Does a retailer collect NY sales tax when it sells built-in appliances on an installed basis, or is that a capital improvement?

Plain-English summary

The Petitioner is a New York appliance retailer that sells built-in appliances -- sometimes alone, sometimes installed. It doesn't know at the time it buys an appliance from its supplier which way it will be sold. It asked whether installed sales are taxable or are capital improvements.

The Office of Counsel concluded:

• Installed built-in appliances = capital improvement. Section 1105(c) taxes services to real property but excludes installing property that becomes a capital improvement (section 1101(b)(9)). Publication 862 specifically classifies installing built-in dishwashers, freezers, ranges, refrigerators, and ovens as capital improvements (free-standing appliances are not). So when the Petitioner sells and installs a built-in appliance, it's performing a capital improvement.
• The retailer acts as a contractor and pays the tax. As a contractor, it pays sales tax on its purchase of the appliance (20 NYCRR 541.13) and does not collect sales tax from the customer. It can build the tax cost into its price, but cannot charge sales tax on the installed-appliance sale. A good-faith Form ST-124 from the customer within 90 days of completion relieves it of any collection obligation (section 1132(c)).
• Sold alone = collect tax. If it sells the built-in appliance without installation, it must collect sales tax from the customer on the sale price.
• Because it can't predict the sale type: the Petitioner may buy appliances exempt for resale using Form ST-120, and then, if it later sells one installed as a capital improvement, accrue use tax on the appliance's purchase price at the rate where it's installed, remitting on the return for that period (20 NYCRR 541.13). (A pure contractor with no store would instead pay tax on all purchases and take a credit for property that didn't become a capital improvement.)

What this means for you

Appliance dealers who also install

Selling a built-in appliance installed is a capital improvement -- don't charge the customer sales tax. Instead, you bear the tax on the appliance (you can fold the cost into your price). Get a good-faith ST-124 within 90 days to document it.

Sold over the counter? Collect tax

If the customer just buys the built-in appliance and you don't install it, that's a normal taxable retail sale -- collect tax on the sale price.

Don't double up -- use resale + use-tax accrual

Since you can't tell at purchase how it'll sell, buy for resale (ST-120) so you're not taxed up front, then accrue use tax on any appliance you later sell installed as a capital improvement, at the installation jurisdiction's rate. That avoids paying tax twice and keeps the books straight.

Common questions

Q: Do I charge my customer sales tax on a built-in oven I install?
A: No -- that's a capital improvement. You pay tax on the appliance and don't collect from the customer (though you can build the cost into your price). A good-faith ST-124 within 90 days relieves collection.

Q: What if I just sell the appliance and don't install it?
A: Then collect sales tax from the customer on the sale price -- it's a normal taxable sale.

Q: I can't tell at purchase how it'll be sold -- what do I do?
A: Buy for resale on Form ST-120, then accrue use tax (at the installation location's rate) on any you later sell installed as a capital improvement.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1105(c) (services to real property; capital improvement exclusion)
• Tax Law section 1101(b)(9) (definition of capital improvement)
• 20 NYCRR section 541.13 (contractor pays tax on materials; accrual of use tax)
• Tax Law section 1132(c) (good-faith acceptance of capital improvement certificate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(18)S
Sales Tax
May 12, 2015

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S131009A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED “Petitioner”. Petitioner asks whether it must collect
State and local sales tax on sales of certain built-in appliances on an installed basis, or whether
such sales qualify as capital improvements.
Based on the facts submitted, we conclude that Petitioner is not required to collect sales
tax on such appliances when sold on an installed basis. Instead, the sales tax on the appliance
would be paid by Petitioner at the time of installation.
Facts
Petitioner has a retail store located in New York State, at which it sells appliances.
Petitioner either makes retail sales of built-in appliances or sells these appliances on an installed
basis to its retail customers. When the appliances are sold on an installed basis, Petitioner
completes this installation. Petitioner does not know at the time of purchase from its supplier
whether a built-in appliance will be sold alone or in conjunction with installation.
Analysis
Tax Law § 1105(a) imposes sales tax on the receipts from the sale of tangible personal
property, except as otherwise provided in the Tax Law. Tax Law § 1105(c) imposes sales tax on
services to real property, but excludes the installation of property that when installed would be a
capital improvement to real property, as defined by Tax Law § 1101(b)(9). The term capital
improvement is defined in Tax Law § 1101(b)(9)(i) as an addition or alteration to real property
that (A) substantially adds to the value of the real property, or appreciably prolongs the useful
life of the real property, (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.
Publication 862, Sales and Use Tax Classifications of Capital Improvement and Repairs
to Real Property, specifies that the installation of built-in dishwashers, freezers, ranges,
refrigerators and ovens (“built-in appliances”) are capital improvements, while the installation of
“free-standing appliances” are considered to be simply repairs, maintenance or installation of
tangible personal property. The Publication also states that, “[i]n the case of a capital
improvement, if you are the contractor who purchases materials and supplies, you pay tax to the
supplier and you do not collect any sales tax from your customer.” If Petitioner sells any of

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TSB-A-15(18)S
Sales Tax
May 12, 2015

these listed built-in appliances in conjunction with the installation, Petitioner would be
performing a capital improvement.
When Petitioner installs appliances that constitute a capital improvement, Petitioner
would then be acting as a contractor, and would be required to pay sales tax on its purchase of
the appliance. See 20 NYCRR § 541.13. Petitioner’s receipt in good faith of a properly
completed Form ST-124, Certificate of Capital Improvement from the customer within 90 days
after the completion of the capital improvement releases it from the obligation to collect sales tax
from its customer. See Tax Law § 1132(c). While Petitioner is not prohibited from passing on
its cost of paying the sales tax as part of the sale price of the installed appliance, it cannot collect
sales tax on the sale of the appliance as part of a capital improvement.
Alternatively, if
Petitioner is selling only the built-in appliance to a customer without installation, it must collect
the sales tax from the customer on the sale price of the appliance.
If Petitioner operated solely as a contractor and did not operate a retail store, it would be
required to pay sales tax on all its purchases of appliances or other materials at the time they
were purchased from a supplier, but would be allowed a credit for sales taxes paid on property
that did not become part of a capital improvement. See 20 NYCRR § 534.5. However, because
Petitioner operates a retail store, it does not know at the time it purchases appliance from its
supplier whether a particular appliance will be sold on an installed basis that will result in a
capital improvement. Under these circumstances, Petitioner may purchase appliances exempt
from sales tax as purchases for resale and may provide the supplier with Form ST-120, Resale
Certificate. However, if the Petitioner later sells the built-in appliance on an installed basis as
part of a capital improvement, Petitioner must accrue use tax on the appliance based on its
purchase price for the appliance and the tax rate in effect in the jurisdiction where the appliance
is installed. See 20 NYCRR § 541.13. The tax then must be remitted on the return for the period
in which the installed appliance is sold to its customer.

DATED: May 12, 2015
/S/
DEBORAH 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.