Does a caterer owe tax on floral centerpieces it buys for customers, and are its leasehold improvements exempt as capital improvements?

Plain-English summary

Bayshore Catering Corp. asked two questions: (1) whether the floral centerpieces it buys for customers' affairs are subject to sales tax, and (2) whether certain leasehold improvements it made to the building it rents qualify as capital improvements.

Issue 1 — the centerpieces are taxable, both ways.

• Not a purchase for resale. The standard centerpieces get their first use as part of Bayshore's catering service (decorating the hall). Because the caterer uses them before any transfer to the customer, the purchase isn't made "solely for resale," so it's a taxable purchase to the caterer (§ 1101(b)(4); Matter of Jacks v. Joseph). That the customer or guests take the flowers afterward doesn't create a prior resale.
• And taxable to the customer. A caterer's receipts — including any itemized charge like centerpieces — are taxable under § 1105(d), and expenses of making a sale aren't deductible from receipts (20 NYCRR 526.5(e)). So Bayshore must also collect tax on its centerpiece charge to customers, even though it paid tax on the flowers.

Issue 2 — marble floor and ceiling are capital improvements; disco lights are not.

• Capital improvement test (§ 1101(b)(9)): an addition that (i) substantially adds value or prolongs useful life, (ii) is permanently affixed so removal would cause material damage, and (iii) is intended to be permanent.
• Marble floor and new ceiling qualify. Both add value and are affixed so that removal would cause material damage. Although a tenant's installations are presumed impermanent (100 Park Ave. v. Boyland), the lease here rebuts that presumption: Clause "ELEVENTH" makes all improvements the landlord's property at once, establishing the required permanent intent (Flah's of Syracuse). So both are capital improvements (not taxable as such).
• Disco lights are trade fixtures — not a capital improvement. They are excluded from Clause Eleventh (and a lease addendum makes detachable fixtures the tenant's removable property), so they lack the required intent of permanence and remain taxable.

What this means for you

Buying something you'll "use first" isn't buying for resale — even if the customer keeps it. If a caterer, decorator, or event vendor puts an item to its own use as part of the service, the purchase is taxable, and the itemized charge to the customer is taxable too. You can end up paying tax on the purchase and collecting tax on the resale charge; that's the design, because sale expenses aren't deductible from receipts.

Capital-improvement status for a tenant turns on the lease. A tenant's installations are presumed temporary, so installation labor is normally taxable. A lease clause vesting improvements in the landlord — and marking them permanent — can flip a genuinely affixed installation (a cemented floor, a built-in ceiling) into a nontaxable capital improvement.

Trade fixtures stay taxable. Removable, business-specific equipment (here, disco lights) is a trade fixture, not a capital improvement, even when wired in — because it's meant to come out at lease end.

Common questions

Q: I'm a caterer and I itemize flowers on the bill. Do I owe tax on buying them and collect tax on the charge?
A: On these facts, yes to both. Because you use the centerpieces first as part of your service, the purchase is taxable to you, and your itemized charge to the customer is also taxable — sale expenses aren't deductible from your receipts.

Q: I'm a tenant. Are my buildout costs exempt as capital improvements?
A: It depends on permanence. Installations that substantially add value and are affixed so removal causes material damage can qualify — but only if intended to be permanent. A lease clause vesting improvements in the landlord helps establish that intent; without it, a tenant's work is presumed temporary.

Q: Are wired-in light fixtures a capital improvement?
A: Not here. The disco lights were removable trade fixtures the tenant could take at lease end, so they were taxable rather than a capital improvement.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1101(b)(4) — definition of "retail sale" and the resale exclusion
• Tax Law § 1105(d) — tax on food and drink sold by caterers
• Tax Law § 1101(b)(9) — definition of "capital improvement"

Regulations:

• 20 NYCRR 526.5(e) — expenses of a sale not deductible from receipts

Cases and prior guidance:

• Matter of Jacks v. Joseph, 282 A.D. 622
• Beaman Corporation, TSB-A-82(32)S
• Matter of 100 Park Ave. v. Boyland, 144 N.Y.S.2d 88, aff'd 309 N.Y. 685
• Flah's of Syracuse, 89 A.D.2d 729 (1982)
• Excelsior Brewing Co. v. Smith, 125 A.D. 668, aff'd 198 N.Y. 519
• Webber v. Franklin Brewing Co., 123 A.D. 465, aff'd 198 N.Y. 509

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(11)S
Sales Tax
March 23, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820429A

On April 29, 1982 a Petition for Advisory Opinion was received from Bayshore Catering
Corp., 25 Shames Drive, Westbury, New York 11590.
The issues raised are:

1. Whether purchases of floral centerpieces by a caterer for its customers are subject to sales
   tax.
2. Whether certain leasehold improvements made by Petitioner, a tenant, are exempt from
   sales tax as capital improvements.
   Issue #1
   In some instances where Petitioner contracts with a customer to cater an affair, Petitioner will
   purchase floral centerpieces for use in decorating the hall. Petitioner states that when it provides the
   standard floral centerpieces, the centerpieces become the property of the customer, are not for
   Petitioner's re-use at another affair and that the centerpieces are taken by the customer or his guests
   at the end of the affair. When billing the customer, Petitioner shows the charge for the centerpieces
   as an itemized charge in the same manner as other items listed. Petitioner collects sales tax from the
   customer on its various charges.
   Section 1105(a) of the Tax Law imposes a tax on the receipts from retail sales of tangible
   personal property. The term "retail sale" is defined, in section 1101(b)(4) of the Tax Law, as: "(i) A
   sale of tangible personal property to any person for any purpose, other than (A) for resale as such .
   . . or, (B) for use by that person in performing the services subject to tax under paragraphs (1), (2),
   (3) and (5) of subdivision (c) of section eleven hundred five "(Emphasis added.)
   Section 1105(d) of the Tax Law imposes a tax upon: "The receipts from every sale of food
   and drink of any nature, when sold . . . by caterers, including in the amount of such receipts any
   cover, minimum, entertainment or other charge made to . . . customers" (Emphasis added.) This is
   the tax applicable to Petitioner's receipts from its customers.
   When Petitioner caters an affair the standard floral centerpieces supplied by Petitioner are
   given their first use as part of Petitioner's catering service. The fact that Petitioner does not re-use
   the centerpieces, and that the customer or guests take the flowers at the end of the affair, does not
   create a resale to the customer prior to use by Petitioner. A purchase which is not "for any purpose
   . . . other than . . . resale" is one made solely for resale, and not for use by the first purchaser prior
   to transfer to a subsequent party. Matter of Jacks v. Joseph, 282 A.D. 622. Such test is not met

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-84(11)S
Sales Tax
March 23, 1984
herein. Accordingly, Petitioner's purchases of the standard floral centerpieces are subject to state and
local sales tax.
It is to be noted that Section 526.5(e) of the Sales and Use Tax Regulations provides, in part,
that: "All expenses incurred by a vendor in making a sale, regardless of their taxable status and
regardless of whether they are billed to a customer are not deductible from the receipts."
Accordingly, Petitioner must collect sales tax on its charges to its customers for the standard floral
centerpieces irrespective of the fact that the cost of the centerpieces is a taxable purchase to
Petitioner.
Issue #2
Petitioner leases an entire building for use as a catering establishment. The first floor of the
building consists primarily of an entranceway, cocktail and smorgasbord room, main ballroom and
kitchen, while the basement level contains a bride's dressing room, chapel and storage area.
Petitioner has installed disco lights in the main ballroom. Such installation required the installation
of new wiring which runs inside the ceiling and walls. In addition, in order to permit the installation
of the disco lights it was necessary to replace the existing ceiling with a new one. The new ceiling
consists of ceiling tiles nailed to wooden ceiling beams. In addition to the foregoing, Petitioner
installed a new marble floor in the chapel, cemented with concrete to the existing concrete basement
foundation and grouted with cement. Petitioner inquires as to whether the installations here described
constitute capital improvements.
Section 1101(b)(9) of the Tax Law defines the term "capital improvement" as "An addition
or alteration to real property which: (i) Substantially adds to the value of the real property, or
appreciably prolongs the useful life of the real property; and (ii) 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."
As to the marble floor and new ceiling, these installations clearly satisfy the first criterion set
forth in the statutory provision, in that they substantially add to the value of the real property. In
addition, they satisfy the second criterion, in that they are permanently affixed to the real property
so that removal would cause material damage to the real property or the installation itself. Thus,
Petitioner has indicated that removal of the floor would leave the marble in broken or chipped
condition, unfit for future use. Similarly, removal of the ceiling would obviously cause material
damage to the real property in that it would leave it bereft of one of its vital architectural features.
The remaining issue is whether each of the two installations is "intended to become a
permanent installation." Were Petitioner the owner of the premises, a finding of intended
permanence would flow from the confluence of three factors: the mode of annexation, the
relationship to the real property of the party making the addition and the apparent purpose for which
the annexation is made. Beaman Corporation, State Tax Commission Advisory Opinion, TSB-A­
82(32)S. In the present instance, however, the relationship of Petitioner to the building is that of
lessee, which tends to suggest an intended impermanence. As it has been stated,

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Sales Tax
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Unless a contrary intention is expressed, the Law will presume that
where installations are made for the purpose of conducting the
business for which the premises are leased, such installations are not
permanent annexations to the freehold, but are made for the sole use
and enjoyment of the tenant during the term of his lease, and not for
the purpose of enhancing the value of the landlord's estate (Matter of
100 Park Ave. v. Boyland, 144 N.Y.S. 2d 88, 93, aff'd 309 N.Y. 685)
Such an expression of a "contrary intention" may find embodiment in a lease provision. Thus,
in Flah's of Syracuse, 89 AD 2d 729 (1982), wherein a tenant's installation of certain trade fixtures
was held to constitute a capital improvement, the presumption of impermanence was negatived by
the existence of explicit provisions included in the applicable leases to the effect that "title to
improvements . . . was to immediately vest in the landlord, and that the improvements were to
become a part of the premises and remain in the premises." In the present case there is extant just
such a lease provision, establishing the requisite intent, which provides as follows:
ELEVENTH.--All improvements made by the Tenant to or upon the
demised premises, except said trade fixtures, shall when made, at
once be deemed to be attached to the freehold, and become the
property of the Landlord, and at the end or other expiration of the
term, shall be surrendered to the Landlord in as good order and
condition as they were when installed, reasonable wear and damages
by the elements excepted.
It follows that the two installations in question do constitute capital improvements, within the
meaning and intent of section 1101(b)(9) of the Tax Law.
A different conclusion is reached, however, with respect to the disco lights. These are trade
fixtures, and as such are excluded from the terms of Convenant Eleventh of the lease. Excelsior
Brewing Co. v. Smith, 125 A.D. 668, aff'd 198 N.Y. 519; Webber v. Franklin Brewing Co., 123 A.D.
465, aff'd 198 NY 509.If this were not enough, a rider to the lease contains a provision entitled
"Addendum to Article Eleventh," which provides as follows:
Trade fixtures, ¢ (sic) equipment and any other detachable
fixtures placed in or upon or attached to any part of the demised
premises by the tenant shall be at all times the property of the tenant.
Such trade or other fixtures or equipment of the tenant, if detachable
from the realty by removal of screws, bolts, nails or the severing of
any wires or other means by which said trade or other fixtures have
been affixed to the walls, floors or ceiling may be removed or taken
away by the tenant at the expiration or other termination of the
demised term, providing such termination is in accordance with
provisions of the lease herein. Tenant shall at his own cost and
expense, however, repair all damage to the demised premises caused

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Sales Tax
March 23, 1984
by the installation or removal of its trade or other fixtures in default
of which such repairs may be made by Landlord at tenant's expense.
Tenant shall, at the expiration or termination of the lease, at tenant's
sole cost and expense, remove all its machinery and equipment, and
in the event of tenant's failure to do so, the Landlord shall be
reimbursed for cost of such removal.
It thus appears clear from the provision of the lease itself that the disco lights were not installed with
the statutorily requisite intention of permanence and, accordingly, do not constitute capital
improvement within the meaning of section 1101(b)(9) of the Tax Law.

DATED: March 6, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau