How does NY sales and use tax apply to a stair and railing manufacturer that also installs its products?

Plain-English summary

The petitioner manufactures and installs stairs and railings: it buys materials, builds stairs in its shop, and installs them on site; it also sells stairs and railing parts uninstalled for others to install. It asked how sales and use tax apply to its purchases and sales. The Office of Counsel gave a five-part answer.

• Installing stairs is a capital improvement (not taxable). The original installation or entire replacement of stairs is generally a capital improvement to real property, so the petitioner's charges to sell-and-install stairs and railings are not subject to sales tax (Tax Law 1105(c)(3)(iii); 1115(a)(17)). But repairing part of a riser or railing is taxable as maintenance of real property (1105(c)(5)).
• As a contractor, it pays tax on its materials. A fabricator that installs its own product is a contractor (20 NYCRR 541.11(a)). A contractor's purchases of materials for construction are taxable retail purchases -- exempt only if the property becomes an integral component of real property owned by an exempt organization or government entity (1115(a)(15); 1116(a)).
• Refund/credit when it doesn't install (or installs for exempt entities). The petitioner can get a refund/credit of tax paid on materials to the extent it sells the stairs/railings uninstalled or installs them in exempt-organization property where they become part of the realty (1119(c)).
• Uninstalled sales are taxable. Stairs and railings it sells without installing are taxable, unless they'll be installed in -- or are sold directly to -- an exempt organization or government entity.
• Use tax on what it makes and installs. When the petitioner installs stairs/railings it manufactured, it must accrue compensating use tax (1110(a)(B)). The base depends on two concepts -- "items of the same kind" and "offered for sale in the regular course of business":
• Custom stairs built to a particular job are not items of the same kind (cf. TSB-A-03(23)S, custom countertops), so the use-tax base is the cost of the raw materials (including freight). The value added by fabricating to the job's specs is not subject to use tax.
• Railings of standard size/material are items of the same kind, so the base turns on whether the petitioner sells more than 10% of them uninstalled "in the regular course of business." If so, the base is its average selling price (catalog or sales records).
• The rate is where the item is installed; the petitioner may credit sales tax already paid on the materials. Erroneously collected sales tax cannot be applied against the use tax owed (Darien Lake Fun Country).

What this means for you

Fabricator-installers (stairs, railings, countertops, cabinetry, millwork)

If you make a product and install it, you're a contractor: you generally don't charge sales tax on a capital-improvement installation, but you pay tax on your materials and must accrue use tax on the items you fabricate and install. The key wrinkle is the use-tax base -- for one-off custom pieces (built to a specific job), you owe use tax only on your raw-material cost, not the value you add by fabricating; for standard catalog items, if you sell enough of them uninstalled to be "in the regular course of business," you owe use tax on your average selling price. Take credit for sales tax you already paid on materials, claim refunds when you sell uninstalled or build for exempt entities, and never assume erroneously collected sales tax offsets your use tax -- it doesn't.

Common questions

Q: Do we charge sales tax to install a new staircase?
A: No -- installing or entirely replacing stairs is generally a nontaxable capital improvement. (Repairing part of a stair or railing is taxable.)

Q: Do we pay tax on the lumber and parts we buy?
A: Yes, as a contractor -- unless they become part of real property owned by an exempt organization or government entity. You can get a refund/credit for materials in products you sell uninstalled or install for exempt entities.

Q: How is the use tax figured on stairs we build and install?
A: For custom stairs made to a specific job, on your raw-material cost (not the fabrication value you add). For standard railings, if you sell more than 10% uninstalled in the regular course of business, on your average selling price.

Q: Can we offset use tax with sales tax we accidentally charged the customer?
A: No. Erroneously collected sales tax can't be applied against the use tax you owe on the installed materials.

Citations and references

• Tax Law section 1105(a) (tax on retail sales of tangible personal property)
• Tax Law section 1105(c)(3)(iii); section 1115(a)(17) (capital improvement installation excluded)
• Tax Law section 1105(c)(5) (repair/maintenance of real property)
• Tax Law section 1115(a)(15); section 1116(a) (exempt-organization construction materials)
• Tax Law section 1119(c) (refund/credit on materials)
• Tax Law section 1110(a)(B) (compensating use tax on contractor's own product)
• 20 NYCRR section 541.11(a) (fabricator-installer is a contractor)
• 20 NYCRR section 531.3(b) (use-tax base; items of the same kind; regular course of business)

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_6s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-12(6)S
Sales Tax
March 19, 2012

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S110406A

The Department of Taxation and Finance received a Petition for Advisory Opinion from Petitioner
name and address redacted. Petitioner is a manufacturer and installer of stairs and railings and it asks
about the application of the sales and use tax to its purchases and sales. We conclude that (1) as a
contractor, Petitioner must pay sales tax on its purchases of the supplies to manufacture the stairs and
railings that it will install unless it will be installing the stairs and railings in property owned by an exempt
organization or government entity; (2) Petitioner’s purchases of materials for manufacturing stairs and
railings 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 on the materials; (3) Petitioner’s original installation or
entire replacement of stairs generally qualify as capital improvements and are thus not taxable; (4)
Petitioner’s sales of stairs and railings that it will not install are subject to tax, unless the stairs and
railings will be installed in property of an exempt organization or government entity, or the stairs and
railings are sold directly to an exempt organization or government entity; and (5) as a manufacturer and
installer of the stairs and railings, Petitioner must accrue use tax when it installs stairs and railings that it
has manufactured.
Facts
Petitioner is a stairs and handrail manufacturer and installer doing business in New York.
Petitioner purchases the necessary materials (boards, sections of railing screws, etc), manufactures the
stairs in its shop, and then brings them onsite to install. Petitioner also sells stairs without also installing
them, by assembling the stairs for pick-up or delivery. With regard to railings, Petitioner brings sections
of railings to a building site where it installs them. It also sells handrail parts for a homeowner or another
contractor to install.
Analysis
Sales Tax Applied to Petitioner’s Sales
The installation or entire replacement of stairs is generally 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. 11). Accordingly, Petitioner’s charges for the sale and installation of stairs and
railings in new or existing buildings are not subject to sales tax (see Tax Law §§ 1105[c][3][iii];
1115[a][17]). Petitioner’s receipts from the repair of part of a riser or part of a railing would be taxable
as the maintenance of real property (see Tax Law § 1105[c][5]).
Sales Tax Applied to Petitioner’s Purchases
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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Sales Tax
March 19, 2012

purposes. A contractor’s purchases of tangible personal property for use or consumption in construction
are retail purchases subject to sales tax under Tax Law § 1105(a) (see 20 NYCRR § 541.1[a][1]). These
purchases will be exempt only 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]).
Petitioner would be entitled to a refund of New York sales and use tax it paid on the materials
used to make the stairs and railings to the extent it sold the stairs and railings on an uninstalled basis or it
installed them in a building owned by an exempt organization described by section 1116(a) and they
became an integral component part of the realty (Tax Law § 1119[c]).
Use Tax Applied to Petitioner’s Installed Sales as a Contractor-Manufacturer
When Petitioner manufactures stairs to the specifications of a particular capital improvement, and
installs the stairs, it is making a use of the stairs subject to compensating use tax under Tax Law section
1110(a)(B). The basis on which the use tax is computed depends on whether Petitioner offers items of
the same kind of tangible personal property for sale in the regular course of business. If Petitioner offers
for sale items of the same kind 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]; 1110[c], [e]; 20 NYCRR § 531.3[b][2]). The price at which items are offered for
sale is evidenced by a price list, catalog price, or record of sales. In the absence of a catalog price list,
the average of the prices charged to various customers will be deemed to be the price at which the user
would sell such item during the regular course of business (see 20 NYCRR § 531.3[b][1][i]). If items of
the same kind are not offered by the contractor in the regular course of business, then the amount subject
to tax is the amount paid or agreed to be paid (including transportation costs) for the materials used in
manufacturing, processing or assembling the stairs.
Thus, the determination of the proper use tax base depends on the correct application of two
concepts, “items of the same kind” and “offered for sale in the regular course of business.” The sales tax
regulations provide that the term “[I]tems of the same kind” means that the “items belong to an
identifiable class, but need not be identical” and that “[i]tems 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” (20 NYCRR §531.3[b][1][i][a]). Section 531.3(b)(1)(b) of the regulations explains the “offered for
sale in the regular course of business” concept as follows:
Offered for sale in the regular course of business means that a person sells in excess of 10
percent of his product for each 12 month period beginning December 1st, measured by
weight, volume, size or other unit on which the price is based, to persons other than
organizations exempt under section 1116(a) of the Tax Law. For the purpose of this
calculation, the amount of product sold to all persons except exempt organizations will
constitute the numerator of the fraction and the total amount of the product sold and used in
performing work for others, with the exclusion of products sold to or used in performing
work for exempt organizations, will constitute the denominator.
Here, Petitioner assembles in its workshop each set of stairs to the specifications of a particular
capital improvement. Thus, the stairs are not items of the same kind offered in the regular course of

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Sales Tax
March 19, 2012

business (see TSB-A-03[23]S [kitchen countertop manufacturer and installer held not to sell items of the
same kind because each countertop was built to the specifications of a particular kitchen]). Accordingly,
the base of the use tax that Petitioner must accrue on the stairs that it installs is based on the
consideration given for the raw materials manufactured into the stairs, including any charges for shipping
or delivery of those raw materials (see 20 NYCRR § 531.3[b][2][iii]). But the value added by Petitioner
in fabricating the stairs to the specifications of the particular capital improvement is not subject to use tax
(see Tax Law §§ 1110[a][B][i]; 1110[d],[e]; 20 NYCRR § 531.3[b][2][i]).
Petitioner installs the railings by bringing lengths of railings to the site and installing them there
to fit the particular stairs. The railings are items of the same kind (see 20 NYCRR section
531.3[b][1][i][a][Example 2][“Windows are items of the same kind when they are of a standard size and
materials”]). Thus, the basis for the use tax that Petitioner must accrue in regard to railings depends on
whether it is offering the railings for sale “in the regular course of business,” i.e., whether the value of
the railings it sells on an uninstalled basis exceeds 10% of the total value of the railings it sells or installs.
The computation necessary to make this determination is described above. To the extent that Petitioner
meets or exceeds the 10% threshold, it would accrue use tax based on its average selling price for
railings, as evidenced by its catalog price, or, if it does not sell through a catalog, its sales records.
The applicable rate of use tax is the tax rate in effect in the locality where the product is installed
(see 20 NYCRR § 531.3[b]). When determining the amount of use tax it owes, Petitioner may take credit for
the New York State and local sales taxes paid on the materials used to manufacture the stairs and railing (see
20 NYCRR § 531.3[b][1]; TSB-A-96[66]S).
It should be noted that if Petitioner erroneously collects sales tax from its customer on the cost of
the installed stairs and railings, it cannot apply that erroneously collected sales tax against the amount of
use tax it owes on the installed materials (see Darien Lake Fun Country, Inc. v. State Tax Com'n, 68
NY2d 630 [1986]).

DATED: March 19, 2012

NOTE:

/S/
DEBORAH R. 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.