Is selling advertising space on installed displays a taxable service in NY, and are the charges to install, repair, and supply those displays taxable?

Plain-English summary

The petitioner contracts with hospitals to install advertising fixtures (digital displays, static and scroll backlit displays, wraps, and banners) throughout the facility, and sells the advertising space to advertisers, sharing revenue with the hospital. It keeps title to the fixtures, hires contractors to install/repair them, and buys the components (often from out of state). It asked whether its advertising receipts, the installation charges it pays, and its component purchases are taxable.

The Office of Counsel concluded:

• Selling advertising space -- not taxable. Selling advertising on the firm's various displays (including wraps and banners) is not a service enumerated in Tax Law 1105(c), so the firm's charges to its advertising customers are not subject to sales tax (Matter of Ruth Outdoor Advertising; TSB-A-08(29)S, 08(1)S, 88(30)S).
• Installation charges the firm pays -- taxable. Installing tangible personal property is taxable under 1105(c)(3) unless it is a capital improvement. A capital improvement requires all three of: substantially adds value/prolongs life; becomes part of the realty or is permanently affixed so removal causes material damage; and is intended to be permanent (1101(b)(9)(i)). Here the displays fail at least two: the firm keeps title and must remove them at the end of the term, and they are merely bolted on and removed with cosmetic repairs (spackle, touch-up paint). Bolting alone is not permanence (Charles R. Wood Enterprises). So the contractor's installation charges are taxable (1105(a)/1105(c)(3)).
• Repair and maintenance -- taxable. Charges by the contractor to repair, maintain, and replace the printed ads in the display units are taxable services on tangible personal property (1105(c)(3); 20 NYCRR 527.5).
• Out-of-state components -- use tax. If the firm buys display components from out of state and the vendor doesn't collect New York tax, the firm must pay use tax itself on the full receipt including shipping (1101(b)(3)); the local rate is set by the point of delivery (525.2(a)(3)), and a further local use-tax liability can arise if the materials are then used/installed in a different local jurisdiction.

What this means for you

Advertising and out-of-home media companies

Selling ad space is not a taxable service in New York -- your charges to advertisers aren't taxed. But the infrastructure behind the ads is taxed at the input level: the installation of your displays is taxable (and won't be a tax-free capital improvement if you keep title and must remove them), repairs and maintenance are taxable, and components you buy out of state owe use tax if the seller didn't collect. Build those input taxes into your costs rather than expecting an exemption.

When is an installation a capital improvement?

All three statutory tests must be met -- value, permanence, and intent to be permanent. Keeping title, an obligation to remove, and bolt-on/cosmetic-removal construction defeat it. Bolting equipment to a wall or floor does not, by itself, make it permanent.

Common questions

Q: Do we charge our advertisers sales tax?
A: No. Selling advertising space is not an enumerated taxable service in New York.

Q: Are the contractor's charges to install our displays taxable to us? A: Yes. The displays aren't a capital improvement (you keep title, must remove them, they're only bolted on), so installation is taxable.

Q: We buy display parts from an out-of-state supplier who doesn't charge NY tax. Do we owe anything? A: Yes -- use tax on the full price including shipping, at the rate for where the materials are delivered (and possibly where they're later used).

Q: Does bolting a display to the wall make it a capital improvement? A: No. Bolting alone isn't the permanence the law requires, especially when you keep title and must remove it later.

Citations and references

• Tax Law section 1105(a) (tax on retail sales of tangible personal property)
• Tax Law section 1105(c) (enumerated taxable services)
• Tax Law section 1105(c)(3) (installing/maintaining/servicing/repairing tangible personal property)
• Tax Law section 1101(b)(9)(i) (definition of capital improvement)
• Tax Law section 1101(b)(3) (use tax on out-of-state purchases incl. delivery)
• 20 NYCRR section 525.2(a)(3) (point-of-delivery determines local tax)
• 20 NYCRR section 527.5 (repair/maintenance services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_20s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-12(20)S
Sales Tax
August 28, 2012

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

PETITION NO. S110517A

Petitioner, Name Redacted, asks whether its receipts from its various forms of advertising services are subject to tax. Petitioner also asks if the charges it pays to a subcontractor to install the advertising displays and other media it uses in its advertising service are subject to tax, and whether it must pay tax on the components it uses to make the advertising displays. We conclude that the Petitioner’s sales of advertising space on its various advertising displays (including wrap and banner ads) are not enumerated as taxable services pursuant to section 1105(c) of the Tax Law. The installation charges Petitioner pays to a contractor for the installation of advertising displays are subject to sales tax under sections 1105(a) and 1105(c)(3) of the Tax Law. If the Petitioner purchases the components for making a display unit out of New York State, and New York State and local sales or use tax is not collected from Petitioner by the vendor, Petitioner must pay the tax itself directly to the Tax Department. Facts Petitioner enters into 5 or 10 year contracts with hospitals located within New York State to install advertising fixtures throughout a hospital’s facilities and grounds. These advertising fixtures may include a variety of formats (e.g., digital displays, static backlit displays, backlit scroll displays that rotate through various advertisements, and various wraps and banners). Petitioner purchases the advertising fixtures (or their components) and retains title to these fixtures for the length of the contract. Petitioner sells the advertising space provided by its fixtures to its advertising customers. In return for receiving the exclusive right (via a concession) to use its forms of advertising within the hospital, Petitioner agrees to share part of the revenue it receives from these ads with the hospital. Petitioner’s contract allows the hospital to display a certain amount of advertising using its equipment. Petitioner does not produce, create, and/or design materials for advertisers to place in Petitioner’s displays. Petitioner contracts with third parties to install the advertising fixtures at the locations agreed upon, and except for the wraps and banners, the advertising displays are generally bolted to a wall, beam or floor location. A third-party electrician makes the appropriate connection to the hospital’s electrical system if needed. Petitioner is responsible for maintaining the advertising displays. To do so, Petitioner hires an independent contractor to repair and maintain the display units, and to replace the printed advertisements both in the display units and those that are wraps or banners. Petitioner purchases materials to assemble the display units, which are often shipped from an out-of-state location for use in hospitals in New York. The shipping charges for these materials

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TSB-A-12(20)S
Sales Tax
August 28, 2012

are separately stated on the sellers' invoices. No tangible personal property is ever provided to any advertising customer or the hospital. If Petitioner’s contract with the hospital is not renewed or extended at the end of the contract term, the Petitioner is contractually obligated to remove all of the advertising fixtures and to restore the hospital’s premises to its original state. This is accomplished by making nominal repairs such as spackling over any holes and minor paint touch up. All repairs are cosmetic in nature. Any electrical connections would be disconnected in a safe manner. Analysis Petitioner sells various forms of advertising to its customers. This includes advertising on digital displays, static backlit displays, backlit scroll displays that rotate through various advertisements, and various wraps and banners placed at designated locations at the hospitals with whom the Petitioner has a contract. Petitioner’s sales of advertising placed within the hospital using the various forms used by the Petitioner are not a service enumerated in section 1105(c) of the Tax Law. Therefore, Petitioner's charges to its customers for its advertising services are not subject to sales tax. See Matter of Ruth Outdoor Advertising Co., TSB-H-81(102)S; See also TSB-A-08(29)S, TSB-A-08(1)S, TSB-A-88(30)S. Petitioner hires independent contractors to install and maintain its various forms of advertising displays at the agreed locations within the hospitals it has contracts with. Pursuant to Tax Law section 1105(c)(3), the service of installing tangible personal property is subject to tax except where the installed property constitutes a “capital improvement” to real property. The term “capital improvement” is defined by Tax Law section 1101(b)(9)(i) to mean an addition or alteration to real property that (1) substantially adds to the value of the real property or appreciably prolongs its useful life; (2) becomes part of the real property or is permanently affixed to it so that removal would cause material damage to the property or article itself; and (3) is intended to become a permanent installation. Section 1101(b)(9)(i) of the Tax Law requires that all three of these conditions be met for an installation to be considered a capital improvement to real property. If the installation of display units fails to meet one or more of these conditions, that installation cannot qualify as a capital improvement to real property. In Petitioner’s situation, the advertising displays are not intended to become a permanent installation because Petitioner retains title to the units at all times, and is required to remove the displays at the end of the contract term if the contract with the hospital is not renewed. Moreover, the removal of the displays (which are generally just bolted to the hospital property)1 is accomplished by making nominal repairs such as spackling over any holes and minor paint touch up. All repairs are cosmetic in nature. The unbolting of the display units does not damage or destroy the display unit. The other forms of advertising, including wraps and banners, are easily replaced or removed. Therefore, Petitioner’s installations do not meet at least two of the 1

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 AD2d 1042 (3d Dep’t 1979).

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TSB-A-12(20)S
Sales Tax
August 28, 2012

requirements of a capital improvement to real property for the purposes of the Tax Law. Because the installations fail to meet the requirements of a capital improvement, the installation charges Petitioner pays to the contractor for the installation of advertising units (including the wraps and banners) are subject to sales tax under section 1105(c)(3) of the Tax Law. Petitioner also uses an independent contractor to repair and maintain the display units, and to replace the printed advertisements both in the display units and those that are wraps or banners. Sales tax is imposed on the repair, maintenance, or servicing of tangible personal property. See Tax Law §1105(c)(3). Therefore, charges by an independent contractor to Petitioner for the above services to the display units are subject to sales tax. See 20 NYCRR §527.5 of the Sales and Use Tax Regulations. The materials used in setting-up the various advertising displays are often shipped to Petitioner from various sellers from out-of-state locations. The shipping and delivery charges for these materials are separately stated on the vendors' invoices. If the vendor of the components is registered for sales and use tax purposes in New York, the vendor is required to collect New York State and local sales or use tax from Petitioner on the receipts from the sale of the components including any delivery charges. If the vendor fails to collect tax, Petitioner is liable for the New York State and local sales or compensating use tax computed on the full amount of the receipt, including any charges for shipping and delivery, on its purchase of materials delivered to a location in New York State. See Tax Law §1101(b)(3); See TSB-A-08(29)S. The rate and incidence of the local tax is determined by the point of delivery of the materials from the vendor to Petitioner. See 20 NYCRR §525.2(a)(3). Petitioner may also be liable for local compensating use tax based on the purchase price for the materials it purchases if the materials are used and installed by Petitioner in a local jurisdiction other than the jurisdiction where the materials were initially delivered to Petitioner by the vendor. See TSB-A-96(66)S; TSB-A-08(29)S.

DATED: August 28, 2012

NOTE:

/S/
DEBORAH LIEBMAN
Deputy 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. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.