How is a custom window fabricator that also installs taxed on materials, fabrication, and installation?

Plain-English summary

The petitioner runs a factory that fabricates custom windows to architects' specs and then either installs them (itself or via subcontractors) or sells them uninstalled to owners/contractors -- in New York and out of state, in for-profit and exempt-entity buildings. It asked how sales/use tax applies to (a) the materials, (b) the fabricated windows, and (c) the furnish-and-install charge.

The big-picture rules:
- A fabricator/manufacturer that installs its own product is a contractor (20 NYCRR 541.11(a)).
- Installing complete windows (frames and sashes) is a capital improvement, so the furnish-and-install charge is not taxable (1105(c)(3)(iii); 1115(a)(17)).
- A contractor's purchases of materials are taxable retail purchases (1105(a); 1101(b)(4)(i)) -- unless the materials become an integral part of property owned by an exempt organization or government entity (then exempt, 1115(a)(15)/1116(a)).
- When the contractor installs its own manufactured product, it owes use tax on the product (1110(a)(B)), but not on the value it adds by fabricating to the job's specs, and it gets a credit for tax paid on the materials (Custom Design Kitchens). The use-tax basis depends on whether it offers "items of the same kind" for sale: custom job-spec windows (not catalog/inventory) are taxed on the cost of the materials (1110(d)); catalog-described windows are taxed on the price it would charge an unrelated contractor before fabrication (1110(c)).

The four scenarios:
- Q1 -- Out-of-state building, non-exempt: Materials are taxable if delivered to the petitioner in NY, but it gets a refund/credit because they go into out-of-state property (1119(a)). The windows aren't use-taxed (installed out of state), and the install charge isn't taxable (destination tax).
- Q2 -- NY building, exempt organization/government: Materials are exempt (1115(a)(15)); the windows' use is exempt (1118(3)); the install is an exempt capital improvement. Get a Certificate of Capital Improvement (ST-124) plus the exempt-organization certificate or government purchase order.
- Q3 -- NY building, non-exempt: Materials are taxable; the petitioner owes use tax on the windows -- basis is materials cost if custom, or price to an unrelated contractor if catalog -- with a credit for material tax and no tax on fabrication value; the install charge is exempt (capital improvement).
- Q4 -- Sold uninstalled (to owner/contractor) in NY: Materials are taxable; the full selling price (including fabrication value) is taxable (1105(a); 541.11(b)(2)), with a refund/credit for material tax (1119(c)). The sale is exempt if the windows go into an exempt-entity building (get a Contractor Exempt Purchase Certificate, ST-120.1) or are sold directly to an exempt organization/government.

What this means for you

Fabricator-installers (windows, cabinets, millwork, etc.)

When you install what you make, you're a contractor: you pay tax on your materials, you owe use tax on the product you install (but never on the labor/fabrication value), and your install charge is a nontaxable capital improvement. The whole picture flips when you sell uninstalled -- then the full selling price is taxable and you reclaim the material tax. Track which jobs are custom versus catalog, because that sets your use-tax basis.

Exempt-entity jobs

Materials, use, and installation can all be exempt when the building is owned by an exempt organization or government -- but only with the right paperwork (ST-124, ST-120.1, exempt-org certificate, or government purchase order).

Common questions

Q: I make and install my own windows -- do I charge tax on the installation?
A: No. Installing complete windows is a capital improvement, so the furnish-and-install charge isn't taxable. But you pay tax on your materials and owe use tax on the windows you install.

Q: What's my use-tax basis on windows I install?
A: The cost of the materials if the windows are custom job-spec; the price you'd charge an unrelated contractor (pre-fabrication) if they're from a catalog. Either way, the fabrication value isn't taxed and you credit the material tax.

Q: What if I sell the windows without installing them?
A: The full selling price is taxable (including fabrication value), with a credit for the material tax -- unless they go into an exempt-entity building (ST-120.1) or you sell directly to an exempt organization/government.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1105(c)(3)(iii) (installation that is a capital improvement)
• Tax Law section 1110(a)(B) (use tax on contractor's self-produced product)
• Tax Law section 1115(a)(15) (exemption for materials becoming part of exempt-entity property)
• Tax Law section 1115(a)(17) (capital improvement)
• Tax Law section 1116(a) (exempt organizations and governmental entities)
• Tax Law section 1118(3) (use tax exemption mirrors sales tax exemption)
• Tax Law section 1119 (refund/credit for materials)
• 20 NYCRR section 541.11 (contractors who fabricate and install)
• 20 NYCRR section 531.3(b) (use tax basis; items of the same kind)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-10(42)S
Sales Tax
September 22, 2010

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S100611A

On June 11, 2010, a Petition for Advisory Opinion was received from name and address redacted.
Petitioner asks whether it is liable for sales or use tax on purchases of materials used to fabricate
windows, or on sales and installation of the windows.
We conclude that (1) Petitioner’s purchases of materials for fabricating windows that Petitioner
will install are subject to sales or use tax, unless the windows will be installed in property owned by an
exempt organization or government entity; (2) Petitioner’s purchases of materials for fabricating windows
that it will sell to contractors or property owners, but not install, are subject to tax, but Petitioner is
entitled to a refund or credit of the tax paid; (3) Petitioner’s sales of windows that it will install for
customers are not subject to tax; and (4) Petitioner’s sales of windows that it will not install are subject to
tax, unless the windows will be installed in property of an exempt organization or government entity, or
the windows are sold directly to an exempt organization or government entity.
Facts
Petitioner operates a factory in location of factory redacted where windows are fabricated. The
sales and administrative office is located in name of city redacted New York. Petitioner purchases
materials (aluminum and other metal parts and extrusions, hardware and glass) and uses them to
manufacture windows. These windows are all custom designed and fabricated to meet the project
architect’s specifications. Petitioner stores the windows until they are ready to be installed. Petitioner
does not maintain any windows in inventory that are not manufactured to the customer’s specifications.
Almost all of these windows are installed by Petitioner or its subcontractors in new or existing buildings
located within and without New York State. Some of the windows are sold directly to either the owner or
the contractor for installation by it. Some of the buildings are located outside of New York State. Some
of the buildings located within New York State are owned by entities that are exempt from sales tax as
either exempt organizations or as governmental entities. The other buildings are owned by for-profit
entities.
Analysis
General background
The installation or entire replacement of complete windows (i.e., frames and sashes) is a capital
improvement to real property. See Publication 862, Sales and Use Tax Classifications of Capital
Improvements and Repairs to Real Property (4/01), at p. 25. Accordingly, a contractor’s charges for the
sale and installation of windows in new or existing buildings are not subject to sales tax. Tax Law
§§1105(c)(3)(iii), 1115(a)(17).
Fabricators and manufacturers who install their fabricated or manufactured product into real
property are contractors. See 20 NYCRR §541.11(a). Accordingly, Petitioner is a contractor for sales tax

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purposes. A contractor’s purchases of tangible personal property for use or consumption in performing a
capital improvement are retail purchases subject to sales tax under Tax Law §1105(a). See Tax Law
§1101(b)(4)(i). These purchases will be exempt if the tangible personal property becomes an integral
component part of real property owned by an organization or governmental entity exempt from tax under
Tax Law §1116(a). See Tax Law §1115(a)(15).
A contractor who manufactures a product, like a window, and then fabricates and installs the
product to the specifications of a capital improvement is making a use of the product subject to
compensating use tax under Tax Law §1110(a)(B). The basis on which the use tax is computed depends
on whether the contractor offers items of the same kind of tangible personal property for sale in the
regular course of business. If items of the same kind are offered for sale in the regular course of business
the use tax is based on the sale price of the items that would be charged to an unrelated contractor, prior to
fabrication. The value added by fabricating the product to the specifications of a capital improvement is
not subject to use tax. See Tax Law §§1110(a)(B)(i) and 1110(c),(e); 20 NYCRR §531.3(b)(2).
20 NYCRR §531.3(b)(1)(i)(a) provides:
Items of the same kind mean that items belong to an identifiable class, but need not be identical.
Example 2: Windows are items of the same kind when they are a standard size and materials
whether or not they are sold from inventory or produced to order from a catalog description. A
manufacturer of windows produces from a catalog description square, round and hexagon shaped
windows from various materials. The windows regardless of shape, size or materials are considered to be
items of the same kind.
When items which are not standard or cataloged are made to the specifications of a particular job,
these will not be considered items of the same kind with catalog or inventory sales.
Items made to the specifications of a particular job will not be considered items of the same kind
as items made to the specifications of another particular job.
If a contractor manufactures and fabricates a product for installation by the contractor in a capital
improvement, and the contractor does not offer items of the same kind for sale in the regular course of
business, the use tax is based on the consideration given for the tangible personal property manufactured
into the product the use of which is subject to tax, including any charges for shipping or delivery of the
tangible personal property. The value added by the contractor by fabricating the product to the
specifications of a capital improvement is not subject to use tax. See Tax Law §§1110(a)(B)(ii) and
1110(d),(e); 20 NYCRR §531.3(b)(2).
The applicable rate of use tax is the tax rate in effect in the locality where the product is installed.
See 20 NYCRR §541.13(b). When paying the combined State and local use tax on the product, a
contractor may take a credit for the State and local sales or use taxes paid on its purchase of the tangible
personal property manufactured into the product the use of which is subject to tax. See 20 NYCRR
§531.3(b)(1); Custom Design Kitchens, Inc., Adv Op Comm T&F, October 7, 1996, TSB-A-96(66)S.
Petitioner asks the following four questions:
Question 1 – If the building is owned by a nonexempt entity and is located outside of New York State,
and the windows are delivered and installed by Petitioner outside New York, is sales or use tax due on the

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cost of the materials, the fabricated cost of the windows, or on the price charged for furnishing and
installing the windows?
Answer – Petitioner’s purchases of materials for use in manufacturing the windows are retail purchases
subject to sales tax under Tax Law §1105(a), provided that the materials are delivered to Petitioner in
New York. See Tax Law §1101(b)(4)(i). Because the materials are incorporated into real property
located outside New York, Petitioner is allowed a refund or credit for the tax paid on the materials. See
Tax Law §1119(a)(1),(4). The windows manufactured by Petitioner are not subject to use tax because the
windows are installed in a building located outside New York. Accordingly, the fabricated cost of the
windows is not subject to tax. The sales tax is a “destination tax.” The point of delivery or point at which
possession is transferred by the vendor to the purchaser controls both the tax incidence and the tax rate.
20 NYCRR §525.2(a)(3). Accordingly, the price charged by Petitioner for furnishing and installing the
windows in a building located outside New York is not subject to sales tax.
Question 2 – If the building is owned by an exempt organization or governmental entity and is located in
New York State, and the windows are manufactured, delivered, and installed by Petitioner in New York,
is sales or use tax due on the cost of the materials, the fabricated cost of the windows, or on the price
charged for furnishing and installing the windows?
Answer – The materials purchased by Petitioner in this case become an integral component part of a
building owned by an exempt organization or governmental entity. Assuming that the organization or
entity is exempt from tax under Tax Law §1116(a), Petitioner’s purchases of the materials are exempt
from sales tax under Tax Law §1115(a)(15). The windows manufactured by Petitioner in this case are
used in New York. Because Petitioner’s purchases of the windows would be exempt from sales tax under
section 1115(a)(15) because they become an integral component part of the building owned by the
exempt organization or governmental entity, Petitioner’s use of the windows is exempt from use tax. See
Tax Law §1118(3). Accordingly, the fabricated cost of the windows is not subject to tax. Assuming that
Petitioner is installing complete windows, including frames and sashes, Petitioner’s installation of the
windows constitutes a capital improvement. Accordingly, the price charged by Petitioner for furnishing
and installing the windows is exempt from sales tax. Petitioner should receive a properly completed
Certificate of Capital Improvement (Form ST-124) from its customer in order to be relieved of the duty to
collect sales tax on the sale and installation of the windows. Petitioner should also obtain an Exempt
Organization Exempt Purchase Certificate, or government purchase order or voucher, whichever is
applicable, in order to substantiate that its purchases of materials are exempt. See 20 NYCRR
§§541.3(d)(2), 541.5(b).
Question 3 - If the building is owned by a nonexempt entity and is located in New York State, and the
windows are manufactured, delivered, and installed by Petitioner in New York, is sales or use tax due on
the cost of the materials, the fabricated cost of the windows, or on the price charged for furnishing and
installing the windows?
Answer – Petitioner’s purchases of materials for use in manufacturing the windows are retail purchases
subject to sales tax under Tax Law §1105(a), provided that the materials are delivered to Petitioner in
New York. See Tax Law §1101(b)(4)(i). The windows manufactured by Petitioner in this case are used
in New York. If the windows are manufactured by Petitioner to the specifications of a particular job
rather than sold from inventory or produced to order from a catalog description, then items of the same
kind are not offered for sale by Petitioner in the regular course of business. See 20 NYCRR
§531.3(b)(1)(i)(a). The use tax would be based on the consideration given for the materials that are
manufactured by Petitioner into the windows. See Tax Law §1110(d). However, if Petitioner produces

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the windows to order from a catalog description, then items of the same kind may be offered for sale by
Petitioner in the regular course of business despite the fact that Petitioner fabricates the windows to the
specifications of a particular job. The use tax would be based on the price Petitioner would charge an
unrelated contractor for the sale of the windows prior to fabrication. See Tax Law §§1110(c), (e); 20
NYCRR §§531.3(b)(1)(i)(a),(b), 531.3(b)(2).
The applicable rate of use tax is the tax rate in effect in the locality where the windows are
installed. See 20 NYCRR §541.13 (b). When paying the combined State and local use tax on the
windows, Petitioner may take a credit for the State and local sales or use taxes paid on its purchase of the
window materials. See 20 NYCRR §531.3(b)(1); Custom Design Kitchens, Inc., supra. No use tax is due
on the value added to the windows by fabricating them to the specifications of the capital improvement.
See Tax Law §1110(e); 20 NYCRR §531.3(b)(2)(i). The price charged by Petitioner for furnishing and
installing the windows as a capital improvement is exempt from tax. See Answer to Question 2.
Question 4 – If Petitioner fabricates custom windows for sale to the building owner or its contractor on an
uninstalled basis, and ships the windows to a location in New York State for installation by the owner or
contractor, is sales or use tax due on the cost of the materials or on the total selling price of the windows?
Answer – Because Petitioner is a contractor, Petitioner’s purchases of the materials in this case are retail
purchases subject to sales tax, provided the materials are delivered to Petitioner in New York. See Tax
Law §1101(b)(4)(i)(A). The total selling price of the windows that Petitioner sells on an uninstalled
basis, including the value added by fabricating the windows to the specifications of the capital
improvement, is subject to sales tax under Tax Law §1105(a). See 20 NYCRR §541.11(b)(2). Petitioner
would be entitled to a refund or credit of the tax paid on materials that become a physical component part
of the windows. See Tax Law §1119(c); Custom Design Kitchens, Inc., supra. Petitioner’s sale of the
windows to a contractor will be exempt from tax if the windows are installed in a building that is owned
by an organization or governmental entity exempt under Tax Law §1116(a). See Tax Law §1115(a)(15).
Petitioner should receive a properly completed Contractor Exempt Purchase Certificate (Form ST-120.1)
from the purchaser in order to be relieved of the duty to collect sales tax on the sale of the windows.
Petitioner’s sales of windows directly to an organization or government entity exempt under Tax Law
§1116 may also be exempt from tax. Petitioner should receive an exemption document or government
purchase order from the purchaser to be relieved of the duty to collect tax. See Tax Law §1132(c); 20
NYCRR Part 529.

DATED: September 22, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and 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.