Which wind-farm components and construction services qualify for New York's exemption for electricity-generation machinery?

Plain-English summary

The petitioner is a developer planning a commercial wind farm to generate electricity for sale to utilities. It described the components -- wind turbines (tower, nacelle, three rotor blades), transformers, SCADA control systems, meteorological towers/equipment, collection cables and junction boxes, project substations, reactive-power equipment, FAA safety lights, a maintenance building, fencing, roads, and overhead poles/cables -- and asked (1) whether generating electricity at a wind farm is an eligible production activity, (2) which assets are exempt, (3) whether construction/installation services are taxable, and (4) whether the answer depends on whether the developer or its contractors buy the property.

The Office of Counsel concluded the generating equipment is exempt, but distribution equipment and site/construction materials are taxable.

• Eligible activity. Generating electricity for sale qualifies for the production exemptions in Tax Law 1115(a)(12) (machinery/equipment used directly and predominantly in production) and 1105-B (parts/tools/supplies and installation of qualifying equipment).
• Exempt: the turbine as a unit. The wind turbine -- rotor blades, hub, nacelle, and tower -- is a single piece of generating machinery (it produces electricity only as an integrated unit), so its purchase is exempt. SCADA and meteorological equipment integrally connected to operating the turbines can also qualify. (Meteorological equipment used to assess a site's wind potential is not exempt unless used >50% in actual operations.)
• Exempt installation/assembly. Because the turbine is too massive to ship preassembled, on-site assembly by the manufacturer is part of its (exempt) sales price (20 NYCRR 541.6(d)), and installation of qualifying generating equipment is exempt under 1105-B.
• Production ends at the generator. Under Niagara Mohawk v. Wanamaker, everything after the generator is distribution, not production. So transformers (internal, padmount, or substation), intra-farm collection cables and junction boxes, the project substation (control house, breakers, metering, bus work, transmission cables), and reactive-power compensation equipment are taxable (20 NYCRR 528.13(b)).
• Taxable site items. Concrete foundations (raw or installed), FAA lights/towers, the maintenance/operations building, substation fencing, and road materials aren't generating machinery and are taxable.
• Who buys doesn't matter -- for exempt items. Qualifying equipment is exempt whether bought by the developer or sold installed by a contractor; exempt installation is nontaxable when done by contractors/subcontractors. Nonexempt property is taxable to whoever buys it; its installation may still be a nontaxable capital improvement depending on whether the land is owned or leased and the lease terms (tenant installations are presumed temporary, Flah's of Syracuse). Contractors can buy nonexempt items that stay tangible personal property for resale with an ST-120.1. Construction tools/equipment (e.g., cranes) are taxable.

What this means for you

Wind and other electricity producers

The line is "production ends at the generator." The turbine package (blades, hub, nacelle, tower) and its installation are exempt; the moment you're stepping up voltage and moving power -- transformers, collection cables, substations, transmission -- you're in taxable distribution, even though it's all part of "the project." Budget tax on foundations, roads, buildings, fencing, and FAA infrastructure too.

Developers and EPC contractors

The exemption follows the equipment, not the buyer -- so the developer or a contractor can buy qualifying turbine equipment exempt, and exempt installation stays exempt through subcontractors. For nonexempt items, watch the capital-improvement analysis (owned vs. leased land, lease terms) to know whether installation labor is taxable, and use ST-120.1 where property is bought for resale.

Common questions

Q: Is the whole wind farm exempt as "production"?
A: No. The generating turbine (and its install) is exempt, but distribution equipment -- transformers, cables, substations, transmission -- is taxable because production ends at the generator.

Q: Are the concrete foundations and roads exempt?
A: No. They aren't generating machinery, so foundations, roads, fencing, buildings, and FAA towers are taxable (though installation may be a capital improvement).

Q: Does it matter whether we or our contractor buys the turbines?
A: No. Qualifying generating equipment is exempt either way; nonexempt property is taxable to whoever buys it.

Citations and references

• Tax Law section 1115(a)(12) (exemption for machinery/equipment used directly and predominantly in producing electricity for sale)
• Tax Law section 1105-B (parts/tools/supplies and installation of qualifying production equipment)
• Tax Law section 1105(c)(3) (installing/maintaining tangible personal property)
• Tax Law section 1101(b)(9) (capital improvement) and 1115(a)(17)
• Tax Law section 1115(a)(15) (exempt-organization construction)
• 20 NYCRR 528.13(b) and 541.5 and 541.6(d)
• Niagara Mohawk Power Corp. v Wanamaker, 286 App Div 446 (production ends at the generator)
• Matter of Flah's of Syracuse v Tully, 89 AD2d 729 (tenant installations presumed temporary)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a09_59s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(59)S
Sales Tax
December 9, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090220A

Petitioner, name and address redacted requested an advisory opinion as to whether the
components used to construct and operate a commercial wind farm and the construction service costs
incurred in assembling and installing the components qualify for the exemptions from the sales and use
tax for the purchase and installation of machinery and equipment used and consumed in the generation of
electricity for sale. We conclude that the components of the wind farm used or consumed directly and
predominantly in the generation of electricity for sale, and the services of installing those components
qualify for the exemptions from sales tax provided in sections 1105-B and 1115(a)(12) of the Tax Law.
Components otherwise used in the operation of the wind farm do not qualify for the production
exemptions. Installations of property that are not exempt from sales tax under sections 1105-B and
1115(a)(12) might still qualify as capital improvements.
Facts
Petitioner furnished the following facts in its Petition and in additional submissions of facts. Commercial
wind farms are comprised of various component parts including wind turbines, transformers, cables, and
control systems. All of the components have a useful life greater than one year. Electricity generated by
wind farms is nearly always sold to utility companies for resale. The electricity must be delivered with
specific characteristics in order to be compatible with the utility's electrical grid. If electricity generated
by a wind farm does not meet a utility buyer's specific characteristics, it will not be purchased by the
utility.
The basic components of a wind generation facility:
1.
Wind Turbine - A wind turbine consists primarily of a tower, a nacelle and 3 rotor blades. The
rotor blades are constructed from glass reinforced polyester composite and are between 60 and 80 meters
in diameter. The blades may weigh in excess of 72,000 lbs (38 metric tonnes). The rotor blades are
bolted to a central hub that may weigh in excess of 200,000 lbs. The hub is bolted to the main drive shaft
within the nacelle.
The nacelle houses the major mechanical components of each turbine, including the main drive
shaft, gear box and generator. The nacelle also houses hydraulics, cooling systems, and control and
monitoring equipment. The nacelle obtains its structural strength from a cast iron steel bed frame. The
bed frame is bolted to the tower with anchor bolts. A reinforced fiberglass outer covering is bolted to the
bed frame to protect the interior components from the elements. The total weight of the nacelle may be in
excess of 132,000 lbs (68 metric tonnes).
Though the term "nacelle" is technically just the fiberglass or steel shroud that encloses the wind
turbine generator components, within the industry this term is often used to refer to the generator
components as a whole.

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2.
Wind Turbine Tower - Each tower is constructed in 3 or 4 sections, depending on necessary
desired height, of high grade, multi-coated, tubular steel and is anchored with anchor bolts to a concrete
foundation. The steel is painted for protection. A ladder may be affixed to the inside or outside of the
tower. The towers and foundations must be of construction robust enough to support the weight and
loads of the turbines which reach a tip height of 300 feet above grade and must withstand winds in excess
of 100 mph. Towers when assembled may weigh in excess of 300,000 lbs (150 metric tonnes) for an 80
meter hub height to 400,000 lbs (200 metric tonnes) for a 95 meter hub height.
3.
Wind Turbine Foundation - Each turbine foundation is made of concrete which is generally
mixed in batch plants close to the wind farm. The reinforced poured concrete foundation houses a
cylindrical pattern of anchor bolts. The tower is permanently bolted to the foundation with anchor bolts.
4.

Step-Up Transformers (Padmount/External Transformer, Internal Transformer) and
Substation Transformers

Each turbine is equipped with a transformer. The type of transformer will vary based on the
model of turbine used, but will fall into one of two categories: a padmount or external transformer, and an
internal transformer. External transformers will be connected to the turbine and will be positioned near
the base of the tower and will be anchor bolted to a concrete foundation and hardwired into the turbine
control panel and the Project electrical collection system (described below). Internal transformers will be
located in the nacelle, where they will be anchor bolted to the machine floor and hardwired to the tower.
Substation transformers are located at substation sites and are designed to reconfigure the
characteristics of the electricity to meet the required voltage levels of a public utility buyer.
5.
SCADA Control System - A Supervisory Control And Data Acquisition (SCADA) system
collects data from wind turbine sensors and sends them to a central computer for management and
control. This integrated control system allows the plant operators to control each turbine remotely and to
collect data on wind turbine performance. Each turbine has a SCADA System control panel which is
located in the base of the turbine tower where it is bolted to the inside wall of the tower.
6.
Meteorological Tower and Equipment - A tower used at a potential project site which has
equipment attached to it which is designed to assess wind resources. Generally a meteorological tower
will have anemometers, wind direction vanes, temperature and pressure sensors, and other measurement
devices attached to it at various levels above the ground.
7.
Intra-Wind Farm Electrical Collection/Processing Cables and Junction Boxes - The
electrical collection system consists of electrical cables and junction boxes which transition electricity
generated by the turbines through the transformers and substations. The majority of these collection
cables and junction boxes will be buried underground.
8.
Project Substation(s) - Project substations will be constructed whereby the electricity produced
by the turbines will be collected via the electrical collection system and transmitted to the project
substation. At the substation transformer, the electricity is stepped up to a final saleable voltage for
transmission to the interconnect point via a below ground or an above ground transmission line. Each
project substation will consist of a control house, transformer(s), outdoor breakers, metering and relay
equipment, high voltage bus work, steel support structures, and overhead lightning suppression
conductors. All of this equipment will be anchor bolted to concrete foundations.

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9.
FAA Safety Lights and Tower – The Federal Aviation Administration requires that safety lights
be placed on top of the wind turbine towers to warn aircraft of their presence and avoid collisions.
Typically, lights are affixed directly to the wind turbine towers. Occasionally, lights are set atop one or
more separate FAA light towers.
10.
Maintenance and Operations Building - The Maintenance and Operations Building is a small
building constructed on the project site. The building houses a portion of the project control system,
spare parts/equipment, and maintenance supplies, and may function as an office for the project operations
team.
11.
Substation Fencing - Fencing is installed around the perimeter of each substation for safety
purposes.
12.
Construction Materials (Gravel/Concrete) - A wind farm developer or its contractors will
frequently purchase constructon materials (e.g., gravel) and will construct service roads across key wind
farm locations.
13.
Overhead Poles and Cables- Transporting Electricity to the Interconnect Point. - Electricity
produced by the wind turbines travels via a series of cables and wires to the interconnect point.
Depending upon the project requirements, the cables may be placed below ground or above ground.
14.
Reactive Power Compensation Equipment (DVAR or DstatCom System) - In a wind farm
substation, a DVAR or DstatCom system dynamically stabilizes and regulates power factor or voltage
immediately prior to the interconnect point where electricity flows from the wind farm to the public utility
grid. Typical wind farm interconnection problems solved by application of the DVAR or DstatCom
system include voltage regulation, power factor correction, and low voltage ride through.
Commercial wind farms generally have between 20 and 150 wind turbines. A wind turbine when
fully assembled (tower, nacelle, rotor blades) can reach a height of over 300 feet and typically weighs in
excess of a half million pounds.
The process for generating saleable electricity begins when wind passes across the rotor blades of
a wind turbine. The kinetic energy from wind causes the blades to spin which in turn causes the
generator, which is coupled to the rotor shaft through a gear box, to rotate.
The rotating shaft then turns the turbine generator creating electricity at approximately 600 volts.
Modern and sophisticated control systems (SCADA systems) are now integrated into the wind turbines to
allow for remote monitoring and management of the wind turbine for optimal production. These SCADA
systems are in most cases purchased from turbine manufacturers. Additionally, most wind farms also
employ one or more meteorological towers with state of the art weather collection and transmission
equipment. This meteorological equipment may also be installed on or built into the wind turbines. This
equipment is a necessary part of the industrial processing configuration because the data provided by the
meteorological equipment is used to make wind turbine efficiency and safety adjustments in near real
time via the electronic control system. Due to the vast distances between wind towers, meteorological
towers play an important role in maximizing energy production. To alert low flying aircraft of their
presence, commercial wind turbines are typically required to have Federal Aviation Administration
(FAA) approved warning lights attached to the top of the towers. The wind turbines and towers are
securely fastened to concrete and steel foundations designed to withstand the severe loads inherent from
the horizontal forces of the wind.

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The two primary characteristics of electricity are voltage (measured in volts or kilovolts (kV))
and current (measured in amps). Power (measured in kilowatts) is the product of voltage and current - so
for a given amount of power, the higher the voltage the lower the current and vice versa. High voltage
equipment is much more expensive than low voltage equipment.
Wind turbines produce power nominally at 600 volts. Each wind turbine is equipped with a
transformer (either within the nacelle or at grade level outside the base of the tower) to increase the
voltage up to something in the 20kV to 35kV range (considered "medium" voltage). Either underground
or overhead cables (or both) are then used to transmit the power to the interconnection point with the
utility. However, a wind farm cannot be connected to a utility unless the output voltage exactly matches
that of the utility. Therefore a substation with another transformer is needed at or near the point of
interconnection to further increase the voltage to that required by the utility. Utility transmission voltages
typically range from 69kV to 500kV (considered "high" voltage), so the main step-up transformer(s) in
the substation will increase the voltage from the medium voltage level of the collection circuits up to the
high voltage level required by the utility. Substations also contain protective devices such as "breakers"
that can immediately disconnect any of the wind farm collection circuits or even the entire wind farm in
the event of a problem.
Substations may also include what is known as reactive power compensation equipment. This
equipment, which regulates the power factor at the point of interconnection, may include dynamic
compensation systems such as DVAR or DstatCom. The concept of power factor is somewhat esoteric,
but it deals with the amount of reactive power (measured in vars) that is imported or exported from a
wind farm. Power factor must be maintained within the limits specified by the utility as a condition of
interconnection. Substations are almost exclusively outdoor installations although a small control house
is provided to enclose certain sensitive equipment. Because of the potential hazard to the public,
substations are fenced in and access is limited to trained personnel.
In order to obtain sufficient efficiency to be commercially viable, wind farms must be located
over a relatively wide geographical area. To reduce construction costs, wind turbines are installed in rows
that are perpendicular to the prevailing wind direction whenever possible. However, to avoid losses due to
interference, turbines in each row generally need to be spaced at least 750-1000 feet apart, and the rows
must be spaced several thousand feet apart. When accommodations are made for local terrain and turbine
access, the spacing can wind up even more dramatic. Even a moderately sized wind farm can be miles
across. Thus, wind farm sites are far more expansive in nature than are sites for traditional coal, gas, or
nuclear supplied power plants. As such, the wind farm collection processing system of cables is critical
because the cables link the wind turbines to the on-site step-up transformers at the wind farm substations
where it is further recast into a higher voltage. The collection cables and transformers also serve to
minimize power loss from the wind turbine to the public utility interconnect point because electricity at a
higher voltage loses less energy over distance.
Finally, in addition to the wind generation assets described above, Petitioner or its contractors
will be required to purchase other general construction materials for the wind farm, such as gravel for the
wind farm roads and concrete for the wind tower and substation foundations. Specialty machinery and
equipment such as cranes will be leased as part of the construction work.
Wind turbine manufacturer’s employees and consultants will assist with the installation of wind
turbine towers, nacelles (including turbines), and turbine blades. The cost of the construction or
installation services provided by the wind turbine manufacturers is separately stated in the wind turbine
purchase contracts or in separate contracts.

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Petitioner will also hire one or more general contractors to build other components of the wind
farm including, in part, the collection cable system, the substation (with step-up transformer),
meteorological towers, and access roads. Generally, the prime contractor on a wind farm project will hire
local sub-contractors to assist with the construction work.
Petitioner will likely enter into multiple lease agreements with private and public land owners to
lease small segments of land below and immediately surrounding the individual wind turbines,
substation(s), and maintenance/operations buildings. Petitioner will likely enter into contracts with
private land owners and public agencies for the right to install wind farm collection cables below or above
ground and to build access roads where required. The lease agreements are expected to have terms of 40
to 50 years. The lease terms will likely require Petitioner to remove the wind farm assets installed upon
the leased land subsequent to the expiration of the lease (if the term is not extended). Petitioner may also
purchase a (relatively) smaller section of land from one public authority and install a portion of the wind
farm on such land.
For purposes of the proposed New York wind farm project, Petitioner will likely serve as the
primary project developer. Petitioner will contract for construction services with at least one prime
contractor. The prime contractor is likely to contract segments of the engagement to local subcontractors. Petitioner may also engage other contractors directly in addition to the prime contractor.
The commercial wind turbines are usually purchased by Petitioner as fully manufactured
integrated units directly from wind turbine manufacturers. Petitioner may also directly purchase other
wind farm components from other manufacturers or from distributors. Alternatively, Petitioner's
contractor and/or sub-contractors may purchase wind farm components and materials. In these scenarios,
Petitioner typically reimburses the contractor for the cost of the product or pays the contractor a lump sum
for a specific wind farm construction sub-project.
Petitioner specifically asked:
1.
Whether the production of saleable electricity at a commercial wind farm qualifies as a
generating, manufacturing or processing activity for purposes of the New York sales and use tax
production exemption provided by § 1115(a)(12) of the Tax Law.
2.
If the operation of a commercial wind farm is a production activity eligible for the exemption,
which wind farm assets are exempt?
3.
Whether the costs for construction services and installation services incurred in the original
construction of a commercial wind farm are subject to the New York sales and use tax.
4.
Whether the application of the production exemption depends upon whether the qualifying
tangible personal property and services are purchased by Petitioner or by one or more of its construction
contractors.
Analysis
Tax Law section 1115(a)(12) provides an exemption from sales tax for machinery or equipment
for use or consumption directly and predominantly in the production of electricity for sale by generating,
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. Parts with a useful life of one year or less, tools, and supplies used in
connection with such generating machinery and equipment are exempt pursuant to section 1105-B of the

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Tax Law. Section 1105-B also provides an exemption from the tax imposed by section 1105(c)(3) of the
Tax Law for the services of maintaining and installing machinery and equipment that otherwise qualifies
for the exemption provided for generating equipment in section 1115(a)(12).
1. Is the wind farm eligible for the production exemption?
Petitioner’s wind farm is engaged in the generation of electricity for sale. Thus, the receipts from
the purchase of the machinery and equipment used directly and predominantly by Petitioner to generate
electricity for sale are eligible for the exemptions provided in Tax Law sections 1115(a)(12) and 1105-B.
2. Which wind farm assets are exempt?
It is obvious that the wind turbine can generate electricity only if its various parts function as an
integrated unit. The blades must be sufficiently raised to clear the ground. The hub height and rotor
blade height must clear ground and ridge lines so as to efficiently capture the wind. The nacelle (the
housing which encases the generator which is connected to the hub which in turn is attached to the blades)
needs to be adequately supported for its weight and to withstand the force of the wind and the spinning
blades, at an appropriate height above the ground and ridge lines, and able to rotate to keep the rotor
blades facing into the wind.
The determination as to whether a particular piece of machinery qualifies for the exemption
depends upon the peculiarities of a taxpayer's operation and must be individually assessed on its own fact
pattern (Matter of Rochester Independent Packer, Inc. v. Heckelman, 83 Misc 2d 1064, 374 NYS2d 991).
Without any key piece of the wind turbine’s machinery and equipment, including the tower (to provide
support for the nacelle and to provide necessary height clearances for the rotor blades) and the rotor
blades (to catch the wind to turn the hub that spins the generator), electricity could not and would not be
produced. Only with all the parts working as an integrated unit is electricity generated. We thus conclude
that the wind turbine (rotor blades, hub, nacelle and tower) constitute a unitary piece of machinery or
equipment that is used directly and predominantly in the generation of electricity for sale. (See Deco
Builders decision Tx App Trib No. 806415, May 9, 1991 holding that a one-quarter mile long wooden
penstock tube designed to create sufficient water flow to power an electric turbine generator, which was
assembled on-site, qualified as exempt generation equipment.) Accordingly, purchases of the wind
turbine equipment are exempt from sales tax under Tax Law §1115(a)(12).
The Supervisory Control and Data Acquisition (SCADA) equipment and the meteorological
equipment perform functions that provide for an integrated management of the operation and control of
the wind turbine. The SCADA and the meteorological equipment being integrally connected to the
operation of the wind turbines may also qualify as exempt electricity generation machinery and
equipment pursuant to the provisions of section 1115(a)(12) of the Tax Law. (See T.V. Data Inc , decision
Tx App Trib No. 803016, March 2 1999, which held that computers that formed a network [though not all
of the computers were directly connected to the production machinery] to provide commands to drive the
production equipment were exempt.)
However, the use of meteorological equipment to assess a site’s potential as a wind farm is not an
exempt use. Therefore, unless otherwise used directly and predominantly (more than 50% of the time) in
the operation of the wind turbines, the meteorological equipment would not qualify for the exemption.
The wind turbine’s concrete foundation (to which the tower is anchored) and the concrete
foundations for the padmount transformers when purchased in the form of the raw materials (concrete,
steel rebar, and connecting rods) or on an installed basis are neither machinery nor equipment. Nor do
they perform a function which has an actual causal effect on the generation of the electricity. (See Matter

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of Slattery Associates, Inc. v. Tully, 79 A.D.2d. 761.) Thus, the vendor’s receipts from the sale of these
materials are not exempt pursuant to the provisions of Tax Law section 1115(a)(12).
Matter of Niagara Mohawk Power Corporation v George W. Wanamaker, 286 App Div 446(4th
Dept 1955), affd 2 NY2d 764, supports this conclusion. There, the court determined that for purposes of
a local sales tax exemption for equipment used directly and exclusively in the generation of electricity for
sale that the production process ended at the generator that produced the electricity. The court determined
that other equipment at the plant that stepped up the voltage of the electricity was not used in production.
In determining that the production process ended at the generating turbine, the court reasoned that, since
the increased voltage was clearly in excess of what the majority of Niagara Mohawk’s customers could
use, the “reason for the increase involves economics of transmission and distribution. The voltage is
radically increased, and then gradually decreased simply to facilitate distribution.” The court concluded
that items subsequent to the generator (various substations, transformers, towers, poles, conductors,
voltage regulators, circuit breakers and similar equipment located at a steam plant and elsewhere) were
used in the distribution of and not in the production of electricity. (See also ABB Power Transmission,
Inc., Adv Op Comm T&F, July 17, 1990, TSB-A-90(34)S and, with respect to transformers used in the
regulation or transmission of electricity throughout a plant or mine, see Gernatt Asphalt Products, Inc.,
Adv Op Comm T&F, December 5, 1985, TSB-A-85(64)S; Akzo Salt, Inc., Adv Op Comm T&F,
January 1993, TSB-A-93(8)S).
Accordingly, transformers, which as described by Petitioner are all located after the generation
stage of the production process and are generally used to “step up” the voltage for transmission purposes,
are considered to be used in distribution activities and are thus 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 Tax
Regulations. Therefore, the purchases of transformers by Petitioner, whether the transformers are situated
inside the wind turbine, pad-mounted near the base of the wind towers, installed as part of a substation,
etc. are not exempt under section 1115(a)(12). See also Conti Enterprises, Inc., Adv Op Comm Tx &
Fin, September 27, 2005, TSB-A-05(35)S; Western NY Beverage Industry Collection & Sorting, Adv Op
Comm Tx & Fin, July 23, 1997, TSB-A-97(40)S. The fact that Petitioner is not a utility transmission
company and is not engaged in the transportation and distribution of electricity to consumers does not
mean that Petitioner does not engage in its own distribution and delivery (albeit without charge) of its
product (electricity) to the utility transmission company that will further transport the product to
Petitioner’s customers.
Production having ended at the generator, the collection system equipment (Intra-Wind Farm
Collection/Processing Cables, and Junction Boxes) does not qualify as machinery and equipment used
and consumed directly and predominantly in the generation of electricity for sale. Thus, purchases of
such materials and installation thereof are subject to sales tax.
The Project Substation(s), consisting of a control house, transformer(s), outdoor breakers,
metering and relay equipment, high voltage bus work, steel support structures and overhead lightning
suppression conductors, transmission cables (above or below ground connecting to the interconnect
point), and Reactive Power Compensation Equipment (which is located immediately prior to the
interconnect with the public utility grid) are likewise used in distribution activities and thus do not qualify
for the production exemption.
The FAA Safety Lights and Towers, Maintenance and Operations Building, Substation Fencing,
and Wind Farm Road Materials are not machinery or equipment used directly or predominantly in

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production of electricity for sale and thus are not exempt from tax pursuant to section 1115(a)(12) of the
Tax Law.
3. Are installation services and construction costs for the wind farm subject to sales tax?
Due to the massive size (tower sections of 70-100 feet in length and blades of 100+ feet in length)
and weight of the individual pieces (tower sections weighing 30 to 60 tons, blades weighing 12 tons each,
nacelle of 60 tons and hub weighing 100 tons), it is not practical or possible for the manufacturers of this
equipment to deliver a preassembled wind turbine to a customer. Based on its completed size and weight,
such a piece of equipment could not be transported either over the public roads and highways or up the
hills, ridges, mountains, etc. to be placed into position. Thus, as a practical necessity, the wind turbine
parts must be individually transported and then assembled on-site prior to the wind turbine’s installation.
Charges for assembly of the wind turbine performed by the manufacturer or the manufacturer’s
subcontractor are considered part of its sales price and are exempt from sales tax under Tax Law
§1115(a)(12). (See section 541.6(d) of the Sales and Use Tax Regulations discussing a manufacturer’s onsite assembly of production equipment too large, heavy, etc. to be assembled at the factory.)
Charges for the installation of electricity-generating machinery and equipment qualifying for the
exemption provided in Tax Law §1115(a)(12) are exempt from tax pursuant to the provisions of section
1105-B of the Tax Law. Thus, the receipts for the installation of the wind turbines, SCADA equipment,
and qualifying meteorological equipment are exempt from sales tax.
With respect to the equipment and other tangible personal property purchased by Petitioner that
do not qualify for the production exemption, the charges for installing this property will be taxable or
exempt depending on whether the installations qualify as a capital improvement. Section 1101(b)(9) of
the Tax Law provides that a capital improvement is 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.
When a contractor installs for the owner of the realty an improvement that meets all three of the
conditions set forth in section 1101(b)(9)(i) of the Tax Law, the work is considered a capital
improvement. In that case, charges for the installations are not subject to sales tax. See sections
1105(c)(3)(iii) and 1115(a)(17) of the Tax Law.
Items that are installed for a tenant, which if installed for the property owner would be a capital
improvement, may qualify as a capital improvement depending on the terms of the tenant’s lease. See
Matter of Flah's of Syracuse, Inc. v. James H. Tully, Jr. et al, 89 AD 2d 729. Additions or alterations to
real property for or by a tenant of the property are presumed to be temporary in nature for purposes of the
definition of capital improvement set forth in section 1101(b)(9)(i) of the Tax Law, unless a contrary
intention is demonstrated. Specific lease provisions that state that: 1) immediately upon installation, title
to such installation vests in the lessor, and 2) the addition or alteration becomes part of and remains with
the premises after the termination of the lease, may demonstrate an intention to make the installation
permanent. Neither a provision granting the lessor the right to require removal of the improvement nor a
provision stating that the improvement becomes the property of the lessor upon expiration of the lease or
upon termination of the tenancy will negate this demonstration of intention of permanence. In the
absence of a lease provision, other factors such as the nature of the installation, or written agreements
other than a lease provision, may be considered in determining the intention of the parties with respect to
the permanence of the installation. Factors that may indicate that a tenant installation is not intended to

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be permanent include a lease provision requiring that the leased premises be restored to its original
condition at the termination of the lease, and the rental of the installed property by the tenant from
someone other than the lessor of the premises. See Taxable Status of Leasehold Improvements for or by
Tenants, Technical Service Bureau Memorandum, June 15, 1983, TSB-M-83(17)S, and Publication 862,
Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property (4/01) for
further details.
Section 541.5 of the Sales and Use Tax Regulations provides, that for capital improvements
contracts, all purchases of tangible personal property (excluding qualifying production machinery and
equipment exempt under section 1115(a)(12) of the Tax Law) that 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 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. However, a contractor or
subcontractor may purchase tangible personal property exempt from tax if the property is used in erecting
a structure or building owned by an organization or government entity exempt from tax under Tax Law
section 1116(a), or in adding to, altering, or improving real property owned by the exempt organization or
government entity, and the tangible personal property becomes an integral component part of the
structure, building, or real property. See Tax Law section 1115(a)(15).
The regulations further provide that 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 sales taxes from the customer on the selling price, including any charge for
installation, of the tangible personal property unless some exemption applies and the purchaser gives the
seller a properly-completed exemption certificate.
Thus, aside from the installation of property that is considered exempt from tax pursuant to
section 1115(a)(12) of the Tax Law as equipment used directly and predominantly in the generation of
electricity for sale (i.e., the wind turbines, etc.), the tax status of the installation depends on whether
Petitioner owns or leases the underlying real property and the nature of the installation. Accordingly, the
taxability of the charges for the installation of (i) concrete foundations and pads for the wind turbine
towers, transformers, meteorological towers, project substations, maintenance and operations building,
FAA light towers and overhead cables; (ii) roads; (iii) fencing; and (iv) the maintenance and operations
building will depend upon whether those installations and structures are on property owned or leased by
Petitioner and the terms of the lease contract. Other installations such as the FAA lights and the light
towers, substation equipment anchor bolted to foundations, and overhead poles appear to constitute
property of a kind that retains its identity as tangible personal property upon installation, and the receipts
for both the property and installation are taxable whether installed on owned or leased property. See West
Mountain Corporation v. Miner, 85 Misc 2d 416 (1976) and Charles R. Wood Enterprises, Inc. v State
Tax Commission, 67 AD 2d 1042 (1979).
4. Does the production exemption depend on whether Petitioner or its contractor is the purchaser?
In general, property that is exempt from sales tax under section 1115(a)(12) or 1105-B will be
exempt from tax whether purchased by Petitioner or purchased by and sold to Petitioner on an installed
basis by a contractor or subcontractor. Installation charges that are exempt from tax under section 1105-B
are nontaxable when performed on Petitioner’s behalf by its contractors or subcontractors. Nonexempt
property is subject to tax whether purchased by Petitioner or by one of Petitioner’s contractors who install
the property as part of a capital improvement. Petitioner's purchases of installation services for the
nonexempt property are taxable if the property remains tangible personal property after installation.
Petitioner's contractors may purchase the nonexempt property and installation service for resale if the

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property remains tangible personal property after installation. A contractor should give the vendor a
properly completed Contractor Exempt Purchase Certificate (ST-120.1) in order to make an exempt
purchase for resale of such property.
Purchases and leases of construction tools and equipment for use by Petitioner, its contractors or
subcontractors in constructing and erecting the facility are subject to sales tax.

DATED: December 9, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to
the facts set forth therein and is binding on the Department only with respect to
the person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued
or for the specific time period at issue in the Opinion.