Is a company's sale and installation of energy-saving 'Motorboss' motor controllers exempt from New York sales tax when wired onto a customer's exempt production machinery, and does it matter that the same controllers are sometimes installed on non-production equipment like automatic doors or escalators?

Plain-English summary

Cornwell Energy Management sells and installs "Motorboss" motor controllers — solid-state devices with no moving parts and roughly a 15-year expected life, wired directly between the power source and an electric motor to continuously match delivered power to the motor's actual load. This typically cuts energy use 15-40%, lets motors run cooler with less vibration, and extends motor life and reduces maintenance. Installation means permanently wiring the device to the motor (like adding a switch) and bolting it to the equipment or its control cabinet — but the device can be unwired and unbolted for warranty repair. Motorboss is often installed on production machinery (like the primary drive motor of a plastic injection molding machine) that already qualifies for New York's manufacturing exemption, but the company's own sales brochure shows it's also marketed for non-production uses like automatic doors, fans, and escalators.

The Department found two prior rulings squarely on point: an electrical transformer converting power for recycling equipment, and motor starters/frequency inverters wired to specific production machinery to regulate voltage/speed, were both found to "assume the identity" of the exempt equipment they served and inherit its exemption. Motorboss fits the same pattern — since it's wired directly (after the power source) to a specific piece of exempt production machinery to optimize that machinery's efficiency, it assumes that machinery's exempt identity under § 1115(a)(12), and Cornwell's installation labor is likewise exempt under § 1105-B(b). Cornwell should get a properly completed Exempt Use Certificate (Form ST-121) from each customer within 90 days to document this.

But the Department separately shut down an alternative theory: that Motorboss installations qualify as a nontaxable "capital improvement" on their own, independent of any production-equipment link. A capital improvement requires the item be affixed so permanently that its removal would cause material damage — but Motorboss is merely bolted and wired, requiring only unwiring/unbolting to remove for service, which doesn't meet that bar (contrasted with a prior case's transformers that were welded to structural steel and embedded in concrete). So when the same controller is installed on non-production equipment like automatic doors, fans, or escalators — with no exempt production machinery to "assume the identity" of — both the sale and the installation are fully taxable, since neither the manufacturing exemption nor the capital-improvement exclusion applies.

What this means for you

Sellers/installers of energy-efficiency retrofit devices

Whether your product is taxable often depends entirely on what it's attached to, not on the product itself — a device wired directly onto exempt production machinery can "borrow" that machinery's tax-exempt status, but the same exact device installed on ordinary building equipment is fully taxable.

Businesses relying on a "capital improvement" argument for bolted/wired equipment

Simply being wired in and bolted down isn't enough to qualify as a capital improvement — the degree of permanence matters. If the item can be unwired/unbolted without material damage (even if that's inconvenient), it likely fails the capital-improvement test regardless of how long it's expected to stay in place.

Accountants and tax professionals

This is a clean application of the "assumes the identity" doctrine for auxiliary electrical components (transformers, starters, inverters, controllers) wired to specific exempt production equipment — worth citing whenever a client sells add-on electrical devices to manufacturers.

Common questions

Q: Is an energy-saving device automatically exempt if it reduces a factory's energy costs?
A: No — the exemption doesn't come from energy savings itself, but from being wired to specific machinery that already qualifies for New York's production-equipment exemption.

Q: Does bolting and wiring a device to real property make it a capital improvement?
A: Not by itself — the device must be affixed so permanently that removing it would cause material damage; something that can simply be unwired and unbolted doesn't meet that test.

Q: If the same product is sold for both factory and non-factory use, is it taxed the same way in both cases?
A: No — the tax treatment depends on what specific equipment it's installed on in each transaction, not on the product as a general matter.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(9)(i) (capital improvement definition)
• Tax Law § 1105(a) (retail sales tax), § 1105(c)(3) (installing tangible personal property)
• Tax Law § 1105-B(b) (services to exempt production machinery)
• Tax Law § 1115(a)(12) (production machinery/equipment exemption)
• NYS Dept. of Taxation and Finance Publication 852 (12/97), page 17

Prior rulings and cases referenced:

• Western New York Beverage Industry Collection & Sorting, TSB-A-97(40)S
• Leprino Foods Company, TSB-A-94(17)S
• Matter of Charles R. Wood Enterprises, Inc. v. State Tax Commn., 67 AD2d 1042
• Matter of West Mountain Corp. v. Miner, 85 Misc2d 416
• Multi-Pak Sales Corporation, TSB-A-89(48)S
• Hudson River Estates, Inc., TSB-A-85(2)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(22)S
Sales Tax
May 8, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020904A

On September 4, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Cornwell Energy Management, Inc., 36 Summit St., Huntington, NY 11743.
Petitioner, Cornwell Energy Management, Inc., provided additional information pertaining to the
Petition on September 18, 2002.
The issue raised by Petitioner is whether its sales and installations of motor controllers onto
exempt production machinery are exempt from State and local sales and use taxes.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner sells and installs “intelligent” motor controllers that increase the efficiency,
reliability, and useful life of certain electric motors. Such motor controllers, sold under the brand
name “Motorboss,” continually measure the shaft torque of electric motors, and deliver precisely
the amount of power needed to drive the motor’s load at any given instant. Installation of Motorboss
often results in energy savings of 15% - 40%. As a consequence of consuming less power, motors
run cooler, with less vibration, and with reduced stress on motor windings and drive train
components. In addition to the considerable savings in energy costs, Motorboss increases the useful
life of electric motors and reduces both scheduled and unscheduled maintenance costs. In this
regard it is noted that for every 10BC increase in operating temperature, a motor’s useful life is
reduced by half.
Motorboss is often installed on the electric motors of machinery used in the direct process
of manufacturing tangible property for sale (i.e., that are exempt from the imposition of sales tax
under Section 1115(a)(12) of the Tax Law), such as the primary drive motor on a plastic injection
molding machine used to manufacture molded plastic goods for sale. Installation of Motorboss
entails permanent wiring of the device directly to the motor (like a switch would be, between the
power source and the motor) and bolting it to either the appliance itself or to its electric control
cabinet. Motorboss has no moving parts (all solid-state electronics), requires little or no
maintenance, and has an expected life of at least 15 years.
While warranty repairs generally involve only replacement of the printed circuit board,
Motorboss could be unwired and unbolted in order to be returned to Petitioner for repair.
As part of its Petition, Petitioner also submitted its sales brochure for review. Petitioner’s
brochure indicates that Motorboss is suitable for a wide variety of applications, such as automatic
doors, fans, and escalators.

-2TSB-A-03(22)S
Sales Tax
May 8, 2003

Applicable Law and Regulations
Section 1101(b)(9)(i) of the Tax Law defines the term “capital improvement” to mean:
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
(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.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes a tax on the receipts from every sale, except for
resale, of the following services:
*

*

*

(3) Installing 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 the services
are performed directly or by means of coin-operated equipment or by any other
means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:
*

*

*

(iii) for installing property which, when installed, will constitute an addition
or capital improvement to real property, property or land, as the terms real property,
property or land are defined in the real property tax law as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter. . . .
*

*

*

(5) Maintaining, servicing or repairing real property, property or land, as such
terms are defined in the real property tax law, whether the services are performed in

-3TSB-A-03(22)S
Sales Tax
May 8, 2003

or outside of a building, as distinguished from adding to or improving such real
property, property or land, by a capital improvement as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this article. . . .
Section 1105-B of the Tax Law provides, in part:
(a) Receipts from the retail sales of parts with a useful life of one year or less,
tools and supplies for use or consumption directly and predominantly in the
production of tangible personal property . . . for sale by manufacturing, processing,
generating, assembling, refining, mining or extracting shall be exempt from the tax
imposed by subdivision (a) of section eleven hundred five of this article.
(b) Receipts from every sale of the services of installing, repairing,
maintaining or servicing the tangible personal property described in paragraph
twelve of subdivision (a) of section eleven hundred fifteen of this article, including
the parts with a useful life of one year or less, tools and supplies described in
subdivision (a) of this section, to the extent subject to such tax, shall be exempt from
the tax on sales imposed under subdivision (c) of section eleven hundred five of this
article.
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
*

*

*

(12) Machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property . . . for sale, by
manufacturing, processing, generating, assembling, refining, mining or extracting,
but not including parts with a useful life of one year or less or tools or supplies used
in connection with such machinery or equipment. . . .
Opinion
Petitioner sells and installs motor controllers. These motor controllers are often installed
onto production machinery that qualifies for exemption from sales tax under Section 1115(a)(12)
of the Tax Law.

-4TSB-A-03(22)S
Sales Tax
May 8, 2003

All electrical parts actually attached to a qualifying piece of production machinery or
equipment are deemed to assume the identity of such machinery and equipment and are therefore
entitled to the same exemption as the machinery and equipment that is contained in
Section 1115(a)(12) of the Tax Law. All other electrical components used prior to the power source
are not used directly in production. See New York State Department of Taxation and Finance
Publication 852 (12/97), New York State and Local Sales Tax Information for Manufacturers,
Processors, Generators, Assemblers, Refiners, Miners and Extractors, Other Producers of Goods and
Merchandise, page 17.
In Western New York Beverage Industry Collection & Sorting, Adv Op Comm T&F,
July 23, 1997, TSB-A-97(40)S, it was determined that an electrical transformer used to convert
standard electrical service to amperage compatible with the operating specifications of recycling
production equipment was an integral part of such equipment entitled to the same exemption
afforded the equipment. In Leprino Foods Company, Adv Op Comm T&F, April 28, 1994,
TSB-A-94(17)S, motor starters and frequency inverters directly wired to specific pieces of
production machinery and equipment to regulate their voltage and speed were found to assume the
identity of the individual pieces of machinery and equipment and were entitled to the same
exemption. Petitioner’s motor controllers are akin to the transformers, motor starters, and frequency
inverters that are the subjects of those advisory opinions. The motor controllers are designed to
provide optimum motor efficiency for specific pieces of exempt production machinery and are
directly wired, after the power source, to such machinery. Thus, Petitioner’s motor controllers are
considered to assume the identity of the production equipment they are attached to and are entitled
to the same exemption under Section 1115(a)(12) of the Tax Law (see Western New York Beverage
Industry Collection & Sorting, supra; and Leprino Foods Company, supra).
Petitioner’s services of installing the motor controllers onto exempt production machinery
are also exempt from New York State and local sales taxes in accordance with Section 1105-B(b)
of the Tax Law. Accordingly, Petitioner’s sales and installations of motor controllers onto exempt
production machinery and equipment are exempt from the imposition of sales and use tax and
Petitioner should obtain, within 90 days of the date of a sale, a properly completed Form ST-121,
Exempt Use Certificate, from its customer to substantiate that the transaction is not subject to tax.
See Section 1132(c) of the Tax Law.
Petitioner’s sales brochure indicates that the motor controllers are suitable for a wide variety
of applications, some of which may not qualify for the production exemption, such as automatic
doors, fans, and escalators. Therefore, it is necessary to address whether the motor controllers as
installed constitute capital improvements.
The motor controllers as described by Petitioner and its sales brochure do not constitute
capital improvements because they fail to satisfy the second prong of the statutory test contained in
Section 1101(b)(9)(i) of the Tax Law; i.e., they are not affixed in such a way that their removal
would cause material damage to the motor controllers themselves or to the real property to which

-5TSB-A-03(22)S
Sales Tax
May 8, 2003

they are affixed. Unlike the transformers which constituted capital improvements in Western
New York Beverage Industry Collection & Sorting, supra, that are welded to a structural steel frame
running the length of the equipment and embedded in concrete, the motor controllers are bolted to
the real property and wired to its motor. They require only unwiring and unbolting to be removed
for service or repair. Such bolting and wiring does not create the degree of permanence necessary
to establish a capital improvement. See Matter of Charles R. Wood Enterprises, Inc. v. State Tax
Commn., 67 AD2d 1042; Matter of West Mountain Corp. v. Miner, 85 Misc2d 416; Multi-Pak Sales
Corporation, Adv Op Comm T&F, December 11, 1989, TSB-A-89(48)S. Moreover, structures
which can be removed without material damage and transported as an entity lack the degree of
permanence necessary to establish that a particular installation is a capital improvement. See
Hudson River Estates, Inc., Adv Op St Tx Comm, April 5, 1985, TSB-A-85(2)S. Accordingly, the
motor controllers do not qualify as capital improvements and their sales and installations are subject
to sales and compensating use tax under Sections 1105(a) and 1105(c)(3) of the Tax Law unless they
qualify for a specific exemption as previously discussed.

DATED: May 8, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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