If I arrange HVAC repair and maintenance through subcontractors and bill my clients directly, are my charges (including my management fee) taxable?

Plain-English summary

The Petitioner is a Florida-based company that arranges HVAC and refrigeration repair and maintenance for clients (mostly retail stores), using a national network of independent service contractors. When a client needs service, the Petitioner dispatches a contractor, sets the rates (for preventative maintenance), approves work over a "not-to-exceed" amount (for emergencies), and then bills the client directly. Contractors never bill the client; they invoice the Petitioner (with labor, materials, and sales tax), and are independent contractors, not agents of the Petitioner, barred from contacting clients. The Petitioner asked whether its charges to New York clients are taxable.

The Office of Counsel concluded the Petitioner's charges are fully taxable:

• The work is taxable repair/maintenance. Servicing, maintaining, or repairing tangible personal property is taxable under Tax Law 1105(c)(3); doing so to real property is taxable under 1105(c)(5) -- depending on whether the serviced property is personal or real.
• The Petitioner is the retail vendor. The clients contract with, are billed by, and pay the Petitioner -- not the contractors. The Petitioner sets the rates and authorizes the work. So the contractors are subcontractors whose services the Petitioner resells to its clients.
• The whole charge, including the management fee, is taxable. Because the Petitioner is the retail vendor, all its receipts from these services are taxable -- including the separately stated management fee, which is just an itemized expense of the taxable service (20 NYCRR 526.5; TSB-A-05(7)S).
• Resale certificates flow up. The Petitioner should give each subcontractor a resale certificate (Form ST-120); a subcontractor that takes the ST-120 in good faith is relieved from collecting tax from the Petitioner, because the Petitioner is reselling the service and collects the tax from the client.

What this means for you

Companies that arrange/resell trade services (HVAC, repair, facilities)

If you sit between the customer and the workers -- you contract with the customer, set the price, dispatch and approve subcontractors, and bill the customer -- you are the retail vendor of a taxable repair/maintenance service. You collect tax from the customer on your full charge, and you buy the subcontractors' work for resale using Form ST-120.

Your "management" or "markup" fee rides along

A separately stated management/coordination fee doesn't escape tax. As part of the receipt for a taxable service, it's taxable too -- it's treated as an itemized cost of the service you're selling.

Independent-contractor language doesn't change it

Calling the workers "independent contractors" (and barring them from your customers) actually supports the conclusion that you're the vendor reselling their services -- it doesn't make their work a separate, non-taxable transaction.

Common questions

Q: I just coordinate repairs through subs and bill the client. Am I really the vendor?
A: Yes, on these facts. Because the client contracts with and pays you, and you set rates and approve the work, you're the retail vendor of the taxable service.

Q: Is my separately stated management fee taxable?
A: Yes. It's part of the receipt for the taxable service -- an itemized expense -- so it's taxable.

Q: How do I avoid double tax with my subcontractors?
A: Give each subcontractor a resale certificate (Form ST-120). They then don't charge you tax, and you collect tax from your client on the full charge.

Citations and references

• Tax Law section 1105(c)(3) (installing, maintaining, servicing, repairing tangible personal property)
• Tax Law section 1105(c)(5) (maintaining, servicing, repairing real property)
• 20 NYCRR section 526.5 (receipts subject to tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-14(17)S
Sales Tax
July 8, 2014

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

PETITION NO. S110802A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTION REDACTION REDACTION REDACTION REDACTON. Petitioner asks
whether its services to New York based customers are subject to sales tax as the sale of servicing
real property in New York.
We conclude that the Petitioner is performing taxable repair and maintenance services to
personal or real property in New York through the use of subcontractors. Therefore, all its
receipts from the sale of these services in New York are subject to sales tax.
Facts
Petitioner, a Florida-based company, provides services related to the repair and servicing
of HVAC and refrigeration systems. Petitioner’s clients generally are retail stores. Petitioner has
contracted with HVAC and refrigeration systems service providers located around the country.
When a client contacts Petitioner to request that its HVAC and refrigeration equipment be
serviced, Petitioner arranges for one of these service contractors to go to the client’s location to
perform the service work. After the service contractor finishes the service call, the Petitioner bills
the client directly.
Petitioner provided samples of its contracts with clients (“HVAC Service Agreement”)
and its contracts with its third-party service contractors (“Partner Agreement”). Under the HVAC
Service Agreement, Petitioner’s clients can purchase two types of services: preventative
maintenance and emergency service.
For preventative maintenance services, Petitioner sets the rates the clients are charged.
Petitioner maintains the schedule of when its clients’ units need maintenance, and arranges for its
affiliated service contractors to perform these maintenance services in accordance with the
schedule. The maintenance service for each client includes a detailed list of tasks that must be
completed, such as changing filters, inspecting wires, and testing safety switches. Service
contractors are required to obtain a purchase order (PO) from Petitioner before beginning any
preventative maintenance work. Petitioner’s Partner Agreement provides that the fixed price for
annual preventative maintenance services billed by service contractors to Petitioner should
include any applicable sales tax.
For emergency service calls, Petitioner dispatches a service contractor to perform repair
work. As part of the dispatch, Petitioner authorizes the service contractor to perform work only
up to a specified dollar amount, referred to in the contract as a “Not To Exceed (NTE)” dollar

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TSB-A-14(17)S
Sales Tax
July 8, 2014

limit. If the work necessary to repair the unit will exceed the NTE limit, the service contractor
must submit a written quote to Petitioner and wait for the quote to be approved before continuing
work. After completion of the work, the service contractor submits an invoice to Petitioner,
which must include a cost breakdown for labor (hours x rate), materials and sales tax.
The service contractors never bill clients directly. For emergency services, Petitioner
sends an invoice to the client that includes the charges for labor and materials billed by the
service contractor, plus an additional management fee that is a percentage of the labor and
materials charge. For preventive maintenance services, Petitioner sends an invoice to the client
pursuant to a schedule that is part of the HVAC Service Agreement.
Petitioner’s clients always make payment directly to Petitioner. According to the Partner
Agreement, Petitioner will not pay a service contractor invoice until Petitioner receives payment
from the client for the work. The Partner Agreement contains no declaration of agency, i.e. that
Petitioner acts on behalf of each service contractor in engaging for the provision of service work.
Instead, the Partner Agreement states that the service contractor acts as an independent
contractor in performing services.
Analysis
Petitioner’s receipts from its sales of the services described above to its clients, including
its separately stated management fees, are taxable under Tax Law § 1105(c)(3) as receipts from
the sale of installing, maintaining, servicing, or repairing tangible personal property, or taxable
under Tax Law § 1105(c)(5) as receipts from the sale of installing, maintaining, servicing, or
repairing real property or land, depending on whether the property upon which the services are
performed is personal or real property. Petitioner is the retail vendor servicing its clients’ HVAC
equipment. Its “partners,” who perform the work at clients’ locations, are subcontractors whose
services Petitioner resells to its customers.
The clients, which are the retail customers, contract with Petitioner, not the service
contractors who perform the work. The HVAC Service Agreement obligates Petitioner “to
provide the following services to” its clients “for HVAC maintenance.” The Partner Agreement
states that the service contractors are independent contractors, not agents of Petitioner, and
prohibits the service contractors from entering into contractual relationships with Petitioner’s
clients or even contacting the clients directly.
Petitioner bills its clients for the services provided by the service contractors, and the
clients pay Petitioner, not the service contractors, for the work performed. For preventative
maintenance work, Petitioner, rather than the service contractors, sets the rates charged to clients.
For emergency services, a service contractor needs authorization from Petitioner to do work if
the service contractor’s estimate exceeds a predetermined dollar amount. Therefore, the service
contractors are subcontractors of Petitioner, whose services Petitioner is reselling to its clients.

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TSB-A-14(17)S
Sales Tax
July 8, 2014

Because Petitioner is the retail vendor of the repair and maintenance services, all its
receipts from its sale of these services, including its management fee, are subject to sales tax.
The fee is merely an itemized expense of the service. See 20 NYCRR § 526.5; also see
TSB-A-05(7)S.
Petitioner should provide each subcontractor with a resale certificate (Form ST-120). A
subcontractor’s receipt in good faith of a properly completed resale certificate from Petitioner
would release it from the obligation to collect sales tax from Petitioner.

DATED: July 8, 2014

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.