I manufacture and permanently install baggage-handling systems at airport terminals leased by airlines from government-owned airports -- do I owe New York sales or use tax on the materials, labor, and installation charges?

Plain-English summary

G&T Conveyor Company, Inc., a Florida manufacturer based in Tavares, builds and installs baggage-handling systems (carousels and conveyors) at airport terminals. It contracts directly with airlines, or subcontracts through general contractors who contract with airlines, to install its systems. Once in place, the systems are permanently bolted and/or welded to the terminal building, custom-designed for each specific location, and wired into the terminal's electrical system through extensive electrical work. Petitioner states an installed system cannot be removed without causing material damage to both the system and the building, and that installation is intended to be permanent. G&T manufactures the systems in Florida and ships them by common carrier to the airport, where it incurs installation labor, engineering costs to fit the product to the terminal, and project management expenses, sometimes hiring subcontractors for the mechanical and electrical work. Selling a system without installation is rare — under 10% of total sales.

G&T asked whether it owes New York sales tax on the materials, labor, and other expenses of installing these systems.

For this Opinion, the Department presumed that G&T's airline customers lease their terminal space from New York State or one of its political subdivisions (i.e., the premises are government-owned, as is typical for airports).

The Department's answer has several moving parts. First, on the capital improvement test: an installation is an exempt capital improvement only if it (1) substantially adds value or appreciably prolongs the real property's useful life, (2) becomes part of, or is permanently affixed to, the real property such that removal would cause material damage, and (3) is intended to be a permanent installation. A baggage-handling system as G&T describes it will generally satisfy all three conditions (citing the Department's prior JetBlue Airways opinion), and installation charges for a capital improvement are not subject to sales tax.

But there's a wrinkle specific to airports: the airline signing the installation contract is typically a tenant, not the owner, of the terminal. Under New York case law (Matter of Flah's of Syracuse v Tully), improvements installed for the business purposes of a tenant — even if identical to owner-installed improvements — are presumed not permanent, because they're presumed to be for the tenant's own use and enjoyment rather than for the landlord's estate. That presumption can be overcome only if the airline's lease specifically provides that title to the system vests in the airport landlord upon installation and that the system stays with the premises after the lease ends (citing Beaman Corporation). G&T can document this by having the airline furnish the relevant lease language, plus a properly completed Certificate of Capital Improvement (Form ST-124) from its customer — which then relieves G&T of any obligation to collect sales tax on its installation charges.

Materials and components G&T (or its subcontractors) buy to build the system are a separate question. Ordinarily, a contractor's purchase of materials used in improving real property is itself a taxable retail sale, and no resale certificate may be used. But sections 1115(a)(15) and (16) exempt materials incorporated into real property owned by New York State, a political subdivision, or another section 1116(a)-exempt entity. So if G&T can show the system becomes the government landlord's property upon installation, its materials purchases (and its subcontractors' installation-service purchases, plus its own engineering and project-management costs) are also exempt from sales tax.

If, however, the system does not end up becoming the landlord's property, or otherwise fails the capital-improvement test, everything flips: the job is instead an installation of tangible personal property that remains tangible personal property, and G&T's entire charge to the customer for materials and installation is taxable under section 1105(c)(3) — regardless of whether the underlying real property belongs to an exempt government entity. In that scenario G&T (or its subcontractor) can still recover any New York tax it already paid on the materials, either by claiming a credit or refund (since the materials were effectively resold to the customer in a taxable transaction) or by using a Contractor Exempt Purchase Certificate (Form ST-120.1) up front to buy the materials tax-free and simply collecting tax on the final installed sale.

Finally, if G&T already paid Florida sales or use tax on the baggage-handling system or its materials — without any right to a refund or credit — and Florida grants New York taxpayers a reciprocal exemption, G&T can take a credit against the New York use tax otherwise due on those same materials (citing the Department's Bell Signs opinion and Publication 39).

What this means for you

Equipment manufacturers and installers working at airports or other tenant-occupied government facilities

Whether your installation charges are taxable often turns less on the physical facts (permanently bolted, custom-built, hard to remove) and more on paperwork: because your customer is usually a tenant rather than the property owner, you need documentation — ideally lease language plus a Certificate of Capital Improvement — proving title to the finished installation passes to the government landlord. Without it, the tenant-installation presumption cuts against you even for equipment that is functionally permanent.

Contractors and subcontractors on government-property capital improvement jobs

If you can show the real property is owned by New York State, a political subdivision, or another exempt entity, and that your installation becomes part of that property, both your materials purchases and your subcontractors' installation-service charges can be exempt from sales tax — but only with the right documentation flowing down the contracting chain (copies of the Certificate of Capital Improvement should go to every subcontractor).

Contractors whose installations don't qualify as capital improvements

If the equipment doesn't become the property owner's property, or otherwise fails the three-part capital-improvement test, your whole charge for materials and labor is taxable regardless of who owns the underlying real property. You have two ways to avoid double-paying tax on the materials: claim a credit or refund for tax already paid on materials that get resold as part of the taxable installation, or use a Contractor Exempt Purchase Certificate (ST-120.1) to buy them tax-free up front.

Multi-state manufacturers who pay sales tax where they manufacture

If you already paid another state's sales or use tax (without a right to refund) on property later installed in New York, and that state offers New York taxpayers a reciprocal exemption, you can credit that out-of-state tax against the New York use tax otherwise due on the same property.

Common questions

Q: Is installing an airport baggage-handling system automatically tax-free as a capital improvement?
A: Not automatically. The system has to meet the three-part capital-improvement test (substantially adds value/prolongs life, becomes permanently affixed, intended to be permanent), and — because the airline customer is usually a tenant, not the airport owner — you also need documentation showing the system becomes the landlord's property upon installation and stays after the lease ends.

Q: Why does it matter that the airline is a tenant rather than the airport owner?
A: New York case law presumes that improvements made for a tenant's business purposes are not permanent, even if they look identical to owner-made improvements, because they're presumed to benefit the tenant rather than the landlord's estate. That presumption can only be overcome with lease language showing title vests in the landlord.

Q: Do I owe tax on the raw materials that go into the system even if my installation labor is exempt?
A: Only if you can't show the materials become part of real property owned by New York State, a political subdivision, or another tax-exempt entity. If you can show that, the materials purchases are also exempt under sections 1115(a)(15) and (16); if not, you owe tax on the materials regardless of how the labor is treated.

Q: What happens if the installation doesn't qualify as a capital improvement at all?
A: Then the whole job is treated as installing tangible personal property that stays tangible personal property, and your entire charge to the customer -- materials and labor together -- is taxable, no matter who owns the real property. You can still recover tax already paid on the materials via credit/refund or by using a Contractor Exempt Purchase Certificate up front.

Q: Can I get credit for sales tax I already paid to Florida on these systems?
A: Yes, if you paid Florida tax without any right to a refund and Florida offers New York taxpayers a reciprocal exemption -- you can credit that Florida tax against the New York use tax due on the same materials.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(4)(i) (contractor purchases deemed retail sales)
• Tax Law §1101(b)(9)(i) (capital improvement definition)
• Tax Law §1105(c)(3)(iii) (installation resulting in capital improvement not taxable)
• Tax Law §1110 (compensating use tax)
• Tax Law §1115(a)(15), (16) (exemption for property incorporated into government-owned real property)
• Tax Law §1116(a) (exemption for New York State and political subdivisions)
• Tax Law §1118(7) (reciprocal credit for tax paid to another state)
• Tax Law §1119(c) (refund/credit on later retail sale by contractor)
• Sales and Use Tax Regulations §526.6(b) (contractor purchases deemed retail sales)
• Sales and Use Tax Regulations §527.7(b)(4) (capital improvement vs. repair/maintenance)
• Sales and Use Tax Regulations §531.3(b) (use tax on self-manufactured property)
• Sales and Use Tax Regulations §541.5(b) (capital improvement contracts)

Case law and prior opinions referenced:

• Matter of Flah's of Syracuse v Tully, 89 AD2d 729 (tenant installations presumed non-permanent)
• JetBlue Airways Corporation, TSB-A-07(15)S (airport equipment installations as capital improvements)
• Beaman Corporation, TSB-A-82(32)S (tenant installation qualifying as capital improvement when title vests in landlord)
• Trans World Airlines, Inc., TSB-A-92(30)S
• Bell Signs, Inc., TSB-A-08(21)S (reciprocal use tax credit)
• Publication 39, A Guide to New York State Reciprocal Credits for Sales Taxes Paid to Other States (8/04)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_35s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(35)S
Sales Tax
July 28, 2008

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

PETITION NO. S070515A

On May 15, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from G&T Conveyor Company, Inc., P. O. Box 487, Tavares, Florida 32778.
Petitioner, G&T Conveyor Company, Inc., provided additional information pertaining to the
Petition on August 1, 2007.
The issue raised by Petitioner is whether sales tax is due on materials, labor, and other
expenses incurred by Petitioner in installing its baggage-handling systems as described below.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner manufactures and installs baggage-handling systems at airport terminals.
Petitioner contracts with airlines, or in some cases, subcontracts with general contractors who
contract with airlines, to perform installations of Petitioner's systems. The baggage-handling
systems (i.e., carousels and conveyors) are permanently bolted and/or welded to the terminal
building structure. Extensive electrical work is required during installation to integrate a
baggage-handling system with a terminal's electrical system. A baggage-handling system as
installed is custom designed for its particular location. Once installed, it cannot be removed
without causing material damage to both the system and the terminal building. Petitioner states
that an installed baggage-handling system is intended to be a permanent installation.
Petitioner manufactures the baggage-handling systems in Florida and ships them via
common carrier to the site where they will be installed. Petitioner incurs the costs of labor to
install the system, engineering services to fit the product to the terminal, and project management
at the airport. Petitioner may hire subcontractors to install the mechanical and electrical portions
of the equipment at the site. Petitioner rarely sells a baggage-handling system without
installation; such sales do not exceed 10% of Petitioner's total sales.
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:
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(4)(i) . . . 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

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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. . . .
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(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
(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 imposes tax on retail sales of tangible personal property and
sales of certain enumerated services, and 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.
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(c) The receipts from every sale, except for resale, of the following services:
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(3) Installing tangible personal property . . . or maintaining, servicing or repairing
tangible personal property . . . except:
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(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;

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Section 1110 of the Tax Law provides, in part:
Imposition of compensating use tax. (a) Except to the extent that property or
services have already been or will be subject to the sales tax under this article, there is
hereby imposed on every person a use tax for the use within this state on and after June
first, nineteen hundred seventy-one except as otherwise exempted under this article, (A)
of any tangible personal property purchased at retail, (B) of any tangible personal
property (other than computer software used by the author or other creator)
manufactured, processed or assembled by the user, (i) if items of the same kind of
tangible personal property are offered for sale by him in the regular course of business or
(ii) if items are used as such or incorporated into a structure, building or real property by
a contractor, subcontractor or repairman 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, if items of the same kind are not offered for sale as such by such
contractor, subcontractor or repairman or other user in the regular course of business,…
(b) For purposes of clause (A) of subdivision (a) of this section, the tax shall be at
the rate of four percent of the consideration given or contracted to be given for such
property, or for the use of such property, including any charges for shipping or delivery
as described in paragraph three of subdivision (b) of section eleven hundred one, but
excluding any credit for tangible personal property accepted in part payment and
intended for resale.
(c) For purposes of subclause (i) of clause (B) of subdivision (a) of this section,
the tax shall be at the rate of four percent of the price at which items of the same kind
of tangible personal property are offered for sale by the user, and the mere storage,
keeping, retention or withdrawal from storage of tangible personal property by the
person who manufactured, processed or assembled such property shall not be deemed a
taxable use by him; provided, however, that if the user uses such an item itself on its own
premises (not including making a gift of such tangible personal property), solely in the
conduct of the user's own business operations, and the item retains its characteristic as
tangible personal property when so used, the tax shall be at the rate, and on the
consideration, described in subdivision (d) of this section.
(d) For purposes of subclause (ii) of clause (B) of subdivision (a) of this section,
the tax shall be at the rate of four percent of the consideration given or contracted to be
given for the tangible personal property manufactured, processed or assembled into the
tangible personal property the use of which is subject to tax, including any charges for
shipping or delivery as described in paragraph three of subdivision (b) of section eleven
hundred one.
Section 1115(a) of the Tax Law provides, in part:

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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:
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(15) Tangible personal property sold to a contractor, subcontractor or repairman
for use in (i) erecting a structure or building (A) of an organization described in
subdivision (a) of section eleven hundred sixteen . . . or (ii) adding to, altering or
improving real property, property or land (A) of such an organization . . . as the terms
real property, property or land are defined in the real property tax law; provided,
however, no exemption shall exist under this paragraph unless such tangible personal
property is to become an integral component part of such structure, building or real
property.
(16) Tangible personal property sold to a contractor, subcontractor or repairman
for use in maintaining, servicing or repairing real property, property or land (i) of an
organization described in subdivision (a) of section eleven hundred sixteen . . . as the
terms real property, property or land are defined in the real property tax law; provided,
however, no exemption shall exist under this paragraph unless such tangible personal
property is to become an integral component part of such structure, building or real
property.
Section 1116(a) of the Tax Law provides, in part:
Except as otherwise provided in this section, any sale . . . to any of the following
or any use or occupancy by any of the following shall not be subject to the sales and
compensating use taxes imposed under this article:
(1) The state of New York, or any of its agencies, instrumentalities, public
corporations (including a public corporation created pursuant to agreement or compact
with another state or Canada) or political subdivisions where it is the purchaser, user or
consumer, . . .
Section 1118 of the Tax Law provides, in part:
The following uses of property and services shall not be subject to the
compensating use tax imposed under this article:
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(7)(a) In respect to the use of property or services to the extent that a retail sales
or use tax was legally due and paid thereon, without any right to a refund or credit
thereof, to any other state or jurisdiction within any other state but only when it is shown

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that such other state or jurisdiction allows a corresponding exemption with respect to the
sale or use of tangible personal property or services upon which such a sales tax or
compensating use tax was paid to this state. To the extent that the tax imposed by this
article is at a higher rate than the rate of tax in the first taxing jurisdiction, this exemption
shall be inapplicable and the tax imposed by section eleven hundred ten of this chapter
shall apply to the extent of the difference in such rates, except as provided in paragraph
(b) of this subdivision.
(b) To the extent that the compensating use tax imposed by this article and a
compensating use tax imposed pursuant to article twenty-nine are at a higher aggregate
rate than the rate of tax imposed in the first taxing jurisdiction, the exemption provided in
paragraph (a) of this subdivision shall be inapplicable and the taxes imposed by this
article and pursuant to article twenty-nine shall apply to the extent of the difference
between such aggregate rate and the rate paid in the first taxing jurisdiction. In such
event, the amount payable shall be allocated between the tax imposed by this article and
the tax imposed pursuant to article twenty-nine in proportion to the respective rates of
such taxes.
Section 1119(c) of the Tax Law provides, in part:
A refund or credit equal to the amount of sales or compensating use tax imposed
by this article and pursuant to the authority of article twenty nine, and paid on the sale or
use of tangible personal property, shall be allowed . . . if a contractor, subcontractor or
repairman purchases tangible personal property and later makes a retail sale of such
tangible personal property, the acquisition of which would not have been a sale at retail to
him but for the second to last sentence of subparagraph (i) of paragraph (4) of subdivision
(b) of section eleven hundred one. An application for the refund or credit provided for
herein must be filed with the commissioner of taxation and finance within the time
provided by subdivision (a) of section eleven hundred thirty nine. Such application shall
be in such form as the commissioner may prescribe. Where an application for credit has
been filed, the applicant may immediately take such credit on the return which is due
coincident with or immediately subsequent to the time that he files his application for
credit. However, the taking of the credit on the return shall be deemed to be part of the
application for credit. The procedure for granting or denying such applications for refund
or credit and review of such determinations shall be as provided in subdivision (e) of
section eleven hundred thirty nine.
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
Retail sale. (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.
(b) Special rule--sales specifically included as retail sales. (1) A sale of any
tangible personal property to a contractor, subcontractor or repairman for use or

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consumption in erecting structures or buildings or adding to, altering, improving,
maintaining, servicing or repairing real property, property or land, is deemed to be a retail
sale, regardless of whether the tangible personal property is to be resold as such before it
is used or consumed. . . .
Section 527.7(b)(4) of the Sales and Use Tax Regulations provides:
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.
Section 531.3(b) of the Sales and Use Tax Regulations provides, in part:
Tangible personal property manufactured, processed or assembled by the user.
(1) A compensating use tax is imposed when a manufacturer, processor or
assembler uses its product as such in New York State or incorporates the product into real
property in New York State. This is so whether or not it offers items of the same kind for
sale in the regular course of business and whether the product was manufactured,
processed or assembled inside or outside New York State. The basis on which
compensating use tax is computed, however, depends on whether the user offers items of
the same kind for sale in the regular course of business. A compensating use tax is not
imposed, however, to the extent the user was required to pay sales tax without a right to a
refund or credit upon the purchase of the ingredients, parts or materials manufactured,
processed or assembled into the product the use of which is subject to tax.
Example 1: Company A, located in Suffolk County, manufactures
and sells its own brand of garage doors. Approximately 80 percent of the
doors are installed by Company A; the balance of the doors are installed
by the purchaser.
Company A pays sales tax to its New York State suppliers of wood
and glass that become part of the doors. When determining the amount of
use tax it owes Company A may take credit for the New York State and
local sales taxes paid on these materials.
(i) If the user offers items of the same kind for sale in the regular course of
business, the basis on which use tax is computed is the price at which items of the same
kind of tangible personal property are offered for sale by the user. The price at which
items are offered for sale is evidenced by a price list, catalog price or record of sales. In
the absence of a catalog price or price list, the average of the prices charged various
customers will be deemed to be the price at which the user would sell such item during
the regular course of business.

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Section 541.5 of the Sales and Use Tax Regulations provides, in part:
Contracts with customers other than exempt organizations.
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(b) Capital improvements contracts. (1) Purchases. All purchases of tangible
personal property (excluding qualifying production machinery and equipment exempt
under section 1115(a)(12) of the Tax Law) which are incorporated into and become part
of the realty or are used or consumed in performing the contract are subject to tax at the
time of purchase by the contractor or 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.
(2) Labor and material charges. All charges by a contractor to the customer for
adding to or improving real property by a capital improvement are not subject to tax
provided the customer supplies the contractor with a properly completed certificate of
capital improvement.
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(4) Documents; capital improvement contracts. (i) When a properly completed
certificate of capital improvement has been furnished to the contractor, the burden of
proving the job or transaction is not taxable and the liability for the tax rests solely upon
the customer.
(a) The prime contractor should obtain a certificate of capital
improvement from the customer and retain it as part of his records. Copies of
such certificate must be furnished to all subcontractors on the job and retained as
part of their records.
(b) A certificate of capital improvement may not be issued by a contractor,
subcontractor or any other person to a supplier on the purchase of tangible
personal property.
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(iii) 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.

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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 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 manufactures and installs baggage-handling systems at airport terminals.
Petitioner contracts with airlines, or in some cases, subcontracts with general contractors who
contract with airlines, to perform installations of Petitioner's systems. The baggage-handling
systems (i.e., carousels and conveyors) are permanently bolted and/or welded to the terminal
building structure. Extensive electrical work is required during installation to integrate a
baggage-handling system with a terminal's electrical system. A baggage-handling system as
installed is custom designed for its particular location. Once installed, it cannot be removed
without causing material damage to both the system and the terminal building.
It will be presumed for purposes of this Opinion that Petitioner contracts with airlines that
are leasing the premises on which the baggage-handling systems are to be installed and that such
premises are generally the property of New York State or one of its political subdivisions.
Section 1101(b)(9)(i) of the Tax Law provides that an installation must meet all of the
following conditions in order to constitute a capital improvement:
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.
Section 1105(c)(3)(iii) of the Tax Law provides that charges for the service of installing
tangible personal property that results in a capital improvement to real property are not subject to
sales tax. 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 the
service. If the end result of the services is the repair or maintenance of real property, the service
is taxable. If the end result of the same service is a capital improvement to the real property, the

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service is not taxable. The installation of an airline baggage-handling system, as described in this
Opinion, will generally meet the conditions set forth in section 1101(b)(9)(i) of the Tax Law for
a capital improvement. See JetBlue Airways Corporation, Adv Op Comm T & F, June 21, 2007,
TSB-A-07(15)S.
When the owner of the real property makes improvements to the real property that meet
the conditions set forth in section 1101(b)(9)(i) of the Tax Law, the installation is presumably a
permanent one. However, for installations made by tenants, though similar or identical to those
made by the owner of the premises, a different presumption arises. Installations made for the
purpose of conducting the business of one who is not the owner of the real property (e.g., a
tenant, licensee, or franchisee) are presumed not to be permanent, but made for the sole use and
enjoyment of the person who owns the business and not for the purpose of the landlord’s estate.
See Matter of Flah’s of Syracuse v Tully, 89 AD2d 729. An installation made for a tenant may
nevertheless qualify as a capital improvement if the lease provides that title to the improvement
is to vest in the landlord upon installation and that the improvement is to become a part of the
premises and remain on the premises upon the termination of the lease. See Beaman
Corporation, Adv Op St Tx Comm, August 19, 1982, TSB-A-82(32)S. Petitioner can
substantiate that the installation is permanent by having its customer (the airline) provide a copy
of the appropriate provisions of its lease with the landlord indicating that the baggage-handling
system becomes the landlord’s property upon installation.
Provided that Petitioner's installation of the baggage-handling system meets the
conditions set forth in section 1101(b)(9)(i) of the Tax Law and becomes the property of the
landlord upon installation and will remain on the premises upon the termination of the lease,
such installation will be a capital improvement that is exempt from sales tax. The airline should,
in addition to the above documentation, provide Petitioner with a properly completed Certificate
of Capital Improvement (Form ST-124). Such certificate relieves Petitioner of its obligation to
collect sales tax on its charges to its customer for installation of the baggage-handling system.
See section 541.5(b) of the Sales and Use Tax Regulations.
Purchases by Petitioner or its subcontractors of components and materials that become
part of the baggage-handling systems that qualify as capital improvements upon installation are
subject to New York sales and use tax as a retail purchase of tangible personal property when
such property is delivered in New York State or a taxable use of tangible personal property if
purchased outside the State but installed into realty in New York. See section 1101(b)(4)(i) of the
Tax Law and section 541.5(b) of the Sales and Use Tax Regulations. Petitioner or its
subcontractors may not issue a resale certificate to purchase such items without the payment of
sales tax. However, sections 1115(a)(15) and (16) of the Tax Law provide an exemption from
sales and use tax for purchases or use by a contractor, subcontractor, or repairman of tangible
personal property incorporated into real property owned by New York State or one of its political
subdivisions. Provided that Petitioner can show that the baggage-handling system becomes the
property of New York State, one of its political subdivisions, or another entity exempt from sales
tax under section 1116(a) of the Tax Law upon installation, materials which are actually
incorporated into the real property may be purchased or used by Petitioner without the payment

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July 28, 2008

of sales or use tax pursuant to sections 1115(a)(15) and (16). See Trans World Airlines, Inc., Adv
Op Comm T & F, March 26, 1992, TSB-A-92(30)S; JetBlue Airways Corporation, supra.
Petitioner incurs costs for labor to install the system, engineering services to fit the
product to the terminal, and project management at the airport. Installation services purchased
by Petitioner from subcontractors in connection with a capital improvement project are not
subject to sales tax pursuant to section 1105(c)(3)(iii) of the Tax Law. Petitioner should provide
subcontractors with documentation including a photocopy of the Certificate of Capital
Improvement received from its customer to relieve the subcontractor of its obligation to collect
sales tax on its charges to Petitioner for installing the system. See section 541.5(b)(4) of the
Sales and Use Tax Regulations. Petitioner's purchase of engineering services to fit the product to
the terminal and project management services at the airport in connection with the capital
improvement are not subject to sales tax.
When Petitioner works as a subcontractor, it should obtain a copy of the Certificate of
Capital Improvement provided to the prime contractor by the airline and documentation as
described above indicating that the improvement will become the property of the landlord upon
installation and will remain on the property upon the termination of the lease. Provided that
Petitioner obtains documentation that the landlord is exempt from sales tax under section 1116(a)
of the Tax Law, Petitioner is not liable for sales or use tax on materials which are incorporated
into the landlord’s real property.
It is noted that if an installation meeting the conditions to qualify as a capital
improvement is performed upon real property, property, or land not owned by an entity exempt
from sales tax pursuant to section 1116(a) of the Tax Law, Petitioner (and its subcontractors)
owes sales or use tax on the purchase or use of materials incorporated into the real property. See
section 1101(b)(4)(i) of the Tax Law. Such tax paid by Petitioner (and its subcontractors) may
be included in Petitioner's charges to its customer for the sale of such installation.
If the materials do not become the property of the owner of the realty upon installation or
the installation otherwise fails to meet the conditions set forth above to qualify as a capital
improvement to real property, Petitioner (and its subcontractors) is making sales of and
performing an installation of tangible personal property that remains tangible personal property
after installation. All charges by Petitioner to a tenant for the installation of materials that retain
their identity as tangible personal property upon installation are subject to sales tax under section
1105(c)(3) of the Tax Law regardless of whether the underlying real property, property, or land
is property of an entity exempt from sales tax pursuant to section 1116(a) of the Tax Law. The
purchase or use of materials by Petitioner or its subcontractor in such case is not exempt under
sections 1115(a)(15) and (16) of the Tax Law. However, in this case Petitioner or its
subcontractor is entitled to a credit or refund of any New York State and local sales and use tax it
paid on the purchase of tangible personal property used in such installation and actually
transferred to the customer as a component part of the baggage-handling system. Alternatively,
in lieu of paying the sales tax and claiming a credit or refund, Petitioner or its subcontractor may
issue a Contractor Exempt Purchase Certificate (Form ST-120.1) to its vendor for purchases of

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materials that it will incorporate into the installed baggage-handling system that will remain
tangible personal property after installation. See section 1119(c) of the Tax Law and section
541.5(b)(4)(iii), Example 1 of the Sales and Use Tax Regulations. Petitioner's purchases of
installation services from a subcontractor in such case are exempt from tax as purchases for
resale. Petitioner's purchases of engineering and project management services are also exempt
from tax.
It should be noted that section 1118(7) of the Tax Law provides for an exemption from
New York State and local use tax imposed on the use of tangible personal property or services to
the extent that a retail sales or use tax was legally due and paid on such property or services,
without any right to a refund or credit, to any other state or jurisdiction within any other state, but
only when such other state or jurisdiction allows a corresponding exemption with respect to sales
or use tax paid to New York State. If Petitioner has already paid a sales or use tax to the state of
Florida on the baggage-handling system and other materials installed as a capital improvement in
New York without any right to a refund or credit, under section 1118(7) of the Tax Law
Petitioner may take a credit against the use tax Petitioner is required to pay to New York for the
tax paid to Florida on those materials. See A Guide to New York State Reciprocal Credits for
Sales Taxes Paid to Other State, Publication 39 (8/04); and Bell Signs, Inc., Adv Op Comm T &
F, April 30, 2008, TSB-A-08(21)S.

DATED: July 28, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.