Does a Canadian manufacturer owe New York sales or use tax on custom window-washing equipment sold to a contractor and permanently installed on a New York high-rise?

Plain-English summary

Tractel Ltd. Swingstage Division custom-designs and manufactures window-washing and building-maintenance equipment (swing stages) at its Ontario plant, working with each building's project architect to meet New York State Code. It sells the finished equipment to the general contractor on a high-rise construction project (mostly new builds, occasionally retrofits); an outside subcontractor then ships it to the site and permanently attaches it to the building. Tractel asked how to calculate the compensating use tax due on this equipment.

The Department confirmed the equipment is taxable, and explained the mechanics. New York's contractor rule is broad and specific: selling tangible personal property to a contractor for use in erecting or improving a building is deemed a retail sale, full stop, regardless of whether that property later becomes a permanent, integral part of the real property. That means Tractel's sale to the general contractor is a taxable retail sale (or, if the sale itself somehow escapes sales tax, the contractor's or Tractel's own use of the equipment in New York triggers compensating use tax instead) -- the fact that a swing stage becomes bolted to a building doesn't exempt it the way ordinary construction materials incorporated into a capital improvement might be treated for the customer's own contract price. The tax is calculated on the full consideration paid for the equipment, including any shipping or delivery charges, with credit given only for property accepted in trade toward the purchase.

There's a real exemption available, though: if the equipment is installed on a building owned by a tax-exempt organization under Tax Law § 1116(a) (the state, certain nonprofits, religious/charitable/educational organizations, and similar), no sales or use tax is due at all, as long as the contractor gives Tractel (or whichever vendor is selling) a properly completed Contractor Exempt Purchase Certificate (Form ST-120.1) within 90 days of delivery. If Tractel itself qualifies as a "vendor" under New York's registration rules, it's responsible for collecting the tax directly from the general contractor on equipment delivered to New York sites.

What this means for you

Manufacturers selling custom equipment for permanent building installation

Selling equipment to a contractor for installation in a building is a taxable retail sale under New York's contractor rule, even where the equipment ends up permanently attached and effectively becomes part of the real property. Don't assume that permanent installation converts your sale into an exempt capital-improvement transaction on your end -- that framing applies to the contractor's charge to its own customer, not to your sale of materials to the contractor.

Out-of-state manufacturers and vendors

If you regularly deliver custom equipment into New York and qualify as a "vendor" under § 1101(b)(8), you're responsible for collecting New York sales and use tax on those sales -- get familiar with your registration obligations before the first delivery, not after.

General contractors on projects for tax-exempt organizations

If your project owner is a tax-exempt organization under § 1116(a) (a nonprofit, religious institution, government entity, etc.), give your equipment vendor a completed Contractor Exempt Purchase Certificate (Form ST-120.1) within 90 days of delivery to avoid tax on materials that become an integral part of that exempt organization's building.

Common questions

Q: Does permanently attaching equipment to a building make the sale to the contractor exempt?
A: No. New York's contractor rule under Tax Law § 1101(b)(4)(i) deems the sale to the contractor a taxable retail sale regardless of whether the property becomes an integral part of real property.

Q: Is there any way to avoid tax on equipment installed in a building?
A: Yes, if the building belongs to a tax-exempt organization under § 1116(a) and the contractor gives the vendor a properly completed Contractor Exempt Purchase Certificate (Form ST-120.1) within 90 days of delivery.

Q: Does this ruling apply to my equipment sales?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. It shows how the Department reasons, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (sales to contractors deemed retail sales)
• Tax Law § 1101(b)(8) (vendor definition)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1110(a), (b) (compensating use tax; basis of tax)
• Tax Law § 1115(a)(15) (materials for exempt organizations' buildings)
• Tax Law § 1116(a) (exempt organizations)
• Tax Law § 1132(c) (exemption certificates)
• 20 NYCRR § 527.7(b)(5) (contractor as ultimate consumer for capital improvements)
• 20 NYCRR § 531.1(a), § 531.3(a)(1) (compensating use tax; basis of tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_37s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(37)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970908A

On September 8, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Tractel Ltd. Swingstage Division, 1615 Warden
Avenue, Scarborough, Ontario M1R 2T3. Petitioner, Tractel Ltd. Swingstage
Division, submitted additional information pertaining to the Petition on November
5, 1997.
Petitioner asks what is the basis to be used to calculate the compensating
use tax due on its window washing and maintenance equipment.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is a custom manufacturer of window washing and maintenance
equipment for high-rise construction. The equipment is designed and manufactured
in Petitioner's Scarborough, Ontario plant.
Petitioner sells the window washing
and maintenance equipment to the general contractor for a high-rise construction
project.
It is then shipped to the site for installation by an outside
subcontractor. The equipment is permanently attached to the building.
The buildings are generally new construction.
Occasionally, Petitioner's
equipment is used for a retrofit project. Petitioner's engineering staff works
with the project architect to design the equipment to building specifications and
to New York State Code.
Applicable Law and Regulations
Section 1101(b)(4)(i) of the Tax Law provides, in part, as follows:
... a sale of any tangible personal property to a contractor,
subcontractor or repairman for use or consumption in erecting
structures or buildings, or building on, or otherwise adding to,
altering, improving, maintaining, servicing or repairing real
property, property or land, as the terms real property, property or
land are defined in the real property tax law, is deemed to be a
retail sale regardless of whether the tangible personal property is
to be resold as such before it is so used or consumed . . . .
(emphasis added)
Section 1105(a) of the Tax Law imposes sales tax upon the receipts from
every retail sale of tangible personal property, except as otherwise provided.
Section 1110 of the Tax Law provides, in part, as follows:

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Sales Tax

(a) Except to the extent that property or services have
already been or will be subject to the sales tax under this article,
there is hereby imposed on every person a use tax for the use within
this state on and after June first, nineteen hundred seventy-one
except as otherwise exempted under this article, (A) of any tangible
personal property purchased at retail, (B) of any tangible personal
property (other than computer software used by the author or other
creator) manufactured, processed or assembled by the user, . . .
(b) For purposes of clause (A) of subdivision (a) of this
section, the tax shall be at the rate of four percent of the
consideration given or contracted to be given for such property, or
for the use of such property, including any charges for shipping or
delivery as described in paragraph three of subdivision (b) of
section eleven hundred one of this chapter, but excluding any credit
for tangible personal property accepted in part payment and intended
for resale.
Section 1115(a)(15) of the Tax Law provides:
Tangible personal property sold to a contractor, subcontractor
or repairman for use in erecting a structure or building of an
organization described in subdivision (a) of section eleven hundred
sixteen, or adding to, altering or improving real property, property
or land of such an organization, as the terms real property,
property or land are defined in the real property tax law; provided,
however, no exemption shall exist under this paragraph unless such
tangible personal property is to become an integral component part
of such structure, building or real property.
Section 1116(a) of the Tax Law provides:
Exempt organizations. (a) Except as otherwise provided in this
section, any sale or amusement charge by or to any of the following
or any use or occupancy by any of the following shall not be subject
to the sales and compensating use taxes imposed under this article:
(1) The state of New York, or any of its agencies,
instrumentalities,
public
corporations
(including
a
public
corporation created pursuant to agreement or compact with another
state or Canada) or political subdivisions where it is the
purchaser, user or consumer, or where it is a vendor of services or
property of a kind not ordinarily sold by private persons;
(2) The United States of America, and any of its agencies and
instrumentalities, insofar as it is immune from taxation where it is
the purchaser, user or consumer, or where it sells services or
property of a kind not ordinarily sold by private persons;

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Sales Tax

(3) The United Nations or any international organization of
which the United States of America is a member where it is the
purchaser, user or consumer, or where it sells services or property
of a kind not ordinarily sold by private persons;
(4) Any corporation, association, trust, or community chest,
fund or foundation, organized and operated exclusively for
religious, charitable, scientific, testing for public safety,
literary or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its
activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals,
no part of the net earnings of which inures to the benefit of any
private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise
attempting to influence legislation, (except as otherwise provided
in subsection (h) of section five hundred one of the United States
internal revenue code of nineteen hundred fifty-four, as amended),
and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on
behalf of any candidate for public office;
(5) A post or organization of past or present members of the
armed forces of the United States, or an auxiliary unit or society
of, or a trust or foundation for, any such post or organization:
(A) organized in this state,
(B) at least seventy-five percent of the members of which are
past or present members of the armed forces of the United States and
substantially all of the other members of which are individuals who
are cadets or are spouses, widows, or widowers of past or present
members of the armed forces of the United States or of cadets, and
(C) no part of the net earnings of which inures to the benefit
of any private shareholder or individual; and
(6) The following Indian nations or tribes residing in New
York state: Cayuga, Oneida, Onondaga, Poospatuck, Saint Regis
Mohawk, Seneca, Shinnecock, Tonawanda and Tuscarora, where it is the
purchaser, user or consumer.
(7) A not-for-profit corporation operating as a health
maintenance organization subject to the provisions of article
forty-four of the public health law.
(8) Cooperative and foreign corporations doing business in
this state pursuant to the rural electric cooperative law.
Section 1132(c) of the Tax Law provides, in part:

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Sales Tax

(1) For the purpose of the proper administration of this
article and to prevent evasion of the tax hereby imposed, it shall
be presumed that all receipts for property or services of any type
mentioned in subdivisions (a), (b), (c) and (d) of section eleven
hundred five, all rents for occupancy of the type mentioned in
subdivision (e) of said section, and all amusement charges of any
type mentioned in subdivision (f) of said section, are subject to
tax until the contrary is established, and the burden of proving
that any receipt, amusement charge or rent is not taxable hereunder
shall be upon the person required to collect tax or the customer.
Except as provided in subdivision (h) or (k) of this section, unless
(i) a vendor, not later than ninety days after delivery of the
property or the rendition of the service, shall have taken from the
purchaser a resale or exemption certificate in such form as the
commissioner may prescribe, signed by the purchaser and setting
forth the purchaser's name and address and, except as otherwise
provided by regulation of the commissioner, the number of the
purchaser's certificate of authority, together with such other
information as the commissioner may require, to the effect that the
property or service was purchased for resale or for some use by
reason of which the sale is exempt from tax under the provisions of
section eleven hundred fifteen, and, where such resale or exemption
certificate requires the inclusion of the purchaser's certificate of
authority number or other identification number required by
regulations of the commissioner, that the purchaser's certificate of
authority has not been suspended or revoked and has not expired as
provided in section eleven hundred thirty-four . . .
Section 527.7(b)(5) of the Sales and Use Tax Regulations provides as
follows:
(5) Any contractor who is making a capital improvement must pay
a tax on the cost of materials to him, as he is the ultimate
consumer of the tangible personal property.
Section 531.1(a) of the Sales and Use Tax Regulations provides as follows:
(a) Imposition. The compensating use tax is imposed on every
person for the use within New York State of tangible personal
property and certain services described in subdivision (b) of this
section, except to the extent they have been or will be subject to
sales tax and except to the extent they are exempt from use tax.
Section 531.3 of the New York State Sales and Use Tax Regulations provides,
in part:
Basis of Tax--(a)
Tangible personal property purchased at
retail.
(1) The compensating use tax is due upon the use of
tangible personal property in this State which has been purchased
out of state.
The applicable tax rate is imposed on the
consideration given or contracted to be given for the property or
the use of the property, including any charges by the seller to the

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Sales Tax

user for shipping or delivery of the property to the user. Credit
is allowed for tangible personal property accepted in part payment
and intended for resale in the same manner as the computation of a
receipt for sales tax purposes. See section 526.5(f) of this Title.
Opinion
Petitioner is a custom manufacturer of window washing and maintenance
equipment for high-rise construction. The equipment is designed and manufactured
in its Scarborough, Ontario plant.
Petitioner sells the window washing and
maintenance equipment to the general contractor for the high-rise buildings. The
equipment is then shipped to the construction site for installation by an outside
subcontractor. The equipment is permanently attached to the building.
Pursuant to Section 1101(b)(4)(i) of the Tax Law, the sale by Petitioner
of its window washing and maintenance equipment to the general contractor for use
or consumption in erecting the high-rise building is deemed to be a retail sale
of tangible personal property.
Pursuant to Section 1110(a)(A) of the Tax Law,
the use of tangible personal property purchased at retail, unless otherwise
exempt, is subject to compensating use tax. In accordance with Section 1110(b)
of the Tax Law and Sections 527.5(b)(5) and 531.3 of the New York State Sales and
Use Tax Regulations, the compensating use tax is based on the consideration given
or contracted to be given for the tangible personal property, including shipping
or delivery charges.
If Petitioner qualifies as a vendor under Section
1101(b)(8) of the Tax Law, then Petitioner must collect the sales and
compensating use tax from the general contractor for the window washing and
maintenance equipment delivered to sites in New York State.
It should be noted, however, that in instances where the window washing and
maintenance equipment is to become an integral component part of a building or
structure of an exempt organization described in Section 1116(a) of the Tax Law,
no sales or use tax would be due. See Section 1115(a)(15) of the Tax Law. If
a contractor presents Petitioner with a properly completed Contractor Exempt
Purchase Certificate (Form ST-120.1) within 90 days after the date of delivery,
Petitioner is not required to collect tax on such sale of tangible personal
property. See Section 1132(c) of the Tax Law.

DATED: May 19, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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