Does a contractor installing underground high-voltage electric cable and related equipment for a utility owe New York sales tax on the materials it buys for the job?

Plain-English summary

A contractor that installs underground high-voltage electric cable for a utility company -- running cable from a remote power plant to a local substation, through public and private rights-of-way -- asked how New York sales tax applies to the wide range of materials in the job: cable, conduit, concrete encasement, fiber-optic monitoring cable, cooling oil and reservoirs, manholes, fire suppression, switchgear, plus ordinary backfill and pavement restoration.

Two separate questions are in play. First, is the contractor's charge to the utility taxable? If the installation meets New York's three-part capital improvement test (substantially adds value or prolongs useful life; becomes permanently affixed so removal would cause material damage; intended as a permanent installation), the contractor's labor-and-material charge to the utility is not taxable, as long as the utility gives the contractor a properly completed Certificate of Capital Improvement (Form ST-124).

Second -- and this is the part that surprises many contractors -- getting that exemption on the output side does not exempt the contractor's own purchases of the materials and equipment used to do the job. Under New York's contractor rule, buying materials to install a capital improvement is always a taxable retail purchase by the contractor, with no certificate available to avoid it. None of this equipment (cable, conduit, switchgear, cooling systems, etc.) qualifies for the manufacturing/production exemption either, because a 1957 case (Niagara Mohawk v. Wanamaker) already established that transmission and distribution equipment -- as opposed to equipment at the generating plant itself -- isn't used "directly in production" of electricity. The only purchase-side relief available is if the installation is on property owned by a governmental entity or nonprofit organization exempt under § 1116(a): materials that become an integral part of that entity's real property can be bought tax-free (or refunded if tax was already paid), but ownership by the utility itself under a mere franchise or easement doesn't count, because the equipment never becomes part of the underlying government or nonprofit owner's real property.

Backfill and pavement-restoration materials that become the property of whoever owns the land are handled the same way -- taxable to the contractor unless that landowner is itself a § 1116(a) exempt entity. And some parts of the job (periodic oil replacement, or components that aren't truly integral to the cable system) may not qualify as part of the capital improvement at all; those installation and repair charges are separately taxable under § 1105(c)(3) or (5), and the contractor must collect tax from the customer on them. Finally, if any component remains tangible personal property after installation (rather than becoming part of the real property), the contractor can buy it tax-free for resale but must collect tax on its sale price and installation charge from the customer.

What this means for you

Utility contractors and subcontractors

Don't assume that a capital-improvement exemption on your output (the charge to your customer) means your input purchases are also exempt -- they almost never are. Every contractor purchase of materials used in a capital improvement is a taxable retail purchase, full stop, unless the underlying property owner is itself a governmental or § 1116(a)-exempt nonprofit. Collect a Certificate of Capital Improvement from the utility to support not charging tax on your labor-and-material bill, but budget for sales/use tax on your own material costs as a real cost of the job.

Utility companies and their real-estate/tax departments

If you want your capital-improvement charges to stay untaxed, issue your contractor a properly completed Certificate of Capital Improvement (ST-124) and keep it on file -- without it, the contractor may end up collecting tax on the full invoice, or being liable for use tax on materials, depending on how the job was billed.

Accountants and tax professionals

This is a good template for any transmission/distribution utility construction job: separate the analysis into (1) is the overall job a capital improvement (three-part test), (2) does a Certificate of Capital Improvement flow between the parties, (3) is the contractor's own purchase of materials exempt (almost never, absent a § 1116(a) exempt property owner or the narrow production exemption, which transmission/distribution equipment fails per Niagara Mohawk), and (4) are any components severable, non-integral, or periodically replaced (then separately taxable as installation/repair, billed to the customer).

Common questions

Q: If my capital-improvement charge to a utility is exempt, are my own material purchases for the job also exempt?
A: No. A contractor's purchase of materials used to erect, improve, or repair real property is always a taxable retail purchase, regardless of whether the job itself qualifies as an exempt capital improvement.

Q: Does the "production machinery" exemption cover transmission/distribution equipment like switchgear, cable, and substation components?
A: No. Following Niagara Mohawk Power Corp. v. Wanamaker, production stops at the generator; transmission and distribution equipment isn't used directly in production and doesn't qualify.

Q: When can I buy installation materials tax-free?
A: Only if the property they become part of belongs to a New York State or federal governmental entity, or a nonprofit exempt under Tax Law § 1116(a) -- and only if the materials genuinely become an integral part of that entity's real property, not merely installed under the utility's own franchise or easement.

Q: What about components that stay tangible personal property after installation?
A: The contractor can buy those for resale tax-free, but must collect sales tax from the customer on their sale price and any installation charge.

Citations and references

Statutes, regulations, and guidance:

• Tax Law § 1101(b)(4)(i), (9)(i) (retail sale; capital improvement definition)
• Tax Law § 1105(a), (c)(3), (c)(5) (retail sales; installing/maintaining tangible personal property)
• Tax Law § 1115(a)(12), (15)-(17) (production machinery exemption; exempt-organization capital improvements)
• Tax Law § 1116(a) (exempt governmental and nonprofit entities)
• Tax Law § 1119(c), § 1139(a) (refund/credit for materials; three-year filing period)
• 20 NYCRR 526.6, 528.13, 541.1(b), 541.5(b) (retail sale; production machinery; contractor rules; capital improvement contracts)
• TSB-A-05(20)S (Marcum & Kliegman, LLP, May 27, 2005)
• TSB-A-90(34)S (ABB Power Transmission, Inc., July 17, 1990)
• TSB-A-03(22)S (Cornwell Energy Management, Inc., May 8, 2003)
• Matter of Niagara Mohawk Power Corp. v Wanamaker, 286 App Div 446, affd 2 NY2d 764

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(35)S
Sales Tax
September 27, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S041008A

On October 8, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Conti Enterprises, Inc., One Crugwood Road, South Plainfield,
New Jersey, 07080.
The issue raised by Petitioner, Conti Enterprises, Inc., is whether its purchases of
materials used or consumed in the installation of a high voltage cable from a power plant to a
substation are subject to New York State and local sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a contractor who performs installations of underground high voltage electric
cables for a utility company. Petitioner purchases materials used to install the high voltage
cables. The cable originates at a remote power plant, is installed within public and private rights­
of-way located within New York State, and terminates at the utility company’s substation located
within New York City. The cable’s purpose is to carry high voltage power from the remote
power plant to the local substation, where the power is processed through various electrical
switchgear and transformers to produce lower voltage electricity. This electricity is distributed
to the utility’s commercial and residential customers served by the local substation.
The materials required for the installation of the underground high voltage electric cables
include the following:
(1)

Oil-filled high voltage cables;

(2)

Conduits through which oil-filled high-voltage cables are pulled and which
permanently house these cables;

(3)

Low strength concrete encasement placed around the conduits which serves to
dissipate heat produced by the cable and to provide structural protection for the
high voltage cables;

(4)

Fiber optic telecommunications cables for use in system monitoring and data
collection;

(5)

Conduits through which the fiber optic cables are pulled and which house these
cables;

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(6)

Temperature sensors and other system controls and devices;

(7)

Heat dissipating oil, oil reservoir tanks, pumps, gauges, and pipelines that are
required for cooling the high-voltage cable;

(8)

Underground manhole structures used to access the high voltage cable for
purposes of anchoring and splicing the cable;

(9)

Underground manhole structures used to house the coolant oil reservoirs;

(10)

Fire suppression systems for the manhole structures;

(11)

Electrical switchgear, controls, and circuit breakers;

(12)

Soil backfill material to be placed above the low strength concrete encasement for
trench restoration; and,

(13)

Concrete and asphalt pavement restoration materials used to restore the roadways
and landscape disturbed by the above installations.

The utility company possesses a right-of-way consisting of a franchise or easement on
which its transmission or distribution equipment is installed. Such franchise or easement gives
the utility company certain rights to use the underlying real property for its installation. In a
typical installation, items 1 through 11 will remain the property of the utility and become a part
of the utility’s easement or franchise. Items 12 and 13 are generally transferred to the owner of
the underlying real property and become a part of such real property.
Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(4) Retail sale. (i) 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 becomes a physical component part of the property upon

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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 . . . .
*

*

*

(9) Capital improvement. (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
(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:
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.
*

*

*

(c) 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

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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 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 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, gas, electricity, refrigeration or steam for
sale, by manufacturing, processing, generating, assembling, refining, mining or extracting
*

*

*

(15) Tangible personal property sold to a contractor, subcontractor or repairman
for use in (i) erecting a structure or building (A) of an organization described in
subdivision (a) of section eleven hundred sixteen . . . or (ii) adding to, altering or
improving real property, property or land (A) 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.

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(16) Tangible personal property sold to a contractor, subcontractor or repairman
for use in maintaining, servicing or repairing real property, property or land (i) of an
organization described in subdivision (a) of section eleven hundred sixteen . . . 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.
(17) 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 1116(a) of the Tax Law provides for exemption from the sales and compensating
use taxes with respect to New York State governmental entities, United States governmental
entities, certain nonprofit organizations and other entities who have received New York State
exempt organization status.
Section 1119(c) of the Tax Law provides:
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 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

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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 1139(a) of the Tax Law provides, in part:
In the manner provided in this section the tax commission shall refund or credit
any tax, penalty or interest erroneously, illegally or unconstitutionally collected or paid if
application therefor shall be filed with the tax commission (i) in the case of tax paid by
the applicant to a person required to collect tax, within three years after the date when the
tax was payable by such person to the tax commission . . . .
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
Retail sale. (a) The term retail sale or sale at retail means the sale of tangible
personal property to any person for any purpose, except as specifically excluded.
(b) Special rule--sales specifically included as retail sales. (1) A sale of any
tangible personal property to a contractor, subcontractor or repairman for use or
consumption in erecting structures or buildings or adding to, altering, improving,
maintaining, servicing or repairing real property, property or land, is deemed to be a retail
sale, regardless of whether the tangible personal property is to be resold as such before it
is used or consumed. . . .
Section 528.13 of the Sales and Use Tax Regulations provides, in part:
Machinery and equipment used in production; telephone and telegraph
equipment; parts, tools and supplies. [Tax Law, §1115(a)(12)]
(a) Exemption. (1) "Exemption from statewide tax." An exemption is
allowed from the tax imposed under subdivisions (a) and (c) of section 1105 of
the Tax Law, and from the compensating use tax imposed under section 1110 of
the Tax Law, for receipts from sales of the following:
(i) Machinery or equipment (including parts with a useful life of more than
one year) used or consumed directly and predominantly in the production for sale
of tangible personal property, gas, electricity, refrigeration or steam, by
manufacturing, processing, generating, assembling, refining, mining or extracting
....
*

*

*

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(b) Production. (1) The activities listed in paragraph (1) of subdivision (a)
of this section are classified as administration, production or distribution.
(i) Administration includes activities such as sales promotion, general
office work, credit and collection, purchasing, maintenance, transporting,
receiving and testing of raw materials and clerical work in production such as
preparation of work, production and time records.
(ii) Production includes the production line of the plant starting with the
handling and storage of raw materials at the plant site and continuing through the
last step of production where the product is finished and packaged for sale.
(iii) Distribution includes all operations subsequent to production, such as
storing, displaying, selling, loading and shipping finished products.
(2) The exemption applies only to machinery and equipment used directly
and predominantly in the production phase. Machinery and equipment partly
used in the administration and distribution phases does not qualify for the
exemption, unless it is used directly and predominantly in the production phase.
*

*

*

(c) Directly and predominantly. (1) Directly means the machinery or
equipment must, during the production phase of a process:
(i) act upon or effect a change in material to form the product to be
sold, or
(ii) have an active causal relationship in the production of the
product to be sold, or
(iii) be used in the handling, storage, or conveyance of materials or
the product to be sold, or
(iv) be used to place the product to be sold in the package in which
it will enter the stream of commerce.
(2) Usage in activities collateral to the actual production process is not
deemed to be used directly in production.
*

*

*

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(4) Machinery or equipment is used predominantly in production, if over
50 percent of its use is directly in the production phase of a process.
Section 541.1(b) of the Sales and Use Tax Regulations provides:
The principal distinguishing feature of a sale to a contractor, as compared to a sale
to other vendors who purchase tangible personal property for resale, is that the sale of
tangible personal property to a contractor for use or consumption in construction is a
retail sale and subject to sales and use tax, regardless of whether tangible personal
property is to be resold as such or incorporated into real property as a capital
improvement or repair. Whenever a contractor uses materials, on which the contractor
has paid sales tax, in a repair or maintenance contract (except interior cleaning and
maintenance contracts of 30 days or more) subject to the sales tax on services under
section 1105(c) of the Tax Law, the contractor may be entitled to a refund or credit of the
portion of the tax he paid attributable to the materials transferred to the customer.
Section 541.5 of the Sales and Use Tax Regulations provides, in part:
Contracts with customers other than exempt organizations.
*

*

*

(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.
(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.
(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.

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(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.
(ii) Where a contractor does not receive a capital improvement certificate from a
customer, the contract or other records of the transaction will prevail. In such case:
(a) where the contractor does not receive a capital improvement certificate,
collects tax on the full invoice price and the job is a capital improvement to real property,
the contractor is liable for the tax on the cost of materials incorporated into the job, plus
the tax collected from the customer. The customer is entitled to a refund of the tax paid to
the contractor; or
(b) where the contractor does not receive a capital improvement certificate,
collects no tax on the charges billed to the customer and the job is a capital improvement
to real property, the contractor is liable for the tax on the cost of materials incorporated
into the job performed.
(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
Purchases of materials by Petitioner for use in performing installations for utility
companies can generally be divided into those purchases which remain the property of the utility
company after installation and those purchases which become the property of the owner of the
underlying realty after installation. The utility company typically retains ownership of the
installed oil-filled high voltage cables; the conduit through which the cable runs; low strength
concrete encasements; fiber optic telecommunications cables for use in system monitoring and
data collection; conduits which house the fiber optic cables; heat dissipating oil, oil reservoir
tanks, pumps, gauges, and pipelines that are required for cooling the high-voltage cable;
temperature sensors; manhole structures; fire suppression systems for the manhole structures;
and electrical switchgear, controls, and circuit breakers (hereinafter “the Equipment”). The
property owner typically takes possession of items such as soil backfill materials and concrete
and asphalt pavement restoration materials.
The utility company possesses a right-of-way consisting of a franchise or easement on
which its transmission or distribution equipment is installed. Such franchise or easement gives
the utility company certain rights to use the underlying real property for making installations. If
the particular installation meets the requirements set forth in section 1101(b)(9)(i) of the Tax
Law for a capital improvement to real property, Petitioner’s charges to the utility company for
such installation are not subject to sales tax. See section 1105(c)(3)(iii) of the Tax Law and
section 527.7(b) of the Sales and Use Tax Regulations; and Marcum & Kliegman, LLP, Adv Op
Comm T & F, May 27, 2005, TSB-A-05(20)S. In such case, Petitioner should accept a properly
completed Certificate of Capital Improvement (ST-124). See section 1132(c) of the Tax Law
and section 532.4 of the Sales and Use Tax Regulations. However, Petitioner’s purchases of
materials and equipment which will be installed as part of a capital improvement constitute
purchases at retail which are subject to sales or use tax under section 1105(a) or section 1110(a)
of the Tax Law, unless otherwise exempt. See section 1101(b)(4)(i) of the Tax Law and section
541.1(b) of the Sales and Use Tax Regulations. Sales or use tax paid by Petitioner on the
purchase of materials and equipment which remain the property of the utility company after
installation may be included by Petitioner as part of its cost of materials on any bill or invoice
given by Petitioner to its customer.
In the Matter of Niagara Mohawk Power Corporation v George W. Wanamaker, 286
App Div 446, affd 2 NY2d 764, various substations, transformers, towers, poles, conductors,
voltage regulators, circuit breakers and similar equipment located at a steam plant and elsewhere
were deemed to be used in transmission or distribution rather than in production of electricity.
Production was deemed to stop at the generator, and the increase in voltage by transformers at
the plant was simply to facilitate distribution. See ABB Power Transmission, Inc., Adv Op
Comm T & F, July 17, 1990, TSB-A-90(34)S. Accordingly, the Equipment described by
Petitioner is considered to be used in distribution activities and is not used directly in production
for purposes of section 1115(a)(12) of the Tax Law. See section 528.13(b) of the Sales and Use

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Tax Regulations. Therefore, purchases of Equipment by Petitioner are not exempt under section
1115(a)(12).
Sections 1115(a)(15) and (16) of the Tax Law state that, "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 [of an exempt entity]." With respect to Petitioner’s
installations of the Equipment on property owned by New York State or one of its political
subdivisions, such installation is performed pursuant to the utility's franchise, and title to the
conduit is acquired by and remains with the utility. It is not transferred to the owner of the
underlying property. The Equipment, therefore, does not become an integral component part of
the property of the governmental entity. Petitioner’s purchases of Equipment which, when
installed, meets the three conditions set forth in section 1101(b)(9)(i) of the Tax Law, are not
exempt from sales tax under sections 1115(a)(15) and (16) of the Tax Law but, rather, are subject
to sales tax the same as any building material purchased by a contractor, subcontractor or
repairman and incorporated into a capital improvement project. Likewise, purchases by
Petitioner of the Equipment installed on any private property as described above are subject to
sales tax. See Marcum & Kliegman, LLP, supra.
Purchases by Petitioner of soil, backfill, concrete and asphalt pavement restoration
materials and the like which become the property of the owner of the underlying realty upon
installation are also purchases at retail subject to sales or use tax unless otherwise exempt.
However, such materials, when incorporated into the real property of an entity exempt pursuant
to section 1116(a) of the Tax Law, may be purchased by Petitioner without the payment of sales
or use tax. See sections 1115(a)(15) and (16) of the Tax Law. If Petitioner has paid sales tax on
its purchases of materials which, upon installation, become the property of and are incorporated
into the real property of an exempt entity as described above, Petitioner may apply for a refund
within three years of the date the tax was payable to the Tax Department. See section 1139(a) of
the Tax Law.
Where fiber optic telecommunications cables, oil, oil reservoir tanks, pumps and gauges
and the like are installed so as to be an integral physical component of the high voltage cable
system, the installation of these and similar components are considered part of the overall capital
improvement.
If some of Petitioner’s installations do not qualify as a capital improvement project or as
part of a capital improvement project, the installation will be subject to tax pursuant to section
1105(c)(3) or (c)(5) of the Tax Law. For example, if the heat dissipating oil must be periodically
replenished or changed, the original installation and replacement of the oil may not be part of the
overall capital improvement. Similarly, to the extent that certain items, such as pumps and
gauges, sensors, electrical switchgear, etc., are not integral components of the high voltage cable
system, Petitioner’s charges for the system components and their installation are subject to sales
tax pursuant to sections 1105(a) and 1105(c)(3) of the Tax Law. See Matter of Charles R. Wood

- 12 ­
TSB-A-05(35)S
Sales Tax
September 27, 2005

Enterprises, Inc. v State Tax Commn., 67 AD2d 1042; Matter of West Mountain Corp. v Miner,
85 Misc2d 416; Matter of Gem Stores, Inc., Tax Appeals Tribunal, October 14, 1988, DTA No.
802661; Cornwell Energy Management, Inc., Adv Op Comm T & F, May 8, 2003,
TSB-A-03(22)S. The replacement of oil, or pumps and gauges, sensors, etc., in connection with
the repair of the high voltage cable system is subject to sales tax under section 1105(c)(5) of the
Tax Law.
Where Petitioner installs a component of the high voltage cable system which remains
tangible personal property after installation, Petitioner may purchase such component for resale
without payment of sales tax. See section 541.5(b)(4)(iii), Example 1 of the Sales and Use Tax
Regulations. Where Petitioner has paid sales tax on such tangible personal property used in such
installation, Petitioner may apply for a refund or credit of the tax paid. See section 1119(c) of
the Tax Law. Petitioner must collect sales tax on the charges for such installation from its
customer.

DATED: September 27, 2005

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.