Is installing a hard-wired emergency home generator a tax-exempt capital improvement in New York?

Plain-English summary

The Radec Corporation sells and installs natural-gas or propane-fueled emergency home generators — 240-volt units weighing 350 to 1,400 pounds that automatically start during a power failure. Installation involves mounting the unit on a gravel or concrete pad, permanently connecting it to gas lines by pipes, hard-wiring it into the building's electrical system, and installing a required "transfer switch" between the electric meter and circuit breaker panel (needed to stop the generator's power from dangerously back-feeding into the grid while utility crews work on outages).

Applying the standard three-part capital-improvement test, the Department found this kind of installation generally qualifies as an exempt capital improvement. It can substantially add value to the property or appreciably extend the property's useful life (especially if it keeps a heating or fire-suppression system running through a power failure); it satisfies the "permanently affixed" prong through its gas piping, hard wiring, and transfer switch (the same reasoning applied to circuit breaker panels and wiring additions generally); and — because the equipment isn't the kind of thing a homeowner would remove except to replace it — it meets the "permanent installation" intent requirement too. So for a homeowner customer, the whole installation (generator plus labor) is exempt from sales tax, and the customer should give Radec a properly completed Certificate of Capital Improvement (Form ST-124).

One important qualifier carries over from other capital-improvement rulings: if Radec installs a generator for a TENANT rather than a property owner, the installation is presumed NOT to be a capital improvement unless the lease specifically provides that the generator becomes the landlord's property and stays part of the premises.

What this means for you

Home generator and backup-power system installers

Bill your installation as an exempt capital improvement (get Form ST-124 from the homeowner) when the job involves the kind of permanent gas piping, hard wiring, and required transfer switch described here — a genuinely portable, plug-in-only backup unit without this level of integration would likely not qualify the same way.

Homeowners and tenants having a generator installed

As a homeowner, expect no sales tax on a properly installed permanent emergency generator system — give your installer the Certificate of Capital Improvement. As a tenant, confirm your lease vests title in the landlord if you want the same exempt treatment; otherwise the installation is presumed taxable.

Accountants and tax professionals

This is a clean, reusable capital-improvement analysis for backup power systems, directly parallel to the stove/fireplace ruling issued the following year (TSB-A-07(1)S) — both apply the identical three-part test and the same landlord-vesting caveat for tenant installations.

Common questions

Q: Is installing a home backup generator always tax-exempt?
A: Generally yes for a homeowner, when it's permanently piped, hard-wired with a transfer switch, and mounted on a pad — get a Certificate of Capital Improvement from the customer.

Q: What if the generator is installed for a tenant instead?
A: It's presumed NOT to be a capital improvement unless the lease specifies that title vests in the landlord and the generator becomes part of the premises.

Q: Does the transfer switch matter to the tax analysis?
A: Yes — the transfer switch's hard-wired connection between the meter and circuit breaker panel is part of what makes the installation "permanently affixed" under the capital-improvement test.

Q: Can another generator installer rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another installer's setup should be checked against its own facts.

Citations and references

Statutes, regulations, and publications:

• Tax Law § 1101(b)(9)(i) (capital improvement, three-part test)
• Tax Law § 1105(a), (c)(3)(iii), (c)(5)
• Tax Law § 1115(a)(17) (contractor materials for capital improvement)
• 20 NYCRR 527.7(b) (end-result test)
• Publication 862, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property

Prior rulings referenced:

• Beaman Corporation, TSB-A-82(32)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(18)S
Sales Tax
June 26, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S050613A

On June 13, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The Radec Corporation, 135 Gould Street, Rochester, New York, 14610.
Petitioner, The Radec Corporation, provided additional information pertaining to the Petition on
July 11, 2005.
The issue raised by Petitioner is whether the installation of an emergency home generator
constitutes a capital improvement to real property.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner sells and installs emergency home generators that are fueled by natural gas or
propane. The generators start automatically in the event of a power failure so there is no
interruption of electric service to the property. The generators are 240 volt units that range from
7 to 15 kilowatts output and weigh between 350 and 1400 pounds. They are installed on a gravel
pad or bolted to a concrete pad and are permanently attached to either natural gas or propane gas
lines by pipes and to the building’s electrical system by hard wiring and transfer switches. In
order for the generator to operate safely in the event of a power interruption, a transfer switch
must be installed between the building’s electric meter and circuit breaker panel. The transfer
switch is necessary to prevent electrical current from feeding back into the power grid and
endangering repair crews who may be working to restore power.
Applicable law and regulations
Section 1101(b)(9)(i) of the Tax Law defines the term capital improvement as:
An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property; and
(B) Becomes part of the real property or is permanently affixed to the real
property so that removal would cause material damage to the property or article
itself; and
(C) Is intended to become a permanent installation.
Section 1105 of the Tax Law provides, in part:

-2­
TSB-A-06(18)S
Sales Tax
June 26, 2006

Imposition of sales tax - - . . . there is hereby imposed and there shall be
paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following
services:
*

*

*

(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . except:
*

*

*

(iii) for installing property which, when installed, will constitute an
addition or capital improvement to real property, property or land, as the terms
real property, property or land are defined in the real property tax law as such
term capital improvement is defined in paragraph nine of subdivision (b) of
section eleven hundred one of this chapter;
*

*

*

(5) Maintaining, servicing or repairing real property, property or land, as
such terms are defined in the real property tax law, whether the services are
performed in or outside of a building, as distinguished from adding to or
improving such real property, property or land, by a capital improvement as such
term capital improvement is defined in paragraph nine of subdivision (b) of
section eleven hundred one of this article . . . .
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales imposed
under subdivision (a) of section eleven hundred five and the compensating use tax
imposed under section eleven hundred ten:
*

*

*

(17) Tangible personal property sold by a contractor, subcontractor or repairman
to a person other than an organization described in subdivision (a) of section eleven

-3­
TSB-A-06(18)S
Sales Tax
June 26, 2006

hundred sixteen, for whom he is adding to, or improving real property, property or land
by a capital improvement, or for whom he is about to do any of the foregoing, if such
tangible personal property is to become an integral component part of such structure,
building or real property; provided, however, that if such sale is made pursuant to a
contract irrevocably entered into before September first, nineteen hundred sixty-nine, no
exemption shall exist under this paragraph.
Section 527.7(b) of the Sales and Use Tax Regulations provides, in part:
(1) The tax is imposed on receipts from every sale of the services of maintaining,
servicing or repairing real property, whether inside or outside of a building.
*

*

*

(4) The imposition of tax on services performed on real property depends
on the end result of such service. If the end result of the services is the repair or
maintenance of real property, such services are taxable. If the end result of the
same service is a capital improvement to the real property, such services are not
taxable.
Opinion
Petitioner sells and installs emergency home generators as backup systems in the event of
power failures. The generators are permanently attached to either natural gas or propane gas
lines, are hard wired into the building’s electrical system, and require the installation of a transfer
switch between the building’s electric meter and circuit breaker panel to prevent backflow of the
electricity from the generator into the power grid. The generators start automatically in the event
of a power failure. Petitioner inquires as to whether installations of these generators qualify as
capital improvements to real property.
Section 1101(b)(9)(i) of the Tax Law provides that in order to constitute a capital
improvement an installation must meet all three of the following conditions:
1) The installation must substantially add to the value of the real property, or
appreciably prolong the useful life of the real property;
2) The installation must become part of the real property or be permanently
affixed to the real property so that removal would cause material damage to the property
or article itself; and
3) The installation must be intended to be a permanent installation.

-4­
TSB-A-06(18)S
Sales Tax
June 26, 2006

Section 527.7(b) of the Sales and Use Tax Regulations further provides that the
imposition of sales tax on services performed on real property depends on the end result of such
service. If the end result of the services is the repair or maintenance of real property, such
services are taxable. If the end result of the same service is a capital improvement to the real
property, such services are not taxable.
In order to determine whether a particular installation qualifies as a capital improvement
to real property, generally the entire installation should be considered rather than the individual
components of the installation. For example, when an interior wall is repainted, a taxable
maintenance service has occurred. However, if an interior doorway is removed and the resultant
opening in the wall is closed, the repainting of that wall will qualify for capital improvement
status. See Sales and Use Tax Classifications of Capital Improvements and Repairs to Real
Property, Publication 862 (4/01).
In order to be a capital improvement, the installation must substantially add to the value
of the real property or appreciably prolong the useful life of the real property. In the present
case, it may be said that Petitioner's installations of emergency home generators appreciably
prolong the useful life of the real property, particularly if a heating system or fire suppression
system continues to operate after a power failure. Furthermore, such installations may
substantially add to the value of the real property.
The second condition to be considered a capital improvement is Petitioner's emergency
home generators must become part of the real property or be permanently affixed to the real
property so that removal would cause material damage to the property or article itself. Based on
the installation of a transfer switch between the building’s circuit breaker panel and electric
meter, the connecting pipes from the gas lines to the generator, the concrete or gravel pads, and
the hard wiring of the generator into the building’s electrical system, the emergency home
generators in this case appear to meet this second condition for a capital improvement. See
Publication 862, supra, which provides that the addition or replacement of add-on panels and
additions to wiring systems are considered to be capital improvements for sales tax purposes.
Lastly, Petitioner's installation of the emergency home generators must be intended to be
permanent. The nature of the generators described in this Opinion does not lend itself to easy
removal. It is unlikely that a property owner would remove such equipment except to replace it.
Therefore, the installation of the emergency home generators appears to meet this third condition
for a capital improvement.
It should be noted that if Petitioner installs an emergency home generator for a tenant, it
is presumed that the installation is not intended to be permanent unless the lease indicates that
title to improvements, including the generator, is to vest in the landlord and that the
improvements are to become a part of the premises and remain in the premises. See Beaman
Corporation, Adv Op St Tx Comm, August 19, 1982, TSB-A-82(32)S.

-5­
TSB-A-06(18)S
Sales Tax
June 26, 2006

Accordingly, it appears from the facts in this Opinion that the original installation by
Petitioner of an emergency home generator, when taken as a whole, will generally qualify as a
capital improvement to real property.
Therefore, if the installation of an emergency home generator is performed for a
homeowner and the conditions set forth in section 1101(b)(9)(i) of the Tax Law are met, the
entire installation will qualify as a capital improvement to real property. Accordingly, Petitioner
will not be required to collect sales tax from its customer on the sale of the generator as installed.
See sections 1105(c)(3)(iii) and 1115(a)(17) of the Tax Law. The customer should issue a
properly completed Certificate of Capital Improvement (Form ST-124) to Petitioner.

DATED: June 26, 2006

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.