NY TSB-A-93(62)S Sales Tax 1993-11-30

Is installing a patented lawn-fertilization control device as part of a new or existing underground sprinkler system a tax-exempt capital improvement, and does that change if it's just replacing an existing pump?

Short answer: Yes -- installing the device as part of a new underground sprinkler system, or adding it to an existing one, is a capital improvement and not subject to sales tax, because it permanently increases the property's value, becomes a permanent part of the system, and can't be removed without material damage. But using the device to simply replace an existing pump does NOT qualify as a capital improvement -- that stays taxable as installation, maintenance, or repair of tangible personal property.

Apply this to your situation

This page answers the general question as of 1993. Ezel answers yours, under current New York tax law, with citations.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Subject

Whether the installation of the ECOTURF 2000 SYSTEM, a mechanical device used in conjunction with an underground sprinkler system, is a capital improvement.

What this means for you

A manufacturer's patented device attaches to an underground lawn-sprinkling system to automatically monitor and dispense organic fertilizer while reducing the water needed to maintain the lawn. It's sold either as part of a brand-new sprinkler system or as an add-on to an existing one, and only through a licensed plumber qualified to install it, since retrofitting an existing system requires permanent changes to the plumbing. Once installed, the device meaningfully raises the property's value (the opinion gives an example of a 10-acre business campus saving $10,000 a year in lawn-maintenance costs), removal would materially damage the sprinkler system, and it's intended to stay in place permanently.

New York's capital-improvement definition requires all three of those features -- substantially adding value or extending useful life, becoming a permanent part of the real property such that removal causes material damage, and being intended as permanent. The Department's own capital-improvement publication already treats the original installation or complete replacement of an underground lawn sprinkler system as a capital improvement, while treating repair or replacement of individual sprinkler-system components (pumps, valves, piping, sprinkler heads) as ordinary taxable installation/repair. Since the device here is installed as part of, or as an addition to, a sprinkler system -- not as a mere component swap -- its original installation or complete replacement is a capital improvement and escapes sales tax. But the opinion draws a specific line: using the device to replace only an existing pump does NOT qualify as a capital improvement, so that kind of installation stays taxable.

Q&A

Q: We're installing this kind of lawn-fertilization control device as part of a brand-new underground sprinkler system, or adding it to an existing one -- is that a taxable installation?
A: No, per this opinion -- the original installation or complete replacement of the device as part of or an addition to a sprinkler system is a capital improvement and is not subject to sales tax.

Q: We're just swapping out an existing pump for this device -- is that different?
A: Yes. This opinion specifically holds that replacing an existing pump with the device does not qualify as a capital improvement, so that installation remains taxable.

Q: What makes something a capital improvement in New York rather than a taxable repair or installation?
A: Per Tax Law § 1101(b)(9), cited in this opinion, it must (1) substantially add to the property's value or appreciably prolong its useful life, (2) become part of the real property or be permanently affixed so that removal would cause material damage, and (3) be intended as a permanent installation.

Q: Can another lawn-care equipment maker rely on this ruling for their own product?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it.

Citations

Tax Law § 1101(b)(9) -- defines "capital improvement" as an addition or alteration to real property that substantially adds to its value or prolongs its useful life, becomes a permanent part of the property such that removal causes material damage, and is intended as a permanent installation.
New York State Department of Taxation and Finance, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property, Publication 862 (1/90), p. 14 -- treats original installation or complete replacement of underground lawn sprinkler systems as a capital improvement, while treating repair/replacement of individual sprinkler-system components as taxable repair, maintenance, or installation of tangible personal property.

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_62s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (62) S
Sales Tax
November 30, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930712A

On July 12, 1993 a Petition for Advisory Opinion was received from Ecoturf Technologies,
Inc., 1727 Veterans Memorial Highway, Suite 101 Islandia, New York 11722.
The issue raised by Petitioner, Ecoturf Technologies, Inc. is whether the installation of the
ECOTURF 2000 SYSTEM, a mechanical device used in conjunction with an underground sprinkler
system, is a capital improvement.
Petitioner developed and patented a mechanical device which is used in conjunction with an
underground lawn sprinkling system. The device is used to control the fertilization of lawns with
an organic fertilizer which is both environmentally safe and economically efficient.
Petitioner's device, marketed as the EC0TURF 2000 SYSTEM, will be sold either as part of
a new underground water sprinkling system, or, as an addition to an existing system. In addition to
monitoring and controlling the distribution of fertilizer, the system will also reduce the amount of
water needed to adequately maintain a lawn. Research and development is currently underway to
permit the use of the system to monitor and control other outside property functions such as lighting
and security.
In order to use the device with an existing underground system, certain permanent changes
must be made to that system requiring the services of a licensed plumber who is also qualified to
install the device. The system will not be sold to an individual unless it will be installed by a
qualified installer.
The device will substantially increase the value of the property under normal circumstances.
For example, a 10 acre business campus with an existing sprinkler system could save $10,000 per
year in lawn maintenance costs if the device was installed. This savings would generate higher
operating profits for the property which in turn would increase the value of the property.
Once the device is installed, removal would cause material damage to the sprinkler system
and would require the plumbing services of a qualified installer to remove it.
The device is intended to become a permanent installation.
Section 1101(b)(9) of the Tax Law defines a capital improvement as:
(i) An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property; and

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TSB-A-93 (62) S
Sales Tax
November 30, 1993
(B) 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
(C) Is intended to become a permanent installation.
New York State Department of Taxation and Finance, Sales and Use Tax Classifications of
Capital Improvements and Repairs to Real Property, Publication 862 (1/90) at page 14 states that the
original installation or complete replacement of underground lawn sprinkler systems are a capital
improvement. The Publication further states that the repair or replacement of centrifugal pumps,
pump controllers, remote control valves, sections of pipings, sprinklers, controllers and sprinkler
heads in underground lawn sprinkler systems are considered to be the repair maintenance or
installation of tangible personal property and thus subject to sales tax.
Since the original installation or complete replacement of an underground lawn sprinkler
system is considered to be a capital improvement, it therefore follows that the original installation
or the complete replacement of the ECOTURF 2000 SYSTEM, as described above, as part of or as
an addition to an underground lawn sprinkler system is considered to be a capital improvement in
accordance with the meaning and intent of Section 1101(b)(9) of the Tax Law.
It is noted that the replacement of an existing pump with an ECOTURF 2000 SYSTEM will
not qualify as a capital improvement.

DATED: November 30, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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

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