Are energy-efficient vertical blinds installed in office buildings a tax-exempt capital improvement?

Plain-English summary

Verticals Inc. furnishes and installs energy-efficient vertical blinds in commercial office buildings. Many of those buildings have permanent structural pockets or framework at the windows to receive the blinds, and the blinds do more than control light and glare — they are factored into the building's energy output to help control heat and air conditioning, especially in buildings that are more than half glass. Verticals asked whether furnishing the material and labor to install the blinds is a capital improvement.

The Department held the blinds are not a capital improvement, so they're taxable.

• A capital improvement must meet all three § 1101(b)(9) tests. It must (i) add lasting value or prolong the life of the real property, (ii) be so permanently affixed that removal causes material damage, and (iii) be intended as permanent (Tax Law § 1101(b)(9); 20 NYCRR 527.7).
• The blinds fail. They are not permanently affixed and are easily removed from the building — and they are similar in nature and function to window quilts, which the Tax Commission had already ruled are not capital improvements (David W. Sprague, TSB-A-81(23)S; Nassau Solar Development, TSB-H-81(30)S).
• Result: the sale and installation of the blinds are taxable under § 1105(a) (the goods) and § 1105(c)(3) (the installation).
• But the mounting pockets may be different. The Department noted the structural pockets in which the blinds are mounted may become a capital improvement, since they can be integrated into the building or affixed with a great degree of permanence — but each case turns on the method of affixation and the intent to make a permanent installation.

What this means for you

Energy savings and structural framing don't make a removable product a capital improvement. Even blinds that are engineered into a building's heating and cooling load, and even blinds set into built-in pockets, stay taxable if the blinds themselves can be taken down easily without damaging the building.

Removability is the deciding factor. The three-part § 1101(b)(9) test fails at the "removal causes material damage" prong for products that simply hang, clip, or slot in. New York had already put window quilts in the taxable column, and vertical blinds followed.

Separate the product from the structure it sits in. The removable item (the blinds) is taxable, but permanent structural work built into the building (here, the mounting pockets) can itself be a capital improvement — judged separately, on how permanently it's affixed and whether it's intended to stay.

Common questions

Q: Our window treatments improve a building's energy efficiency. Does that make them a capital improvement?
A: No. The energy benefit doesn't matter if the product isn't permanently affixed. Vertical blinds that are easily removed are taxable to sell and install.

Q: The blinds sit in built-in wall pockets. Doesn't that make them permanent?
A: Not the blinds themselves — they still come out easily. The pockets may be a capital improvement if they're integrated into the building with enough permanence, but that's a separate, fact-specific question.

Q: So what's taxable?
A: The sale of the blinds (§ 1105(a)) and the labor to install them (§ 1105(c)(3)). Only genuinely permanent structural work qualifies for capital-improvement treatment.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(9) — a capital improvement must add value or prolong life, be permanently affixed so removal causes material damage, and be intended as permanent
• Tax Law § 1105(a) — taxes retail sales of tangible personal property
• Tax Law § 1105(c)(3) — taxes installing tangible personal property, except installs that become a capital improvement
• 20 NYCRR 527.7 — capital improvement definition

Decisions cited:

• David W. Sprague, State Tax Commission Advisory Opinion, Sept. 10, 1981, TSB-A-81(23)S
• Nassau Solar Development Inc., State Tax Commission Advisory Opinion, March 2, 1981, TSB-H-81(30)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_34s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(34)S
Sales Tax
September 3, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860429B

On April 29, 1986, a Petition for Advisory Opinion was received from Verticals Inc., 704
East 133rd Street, Bronx, New York.
The issue raised is whether the furnishing of material and labor to install energy efficient
Vertical Blinds in commercial office buildings constitutes a capital improvement to such buildings.
Most buildings in which the Vertical Blinds are installed have permanent structural pockets
or frame work at the windows to receive the vertical blinds. In addition to controlling light and glare
vertical blinds are calculated in the energy output of the building to control heat and air conditioning
especially in buildings that have over a 50% glass area.
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.
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. . . ."
Blinds do not meet the criteria for a capital improvement. They are not permanently affixed
to the building and are easily removed from the building. Moreover, the blinds are similar in nature
and function to window quilts. The Tax Commission has previously ruled that the installation of
such items do not become capital improvements. See: David W. Sprague, State Tax Commission
Advisory Opinion, September 10, 1981, TSB-A-81(23)S; Nassau Solar Development Inc., State Tax
Commission Advisory Opinion, March 2, 1981, TSB-H-81(30)S.
Accordingly, the sale and installation of blinds is subject to the tax imposed under 1105(a)
and 1105(c)(3) of the Tax Law.

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

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

-2­
TSB-A-86(34)S
Sales Tax
September 3, 1986

It should be noted that the pockets in which the blinds are mounted may become a capital
improvement since they can be integrated into the building or affixed to the real property with a great
degree of permanence. However, each case must be determined based upon the method of affixation
and the intention to make a permanent installation.

DATED: September 3, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.