the statement is required, nor are forms supplied by the Comptroller. Buyers and suppliers may use any format which contains the required information. The following is an example of an acceptable format:

To: (Name of Supplier) Reference:(Supplier's Invoice Number and Date) I hereby certify that all of the materials purchased on this order will be incorporated into the real property of (name of organization), exemption certificate (number), in accordance with my contract (number or other designation), dated (date). (Signature, Title and Date)

E. The exemption for the purchase of building material described above applies only when the final recipient of the material is a private, nonprofit charitable, educational, or religious organization, or volunteer fire, ambulance, or rescue company or squad, located in Maryland, which has been issued an exemption certificate. Purchases of material which will be incorporated into the real property of any other person or organization, whether or not that person or organization may be exempt from tax for any reason, are subject to tax in accordance with §A, above. Therefore, for example, purchases of material which will be incorporated into the real property of the State of Maryland, including its political subdivisions, the U.S. Government, including its agencies and instrumentalities, diplomatic embassies, or credit unions, are subject to tax.

F. The retail sale or use of all equipment, tools, expendable supplies, and other items which are used to improve real property and are not incorporated into the realty, is subject to tax in all instances.