Does a factory-manufactured home dealer owe sales tax on homes it buys and resells already-installed, and is the installation work of a related but separately-owned installation company subject to sales tax?

Subject

Whether it is responsible for collecting or paying sales tax on the sale of factory­ manufactured homes; and 2.

What this means for you

A dealer sells factory-manufactured homes (not mobile homes); installation is generally handled by the manufacturer, which typically hires a subcontractor. A separate company -- 100% owned by the adult children of the dealer's own shareholders, but otherwise fully independent (its own employees, equipment, offices) -- installs manufactured homes directly for various manufacturers under its own contracts, and also does factory-warranty and customer-paid service work.

Issue 1 -- the dealer's tax obligations: New York's regulations specifically address factory-manufactured homes: if installation results in a capital improvement, the installation charge isn't taxable, and the installer (not the dealer) owes use tax on the materials consumed. Because these homes are permanently affixed to a foundation/basement -- a capital improvement -- the dealer's purchase of an installed home, and its resale to the customer, are both purchases/sales of a capital improvement and not subject to sales tax. The manufacturer, as installer, owes the use tax on materials. (Display-lot homes are treated differently, since display installations aren't intended to be permanent -- those follow the non-capital-improvement rule, where the full installation charge including materials is taxable, with a refund available if the materials are later resold.)

Issue 2 -- the related installation company: Because it acts as a subcontractor performing genuine capital-improvement installations for manufacturers, it owes no sales tax on that installation work. But its customer-paid service work that doesn't qualify as a capital improvement (ordinary repair/maintenance, not corrective work tied to an original capital-improvement contract) is taxable. Critically, the Department stated plainly that the installer being commonly related to the dealer through family ownership (the shareholders' children) has no relevance to how its services are taxed -- the analysis turns entirely on the nature of the work, not the corporate relationship.

Q&A

Q: We sell factory-manufactured homes that get permanently installed by the manufacturer -- do we owe sales tax on our purchase or resale?
A: No, as long as the installation results in a genuine capital improvement (permanently affixed, not a mobile home, not a temporary display model) -- both your purchase and resale of the installed home are treated as capital-improvement transactions, exempt from sales tax. The manufacturer/installer owes use tax on the materials instead.

Q: What about homes we buy just to display on our lot?
A: Display-model installations aren't intended to be permanent, so they don't qualify as capital improvements -- the full installation charge (including materials) is taxable, though a refund/credit may be available later if the materials are resold.

Q: Our installation subsidiary is owned by our own family members -- does that create extra tax exposure or scrutiny?
A: According to this opinion, no -- common family ownership between a dealer and its installer has no bearing on the tax analysis. What matters is only whether the specific work performed is a capital improvement or a taxable repair/service, not who owns the companies involved.

Q: Is all installation work by a subcontractor automatically tax-exempt?
A: No -- only work that qualifies as a genuine capital improvement is exempt. Warranty/corrective work tied to an original capital-improvement contract follows that same exempt treatment, but separate, non-capital-improvement customer-paid service or repair work is taxable.

Citations

• Tax Law § 1101(b)(9) -- defines "capital improvement."
• Tax Law § 1105(c)(3) -- taxes installing tangible personal property (excluding mobile homes) or maintaining/servicing/repairing tangible personal property.
• 20 NYCRR 544.4(b) -- specifically addresses factory-manufactured homes: capital-improvement installations aren't taxed (installer owes use tax on materials); non-capital-improvement installations are fully taxable, with a resale refund/credit available.
• 20 NYCRR 541.1(f) -- corrective work gets the same tax treatment as the original work it relates to (e.g., repairs to make a capital-improvement job acceptable stay part of that exempt contract).
• 20 NYCRR 541.1(g) -- guarantee/warranty work between contractors isn't taxed, but a contractor's charge to the actual customer is taxable even if partially performed under warranty.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (11)S
Sales Tax
April 21, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941017D

On October 17, 1994, a Petition for Advisory Opinion was received from G & I Homes, Inc.,
RD #3, Frankfort, New York 13340.
The issues raised by Petitioner, G & I Homes, Inc., are:
1.

Whether it is responsible for collecting or paying sales tax on the sale of factory­
manufactured homes; and

2.

Whether the installation of factory manufactured homes by a corporation which is
100% owned by the adult children of the shareholders of Petitioner are subject to
sales tax.

Petitioner is in the business of selling factory-manufactured homes. These homes are not
mobile homes. One of the components of the sales transaction with Petitioner's customers is that the
installation of the homes is generally done by the manufacturer. The manufacturer usually hires a
subcontractor (never the Petitioner) to perform the installation. Petitioner also purchases factory­
manufactured homes for display on its sales lot.
Another corporation, DPR&R Enterprises, Inc., (hereinafter "DPR&R"), owned 100% by
the adult children of the shareholders of the Petitioner, is in the business of installing factory
manufactured homes. DPR&R has its own employees, management, offices, and equipment to
perform the installations. No employees of DPR&R work for Petitioner or have any ownership
interest in Petitioner.
DPR&R contracts directly with various manufacturers to install factory-manufactured homes.
DPR&R also installs mobile homes and does factory warranty and customer paid service on various
lines of manufactured and mobile housing.
A typical installation is performed as follows: DPR&R owns several tractor trailers which
are used to transport the factory-manufactured home from the plant to the installation site. It also
owns two cranes which are used to install the homes at the site. It supplies all the labor and the crane
operator to perform the installation. It bills the manufacturer for "turn-key" installation of the
manufactured home. The home is permanently affixed to the foundation and/or basement on the
ultimate user's real property.
Section 1101(b)(9) of the Tax Law defines a capital improvement as an addition or alteration
to real property which substantially adds to the value of the real property, or appreciably prolongs
the useful life of the real property; 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 is
intended to become a permanent installation.

-2­
TSB-A-95 (11)S
Sales Tax
April 21, 1995
Section 544.4(b) of the Sales and Use Tax Regulations which pertains to factory­
manufactured homes states as follows:
(b) Factory manufactured homes. (1) If the installation of a factory
manufactured home results in a capital improvement, charges for the
installation of such factory manufactured home are not subject to the
sales tax, and the installer is liable for the sales and use tax on any
materials used or consumed in such installation. (Emphasis supplied)
(2) If a factory manufactured home is installed upon real property
under such circumstances that the installation does not constitute a
capital improvement, the charges for such installation including labor
and materials (including the charge for the factory manufactured
home if applicable) is subject to tax. In such event, a contractor may
claim a refund or credit of the sales and compensating use tax it paid
upon its purchase of those materials which were subsequently resold.
Therefore, with reference to issue "1", Petitioner's purchases of factory manufactured homes
which are installed on foundations of Petitioner's customers by the manufacturer are the purchases
of capital improvements and are not subject to sales tax. Petitioner's subsequent sales to its
customers are likewise the sale of capital improvements. Petitioner's purchases of factory
manufactured homes which are used for display purposes would be subject to the provisions of
Section 544.4(b)(2) of the Sales and Use Tax Regulation since the installation of display models are
not generally intended to become permanent. When Petitioner purchases a home for resale that it
obtains from the manufacturer on an installed basis, it is purchasing a capital improvement. The
subsequent sale to its customer is also the sale of a capital improvement. In this situation, the
manufacturer is liable for the use tax on the materials. When Petitioner buys a home and
subsequently arranges for the manufacturer or another to install it, Petitioner is liable for the tax on
the materials.
Section 1105(c)(3) of the Tax Law imposes a tax upon" [I]nstalling tangible personal
property, excluding a mobile home, or maintaining, servicing or repairing tangible personal property,
including a mobile home, not held for sale in the regular course of business, . . . whether or not any
tangible personal property is transferred in conjunction therewith. . ." (emphasis supplied)
Section 541.1(f) and (g) of the Sales and Use Tax Regulations, which discuss corrective and
warranty work performed by a contractor, states:
(f) Corrective work receives the same tax treatment as the original work to which the
corrective work relates. Thus, for example, if the original contract was a capital
improvement and the contractor is required to repair windows broken in installation
to make work acceptable to a customer, the repair is considered a part of the original
capital improvement contract.

-3­
TSB-A-95 (11)S
Sales Tax
April 21, 1995
(g) Guarantee and warranty work. (1) Payments by a contractor to another contractor
to perform maintenance, service and repair of real and tangible personal property
when purchased to fulfill a guarantee or warranty are not subject to tax.
(2) Where a contractor services real or tangible personal property and a charge is
made to the customer, the charge is subject to the tax even though some of the work
is performed partially under a guarantee or warranty.
Therefore, DPR&R is not required to collect sales tax where it is acting as a subcontractor
for a manufacturer installing a factory manufactured home in accordance with the intent of Section
1101(b)(9) of the Tax Law. However, where it provides a "customer paid service" that does not
qualify as a capital improvement as described in Sections 541.1(f) and (g) of the Sales and Use Tax
Regulations, such service is subject to sales tax pursuant to Section 1105(c)(3) of the Tax Law. The
fact that DPR&R is a corporation which is 100% owned by the children of the shareholders of
Petitioner has no relevance to the taxability of the services provided by it.

DATED: April 21, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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