IDAPA 35.01.02.011 — MIXED TRANSACTIONS (RULE 011)

Sections 63-3609, 63-3612, 63-3613, Idaho Code.
01.
Retail Sales of Tangible Personal Property Together with Services. The sales tax applies to
retail sales of tangible personal property. It does not apply to the sale of services except as stated in statute or rule.
However, when a sale of tangible personal property includes incidental services, the tax applies to the total amount
charged, including fees for any incidental services except separately stated transportation and installation fees. The
fact that the charge for the tangible personal property results mainly from the labor or creativity of its maker does not
turn a sale of tangible personal property into a sale of services. The cost of any product includes labor and
manufacturing skill. To determine whether a transaction is a retail sale of tangible personal property or a sale of
services, the following tests are applied.
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a.
To determine whether a transfer of tangible personal property is a taxable retail sale or is merely
incidental to a service transaction, the proper test is to determine whether the transaction involves a consequential or
inconsequential professional or personal service. If the service rendered is inconsequential, then the entire transaction
is taxable. If a consequential service is rendered, then it will be determined whether the transfer of the tangible
personal property is an inconsequential part of the transaction. If so, then none of the consideration paid is taxable.
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b.
To determine whether a mixed transaction qualifies as a sale of services, the object of the
transaction will be determined; that is, is the buyer seeking the service itself, or the property produced by the service.
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c.
When a mixed transaction involves the transfer of tangible personal property and the performance
of a service, both of which are consequential elements whose costs may be separately stated, then two (2) separate
transactions exist. The one attributable to the sale of tangible personal property is taxable while the other is not.
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02.
Determining the Type of Sale. To determine whether a specific sale is a sale of tangible personal
property, a sale of services or a mixed transaction, all the facts surrounding the case will be studied and the tests
described above applied. Here are some examples.
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a.
Example 1: An attorney is retained by a client to prepare the client's will. The attorney prepares the
will, sees that it is properly executed and bills the client. The physical document, the will, is then transferred from the
attorney to the client. This is a sale of services because the client's object is not to obtain the will itself, but to ensure
that their estate is disposed of in a certain way when they die. Since, the transaction between the attorney and the
client is not a retail sale of tangible personal property, no sales or use tax applies. However, the attorney pays sales or
use tax when the attorney buys stationery and other equipment to prepare the will. Compare Example 5.
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IDAHO ADMINISTRATIVE CODE
IDAPA 35.01.02
State Tax Commission
Idaho Sales & Use Tax Administrative Rules
Section 012
Page 7
b.
Example 2: The attorney in Example 1 prepares a form book of wills which he intends to sell to
other attorneys. The will the attorney prepared in Example 1 is included in the form book. The sale of the form book
to other attorneys is a taxable retail sale of tangible personal property. From the buyer's point of view, the object of
the sale is to obtain the book, which is tangible personal property. The fact that special skill or knowledge went into
the preparation of the book and is reflected in the purchase price does not make the sale of the form book a service
transaction.
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c.
Example 3: An architect is hired to prepare construction plans for a house. He prepares the plans
and delivers them to his client. As in the example of the attorney preparing the will, this is a sale of services and the
transfer of the tangible personal property, the plans, is inconsequential the transaction. No sales or use tax is due on
the sale of the plans.
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d.
Example 4: The architect in Example 3 is asked to provide additional copies of the same plans to
his original client or to a third party. The architect copies the plans on a duplicating machine and sells them to the
requesting party. This is a taxable retail sale of tangible personal property, since the buyer's object is to obtain the
property, the plans.
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e.
Example 5: An artist is commissioned to paint an oil portrait. When the portrait is completed,
ownership is transferred to the client who pays the artist a lump-sum amount for the portrait. This is a taxable retail
sale of tangible personal property because the buyer's object is to obtain the portrait. If the artist otherwise qualifies
as a retailer, he is required to collect and remit sales tax on the sale of the portrait.
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f.
Example 6: An automobile repair shop does repair work for a customer. To do the work, the shop
replaces certain parts on the automobile. The repair shop bills its customer an amount for the repair parts and a
separate amount for labor. This is a mixed transaction. As long as the sale of the tangible personal property, the parts,
and the sale of services, the labor, are separately stated, sales tax is due only on the sale of the parts and not on the
charge for labor. However, allocation of the total charge between parts and labor must be reasonable. If part of the
charge for parts is unreasonably attributed to the cost of labor, the allocation may be adjusted by the Commission.
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g.
Example 7: A retail clothing store provides needed alterations to items purchased by customers.
Even though the sale depends on the alterations being done, the service is incidental to the sale of the property. The
entire transaction is taxable, even if the charge for the alteration labor is separately stated.
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03.
Kinds of Services Incidental to the Sale. Two (2) kinds of services rendered incidental to a retail
sale are specifically exempt from tax if the charge for the service is separately stated. They are:
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a.
Charges for transportation after the sale. See Section 63-3613, Idaho Code, and Rule 061 of these
rules; and
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b.
Installation charges. See Section 63-3613, Idaho Code, and Rule 012 of these rules.
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04.
Separately Stated Nontaxable Charges. Separately stated nontaxable charges for transportation
or installation may not be used to avoid tax on the actual sales price of tangible personal property. If the allocation of
the total price is unreasonable, the Commission may adjust it.
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05.
Tangible Personal Property Used or Consumed by a Business. Tangible personal property used
or consumed by a business in performing a nontaxable service is taxable. See Rule 072 of these rules.
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