Building materials and supplies are tangible personal property when purchased. They become real property when they are incorporated into and intended to be of permanent benefit to a building or structure. Examples include:

The sale of building materials that includes the installation of those materials into real property.

A business that contracts to furnish materials and labor to build, alter, repair, or improve real property. This includes any specialty contractors.

A business that contracts to improve real property and also makes retail sales of building materials, supplies, equipment, and other tangible items.

There are different types of labor.

For more information, see Labor – Installation, Fabrication, Construction, and Repair.

The sale of building materials without installation. This is a retail sale.

Present use means the item benefits the building or structure and the function for which the space is intended to be used at the time the item is incorporated.

Examples of items that benefit the building or structure for its present use when the items are incorporated into the building or structure:

• Bowling alley lanes and ball returns
• Pneumatic tubing systems at a bank

A business that sells building materials but does not install the items.

The sale of building materials, supplies, equipment, or other tangible items that are not incorporated into real property by the seller or seller’s agent. See Guidelines for Contractors-Retailers.

Substantial damage means removal of the fixture or improvement will physically impair the present function of the building or structure. Substantial damage does not include minor cosmetics such as patching a hole in the wall.

Generally, substantial damage has to meet one of the following:   

• Physical damage. The removal of the fixture or improvement causes impairment (destruction) to the building or structure, requiring reconstruction and reinstalling building materials and fixtures.
• Functional damage. The removal of the fixture or improvement reduces or removes the present usefulness and functionality of the building or structure, requiring the replacement of the improvement or fixture.

Tangible personal property means personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses.  

Tangible personal property includes, but is not limited to:

• Electricity
• Water
• Steam
• Prewritten computer software