RULES AND REGULATIONS
Title 61--REVENUE
DEPARTMENT OF REVENUE
[61 PA. CODE CHS. 31, 46 AND 60]
Sales and Use Tax; Prebuilt Housing
[36 Pa.B. 2525] The Department of Revenue (Department), under section 270 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 7270), deletes §§ 31.30, 46.8 and 61.18 and adds § 31.33 (relating to prebuilt housing) to read as set forth in Annex A.
Purpose of this Final-Form Rulemaking
This final-form rulemaking codifies legislative changes regarding prebuilt housing in sections 201(g)(8) and (vv)--(zz), 202(f) and 204(60) of the TRC (72 P. S. §§ 7201(g)(8) and (vv)--(zz), 7202(f) and 7204(60)).
Explanation of Regulatory Requirements
The Department is adding § 31.33 to set forth the new rules regarding prebuilt housing. Definitions for use in the section are in subsection (a). Imposition rules for sales by a builder and trade-ins are in subsection (b).
Consistent with section 202(f) of the TRC, which provides that a manufacturer may elect to precollect the tax from the builder at the time of sale to the builder, subsection (c) describes the provisions that govern precollection. Subsection (d) explains that no exemptions apply to the sale of prebuilt housing.
Subsection (e) explains that the provisions of this regulation do not apply to the sale and installation of prefabricated buildings, components and accessories which do not qualify as prebuilt housing and are governed by § 31.12 (relating to imposition of tax). Similarly, subsection (f) explains that the regulation does not apply to the repair and maintenance of prebuilt housing and the rules of § 31.12 apply.
In addition, the Department has made editorial changes to several sentences for proper grammar usage. Upon adoption of § 31.33, provisions inconsistent with this section (§§ 31.30, 46.8 and 60.18) will be deleted.
Affected Parties
Manufacturers, builders and purchasers of prebuilt housing may be affected by this final-form rulemaking.
Comment and Response Summary
Notice of proposed rulemaking was published at 34 Pa.B. 6245 (November 20, 2004). This proposed rulemaking is being adopted with amendments to read as set forth in Annex A.
The Department received no comments from the public during the public comment period. No comments were received from either the House Finance Committee or the Senate Finance Committee. The only comments received on the proposed rulemaking were from the Independent Regulatory Review Commission (IRRC).
Explanations and amendments to the proposed rulemaking in response to IRRC's comments are as follows:
(1) § 31.33(a) (regarding definitions). IRRC requested the following six definitions be amended to mirror the statutory definitions, replace the regulatory definitions with citations to the statute or explain the need to vary from the statute:
Prebuilt housing--The Department enhanced the statutory definition in section 201 of the TRC to provide taxpayers with additional information. Therefore, § 31.33(a)(iii) was added to the statutory definition for clarification and remains in the final-form rulemaking.
Prebuilt housing builder--The Department clarified the statutory definition in section 201 of the TRC by adding ''including a prebuilt housing manufacturer'' to the definition. The Department believes that the taxpayers will benefit from this enhanced definition. Therefore, the same definition remains in the final-form rulemaking.
Prebuilt housing purchaser--The Department agrees with IRRC's concern and has amended the definition by deleting the entire second sentence. This sentence has now been correctly relocated to the definition of ''prebuilt housing sale.''
Prebuilt housing sale--The Department agrees with IRRC's concern and has added the following sentence which was previously in the definition of ''prebuilt housing purchaser:'' ''Temporary installation by a prebuilt housing builder for display purposes of a unit held for resale will not be considered occupancy for residential purposes.'' This definition mirrors the statutory definition in section 201 of the TRC and should appear in the final-form rulemaking for the convenience of taxpayers.
Purchase price--Section 201(g)(8) of the TRC defines the ''purchase price'' of prebuilt housing to be 60% of the manufacturer's selling prices. However, section 201(g)(8) of the TRC provides that a manufacturer has the option of precollecting the Sales Tax on 60% of the selling price, or 100% of the actual cost of the supplies and materials used in the manufacture of the housing. The TRC does not require a manufacturer to choose only one of those options, to the permanent exclusion of the other, as the regulation does. This restriction was added to the regulation at the request of the Department's Bureau of Audits (Bureau). The Bureau determined that if a manufacturer was allowed to choose a different method of collecting tax for each customer, it would make auditing that manufacturer's books almost impossible. The Department firmly believes taxpayers will benefit from the definition.
Used prebuilt housing--The Department clarified the statutory definition in section 201 of the TRC by adding ''prebuilt housing'' to modify the word ''sale,'' as the defined term is ''prebuilt housing sale.'' The enhanced definition has not been changed in the final-form rulemaking because the Department believes it is necessary to provide clarity to the taxpayers.
(2) § 31.33(c) (regarding prebuilt housing manufacturer's election to collect tax).
Paragraph (2)--IRRC requested an explanation of the rationale for and need to restrict the method to collect tax under this circumstance. Section 201(g)(8) of the TRC provides the option only when the manufacturer precollects tax from a builder. The TRC does not provide the same option when a manufacturer that is acting as a builder pays tax to the Department at the time of sales to purchasers.
Paragraph (3)--IRRC requested an explanation of how a manufacturer would request ''prior authorization'' to alternate between two methods of calculation and what criteria the manufacturer would have to satisfy. The Department agrees this needs clarification and has consulted with the director of the Bureau. At the request of the Bureau to provide efficient auditing procedures, the proposed language ''prior authorization'' has been replaced in the final-form rulemaking with ''written notification to the director of the Department's Bureau of Audits.''
(3) Miscellaneous clarity issues
(a) In § 31.33(a), IRRC stated the definition of ''prebuilt housing manufacturer'' lacks clarity because the definition uses the same words as the term being defined. The Department agrees and amended the definition in the final-form rulemaking.
(b) In § 31.33(b)(1), the Department added clarification language to the final-form rulemaking for auditing purposes.
(c) IRRC commented that the opening sentence of § 31.33(c)(1) uses the phrase ''the law'' twice. The Department acknowledges the concern and replaced ''the law'' with the appropriate citation to § 31.12 at the beginning of the sentence.
(d) IRRC commented that the opening sentence of § 31.33(e) discusses the changes in the law and is not needed. The Department agrees with IRRC's comment and has deleted the referenced sentence that discusses the changes in the law.
(e) A broader cross reference was requested by IRRC in § 31.33(e) and (f) instead of the language ''governed by § 31.11'' which is a reference to a definition section. The Department agrees with the concern and changed the cross reference to § 31.12.
Fiscal Impact
The Department has determined that the final-form rulemaking will have minimal fiscal impact on the Commonwealth.
Paperwork
The final-form rulemaking will not create additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The final-form rulemaking will become effective upon publication in the Pennsylvania Bulletin. The regulation is scheduled for review within 5 years of publication. No sunset date has been assigned.
Contact Person
The contact person for an explanation of the final-form rulemaking is Mary R. Sprunk, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on November 4, 2004, the Department submitted a copy of the notice of proposed rulemaking, published at 34 Pa.B. 6245, to IRRC and the Chairpersons of the House Committee on Finance and the Senate Committee on Finance for review and comment.
Under section 5(c) of the Regulatory Review Act, IRRC and the Committees were provided with copies of the comments received during the public comment period, as well as other documents when requested. In preparing the final-form rulemaking, the Department has considered all comments from IRRC, the House and Senate Committees and the public.
Under section 5.1(j.2) of the Regulatory Review Act (71 P. S. § 745.5a(j.2)), on May 3, 2006, the final-form rulemaking was deemed approved by the House and Senate Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on May 4, 2006, and approved the final-form rulemaking.
Findings
The Department finds that:
(1) Public notice of intention to amend the regulations has been duly given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The amendments are necessary and appropriate for the administration and enforcement of the authorizing statute.
Order
The Department, acting under the authorizing statute, orders that:
(a) The regulations of the Department, 61 Pa. Code Chapters 31, 46 and 60, are amended by adding § 31.33 and deleting §§ 31.30, 46.8 and 60.18 to read as set forth in Annex A.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
GREGORY C. FAJT,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission, relating to this document, see 36 Pa.B. 2479 (May 20, 2006).)
Fiscal Note: Fiscal Note 15-426 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE II. SALES AND USE TAX
CHAPTER 31. IMPOSITION
SPECIALIZED TYPES OF BUSINESS OR PROPERTY § 31.30. (Reserved).
§ 31.33. Prebuilt housing.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Prebuilt housing--Housing which qualifies either as:
(i) Manufactured housing, including mobile homes, which bears the label required by and referred to in the Manufactured Housing Construction and Safety Standards Authorization Act (35 P. S. §§ 1656.1--1656.9).
(ii) Industrialized housing as defined in the Industrialized Housing Act (35 P. S. §§ 1651.1--1651.12).
(iii) The term includes all components or accessories transferred at the time of the sale of the prebuilt housing.
Prebuilt housing builder--A person, including a prebuilt housing manufacturer, that makes a prebuilt housing sale to a prebuilt housing purchaser.
Prebuilt housing manufacturer--A person who manufactures prebuilt housing for sale to a prebuilt housing builder or prebuilt housing purchaser.
Prebuilt housing manufacturer's selling price--
(i) The total value of anything paid or delivered or promised to be paid or delivered, whether it be money or otherwise, by a prebuilt housing builder to a prebuilt housing manufacturer, for prebuilt housing, add-ons, insurance, seals, deposits, dues, optional equipment and similar charges whether or not the charges are separately stated on one or more purchase agreements.
(ii) The prebuilt housing manufacturer's selling price does not include amounts representing delivery charges, erection charges or set-up fees.
Prebuilt housing purchaser--A person who purchases prebuilt housing in a transaction and who intends to occupy the unit for residential purposes in this Commonwealth.
Prebuilt housing sale--A sale of prebuilt housing to a prebuilt housing purchaser, including a sale to a landlord, without regard to whether the person making the sale is responsible for installing the prebuilt housing or whether the prebuilt housing becomes real estate on installation. Temporary installation by a prebuilt housing builder for display purposes of a unit held for resale will not be considered occupancy for residential purposes.
Purchase price--The purchase price of prebuilt housing shall be 60% of the prebuilt housing manufacturer's selling price. A prebuilt housing manufacturer of prebuilt housing that elects to precollect tax from the prebuilt housing builder shall have the option to collect tax on 60% of the prebuilt housing manufacturer's selling price or on 100% of the actual cost of the supplies and materials used in the manufacture of prebuilt housing.
Used prebuilt housing--Prebuilt housing that was previously subject to a prebuilt housing sale to a prebuilt housing purchaser.
(b) Imposition of tax.
(1) Prebuilt housing builder sales. A prebuilt housing builder is required to pay tax on his purchase price of prebuilt housing sold to a prebuilt housing purchaser within this Commonwealth, if the prebuilt housing builder has not paid the applicable tax to the prebuilt housing manufacturer. The prebuilt housing builder is required to pay tax without regard to whether the prebuilt housing is sold as tangible personal property or as real estate. The prebuilt housing builder's written contract with the prebuilt housing purchaser shall clearly indicate that the prebuilt housing builder paid applicable tax.
(2) Trade-in. The value of a trade-in by a prebuilt housing purchaser to a prebuilt housing builder in connection with the purchase of housing may not be used to reduce the purchase price on which the prebuilt housing builder is required to pay tax.
(3) Used prebuilt housing. Sales Tax is not imposed on the purchase price of used prebuilt housing.
(c) Prebuilt housing manufacturer's election to collect tax.
(1) Although section 202(f) of the TRC (72 P. S. § 7202(f)) requires the prebuilt housing builder to pay tax directly to the Department, this statute also provides that the prebuilt housing manufacturer has the option to collect tax from the prebuilt housing builder at the time of the purchase of the prebuilt housing by the prebuilt housing builder from the prebuilt housing manufacturer. If the prebuilt housing manufacturer elects to collect tax, the prebuilt housing manufacturer is required to use either of the following to establish the purchase price:
(i) Sixty percent of the prebuilt housing manufacturer's selling price.
(ii) One hundred percent of the actual cost of the supplies and materials used in the manufacture of prebuilt housing.
(2) If a prebuilt housing manufacturer is also acting as a prebuilt housing builder, the purchase price of the prebuilt housing shall be 60% of the prebuilt housing manufacturer's selling price.
(3) A prebuilt housing manufacturer is not permitted to alternate between these two methods of calculation without prior written notification to the Director of the Department's Bureau of Audits.
(d) Exemptions. No exemptions apply to the sale of prebuilt housing. Prebuilt housing manufacturers are therefore not required to obtain exemption certificates from prebuilt housing builders. Unless the prebuilt housing manufacturer elects to precollect the tax, the prebuilt housing builder is obligated to remit tax to the Commonwealth on its sale of prebuilt housing to a prebuilt housing purchaser.
(e) Prefabricated buildings and components which do not qualify as prebuilt housing. The sale and installation of prefabricated buildings, components and accessories which do not qualify as prebuilt housing are governed by § 31.12 (relating to imposition of tax). Sales of prefabricated buildings, components and accessories, which do not include installation, qualify as sales of tangible personal property. Examples include construction site trailers, travel trailers and modular space units.
(f) Repair and maintenance of prebuilt housing. This section relates only to prebuilt housing sales and does not apply to the repair and maintenance of prebuilt housing. The application of tax on charges made for the repair and maintenance of prebuilt housing is governed by the provisions of § 31.12.
CHAPTER 46. CONSTRUCTION CONTRACTORS § 46.8. (Reserved).
CHAPTER 60. SALES AND USE TAX PRONOUNCEMENTS--STATEMENTS OF POLICY § 60.18. (Reserved).
[Pa.B. Doc. No. 06-930. Filed for public inspection May 26, 2006, 9:00 a.m.]
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