Are a telephone company's charges for installing and repairing telephone systems subject to sales tax, and does it matter whether repair equipment is used?

Plain-English summary

SPI Communications Marketing, Inc. asked two questions: (1) is the labor to install telephone systems subject to sales tax, and (2) are charges to repair telephone equipment subject to sales tax?

The Department held both installation and repair charges are generally taxable, with a narrow capital-improvement exception for installed equipment.

• Equipment and its installation/repair are taxable. Sales of telephone equipment are taxable tangible personal property (§ 1105(a)), and installing, maintaining, servicing, or repairing such property is taxable under § 1105(c)(3) — except where the installation is an addition or capital improvement to real property.
• Repairs are taxable with or without repair equipment. SPI asked whether repairs done without using equipment are taxable. The Department said such charges are taxable irrespective of the use or non-use of repair equipment — the taxability of a repair doesn't depend on whether tools/equipment are involved.
• The capital-improvement wrinkle. Where telephone equipment is sold on an installed basis and that installation is a capital improvement, the charge for the installed equipment is not taxable. But repair services on it remain taxable under § 1105(c)(5) (repair to real property). For how the capital-improvement exclusion applies to telephone-system components, the opinion points to Benton and Bowles (TSB-A-83(3)S).

What this means for you

Selling, installing, and fixing phone systems is generally taxable work. Unless a specific exclusion applies, charge sales tax on the equipment and on installation, maintenance, servicing, and repair.

A "no-tools" repair is still a taxable repair. Don't treat labor-only or diagnostic-only repair charges as nontaxable just because no repair equipment was used — taxability turns on the nature of the service, not the tools.

Capital-improvement treatment is limited and doesn't cover later repairs. If a phone system is installed in a way that qualifies as a capital improvement, the installed-equipment charge can escape tax — but once it's part of the real property, repairs to it are taxable real-property repair services. Look to Benton and Bowles (TSB-A-83(3)S) for which components can qualify.

Common questions

Q: Do I charge sales tax to install and repair telephone systems?
A: Yes, generally. Installation and repair of telephone equipment are taxable under § 1105(c)(3), unless the installation is a capital improvement to real property.

Q: My repair didn't require any equipment — is it still taxable?
A: Yes. Repair charges are taxable whether or not repair equipment is used.

Q: If the phone system install is a capital improvement, is everything tax-free?
A: No. The installed-equipment charge can be nontaxable, but repairs to the system are still taxable as repairs to real property under § 1105(c)(5).

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1105(c)(3) — tax on installing/maintaining/servicing/repairing tangible personal property, except capital-improvement installations
• Tax Law § 1105(c)(5) — tax on repairing real property

Prior guidance:

• Benton and Bowles, Inc., TSB-A-83(3)S — capital-improvement exclusion for telephone-system components

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_25s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-84(25)S
Sales Tax
October 15, 1984

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

PETITION NO. S840516B

On May 16, 1984 a Petition for Advisory Opinion was received from SPI Communications
Marketing, Inc., Clinton Road, RRI Box 40, Whitesboro, New York 13492.
The issues raised are (1) whether charges for labor in installing telephone systems is subject
to the sales tax and (2) whether charges for the repair of telephone equipment is subject to the sales
tax.
Section 1105(a) of the Tax Law imposes a sales tax on the receipts from the sale at retail of
tangible personal property.
Section 1105(c)(3) of the Tax Law imposes a sales tax on the receipts from the services of
installing, maintaining, servicing, or repairing tangible personal property not held for sale in the
regular course of business, except, in relevant part, where the installation constitutes an addition or
capital improvement to real property.
Accordingly, Petitioner's sales of telephone equipment will generally constitute sales of
tangible personal property the receipts from which are subject to tax. Similarly, charges for the
installation and repair of such property are likewise subject to tax. Petitioner inquires whether sales
tax is due on charges for repairs made without the use of equipment. Such charges are subject to tax
irrespective of the use or non-use of repair equipment.
In those instances where telephone equipment is sold on an installed basis and such
installation constitutes a capital improvement, the charge for the equipment on an installed basis
would not be subject to tax. Charges for repair services would be subject to tax pursuant to section
1105(c)(5) of the Tax Law, which imposes a tax on receipts from the service of repair to real
property. For a discussion of the applicability of the capital improvement exclusion to components
of telephone systems, see Benton and Bowles, Inc., State Tax Commission Advisory Opinion,
January 26, 1983, TSB-A-83(3)S.

DATED: July 23, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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