Is installing a hard-wired home security system a tax-exempt capital improvement, a taxable equipment installation, or a taxable protective service?

Plain-English summary

John Lombardi, an alarm-company owner and president of the New York Burglar & Fire Alarm Association, asked the Department to clarify the sales tax treatment of home security system installations under a range of common scenarios: systems sold to and owned by the homeowner upon installation, hard-wired into the residential electrical system, sold with or without monitoring, and connected (or not) to alarm monitoring service.

The Department's answer is a three-part test drawn directly from New York's general capital-improvement definition. An alarm installation is a tax-exempt capital improvement to real property only if it satisfies all three conditions: (1) it must substantially add to the home's value — which for an alarm system means it stays fully functional as at least a local system even if the homeowner never subscribes to monitoring service; (2) it must be installed so it becomes part of the real property or is permanently affixed to it, such that removal would damage the property or the system itself — alarms, detectors, switches, sensors, and control panels wired in like circuit breaker panels, in-wall wiring, or light fixtures meet this; and (3) it must be intended as a permanent installation, meaning the alarm company retains no ownership rights and no right to remove the system — the system must become the homeowner's own property outright. Meet all three, and the alarm company is treated as a construction contractor performing an exempt capital improvement: it doesn't collect tax from the customer on the installation charge (with a Certificate of Capital Improvement on file), but it does pay sales tax itself on the parts, components, and materials it uses, with no resale exemption available on those purchases. This same analysis extends to commercial property and to tenant installations, as long as nothing in the lease requires removing the system when the tenancy ends.

If even one condition fails — most commonly, if the alarm company keeps ownership or a right to remove the system, or the system becomes useless the moment the monitoring contract ends — the installation instead counts as installing tangible personal property that keeps its own separate identity, which is a taxable sale/installation, not an exempt capital improvement. In that case the alarm company collects tax from the customer on the installation charge but can buy the transferred components tax-free for resale (or apply for a refund/credit if it already paid tax on them). Individual components matter too: a bolted-on, easily removable video camera bracket doesn't count as part of the capital improvement even if the rest of the system does, though a camera wired in like the rest of the electrical system can qualify along with everything else. And regardless of how the equipment itself is classified, ongoing alarm monitoring service charges are always separately taxable as protective and detective services — that tax applies whether the underlying hardware installation was exempt or taxable.

What this means for you

Alarm and home security installation companies

Structure your contracts so ownership of the system genuinely and permanently transfers to the homeowner (no retained ownership or removal rights) if you want capital-improvement treatment — get a Certificate of Capital Improvement on file, and remember you'll still pay tax yourself on the parts and materials, just without collecting from the customer on the installation charge.

Alarm companies that retain title or removal rights (rent-to-own or leased systems)

If you keep ownership of the system or the right to remove it, or if it stops working once the monitoring contract ends, your installation charges are taxable — collect tax from the customer, but you can then buy the components you transfer tax-free for resale (or get a refund/credit for tax already paid).

Anyone billing for alarm monitoring services

Monitoring fees are always taxable protective/detective services under New York law, completely independent of how the underlying alarm equipment installation gets classified — don't assume a capital-improvement exemption on the hardware carries over to the monitoring charge.

Common questions

Q: What three conditions must a hard-wired alarm system meet to be an exempt capital improvement?
A: It must (1) substantially add to the home's value by staying functional without a monitoring subscription, (2) be permanently affixed so removal would cause damage, and (3) become the homeowner's own property with the installer keeping no ownership or removal rights.

Q: Is alarm monitoring service ever tax-exempt?
A: No — monitoring/protective service charges are always taxable under New York law, regardless of whether the underlying alarm equipment installation itself qualifies as an exempt capital improvement.

Q: What if the alarm company keeps ownership of the system?
A: Then the installation isn't a capital improvement — it's a taxable sale/installation of tangible personal property, and the company must collect tax from the customer (though it can then buy the transferred components tax-free for resale).

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(4)(i) (retail sale; contractor materials deemed retail sale)
• Tax Law § 1101(b)(9)(i) (capital improvement definition)
• Tax Law § 1105(c)(3) (installing tangible personal property; capital-improvement carve-out)
• Tax Law § 1105(c)(5) (maintaining/repairing real property)
• Tax Law § 1105(c)(8) (protective and detective services)
• Tax Law § 1115(a)(17) (materials sold to a contractor for a capital improvement)
• Tax Law § 1119(c) (contractor credit/refund for materials used in a taxable installation)
• 20 NYCRR 541.2(d) (construction contractor definition)
• 20 NYCRR 541.5(b) (capital improvement contracts and certificates)

Prior authority relied on:

• Matter of ADT Co. v. State Tax Commission, 113 AD2d 140; Merit Oil of New York, Inc. v. State Tax Commission, 124 AD2d 326 (retained ownership/removal rights defeat permanence)
• Matter of Charles R. Wood Enterprises, Inc. v. State Tax Commn., 67 AD2d 1042 (movable equipment, even if bolted down, isn't a capital improvement)
• Cornwell Energy Management, Inc., TSB-A-03(22)S (wired/bolted equipment removable by unwiring/unbolting lacks permanence)
• Matter of Gem Stores, Inc., TSB-D-88(30)S (readily removable bracket-mounted component not part of the capital improvement)
• Baker Protective Services, Inc. d/b/a Wells Fargo Alarm Services, Inc., TSB-D-01(17)S (alarm company retaining ownership isn't a resale purchase)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_5s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(5)S
Sales Tax
February 27, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S030513A

On June 2, 2003, the Department of Taxation and Finance received a Petition for Advisory
Opinion from John Lombardi, 766 Freedom Plains Road, Poughkeepsie, New York, 12603.
The issue raised by Petitioner, John Lombardi, is whether charges for the installation of a
residential security system which is hard wired into the property’s electrical system constitute
charges for a capital improvement to real property.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is the owner of a small alarm company and president of the New York Burglar &
Fire Alarm Association. Petitioner asks about the application of sales tax to installations of home
security systems where some or all of the following circumstances may be true. The system may
be:
•

sold to and become the property of the homeowner upon installation

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hard wired into the residential electrical system

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sold without the vendor/installer retaining any rights of ownership or rights of
removal of the installed property

•

sold with or without monitoring (protective) service

•

connected to an alarm monitoring service other than the service that installed the
system and remain fully functional

•

fully functional within the residence although not connected to any alarm monitoring
service

Applicable law and regulations
Section 1101(b)(4)(i) of the Tax Law defines the term retail sale, in part, as:
A sale of tangible personal property to any person for any purpose, other than (A) for
resale as such or as a physical component part of tangible personal property, or (B) for use
by that person in performing the services subject to tax under paragraphs (1), (2), (3), (5),
(7) and (8) of subdivision (c) of section eleven hundred five where the property so sold

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becomes a physical component part of the property upon which the services are performed
or where the property so sold is later actually transferred to the purchaser of the service in
conjunction with the performance of the service subject to tax. Notwithstanding the
preceding provisions of this subparagraph, 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. . . .
Section 1101(b)(9)(i) of the Tax Law defines the term capital improvement as:
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 of the Tax Law provides, in part:
Imposition of sales tax On and after June first, nineteen hundred seventy-one, there
is hereby imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
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(c) The receipts from every sale, except for resale, of the following services:
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(3) Installing tangible personal property . . . or maintaining, servicing or repairing
tangible personal property . . . except:
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(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; . . .
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(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 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. . . .
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(8) Protective and detective services, including, but not limited to, all services
provided by or through alarm or protective systems of every nature, including, but not
limited to, protection against burglary, theft, fire, water damage or any malfunction of
industrial processes or any other malfunction of or damage to property or injury to persons,
detective agencies, armored car services and guard, patrol and watchman services of every
nature other than the performance of such services by a port watchman licensed by the
waterfront commission of New York harbor, whether or not tangible personal property is
transferred in conjunction therewith.
Section 1115(a)(17) of the Tax Law provides:
Tangible personal property sold by a contractor, subcontractor or repairman to a
person other than an organization described in subdivision (a) of section eleven hundred
sixteen, for whom he is adding to, or improving real property, property or land by a capital
improvement, or for whom he is about to do any of the foregoing, if such tangible personal
property is to become an integral component part of such structure, building or real property;
provided, however, that if such sale is made pursuant to a contract irrevocably entered into
before September first, nineteen hundred sixty-nine, no exemption shall exist under this
paragraph.
Section 1119(c) of the Tax Law provides:
(c) A refund or credit equal to the amount of sales or compensating use tax imposed
by this article and pursuant to the authority of article twenty-nine, and paid on the sale or use
of tangible personal property, shall be allowed the purchaser where such property is later
used by the purchaser in performing a service subject to tax under paragraph (1), (2), (3), (5),
(7) or (8) of subdivision (c) of section eleven hundred five or under section eleven hundred

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ten and such property has become a physical component part of the property upon which the
service is performed or has been transferred to the purchaser of the service in conjunction
with the performance of the service subject to tax or if a contractor, subcontractor or
repairman purchases tangible personal property and later makes a retail sale of such tangible
personal property, the acquisition of which would not have been a sale at retail to him but
for the second to last sentence of subparagraph (i) of paragraph (4) of subdivision (b) of
section eleven hundred one. An application for the refund or credit provided for herein must
be filed with the commissioner of taxation and finance within the time provided by
subdivision (a) of section eleven hundred thirty-nine. Such application shall be in such form
as the commissioner may prescribe. Where an application for credit has been filed, the
applicant may immediately take such credit on the return which is due coincident with or
immediately subsequent to the time that he files his application for credit. However, the
taking of the credit on the return shall be deemed to be part of the application for credit. The
procedure for granting or denying such applications for refund or credit and review of such
determinations shall be as provided in subdivision (e) of section eleven hundred thirty-nine.
Section 541.2 of the Sales and Use Tax Regulations provides, in part:
Definitions. The words, terms and phrases used in this Part have the following
definitions except when the context clearly indicates a different meaning:
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(d) A construction contractor means any person who engages in erecting,
constructing, adding to, altering, improving, repairing, servicing, maintaining, demolishing
or excavating any building or other structure, property, development, or other improvement
on or to real property, property or land.
Section 541.5 of the Sales and Use Tax Regulations provides, in part:
Contracts with customers other than exempt organizations.
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(b) Capital improvements contracts.
(1) Purchases. All purchases of tangible personal property (excluding qualifying
production machinery and equipment exempt under section 1115(a)(12) of the Tax Law)
which are incorporated into and become part of the realty or are used or consumed in
performing the contract are subject to tax at the time of purchase by the contractor or any
other purchaser. A certificate of capital improvement may not be validly given by any
person or accepted by a supplier to exempt the purchase of these materials.

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(2) Labor and material charges. All charges by a contractor to the customer for
adding to or improving real property by a capital improvement are not subject to tax
provided the customer supplies the contractor with a properly completed certificate of capital
improvement.
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(4) Documents; capital improvement contracts.
(i) When a properly completed certificate of capital improvement has been
furnished to the contractor, the burden of proving the job or transaction is not taxable
and the liability for the tax rests solely upon the customer.
(a) The prime contractor should obtain a certificate of capital
improvement from the customer and retain it as part of his records. Copies
of such certificate must be furnished to all subcontractors on the job and
retained as part of their records.
(b) A certificate of capital improvement may not be issued by a
contractor, subcontractor or any other person to a supplier on the purchase
of tangible personal property.
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(iii) If a contract includes the sale of tangible personal property which
remains tangible personal property after installation, the contractor must collect the
appropriate New York State and local taxes from the customer on the selling price,
including any charge for installation, of the tangible personal property unless a
properly completed exemption certificate is issued by the customer. The contractor
may apply for a credit or refund of taxes he has paid on purchases of the tangible
personal property that remain tangible personal property after installation.
Example 1: A contractor sells a building he has constructed and, as a part of the sale
agreement, installs free standing water fountains which remain tangible personal
property when installed. The contractor's billing to his customer must separately
state all charges for tangible personal property included in the sales agreement. The
New York State and applicable local tax rate must be collected on the total charges
for the water fountains including any installation charges. In this instance, the
contractor may purchase the water fountains tax-free using a contractor exempt
purchase certificate. If he pays the tax to his supplier, he is entitled to a refund or
credit of the tax paid on the purchase of the water fountains.

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Opinion
Petitioner asks about the application of sales tax to installation of burglar alarm systems in
residential property. Sales of such alarm systems on an uninstalled basis are sales of tangible
personal property subject to sales tax. See section 1105(a) of the Tax Law.
A burglar or fire alarm company which sells alarm systems on an installed basis may be
considered to be a construction contractor when it performs installations on real property. See
section 541.2(d) of the Sales and Use Tax Regulations. Charges for the installation of burglar and
fire alarm systems can be characterized as 1) a capital improvement to real property, 2) an
installation of tangible personal property which remains tangible personal property after
installation, or 3) a charge for protective services.
When an alarm company installs for the real property owner an alarm system which meets
all three of the conditions set forth in section 1101(b)(9)(i) of the Tax Law, the work is considered
to be a capital improvement. Thus, charges for installations which add to the value of the real
property, become part of the property or are permanently affixed to the real property so that removal
would cause material damage to the property or the article itself, and are intended to be permanent
are not subject to sales tax. See sections 1105(c)(3)(iii) and 1115(a)(17) of the Tax Law.
The first condition for a capital improvement set forth in section 1101(b)(9)(i)(A) of the Tax
Law requires that an installation must “substantially add to the value of the real property, or
appreciably prolong the useful life of the real property.” An alarm system cannot be said to
appreciably prolong the useful life of the real property, but it is reasonable to conclude that it may
substantially add to the value of the real property. In order to substantially add to the value of the
real property, the alarm system must remain functional (at least as a local system) after installation
whether or not the property owner subscribes to the alarm service offered by the vendor of the
tangible personal property. Where a homeowner has an alarm system installed which does not
require connection to an alarm company to be functional, the system may substantially add to the
value of the real property and, therefore, the installation of the system would meet the first
requirement under section 1101(b)(9)(i) of the Tax Law to qualify as a capital improvement to real
property.
The second condition for a capital improvement set forth in section 1101(b)(9)(i)(B) of the
Tax Law requires that the alarm system must be installed in such a manner as to become part of the
real property or be permanently affixed to the real property so that removal would cause material
damage to the property or alarm system itself. Installations of circuit breaker panels, in wall wiring,
additional circuits to electrical systems, main power boxes, and light fixtures are considered to
qualify as capital improvements. See Sales and Use Tax Classifications of Capital Improvements
and Repairs to Real Property, Publication 862 (4/01). The burglar and fire alarms, detectors,
switches, sensors and control panels wired and installed in a similar manner as the building’s
electrical system, circuit breaker panels and other items listed above, unless a contrary intention is
shown, are considered to be permanently affixed to the real property. Where these alarms, detectors,

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switches, sensors and control panels are installed so that they become a part of the real property,
their installation would meet the second requirement under section 1101(b)(9)(i) of the Tax Law to
qualify as a capital improvement to real property.
The third condition for a capital improvement set forth in section 1101(b)(9)(i)(C) of the Tax
Law is that the alarm system must be intended to become a permanent installation. In order to meet
this condition, the alarm company or installer cannot retain any rights of ownership or rights of
removal of the installed property. The alarm system must become the property of the homeowner
upon its installation. Where the alarm company retains ownership of the alarm system or a right to
remove the alarm system or its components from the homeowner’s premises, it has been held that
the installation lacks the intention of permanence required to satisfy the third condition under section
1101(b)(9)(i) of the Tax Law and such installation does not qualify as a capital improvement to real
property. See Matter of ADT Co. v. State Tax Commission, 113 AD2d 140, 142; Merit Oil of
New York, Inc. v. State Tax Commission, 124 AD2d 326, 328.
Accordingly, where a complete burglar, fire or other security alarm system is installed for
the owner of real property, becomes the property of the homeowner upon installation, is sold without
the vendor retaining any rights of ownership or rights of removal of the system or any of its
components, the system remains fully functional within the residence whether or not the property
owner subscribes to the alarm service offered by the vendor of the tangible personal property, and
the property is installed so as to be considered permanently affixed to the real property (in the same
manner as the building’s electrical system), the installation is considered to meet the conditions set
forth in section 1101(b)(9)(i) of the Tax Law to qualify as a capital improvement to real property.
This is also true for installations performed for the owners of commercial real property.
If an alarm company installs alarm systems which qualify as a capital improvement to real
property, the alarm company is considered to be a construction contractor and is not required to
collect sales tax from its customer. See section 541.2(d) of the Sales and Use Tax Regulations. The
alarm company should obtain a properly completed Certificate of Capital Improvement (Form
ST-124) from its customer. The purchases by the alarm company of parts, alarm system
components and other building materials which qualify as capital improvements upon installation
are subject to sales tax. The alarm company may not properly issue a resale certificate to purchase
such items without the payment of sales tax. The alarm company must also pay sales tax on its tools
and equipment used to install the alarms.
Where these conditions are met for installations for tenants of residential or commercial real
property, and there is no provision in the lease or rental agreement between the property owner and
tenant requiring removal of the system upon termination of the lease or rental agreement, such
installations are also considered a capital improvement to real property. See Matter of Flah's of
Syracuse, Inc. v. James H. Tully, Jr. et al, 89 AD 2d 729.
Where an alarm company performs an installation for the real property owner which does
not meet the three conditions set forth in section 1101(b)(9)(i) of the Tax Law for a capital
improvement, the alarm company will be considered as installing tangible personal property which

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retains its identity as tangible personal property after installation. In the Matter of Charles R.
Wood Enterprises, Inc. v. State Tax Commn., 67 AD2d 1042, the court determined that certain
amusement rides were, even though bolted to the real property, clearly excluded, as movable
machinery or equipment, from being capital improvements to real property and were subject to sales
tax. See also Matter of West Mountain Corp. v. Miner, 85 Misc2d 416. In Cornwell Energy
Management, Inc., Adv Op Comm T & F, May 8, 2003, TSB-A-03(22)S, the Tax Department
opined that motor controllers that were wired to a motor and bolted to real property, and required
only unwiring and unbolting to be removed for service or repair, did not have the degree of
permanence necessary to establish a capital improvement. Accordingly, where an installed alarm
system can be removed from the real property without material damage to the system or the real
property or is not intended to be a permanent installation, the installation is not a capital
improvement to the real property and the charge or charges for the alarm system components and
their installation are subject to the sales tax pursuant to sections 1105(a) and 1105(c)(3) of the Tax
Law.
Likewise, if certain components of the alarm system, such as a video surveillance camera
which is installed on a bracket bolted to a wall, can be readily removed from the premises and
reused, such installation will not be considered to be permanently affixed to the real property and,
therefore, will not be considered a part of the overall capital improvement to real property. See
Matter of Gem Stores, Inc., Tax Appeals Tribunal, October 14, 1988, TSB-D-88(30)S.
However, current technology no longer requires the installation of video cameras on brackets
bolted to the ceiling or wall. Where the video cameras are installed so as to otherwise qualify as a
capital improvement, such installation would be considered to be part of the overall capital
improvement. That is, where the cameras are wired and installed in a manner similar to the
building’s electrical system, such that the installation of the cameras and other components of the
alarm system meets the conditions set forth in section 1101(b)(9)(i) of the Tax Law, such installation
is also considered part of the overall capital improvement.
Where the alarm company installs an alarm system or a component of an alarm system which
remains tangible personal property after installation, and collects the sales tax on the charges for
such installation from its customer, the installer may purchase tangible personal property used in
such installation and actually transferred to the customer without payment of sales tax. See section
1101(b)(4)(i) of the Tax Law and section 541.5(b)(4)(iii), Example 1 of the Sales and Use Tax
Regulations. Where the installer has paid tax on tangible personal property used in such installation,
the installer may apply for a refund or credit of the sales tax it paid on the alarm system, components
and materials actually transferred to its customer. See section 1119(c) of the Tax Law.
It should be noted that any charges for alarm monitoring services are taxable charges for
protective services pursuant to section 1105(c)(8) of the Tax Law. Where the alarm company retains
title to the alarm system, reserves the right to remove the alarm system upon termination of its
contract with the property owner, or the alarm system becomes useless upon termination of the
contract with the alarm company, the installation of the alarm system fails to meet the requirements
for a capital improvement. Installations such as these are considered to be part of the charge for

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protective services subject to sales tax. Tangible personal property purchased by an alarm company
and supplied to its customers as a component part of its services to its customers is not purchased
for resale within the meaning of section 1101(b)(4) of the Tax Law when the alarm company retains
ownership of the property. See Baker Protective Services, Inc. d/b/a Wells Fargo Alarm Services,
Inc., Dec Tax App Trib, November 1, 2001, TSB-D-01(17)S.

DATED: February 27, 2004
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

NOTE:

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