Is the charge to install a large water slide at an amusement park a tax-exempt capital improvement, even on leased land?

Plain-English summary

The petitioner runs a New York water amusement park on land it leases for 34.5 years. It paid about $349,000 to install a four-story, 300-foot water slide (purchased separately for over $420,000) -- a bolted fiberglass tube structure on steel and concrete supports, with an in-ground splash pool, balance tank, underground piping, and a cement-block pump house. It asked whether the installation charge is exempt because the slide is a capital improvement.

The Office of Counsel concluded yes -- it's a capital improvement, so the installation is exempt:

• The general rule. Installing tangible personal property is a taxable service (Tax Law 1105(c)(3)) except where the installed property becomes a capital improvement to real property.
• The three-part test (Tax Law 1101(b)(9)). A capital improvement (A) substantially adds value or prolongs the property's useful life; (B) becomes part of, or is permanently affixed to, the real property so that removal would cause material damage to the property or the article; and (C) is intended to be a permanent installation.
• The slide qualifies. The ~$1 million slide substantially added value; its steel structure is bolted to concrete pilings in the ground, with material in-ground pools, tank, and pump house; and removal would damage the structure. It is analogous to the roller coaster held to be a capital improvement in Matter of Amusements of WNY (Tax Appeals Tribunal, 2011), viewed as a whole.
• Leased land doesn't matter here. Because the lease provides that improvements vest in the landlord at the lease's expiration/termination, the slide being on leased property doesn't change the capital-improvement conclusion.

So the installation charges are not subject to sales and use tax.

What this means for you

Amusement parks, contractors, and commercial tenants

A large, permanently-affixed structure -- even on leased land -- can be a capital improvement, making the installation labor exempt. The keys are permanence, material affixation (removal causes damage), and a real boost in property value. Keep the engineering details and a properly-issued capital improvement certificate (Form ST-124).

Don't confuse the parts and the install

This opinion is about the installation service. The purchase of the slide components is a separate question; the capital-improvement exemption addresses the charge to install.

Common questions

Q: Our structure sits on leased land -- can it still be a capital improvement?
A: Yes, especially where the lease provides that improvements vest in the landlord. The capital-improvement test looks at permanence and affixation, not who holds title.

Q: What makes installation labor exempt?
A: The installed item must become a capital improvement -- substantially adding value, permanently affixed so removal causes material damage, and intended to be permanent.

Q: Is a roller coaster or water slide really 'real property'?
A: For sales-tax purposes, a large bolted-to-the-ground structure like this is treated as a capital improvement to real property, as the Tax Appeals Tribunal held for a roller coaster.

Citations and references

• Tax Law section 1105(c)(3) (sales tax on installing tangible personal property; capital-improvement exception)
• Tax Law section 1101(b)(9) (definition of capital improvement)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a13_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-13(38)S
Sales Tax
October 21, 2013

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S120316A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted (Petitioner). Petitioner asks whether its payment for the service of installing a water
slide on real property that Petitioner leases is exempt from sales and use tax on grounds that the water
slide qualifies as a capital improvement for purposes of sales and use tax. We conclude that the water
slide constitutes a capital improvement. Therefore, the installation of the water slide is exempt from
sales and use tax.
Facts
Petitioner operates in New York a water amusement park on real property that it leases. The
term of the lease is 34 ½ years and a water park has occupied the property for over twenty years.
In 2008, Petitioner entered into a contract with a manufacturer for the design of a water slide
and sale to Petitioner of the component parts for the slide. The purchase price was over $420,000. The
slide was designed and engineered for the specific terrain and soil conditions at Petitioner’s amusement
park. The contract with the manufacturer did not break down a price for the parts.
In the same year, Petitioner entered into a contract with a contractor for the installation at the
New York amusement park of the water slide purchased from the manufacturer. The total contract
price for the installation work was $349,000.00. The “SCOPE and Cost of Work” section of the
contract states: “[w]ork shall also include the following items shown below in accordance with the
price allocation herein.” The contract allocates the price as follows:
1. fiberglass pool wall and related materials ($39,000);
2. filter, basket strainer and related materials ($16,000);
3. pipe, fittings & valves ($58,000);
4. pumps ($14,000);
5. support concrete for the Tantrum, Tantrum slide, tower and pump ($59,000);
6. Tantrum fiberglass ride section, ride supports and tower ($103,000);
7. splash pool with all related equipment ($28,000);
8. all pipes, fittings, valves, filter and pumps ($32,000).
The water slide that was built is four stories high and over 300 feet long. The slide itself is
made of fiberglass tube sections, which are secured to each other by bolts and adhesives to form a
tunnel. The tubing when installed weighs aggregate approximately 28,000 pounds and has 5,000
gallons of water rushing through it every 60 seconds when operational.

-2-

TSB-A-13(38)S
Sales Tax
October 21, 2013

The tubing is supported in part by two tall, hollow galvanized steel support columns at the top
of slide. Attached as radial arms to the steel support columns are steel beams that are bolted to the
tubing and the columns. The steel columns are bolted to concrete piers.
The tubing is indirectly supported at the bottom by multiple concrete columns. These concrete
columns support a steel frame that is bolted to these columns and the tubing. The steel frame itself is
comprised of parts that are bolted to each other.
The slide includes three water curtains, which are located at the top, in a straight section and at
the bottom of the slide. The water for these curtains is supplied by external lines that are secured to the
tubing.
The splash pool at the bottom of the slide has a fiberglass wall over a poured concrete floor.
The pool stairs are poured concrete. The pool floor and stairs are covered with two coats of epoxy
paint finish.
The splash pool is connected by underground pipes to a balance tank, which is an in- ground
concrete pool used to chemically treat water that will flow through the slide. The balance tank is
connected by underground pipes to a pump house, from which water is pumped into the slide by water
lines attached to the tubing. The water lines that run from the pump house to the tubing are attached to
the tubing by male/female sleeves, which are bonded to the lines and tubing with an epoxy. The pump
house, which contains pumping equipment, is a cement block building and has a concrete foundation.
Access to the top of the slide is provided by a forty foot high, wood start tower from which
patrons enter the tubing. The tower includes stairs, a deck, wood railing system and aluminum hand
rails. The wood supports for the tower are bolted to the stairs and deck. The stairs, deck, and wood
railings are screwed into place.
Excavation and backfill was necessary for the installation of the pump house, concrete pilings,
supports, water tower, pipe trenches, balance tank and splash pool. Petitioner selected the site for the
water slide.
While it is possible to relocate the water slide to another site, Petitioner states that
disassembling would damage and render unsafe portions of the slide. In addition, the removal would
cause material damage to the underlying real property.
Petitioner’s lease for the real property provides that all right, title and interest of the Tenant (i.e.
Petitioner) in improvements on the property shall cease and expire on the expiration or termination of
the lease and vest exclusively in the Landlord at that time.
Petitioner intends that the water slide is a permanent installation.
Analysis
Tax Law § 1105(c)(3) imposes sales tax on the receipts from every sale, except for resale, of
the service of installing tangible personal property, except for installing property which, when

-3-

TSB-A-13(38)S
Sales Tax
October 21, 2013

installed, will constitute an addition or capital improvement to real property. Section 1101(b)(9) of the
Tax Law defines a capital improvement as follows:
(i) 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.
The water slide installed by the Petitioner satisfies the criteria to qualify as a capital
improvement and is analogous to the roller coaster held to be a capital improvement by the Tax
Appeals Tribunal in Matter of Amusements of WNY, Inc., (Tax Appeals Tribunal, May 26, 2011). In
light of the fact that the purchase price and installation costs for the water slide were approximately $1
million, the water slide substantially added to the value of the property. Like the roller coaster, the
water slide has a steel support structure bolted to concrete pilings attaching the structure to the ground.
Material to the operation of the water slide are the in-ground splash pool and balance tank and the
concrete pump house. Further, like the roller coaster, removal of the water slide would cause damage
to parts of the structure. The Tax Appeals Tribunal concluded that the roller coaster, when viewed as a
whole, constituted a capital improvement. Following that precedent, we conclude that the water slide
is a capital improvement. The fact that the water slide is on leased property does not change the result
because the underlying lease provides that improvements on the property vest in the landlord at the
expiration or termination of the lease. Accordingly, the installation charges for this water slide are not
subject to sales and use taxes.

DATED:

October 21, 2013

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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.