Is installing an 'invisible fence' pet containment system a tax-exempt capital improvement, or does it stay taxable as tangible personal property installation?

Plain-English summary

Canine Containment sells, installs, repairs, and services "invisible fence" pet containment systems: a transmitter mounted on an interior wall with screws and plugged into a standard outlet, a perimeter antenna wire buried a few inches underground (or run through a caulked expansion joint or saw-cut), and a receiver collar worn by the pet. Removal just means unscrewing the transmitter, unplugging it, disconnecting the wire, and digging the wire up with an ordinary shovel — no significant damage results either way.

New York's capital-improvement test has three parts, and the Department found the system failed the critical second one: for the installation to become part of the real property, removal must cause MATERIAL DAMAGE to the property or the system. Screwing something to a wall or burying a wire a few inches underground doesn't create that degree of permanence — courts have repeatedly held that mere bolting or wiring, reversible without damage, isn't enough (citing Charles R. Wood Enterprises and West Mountain Corp., and a prior ruling finding wired-and-bolted motor controllers similarly failed the test). It also wasn't clear the system meets the FIRST test (substantially adding value or prolonging useful life of the real property) — a pet fence doesn't extend a home's useful life, and its value-add is debatable.

Because the installation doesn't qualify as a capital improvement, the whole package stays taxable: the uninstalled system sale, the installation labor (including materials), and repair/maintenance/battery-replacement charges are all subject to sales tax under §§ 1105(a) and 1105(c)(3),(5). The one carve-out: pet-training instruction is a separate, non-enumerated service not listed anywhere in the sales tax statute, so a SEPARATELY STATED charge for extra training is not taxable at all.

What this means for you

Pet containment installers

Don't assume any permanently mounted system automatically qualifies as a capital improvement — the Department looks closely at how EASILY and how DAMAGE-FREE the item can be removed. A system removable by simple unscrewing/unplugging and shallow digging, without material damage, stays fully taxable at every stage: sale, installation, and repair.

Home improvement and low-voltage equipment installers generally

This ruling reinforces that bolting, screwing, or burying equipment a few inches underground isn't enough by itself to create "permanent affixation" — the legal test asks whether removal would cause MATERIAL damage, not merely whether some form of attachment exists.

Accountants and tax professionals

Useful precedent for any low-voltage or easily-reversible equipment installation (irrigation controllers, low-voltage lighting transformers, small wired devices) — pair with the Cornwell Energy Management motor-controller ruling cited in the opinion for a consistent "easily unbolted/unwired ≠ capital improvement" line.

Common questions

Q: Is installing an invisible pet fence a tax-exempt capital improvement?
A: No — the system isn't affixed to a degree where removal would cause material damage, so it fails the capital-improvement test and stays taxable.

Q: Are repair and service charges for the system taxable too?
A: Yes — since the system remains tangible personal property after installation, maintenance, repair, and battery-replacement charges are all subject to sales tax.

Q: Is pet-training instruction taxable?
A: No, when separately stated — training isn't an enumerated taxable service under the Tax Law.

Q: Can another pet containment company rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and the specific installation method described; a more permanent installation method could reach a different result.

Citations and references

Statutes, regulations, and cases:

• Tax Law §§ 1101(b)(9)(i); 1105(a), (c)(3), (5)
• 20 NYCRR 526.8(a); 527.5(a); 527.7(a)(1), (b)
• Matter of Charles R. Wood Enterprises, Inc. v State Tax Commn., 67 AD2d 1042
• Matter of West Mountain Corp. v Miner, 85 Misc 2d 416

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(2)S
Sales Tax
January 9, 2006

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

PETITION NO. S041222B

On December 22, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Canine Containment Distributing Company, 5692 Pittsford Palmyra
Road, Pittsford, New York, 14534.
The issue raised by Petitioner, Canine Containment Distributing Company, is whether the
installation of a pet containment system commonly referred to as an “invisible fence” qualifies as
a capital improvement to real property for sales tax purposes.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner sells, installs, repairs and services its brand of pet containment system for its
customers who are pet owners. While Petitioner may sell its pet containment system on an
uninstalled basis, customers generally contract with Petitioner to provide all equipment, parts,
materials and labor necessary to install the pet containment system and to train the pet to the
system. The system is designed to keep the customer’s pet on the customer’s property and,
depending on the customer’s needs, a similar product may be used to keep the customer’s pet
away from certain areas inside the home. The system works by having a transmitter emit a weak
radio signal through a perimeter antenna wire which causes a receiver on the pet’s collar to
produce a mild shock when the pet moves too close to the perimeter antenna wire. Small flags
are placed around the protected area a few feet inside the perimeter antenna wire so the pet can
be trained to learn the location of the protected perimeter. The flags may be removed once the
pet is trained to the location of the perimeter.
The outdoor system is composed of three primary components: a radio transmitter, a
radio receiver collar worn by the pet, and an antenna wire for the protected perimeter. The
indoor system does not require the antenna wire. Equipment, parts and materials used in
installations include the radio transmitter for either an indoor or outdoor system (or both), the
radio receiver collar, a grounding device for lightning protection (optional), a battery back-up in
case of electrical failure (optional), batteries to operate the receiver, the antenna wire for the
protected perimeter and training flags to mark the protected perimeter.
In typical installations of an outdoor pet containment system, the antenna wire is buried a
few inches underground around the perimeter of the containment area. The wire may be placed
in an expansion joint in a concrete driveway or sidewalk and be held in place with a suitable
caulk. A saw cut across a blacktop or asphalt driveway or sidewalk with the wire caulked in
place also provides sufficient installation. The antenna wire need not be buried if positioned
where it would not be disturbed by lawn mowing, similar maintenance operations or ordinary
activities.

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The transmitter is typically mounted on an interior wall in a garage or basement using
screws, and is powered by being plugged into an ordinary electrical outlet. The transmitter uses
low voltage and plugs in using an adaptor similar to those found on many types of battery
chargers, cordless tools and other small, portable appliances that can be operated by batteries or
household current. The transmitter may have an optional battery backup, which is installed and
powered in a similar manner as the transmitter itself. The transmitter is typically not hard wired
into the residential electrical system and may be removed without causing material damage to
either the property or the transmitter.
The receiver is merely attached to a collar worn by the pet.
Petitioner or its agent installs the above equipment and materials, including burying the
wire and mounting the transmitter, battery backup and lightning protection in the customer’s
garage or basement. In conjunction with installation of the system, Petitioner instructs the
customers how to train pets to the system. For an additional charge, Petitioner will provide more
training for the owner and pet at the owner’s request. Petitioner separately states the charges for
any additional training provided on its invoice to its customer.
Petitioner repairs system malfunctions on the customer’s property for a charge and may
provide system repairs pursuant to a warranty agreement under which the customer may be
charged for service calls. Petitioner’s business office may also provide service to equipment,
such as the radio receiver mounted on the dog collar, or sell new equipment and parts, such as
batteries.
Applicable law and regulations
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:

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(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 . . . or maintaining, servicing or
repairing tangible personal property . . . 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 526.8(a) of the Sales and Use Tax Regulations provides, in part:
Definition. The term tangible personal property means corporeal personal
property of any nature having a material existence and perceptibility to the human senses.
Tangible personal property includes, without limitation:
(1) raw materials, such as wood, metal, rubber and minerals;
(2) manufactured items, such as gasoline, oil, chemicals, jewelry, furniture,
machinery, clothing, vehicles, appliances, lighting fixtures, building materials;
(3) artistic items, such as sketches, paintings, photographs, moving picture films
and recordings;

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(4) animals, trees, shrubs, plants and seeds; . . .
Section 527.5(a) of the Sales and Use Tax Regulations provides, in part:
Imposition. (1) The tax is imposed on receipts from every sale of the services of
installing, maintaining, servicing or repairing tangible personal property, by any means
including coin-operated machines, whether or not any tangible personal property is
transferred in conjunction with the services.
Section 527.7(a)(1) of the Sales and Use Tax Regulations provides, in part:
Maintaining, servicing and repairing are terms which are used to cover all
activities that relate to keeping real property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition. Among the services included
are services on a building itself such as painting; services to the grounds, such as
lawn services, tree removal and spraying; trash and garbage removal and
sewerage service and snow removal.
Section 527.7(b) of the Sales and Use Tax Regulations provides, in part:
(1) The tax is imposed on receipts from every sale of the services of maintaining,
servicing or repairing real property, whether inside or outside of a building.
*

*

*

(4) The imposition of tax on services performed on real property depends
on the end result of such service. If the end result of the services is the repair or
maintenance of real property, such services are taxable. If the end result of the
same service is a capital improvement to the real property, such services are not
taxable.
Opinion
Petitioner sells its pet containment system on both an installed and uninstalled basis.
Sales by Petitioner of its system on an uninstalled basis are retail sales of tangible personal
property subject to sales tax under section 1105(a) of the Tax Law. Such sales include sales of
the entire system without installation and sales of replacement parts such as batteries, dog
collars, training flags, etc. Charges for repairs, adjustments and battery replacement, either at
Petitioner’s place of business or on the customer’s premises, including charges to the customer
for service calls and/or labor under a warranty agreement, are also subject to sales tax under
section 1105(c)(3), (5) of the Tax Law.

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Petitioner provides instruction to the pet owner enabling the owner to train the pet to the
system. In some cases, Petitioner sells additional instruction services separately from its charges
for the pet containment systems. The additional instructional services provided by Petitioner are
not enumerated in the Tax Law. Therefore, the receipts from the sale of such additional
instructional services by Petitioner are not subject to sales tax. See Little Chefs, Ltd., Adv Op
Comm T & F, July 25, 2002, TSB-A-02(34)S; Hodgson, Russ, Andrews, Woods and Goodyear,
Adv Op Comm T&F, April 2, 1992, TSB-A-92(31)S; Economic Cycle Research Institute, Inc.,
Adv Op Comm T & F, July 23, 1997, TSB-A-97(42)S.
Petitioner inquires as to whether the installation of a complete pet containment system
qualifies as a capital improvement to real property for sale tax purposes. In general, to qualify as
a capital improvement, an installation must meet all three of the conditions set forth in section
1101(b)(9)(i) of the Tax Law.
The first condition for a capital improvement set forth in section 1101(b)(9)(i)(B) of the
Tax Law requires that the pet containment system must substantially add to the value of the real
property, or appreciably prolong the useful life of the real property. A pet containment system
does not appreciably prolong the useful life of the real property. It is not clear that the pet
containment system described in this Opinion substantially adds to the value of the 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 pet containment 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 the system itself. Although most forms of
equipment normally require some form of affixation to real property, the test is not merely
whether such equipment is affixed to the property. Rather, the test is whether the equipment is
affixed to such a degree that it loses its separate identity and becomes part of the real property or
that removal would cause material damage to the property or the equipment. Material damage is
not considered to exist merely because the value of the property in question is diminished when
the equipment or article is removed. See Peek `N' Peak Recreation, Inc., Adv Op St Tx Comm,
July 9, 1987, TSB-A-87(24)S. The primary method of affixing the pet containment system
described in this Opinion to the real property is by using screws to attach the transmitter portion
of the system to an interior wall, drilling a small hole to allow access for the exterior antenna
wire and burying the antenna wire a few inches underground. The system is removed by
reversing the installation procedure. The system can be disassembled by removing the screws
holding the transmitter to the interior wall, disconnecting the antenna wire from the transmitter
and unplugging the transmitter power adaptor from the electrical outlet. The excavation required
to bury the antenna wire is minimal and may be accomplished with an ordinary shovel or edger.
If the system is removed from the real property, the antenna wire itself may be removed or left
behind and replaced at minimal expense. The third component of the system, the receiver
attached to a collar worn by the pet, is never affixed to or becomes a part of the real property.

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The courts have held that the mere bolting of equipment to real property does not, in and
of itself, create the degree of permanence necessary to establish that a particular installation is a
capital improvement. See Matter of Charles R. Wood Enterprises. Inc. v State Tax Commn., 67
AD 2d 1042; Matter of West Mountain Corp. v Miner, 85 Misc 2d 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, it does not appear that
the pet containment system described in this Opinion meets the second condition for a capital
improvement set forth in section 1101(b)(9)(i) of the Tax Law.
The third condition for a capital improvement set forth in section 1101(b)(9)(i)(B) of the
Tax Law requires that the installation of a pet containment system be intended to be permanent.
From the facts presented, it appears that the intention of parties at the time the system is installed
is that the system may be permanent. However, section 1101(b)(9)(i)(B) requires that all three of
the conditions set forth be met. If the installation of a pet containment system fails to meet one
or more of these conditions, such installation cannot qualify as a capital improvement to real
property.
Based upon the facts and circumstances described in this Opinion with respect to the pet
containment system, it appears the installation of the pet containment system on real property as
described above does not qualify as a capital improvement to real property because it is not
permanently affixed to the real property such that removal would cause material damage to the
property or article itself. Such an installation is, therefore, considered to be an installation of
tangible personal property which remains tangible personal property after installation.
Accordingly, receipts from the sale of the installation of pet containment systems on real
property, including charges for labor and materials, as described above, are subject to sales tax
under sections 1105(a) and 1105(c)(3) of the Tax Law.

DATED: January 9, 2006

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.