Can a central-station alarm company buy the burglar and fire alarm equipment it installs at customer sites exempt from sales tax as a purchase for resale?

Plain-English summary

Mutual Central Alarm Services provides commercial customers with burglar alarms, fire alarms, closed-circuit TV, and access control systems, with or without monitoring and maintenance. If a customer also buys monitoring, the alarm rings at Mutual's own office and it dispatches a response (the "central station alarm service"); without monitoring, the alarm only rings on-site (the "local alarm service"). The equipment itself is generally the same either way — Mutual retains ownership or the right to remove it.

The Department drew the line based on whether the equipment can function independently of Mutual's own monitoring service. If the equipment ISN'T otherwise functional as a stand-alone local alarm or usable with a different provider's central-station service, then installing it is really just part of delivering Mutual's own taxable protective service (taxed under section 1105(c)(8)) — Mutual is "consuming" the equipment to perform its service, not reselling or leasing it, so any equipment charge is folded into the taxable service price and Mutual's purchase of the equipment does NOT qualify for the resale exemption; Mutual owes tax on buying it. But if the SAME kind of equipment DOES remain fully functional on its own — usable as a local alarm or with another company's central monitoring — and Mutual's rental charge is reasonable (comparable to what it charges customers who rent equipment WITHOUT also buying central monitoring), then Mutual is genuinely leasing tangible personal property to the customer as a transaction separate from its protective service. In that case, the equipment doesn't become a capital improvement, keeps its identity as tangible personal property, and Mutual's purchase DOES qualify as an exempt purchase for resale (as a lease).

What this means for you

Alarm and security-monitoring companies

Whether your equipment purchases are tax-exempt turns on functional independence and pricing, not on how you label the transaction. If the hardware only works as part of your own proprietary monitoring service, treat the whole package as one taxable service and expect to pay tax on your equipment purchases. If the same hardware genuinely works on its own or with competitors' monitoring, and you can benchmark a reasonable stand-alone rental rate, you can structure it as a separate equipment lease and buy the hardware tax-free for resale.

Commercial customers of alarm companies

Ask whether your alarm equipment would still work if you switched monitoring providers — that answer tells you (and your vendor) which side of this line your contract falls on, and it may affect how the charges on your invoice should be taxed.

Accountants and tax professionals

This is a clean, reusable functional-independence test for any monitored-equipment-plus-service business (alarm, GPS tracking, IoT sensor monitoring, etc.): the resale exemption on equipment purchases depends on genuine standalone usability and comparably-priced separate rental, not contract labels.

Common questions

Q: Can an alarm company always buy its installed equipment tax-free as a resale item?
A: No — only if the equipment remains independently functional apart from the company's own monitoring service and is genuinely, reasonably rented as a separate transaction.

Q: What happens if the equipment only works with my own central monitoring service?
A: Then installing it is part of your taxable protective service, and your purchase of the equipment doesn't qualify for the resale exemption — you owe tax on it.

Q: Does it matter who retains ownership of the equipment?
A: The company can retain ownership in both scenarios; the deciding factor is whether the equipment functions independently and is priced as a genuine, comparable rental.

Q: Can another alarm company rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another company's equipment and pricing structure need to be evaluated on their own facts.

Citations and references

Statutes and regulations:

• Tax Law §§ 1101(b)(4), (5), (9) (retail sale; sale; capital improvement)
• Tax Law § 1105(a), (c)(8) (retail sale; protective and detective services)
• 20 NYCRR 526.6, 541.5(b), 541.5(b)(4)(iii)

Cases and prior rulings referenced:

• Waste Management of New York, Inc., DTA No. 805791, aff'd 185 AD2d 479
• Baker Protective Services, Inc. d/b/a Wells Fargo Alarm Services, Inc., DTA No. 816899
• John Lombardi, TSB-A-04(5)S
• Matter of C.I.D. Refuse, DTA No. 809934

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_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(31)S
Sales Tax
December 14, 2006

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

PETITION NO. S040818B

On August 18, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Mutual Central Alarm Services, Inc., 110 West 46th Street, New York,
NY 10036.
The issue raised by Petitioner, Mutual Central Alarm Services, Inc., is whether
Petitioner’s purchase of burglar and fire alarm equipment that is installed in customers’ premises
in conjunction with providing a central station monitoring service qualifies for exemption from
sales and use tax as a purchase for resale.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner provides commercial customers with security systems with or without
monitoring and/or maintenance services for a stated fee. The security systems consist of burglar
alarm security systems, fire alarm systems, closed circuit television camera systems, and access
control systems.
Burglar alarm systems generally consist of a control panel, keypads, sensors, and
electrical wiring. Fire alarm systems generally consist of the same or similar equipment with
additional devices such as smoke detectors and pull stations. Closed circuit television systems
generally consist of cameras, viewing control stations, monitors, and wiring. Access control
systems generally consist of control panels, computer software and hardware, door hardware,
and wiring.
The burglar and fire alarm equipment can be provided to Petitioner’s customers with or
without the customer additionally purchasing the monitoring service. If the customer contracts
for the monitoring service, the customer is considered by Petitioner to have purchased the central
station alarm service. If the customer leases the equipment but does not also contract for the
monitoring service, the customer is considered to have purchased the local alarm service.
Petitioner also provides monitoring services to customers who do not receive equipment from
Petitioner.
In the case of the local alarm service, the alarm rings only at the customer’s premises. In
the case of the central station alarm service, the alarm rings in Petitioner’s office and a “response
person” or the appropriate authority is dispatched to the customer’s premises. Customers with
either service may also contract with Petitioner for maintenance of the system. The equipment is
generally the same whether it is for local alarm service or central station alarm service.

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Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. Notwithstanding the preceding provisions of this subparagraph, a
sale of any tangible personal property to a contractor, subcontractor or repairman for use
or consumption in erecting structures or buildings, or building on, or otherwise adding to,
altering, improving, maintaining, servicing or repairing real property, property or land, as
the terms real property, property or land are defined in the real property tax law, is
deemed to be a retail sale regardless of whether the tangible personal property is to be
resold as such before it is so used or consumed, except that a sale of a new mobile home
to a contractor, subcontractor or repairman who, in such capacity, installs such property is
not a retail sale.
*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor.
*

*

*

(9) Capital improvement. (i) 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

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(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:
Imposition of sales tax. On and after June first, nineteen hundred seventy-one,
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:
*

*

*

(8) Protective and detective services, including, but not limited to, all services
provided by or through alarm or protective systems of every nature, including, but not
limited to, protection against burglary, theft, fire, water damage or any malfunction of
industrial processes or any other malfunction of or damage to property or injury to
persons, detective agencies, armored car services and guard, patrol and watchman
services of every nature other than the performance of such services by a port watchman
licensed by the waterfront commission of New York harbor, whether or not tangible
personal property is transferred in conjunction therewith.
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
*

*

*

(c) Resale exclusion. (1) Where a person, in the course of his business operations
purchases tangible personal property or services which he intends to sell, either in the
form in which purchased, or as a component part of other property or services, the
property or services which he has purchased will be considered as purchased for resale,
and therefore not subject to tax until he has transferred the property to his customer.
*

*

*

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(2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate. See sections 532.4 and 532.6 of this Title.
(3) Receipts from the sale of property purchased under a resale certificate are not
subject to tax at the time of purchase by the person who will resell the property. The
receipts are subject to tax at the time of the retail sale.
*

*

*

(6) Tangible personal property purchased for use in performing services which are
taxable under section 1105(c)(1), (2), (3) and (5) of the Tax Law is purchased for resale
and not subject to tax at the time of purchase, where the property so sold (i) becomes a
physical component part of the property upon which the services are performed, or (ii) is
later actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax.
Section 541.5 of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(b) Capital Improvement Contracts (1) Purchases. All purchases of tangible
personal property … which are incorporated into and become part of the realty or are
used or consumed in the performance of the contract are subject to tax at the time of
purchase by the contractor and any other purchaser. A certificate of capital improvement
may not be validly given by any person or accepted by a supplier to exempt the purchase
of these materials.
Section 541.5(b)(4)(iii) of the Sales and Use Tax Regulations provides:
If a contract includes the sale of tangible personal property which remains
tangible personal property after installation, the contractor must collect the appropriate
New York State and local taxes from the customer on the selling price, including any
charge for installation, of the tangible personal property unless a properly completed
exemption certificate is issued by the customer. The contractor may apply for a credit or
refund of taxes he has paid on purchases of the tangible personal property that remain
tangible personal property after installation.
Example 1: A contractor sells a building he has constructed and, as a part of the
sale agreement, installs free standing water fountains which remain tangible personal
property when installed. The contractor's billing to his customer must separately state all
charges for tangible personal property included in the sales agreement. The New York
State and applicable local tax rate must be collected on the total charges for the water
fountains including any installation charges. In this instance, the contractor may purchase

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the water fountains tax-free using a contractor exempt purchase certificate. If he pays the
tax to his supplier, he is entitled to a refund or credit of the tax paid on the purchase of
the water fountains.
Opinion
Petitioner is in the business of providing burglar and fire alarm equipment and
monitoring services to commercial customers. The equipment can be provided by Petitioner
separately or in conjunction with a central station alarm service. Petitioner also provides
maintenance service for the alarm equipment and monitoring services to customers who do not
receive equipment from Petitioner.
When Petitioner installs equipment in conjunction with a customer’s contract for
Petitioner’s central station alarm service, and Petitioner retains ownership or the right to remove
the equipment, and if the equipment is not otherwise functional as a local alarm service or in
conjunction with central office services offered by other providers, then the installation is
considered to be part of the charge for Petitioner’s provision of protective services taxable
pursuant to section 1105(c)(8) of the Tax Law. In such case, Petitioner is considered to be the
user and consumer of the equipment in the performance of Petitioner’s service. The property is
not considered to be sold or leased to the customer as such or to be actually (i.e. permanently)
transferred to the customer in conjunction with the sale of the protective service. See Waste
Management of New York, Inc., Dec Tax App Trib, March 21, 1991, DTA No. 805791, aff’d 185
AD2d 479 (3d Dept 1992). Any separate charge for such installation or rental of the equipment is
part of the charge for Petitioner’s service and is taxable. Since the equipment is consumed by
Petitioner in the performance of its service, the purchase of the equipment fails to qualify as a
purchase for resale as such or as property actually transferred to the customer in performance of
the service for the purposes of section 1101(b)(4)(i) of the Tax Law. See Baker Protective
Services, Inc. d/b/a Wells Fargo Alarm Services, Inc., Dec Tax App Trib, November 1, 2001,
DTA No. 816899; and John Lombardi, Adv Ops Comm T & F, February 27, 2004,
TSB-A-04(5)S.
However, when Petitioner installs equipment in conjunction with the customer’s contract
for Petitioner’s central station alarm service, and Petitioner retains ownership or the right to
remove the equipment and if the equipment remains functional and could be rented by the
customer for use as a local alarm service or in conjunction with central alarm services offered by
other providers, then Petitioner is leasing its equipment to customers separate from Petitioner’s
provision of protective services. Assuming Petitioner’s charges for such rentals are reasonable
based on Petitioner’s charges for like equipment to customers who rent only equipment without
also contracting for Petitioner’s central station alarm services, the rentals, even when made in
conjunction with the provision of central alarm services, qualify as distinct sales or leases to
customers separate from the provision of protective services. In these circumstances, the
equipment, when installed, does not constitute a capital improvement but retains its identity as

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tangible personal property after installation. Under these circumstances, Petitioner’s purchases
of the equipment are purchases for resale as such to its customers and are exempt from sales tax.
See Matter of C.I.D. Refuse, Dec Tax App Trib, August 31, 1995, DTA No. 809934; and section
541.5(b)(4)(iii), Example 1 of the Sales and Use Tax Regulations.

DATED: December 14, 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.