We install closed circuit television/security camera systems for commercial buildings — is our installation charge a taxable sale, or can it qualify as an exempt capital improvement?

Plain-English summary

A company designs, sells, installs, and services closed circuit television (CCTV) systems for commercial and industrial customers — ranging from a simple setup (camera, housing, bracket, wire/cable, monitor and/or recorder) to complex multi-camera systems with a system controller and digital video recorder. Wire and cable run inside walls and ceilings; cameras attach to the building structure; monitors, recorders, and controllers typically sit on desks or racks (sometimes wall-mounted). Customers usually buy these systems for security, though sometimes for other monitoring purposes, and self-monitor them once installed.

The Department split the analysis by component and installation manner rather than treating the whole system as one thing:

• Wiring/cable installed like the building's electrical system (embedded in walls/ceilings, similar to circuit breaker panels or in-wall wiring) — this can qualify as an exempt capital improvement if it meets the standard three-part test: substantially adds value, becomes permanently affixed such that removal would cause material damage, and is intended as a permanent installation. For an owner-occupied building, this is usually satisfied when the wiring is embedded like real electrical infrastructure.
• Cameras mounted on brackets bolted to a wall, and monitors/controllers/recorders that sit on desks or racks and can be readily removed and reused — these remain taxable tangible personal property, because they don't have the permanence to become part of the real property, even if bolted down (the opinion draws directly on precedent finding bolted amusement rides and bolted-and-wired motor controllers similarly non-permanent).
• Modern recessed camera installations — if cameras are recessed into walls/ceilings and wired like the building's electrical system (rather than bolted-on brackets), that installation can also qualify as part of the capital improvement.
• Installations for a tenant rather than the property owner — presumed not permanent unless the lease specifically provides that title to the improvement vests in the landlord and it's to remain part of the premises; if the lease does say that (and other capital-improvement conditions are met), a tenant installation can also qualify.

Practical billing consequences: For components that qualify as a capital improvement, the installer acts as a construction contractor — it doesn't collect sales tax from the customer on the installation charge (needs a Certificate of Capital Improvement, Form ST-124), but it must pay tax on its own purchases of those components (no resale certificate). For components that stay taxable tangible personal property, the installer must collect sales tax on both the components and their installation — but can then purchase those specific components tax-free for resale. If a single system mixes both types of components, the installer must collect tax on the entire charge unless it separately states reasonable charges for the capital-improvement portion versus the taxable tangible-personal-property portion — in which case tax applies only to the latter.

What this means for you

CCTV, alarm, and security-system installers

Structure your invoices to separately state charges for in-wall/ceiling wiring installed like building electrical infrastructure (potential capital improvement) from charges for cameras, monitors, and controllers that just sit on desks or bolt to a wall (taxable tangible personal property). Failing to separate these means your entire installation charge becomes taxable.

Commercial property owners

If you own the building and have wiring embedded like your electrical system, expect that portion to be an exempt capital improvement — but don't expect the same for cameras/monitors/recorders that could be unplugged and moved to another location.

Landlords and tenants installing security systems

Whether a tenant-installed CCTV system's wiring qualifies as a capital improvement depends specifically on your lease's language about who owns the improvements at the end of the term — get that lease provision right if you want capital-improvement treatment.

Accountants and tax professionals

This opinion is a granular, component-by-component application of the three-part capital-improvement test, contrasting the bolted-but-removable equipment line of cases (Charles R. Wood Enterprises, West Mountain Corp., Cornwell Energy Management) against the embedded-like-electrical-infrastructure line (John Lombardi). Useful checklist for any mixed hardware/wiring installation project, not just security systems.

Common questions

Q: Is our entire CCTV installation charge either fully taxable or fully exempt?
A: Not necessarily — it depends on each component. Embedded wiring/cable installed like a building's electrical system can be an exempt capital improvement, while cameras, monitors, controllers, and recorders that remain readily removable and reusable stay taxable tangible personal property.

Q: We bolt our camera brackets to the wall — doesn't that make the installation permanent?
A: Not by itself, per this opinion and the precedent it relies on (bolted amusement rides, bolted-and-wired motor controllers) — items that can be readily removed and reused without material damage to the property don't meet the capital-improvement permanence test just because they're bolted down.

Q: What if we install a system with both wiring (potentially exempt) and cameras/monitors (taxable)?
A: You must collect tax on the entire charge UNLESS you separately state reasonable charges for the capital-improvement portion versus the taxable tangible-personal-property portion — in which case only the latter is taxed.

Q: Does it matter if we're installing for a tenant instead of the building owner?
A: Yes. Tenant installations are presumed non-permanent unless the lease specifically provides that title to the improvement vests in the landlord and it's to remain part of the premises after the lease ends.

Q: Can any CCTV installer rely on this exact opinion?
A: No. An advisory opinion binds the Department only as to the taxpayer who requested it and the facts described. Whether your specific components and installation method meet the capital-improvement test requires its own analysis.

Citations and references

Statutes and regulations:

• Tax Law §1105(a), (c)(3) (tax on tangible personal property; installation services)
• Tax Law §1101(b)(9)(i) (three-part capital improvement test)
• Tax Law §1115(a)(17) (capital improvement services exemption)
• 20 NYCRR §541.2(d) (construction contractor status)
• Publication 862, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property

Cited cases and opinions:

• John Lombardi, TSB-A-04(5)S (wiring embedded like electrical system meets capital-improvement test)
• Beaman Corporation, TSB-A-82(32)S (tenant installations presumed non-permanent absent contrary lease language)
• Matter of Flah's of Syracuse, Inc. v. James H. Tully, Jr., 89 AD2d 729 (tenant capital improvements possible if lease conditions met)
• Matter of Charles R. Wood Enterprises, Inc. v. State Tax Commn., 67 AD2d 1042 (bolted amusement rides not capital improvements)
• Matter of West Mountain Corp. v. Miner, 85 Misc2d 416
• Cornwell Energy Management, Inc., TSB-A-03(22)S (bolted/wired motor controllers not capital improvements)
• Matter of Gem Stores, Inc., TSB-D-88(30)S (readily removable equipment not part of capital improvement)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(10)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(10)S
Sales Tax
February 26, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S081201A

Petitioner, name and address information redacted requested an advisory opinion as to whether its
charges for the sale and installation of closed circuit television systems are subject to the sales tax. We conclude
that Petitioner’s charges for the installation of cable and wiring for the owner of the realty may qualify as a
capital improvement to real property and thus would be exempt from tax. But its charges for the sale and
installation of property that retains its identity as tangible personal property, such as cameras, monitors, and
system controllers, are subject to sales tax. Whether charges for the installation of a closed circuit television
system performed for a tenant qualifies as a capital improvement to the owner’s realty will depend on the
provisions of the parties’ lease agreement.
Facts
Petitioner designs, sells, installs and services closed circuit television systems for commercial and
industrial businesses. A simple system will consist of a camera, camera housing, mounting bracket, wire and
cable, a television monitor and/or a recording device. More complex systems may have multiple cameras, a
system controller, monitor(s) and a recording device such as a digital video recorder. A system controller is an
integral component part of a multiple camera system. Once installed, a system may be expanded by adding
additional cameras and other devices.
Wire and cable are installed within the walls and ceilings. Cameras are attached to the structure.
Monitors and recording devices generally sit on a desk or in a rack, but may also be wall mounted. System
controllers usually sit on a desk. The cameras, monitors, recording devices and system controllers are all
attached to the wire and cable.
Generally, customers purchase these systems to protect their employees and property, but they may also
be used for other purposes such as to observe a manufacturing process. Once installed, these systems are selfmonitored by the customer.
Analysis
Petitioner asks about the application of sales tax to the installation of closed circuit television systems in
commercial and industrial property.
Sales of such systems on an uninstalled basis are sales of tangible personal property subject to sales tax.
See section 1105(a) of the Tax Law.
A company that sells closed circuit television systems on an installed basis would be considered a
construction contractor when it installs the system components in the real property. See section 541.2(d) of the
Sales and Use Tax Regulations. Charges for the installation of a closed circuit television system may be
characterized as 1) a capital improvement to real property, 2) an installation of tangible personal property that
remains tangible personal property after installation, or 3) a charge for protective services, depending on the
facts.

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TSB-A-09(10)S
Sales Tax
February 26, 2009

When a company installs a closed circuit television system for the owner of the real property and the
installation meets all three of the conditions set forth in section 1101(b)(9)(i) of the Tax Law, the work is
considered to be a capital improvement. Thus, charges for installations that substantially add to the value of the
real property, become part of the real property or are permanently affixed to the real property so that removal
would cause material damage to the real property or the article itself, and are intended to be permanent, are not
subject to sales tax. See sections 1105(c)(3)(iii) and 1115(a)(17) of the Tax Law.
The first condition for a capital improvement set forth in section 1101(b)(9)(i)(A) of the Tax Law is that
an installation “substantially adds to the value of the real property, or appreciably prolongs the useful life of the
real property.” Though a closed circuit television system cannot be said to appreciably prolong the useful life of
the real property, it is reasonable to conclude that it may substantially add to the value of the real property.
The second condition for a capital improvement set forth in section 1101(b)(9)(i)(B) of the Tax Law is
that the closed circuit television system be installed in such a manner as to become part of the real property or be
permanently affixed to the real property so that removal would cause material damage to the real property or to
the closed circuit television system itself. Installations of circuit breaker panels, in-wall wiring, additional
circuits to electrical systems, main power boxes, and light fixtures as part of the realty would meet this second
condition.
See Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property,
Publication 862 (4/01). Where the cables, wires and other equipment in a closed circuit television system are
installed in a manner similar to the building’s electrical system, circuit breaker panels and other items listed
above so that they become a part of the real property, their installation would meet the second requirement of
section 1101(b)(9)(i) of the Tax Law.
The third condition for a capital improvement set forth in section 1101(b)(9)(i)(C) of the Tax Law is
that the closed circuit television system be intended to become a permanent installation. In order to meet this
condition, the system must become the property of the owner of the realty upon its installation. Thus with
respect to an installation performed for a tenant or occupant that, upon installation, becomes the property of the
occupant, absent lease provisions showing a contrary intent, the closed circuit television system’s cables, wires,
camera housings or other equipment installed into the ceiling and walls in a manner similar to the building’s
electrical system, circuit breaker panels, and other items listed above are considered to be permanently affixed
to the real property and intended to become a permanent installation.
Accordingly, closed circuit television system components that add value to the property, are installed so
as to be considered permanently affixed to the real property in the same manner as the building’s electrical
system, and become the property of the owner of the realty upon installation, are considered to meet the
conditions set forth in section 1101(b)(9)(i) of the Tax Law to qualify as a capital improvement to real property.
See John Lombardi, Adv Op Comm T & F, February 27, 2004, TSB-A-04(5)S.
Petitioner is considered to be a construction contractor for installations that qualify as a capital
improvement to real property and is not required to collect sales tax from its customer on its charges for the
installation. See section 541.2(d) of the Sales and Use Tax Regulations. Petitioner should obtain a properly
completed Certificate of Capital Improvement (Form ST-124) from its customer. But Petitioner must pay tax on
its purchases of the components so installed. Petitioner may not issue a resale certificate to purchase those
items. Note, however, that, as discussed below, when tangible personal property that retains its identity as
tangible personal property upon installation, is sold and installed in conjunction with the performance of a
capital improvement, Petitioner must collect the appropriate sales tax upon the charges for that tangible personal
property and the installation.
When installations of property are made for an occupant or tenant, it is presumed that the installation of
that property is not intended to be permanent unless the lease indicates that title to the improvements is to vest in

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TSB-A-09(10)S
Sales Tax
February 26, 2009

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. However, where the conditions
in section 1101(b)(9)(i) of the Tax Law discussed above are met for installations performed for commercial and
industrial tenants of real property, and there is no provision in the lease or rental agreement between the
property owner and tenant requiring removal of the system upon termination of the lease or rental agreement,
such installations may also qualify as capital improvements to the real property. See Matter of Flah's of
Syracuse, Inc. v. James H. Tully, Jr. et al, 89 AD 2d 729.
When Petitioner’s installation of a closed circuit television system does not constitute a capital
improvement, Petitioner will be considered to be installing tangible personal property that retains its identity as
tangible personal property after installation. In the Matter of Charles R. Wood Enterprises, Inc. v. State Tax
Commn., 67 AD2d 1042, the court determined that certain amusement rides, even though bolted to the real
property, were movable machinery or equipment, and thus were not capital improvements to real property. See
also Matter of West Mountain Corp. v. Miner, 85 Misc2d 416. Likewise, in Cornwell Energy Management, Inc.,
Adv Op Comm T & F, May 8, 2003, TSB-A-03(22)S, the Tax Department opined that motor controllers that
were wired to a motor and bolted to real property, and required only unwiring and unbolting to be removed for
service or repair, did not have the degree of permanence necessary to qualify as a capital improvement.
Accordingly, where an installed closed circuit television system or its components can be removed from the real
property without material damage to the system or components or to the real property, or are not intended to be
a permanent installation, the installation is not a capital improvement to the real property and the charge or
charges for the system, the system components, and their installation are subject to sales tax pursuant to
sections 1105(a) and 1105(c)(3) of the Tax Law.
Thus, components of the system such as the video surveillance cameras and television monitors that are
installed on brackets bolted to a wall, and the monitors, system controllers, and recording devices that sit on
desks, and that can be readily removed from the premises and reused, are not considered permanently affixed to
the real property, and therefore will not be considered a part of a capital improvement to real property. See
Matter of Gem Stores, Inc., Tax Appeals Tribunal, October 14, 1988, TSB-D-88(30)S. The charges attributable
to sales and installation of these components are accordingly subject to sales tax.
However, current technology no longer requires the installation of video cameras on brackets bolted to
the ceiling or wall. For example, the camera mounts and cameras may be recessed in the walls and ceilings and
wired and installed in a manner similar to the building’s electrical system, such that the installation of the
cameras meets the conditions set forth in section 1101(b)(9)(i) of the Tax Law. In this case, the installed
cameras would also constitute part of the overall capital improvement. See John Lombardi, supra.
When Petitioner installs a closed circuit television system or components of such a system that remain
tangible personal property after installation, it is required to collect sales tax from its customer on the charges
for that installation. In that case, Petitioner may purchase, without payment of sales tax, the tangible personal
property used in the installation and actually transferred to the customer. See section 1101(b)(4)(i) of the Tax
Law and section 541.5(b)(4)(iii), Example 1 of the Sales and Use Tax Regulations. If Petitioner has paid sales
tax on the tangible personal property used in installations that are not capital improvements, it may apply for a
refund or credit of the sales tax it paid on tangible personal property actually transferred to its customer. See
section 1119(c) of the Tax Law.
If Petitioner installs a system where some of the components when installed constitute a capital
improvement but others do not, Petitioner must collect sales tax on its entire charge for the installation of the
system. However, if Petitioner separately states reasonable charges for the capital improvement portion and for

TSB-A-09(10)S
Sales Tax
February 26, 2009

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the components and installations that are not capital improvements, Petitioner must collect tax only on the
charges attributable to the components and installations that are not capital improvements.

DATED: February 26, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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.