Can a paving contractor buy materials tax-free when it repaves state and municipal roads, even though it works as a subcontractor for a private utility?

Plain-English summary

Switzer Contracting, Inc., a road-paving contractor, does subcontract work for the Long Island Lighting Company (a private utility). The utility excavates sections of New York State and municipal roads to install, replace, or repair electrical lines and gas mains, and Switzer repaves them. Switzer asked whether it must pay sales tax on the paving materials it buys.

The Department held Switzer can buy the materials tax-free.

• The exemption for work on exempt-entity property. Section § 1115(a)(15) and (16) exempts tangible personal property sold to a contractor, subcontractor, or repairman for use in maintaining, servicing, repairing, adding to, altering, or improving the real property of certain exempt entities, where the property becomes an integral component part of that real property.
• State and municipal roads qualify. The exempt entities (§ 1116(a)(1)) include the State of New York and its agencies, instrumentalities, public corporations, and political subdivisions, including municipalities. The roads Switzer repaves belong to those entities.
• Result: no tax on the paving materials. Because Switzer is repairing or improving exempt-entity real property, and the paving materials become an integral component part of the roads, it may buy them without paying tax (citing Olympia & York Battery Park Co., TSB-A-82(5)S). The rule applies to local sales tax as well.
• How to claim it. Switzer gives its supplier a completed Contractor Exempt Purchase Certificate (Form ST-120.1) — or, if it holds a Direct Payment Permit (Form ST-123), simply a copy of that permit.

What this means for you

Materials built into public property are exempt — the whose-contract question is separate. What matters is that the finished work is on an exempt entity's real property and the materials become an integral part of it. Working through a private utility rather than directly for the State doesn't defeat the exemption when the property being improved belongs to the State or a municipality.

"Integral component part" is the key phrase. The exemption covers materials that become part of the real property (like asphalt in a road), not tools or equipment you keep. Match your purchases to that standard.

Use the right certificate. Give suppliers an ST-120.1 to buy exempt, or a copy of your ST-123 Direct Payment Permit if you have one. That paperwork is what supports the tax-free purchase.

Common questions

Q: I'm a subcontractor for a utility, but the road belongs to the State. Do I pay tax on paving materials?
A: No. Because the materials become an integral part of exempt-entity (State/municipal) real property, you can buy them tax-free under § 1115(a)(15)/(16) — even though your contract is with a private utility.

Q: Does this cover local sales tax too?
A: Yes. The Department said the exemption applies equally to local sales taxes.

Q: What paperwork do I need?
A: Give your supplier a completed Contractor Exempt Purchase Certificate (Form ST-120.1), or a copy of your Direct Payment Permit (Form ST-123) if you hold one.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on receipts from retail sales of tangible personal property
• Tax Law § 1115(a)(15) and (16) — exemption for property sold to a contractor/subcontractor/repairman that becomes an integral component part of an exempt entity's real property
• Tax Law § 1116(a)(1) — exempt entities include the State, its agencies/instrumentalities/public corporations, and political subdivisions (municipalities)

Authority cited:

• Olympia & York Battery Park Co., Advisory Opinion (Jan. 13, 1982), TSB-A-82(5)S

Forms referenced:

• Form ST-120.1 — Contractor Exempt Purchase Certificate
• Form ST-123 — Direct Payment Permit

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_45s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(45)S
Sales Tax
December 22, 1982

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

PETITION NO. S820315B

On March 15, 1982 a Petition for Advisory Opinion was received from Switzer Contracting,
Inc., 8 South 18th Street, Wyandanch, New York 11798.
The issue raised is whether Petitioner is liable for New York State and local sales tax on the
purchase of materials used to repave roads and real property owned by the State of New York and/or
municipal governments.
Petitioner is a road paving contractor which performs subcontract work for the Long Island
Lighting Company. This work involves repaving sections of New York State and municipal
government roads and real property which have been excavated by the Long Island Lighting
Company for the purpose of the installation, replacement or repair of electrical lines and/or gas
mains or pipes.
Section 1105(a) of the Tax Law imposes the State sales tax on the receipts from retail sales
of tangible personal property. Section 1115 of the Tax Law exempts from the operation of such tax
receipts from the purchase of tangible personal property sold to a contractor, subcontractor or
repairman for use in maintaining, servicing or repairing the real property of any of certain exempt
entities, or for use in adding to, altering or improving the real property of such an exempt entity,
where the tangible personal property in question is to become an integral component part of such real
property. Tax Law, §1115(a)(15) and (16). The exempt entities here referred to include the State of
New York and any of its agencies, instrumentalities, public corporations, or political subdivisions,
including municipalities. Tax Law, §1116(a)(1). The foregoing provisions are equally applicable to
local sales taxes.
Accordingly, since Petitioner will be repairing or making capital improvements to real
property belonging to an exempt entity described in the above-cited exemption provision, its
purchases of the materials to be used in paving the roads, and which become an integral component
part thereof, may be purchased without the payment of tax. Olympia & York Battery Park Co.,
Advisory Opinion, January 13, 1982, TSB-A-82(5)S.
In order to avail itself of the benefits of the above-cited exemption provision, Petitioner
should present its supplier with a properly completed Contractor Exempt Purchase Certificate, Form
ST-120.1. If Petitioner holds a Direct Payment Permit (Form ST-123) it may, instead, simply issue
its supplier a copy of such permit.

DATED: December 2, 1982

s/FRANK J. PUCCIA
Director
Technical Services Bureau

ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)