Is the sale and installation of energy-saving 'window quilts' a tax-exempt capital improvement, or is the full installed charge taxable?

Plain-English summary

David W. Sprague sells and installs "window quilts" — custom-cut insulating window coverings attached with nails, screws or glue, with a 15-year life expectancy, costing about $6.00 per square foot, and eligible for the federal energy credit. He asked whether the sale-and-installation is subject to sales tax, arguing the quilts are similar in use and design to storm windows (whose installation is a capital improvement).

The Department held the whole installed charge is taxable.

• Installation services are taxable unless the result is a capital improvement. Section 1105(c)(3) taxes installing tangible personal property, except installing property that becomes a capital improvement to real property.
• A window quilt is more like insulated drapes than a storm window. The Department rejected the storm-window analogy — a window quilt is similar to insulated draperies.
• Installing it isn't a capital improvement. Under the three-part test in § 1101(b)(9) / 20 NYCRR 527.7, the installation fails because it (1) does not substantially add to the value of the real property or appreciably prolong its useful life, and (2) is not permanent.
• Result: fully taxable. When a window quilt is sold on an installed basis, the entire charge — for both the product and its installation — is subject to sales tax under § 1105(a).

What this means for you

"Energy-saving" and "attached to the house" don't make it a capital improvement. A product can be custom-fit, screwed to the window frame, long-lasting and eligible for an energy credit and still be taxable when installed. The capital-improvement test looks at whether the work permanently adds lasting value to the real property — not at how the item is marketed.

Permanence and lasting value are the deciding factors. A storm window installation can be a capital improvement; a window covering treated like insulated drapery is not, because it isn't a permanent addition that appreciably prolongs the building's useful life. If you sell installed window treatments, don't assume they're exempt — the default is that the full installed price is taxable.

Bill it as taxable unless you have a real capital-improvement basis. When installation isn't a capital improvement, you charge tax on the whole job (materials and labor), not just the product. If a customer hands you a capital-improvement certificate for something like this, be cautious — the Department's view here is that these installations don't qualify.

Common questions

Q: My window quilts are screwed in and last 15 years — isn't that a capital improvement?
A: No. The Department treats them as similar to insulated draperies, not storm windows. The installation isn't permanent and doesn't appreciably prolong the property's useful life, so it fails the capital-improvement test.

Q: Do I charge tax on just the product or the installation too?
A: On the entire charge. Because the installation isn't a capital improvement, the full installed price — product and labor — is taxable under § 1105(a).

Q: Does eligibility for the federal energy credit change the sales-tax result?
A: No. The federal energy credit is separate; it doesn't make the installation a capital improvement for New York sales-tax purposes.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property; § 1105(c)(3) — installation services, except installing a capital improvement
• Tax Law § 1101(b)(9) — definition of "capital improvement" (three-part test)
• 20 NYCRR 527.7 — capital improvement

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_23s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81 (23) S
Sales Tax
September 10, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810526C

On May 26, 1981 a Petition for Advisory Opinion was received from David W. Sprague, 408
E. State Street, Ithaca, New York 14850.
The issue raised is whether the sale and installation of window quilts (an energy conservation
device) are subject to sales tax.
Petitioner states that the window quilts are custom cut for each window, are installed using
nails, screws or glue, have a life expectancy of fifteen years, cost $6.00 per square foot, are eligible
for the federal energy credit, and are similar in use and design to storm windows.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 1105(c)(3) of the Tax Law imposes a tax on receipts from the service of "Installing
tangible personal property . . . except for installing property which, when installed, will constitute
(a). . . capital improvement to real property . . . "
The Tax Law and the Sales and Use Tax Regulations define the term capital improvement
as ". . . an addition or alteration to real property (i) which substantially adds to the value of the real
property, or appreciably prolongs the useful life of the real property, and (ii) which 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 (iii) is intended to become a permanent installation." Tax
Law §1101(b)(9) and 20 NYCRR 527.7.
A window quilt is not similar in use and design to a storm window, but rather is similar to
insulated draperies. The installation of a window quilt does not constitute a capital improvement to
real property in that (1) such activity does not substantially add to the value of real property or
appreciably prolong its useful life and (2) such installation is not permanent.
Consequently, when a window quilt is sold on an installed basis the entire charge is subject
to sales tax pursuant to Section 1105(a) of the Tax Law.

DATED: August 25, 1981

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR