Does a contractor owe NY tax on the waste portion of granite/marble/stone slabs used in a capital improvement?

Plain-English summary

The petitioner is a stone and masonry general contractor (countertops, walkways, patios). It buys slabs of granite, marble, and stone and fabricates them to a job's specs (sometimes paying the supplier to fabricate). Fabrication produces waste/spillage that's discarded, and the petitioner bills its customers only for the installed square footage, not the whole slab. Assuming the slabs are used only in capital improvement projects, it asked whether the waste portion is taxable.

The Office of Counsel concluded the waste is taxable -- the contractor pays tax on the whole slab.

• A contractor's purchase of tangible personal property to use in a capital improvement is a retail purchase: sales tax if the slab is delivered to the contractor in NY (Tax Law 1101(b)(4)(i), 20 NYCRR 541.1(b)), or use tax if bought outside NY and then used here (1110(a)), based on the consideration paid including shipping (1110(b)). The contractor is the end consumer of the materials in a capital improvement.
• The tax is based on the price paid for the entire slab -- including the waste/spillage that's cut off and discarded.
• The service of fabricating the slabs is also taxable (1105(c)(2) when done in NY; use tax under 1110 if done outside NY and the property is used here), on the full amount paid.
• There is no refund or credit for the discarded material. Nothing in Article 28 or the regulations allows it (citing Striker Sheet Metal, TSB-A-99(45)S) -- it doesn't matter that the customer is billed only for installed square footage.

What this means for you

Stone, countertop, tile, and masonry contractors

On capital-improvement jobs you are the taxable consumer of the materials, and your tax base is what you paid for the whole slab, scrap included -- not what you bill the customer for the finished, installed area. Build the tax on the full slab cost plus any fabrication charge into your job pricing; you can't recover the tax attributable to offcuts. (This opinion assumes pure capital-improvement use; resale or repair scenarios can differ.)

Customers

Your countertop or patio price reflects tax the contractor already paid on the full slab and fabrication; you won't typically see a separate sales tax line on a capital improvement, but the cost is embedded.

Common questions

Q: I only install part of the slab -- why am I taxed on all of it?
A: As the contractor you're the consumer of the materials in a capital improvement; the tax base is what you paid for the entire slab, including the waste cut off in fabrication.

Q: Can I get a credit for the discarded offcuts?
A: No -- there's no provision for a refund or credit for waste/spillage (Striker Sheet Metal, TSB-A-99(45)S).

Q: Is the fabrication charge taxable too?
A: Yes -- fabricating tangible personal property is taxable on the full amount paid (1105(c)(2), or use tax if done out of state and used in NY).

Citations and references

• Tax Law section 1101(b)(4)(i) (contractor's purchase for capital improvement is a retail purchase)
• Tax Law section 1105(c)(2) (tax on fabricating tangible personal property)
• Tax Law section 1110(a) (compensating use tax)
• Tax Law section 1110(b) (use tax basis = consideration paid)
• 20 NYCRR section 541.1(b) (contractor's purchases)
• TSB-A-99(45)S (Striker Sheet Metal; no credit for discarded material)

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_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-10(4)S
Sales Tax
February 10, 2010

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S091130A

Petitioner name and address redacted, requested an advisory opinion as to whether the waste or
spillage portion of granite, marble, and stone slabs used in connection with a capital improvement is
subject to sales or use tax.
We conclude that the waste or spillage portion of granite, marble, or stone slabs used in
connection with a capital improvement is subject to sales or use tax.
Facts
Petitioner is a general contractor that does stone and masonry work in connection with the
installation of kitchen countertops, walkways, and patios. Petitioner purchases slabs of granite, marble,
and stone and fabricates them according to the job specifications for a customer. Alternatively, Petitioner
may purchase slabs and pay the supplier an additional amount to fabricate the slabs. The fabrication of
the slabs yields a waste or spillage portion of the slab that is discarded. Petitioner charges customers
based on the square footage of the installed portion of the slab, not the entire slab that was purchased by
Petitioner.
It is assumed for purposes of this Opinion that Petitioner uses the slabs only in capital
improvement projects.
Analysis
A contractor’s purchase of tangible personal property for use in performing a capital
improvement is a purchase at retail subject to sales tax if the property is delivered to the contractor in
New York. See Tax Law §1101(b)(4)(i) and 20 NYCRR 541.1(b). If a contractor purchases tangible
personal property outside New York and subsequently uses the property in New York in performing a
capital improvement, the use of the property is subject to use tax. See Tax Law §1110(a)(A). The use tax
is based on the consideration paid for the property, including any charges for shipping or delivery. See
Tax Law §1110(b). Accordingly, Petitioner’s purchases of slabs for use in capital improvement projects
are subject to sales or use tax. The tax is based on the sales price paid by Petitioner for the entire slab.
The service of fabricating tangible personal property is subject to sales tax when performed in
New York for a person who furnishes the property to the service provider. See Tax Law §1105(c)(2). If
the fabricating services are performed outside New York on tangible personal property that is
subsequently used in New York, use tax is due on the property based on the consideration paid for the
fabricating service, including any charges for shipping and delivery. See Tax Law §§1110(a)(D) and (f).
Accordingly, any additional amounts paid by Petitioner for the service of fabricating the slabs are subject
to sales or use tax.

-2-

TSB-A-10(4)S
Sales Tax
February 10, 2010

There are no provisions in Article 28 of the Tax Law or the Sales and Use Tax Regulations
for a refund or credit based upon the excess of material used in the fabrication process that is discarded
after fabrication. See Striker Sheet Metal, Inc., Adv Op Comm Tx & Fin, November 10, 1999,
TSB-A-99(45)S. Accordingly, Petitioner’s purchases of slabs for use in capital improvement projects are
subject to sales or use tax based on the amount paid for the entire slab, including the waste or spillage
portion of the slab that is discarded after fabrication. Petitioner’s purchases of fabrication services on the
slabs are subject to tax on the amount paid for the service, with no refund or credit based on the waste or
spillage portion of the slab.

DATED: Feburary 10, 2010

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.