Cost of Delivery and Installation of Window Frames Forms Part of the Gross Selling Price

April 15, 1959 BIR RULING NO. 270-59 Tax Service of the Philippines Floor Three, MRS Building Plaza Cervantes M a n i l a Gentlemen : Reference is made to your letter dated October 14, 1958 stating the following: "A client of ours manufacture window frames for sale to owners of house and buildings under construction, building contractors and other persons. There are cases where our client accepts orders to manufacture window frames and to install the same in large office buildings under construction or in old buildings to replace the old windows. There are standard prices per square foot ex factory. If the purchasers desire to have the frames delivered, the invoice price includes an additional charge for delivery. Where our client is engaged to install the window frames sold by him, there is a separate charge for installation, in which case, two invoices are issued: one covering the sales price plus delivery charges, and the other, covering the service charge for installation." You now pose the question of whether your client, in those cases where the contract of purchase and sale includes installation, shall pay the sales tax on the total amount comprising the sales price of the window frames, the charge for delivery, and the service charge for installation or on only the sales price plus delivery charge, and the contractor's tax on the service charge for installation. In reply thereto, I have the honor to inform you as follows: The question of whether expenses for the transportation, cartage, insurance premiums, etc. form part of the selling price of the articles depends entirely upon the place where title to the articles passes from the vendor to the vendee. If the sale is effected at the place of the vendee, that is, if title to the articles passes from the vendor to the vendee at the place of the latter, the said expenses form part of the selling price although the expenses were charged to the vendee. All expenses up to the passing of title form part of the selling price; those after passing of title are not. (Araas Annotations and Jurisprudence on the National Internal Revenue Code as amended, Vol. II, p. 292). Accordingly, if the sales contract had by your client with his customers call for delivery at the latter's places, the expenses of delivery form part of the selling price even if charged to the customers. Where the sales contract calls for the delivery and installation of the window frames, the costs of delivery and installation forms part of the gross selling price. We do not subscribe to your view that the installation of the window frames in such case is a separate contract distinct from the sale thereof. To our mind the installation is, aside from being a mere incident of the sales contract, part and parcel thereof. We must take cognizance of the fact that there are various commodities of commerce which require the rendition of service by the seller in connection with the sale thereof. The sale of big machineries for instance, as well as such appliances as refrigerators, electric ranges, and air-conditioning units, to cite a few, ordinarily includes installation because the buyers of such articles are not in a position to effect the same. As a matter of fact, this Office had consistently held that in case of sales which requires installation, the cost of installation forms part of the selling price. In view thereof, it becomes unnecessary for us to discuss the question of whether or not your client, for services of installation, is subject to tax under section 191 of the National Internal Revenue Code. cd Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue