When must a scaffolding company collect New York sales tax on charges to contractors?

Plain-English summary

A company sells, rents, erects and dismantles scaffolding, mostly for general contractors, sometimes on projects for exempt organizations. It asked when it must collect New York sales tax on these charges (for contracts on or after January 1, 2015).

The Office of Counsel concluded:

• Scaffolding + erection/dismantling = a service. Since January 1, 2015, renting or selling scaffolding systems together with installation and/or dismantling is treated as a service, whether or not those charges are separately stated (TSB-M-14(15)S).
• Nontaxable as a "temporary facility" for a capital improvement. If the construction job is a capital improvement (Tax Law section 1101(b)(9)) and the scaffolding is a "temporary facility" that is a necessary prerequisite to that capital improvement, it is treated as part of the capital improvement and the service is not taxable (20 NYCRR 541.8; L & L Painting). The company is relieved of collecting tax if it timely gets, in good faith, a valid Form ST-124 (Certificate of Capital Improvement) from the contractor's customer.
• Nontaxable for an exempt organization's properly appointed agent. If the contractor is the properly appointed agent of an exempt organization (Tax Law section 1116(a)), the purchase can be exempt — but only when the agency conditions in 20 NYCRR 541.3(d)(4) are met: invoiced as agent for the named exempt org (with delivery place), paid from the exempt org's special fund, delivered to the job site, and the contractor furnishes the exempt organization certificate (for a government entity, signed contracts and purchase orders instead, since governments have no exempt-org certificate).
• Scaffolding alone (no services) is taxable property. Renting or selling scaffolding without any accompanying services is a sale of tangible personal property — taxable even on a capital-improvement project.
• Don't accept the wrong certificate. Because scaffolding never becomes an integral component of the finished structure, the capital-improvement box (Box A) on Form ST-120.1 does not apply — the company should not accept ST-120.1 completed that way and should instead obtain the documents above.

What this means for you

Bundling services changes the tax character

Scaffolding + erect/dismantle is a service (since 2015), which can ride into a capital improvement as a nontaxable temporary facility. Scaffolding by itself is just rented/sold property and stays taxable, even on a capital-improvement job.

Get the right paperwork

To not collect tax, secure the correct document: Form ST-124 for capital-improvement jobs, or the exempt-organization agency package (agent invoicing, special-fund payment, job-site delivery, exempt-org certificate / government contracts). The wrong form — ST-120.1 Box A — does not work for scaffolding, because it never becomes part of the building.

Exempt-org work needs true agency

Selling to a contractor on an exempt-org job is not automatically exempt. The contractor must be the org's properly appointed agent and meet all of the agency conditions.

Common questions

Q: Is scaffolding on a capital-improvement job always exempt?
A: No. Scaffolding with erection/dismantling can be exempt as a temporary facility (with Form ST-124). Scaffolding alone, with no services, is taxable even on a capital improvement.

Q: My contractor gave me Form ST-120.1 with the capital-improvement box checked — is that enough?
A: No. Scaffolding never becomes an integral part of the structure, so Box A does not apply. Get Form ST-124 (for a capital improvement) or the exempt-organization agency documents instead.

Q: What makes an exempt-organization job exempt?
A: The contractor must be the org's properly appointed agent: invoiced as agent, paid from the org's special fund, delivered to the job site, and providing the exempt-organization certificate (or, for governments, signed contracts and purchase orders).

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 1101(b)(9) (definition of capital improvement)
• Tax Law section 1116(a) (exempt organizations)
• 20 NYCRR 541.8 (temporary facilities; necessary prerequisite to capital improvement)
• 20 NYCRR 541.3(d)(4) (contractor as agent of exempt organization)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2016.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a16_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(11)S
Sales Tax
April 22, 2016

Office of Counsel

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S130905A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTED. Petitioner asks under what circumstances
it is required to collect sales tax on its charges for scaffold sales, rental, and installation to its
customers when its customers are contractors working on construction projects for exempt
organizations.
We conclude that Petitioner is not required to collect sales tax on its charges for
scaffolding services provided to a contractor if the scaffolding qualifies as a “temporary facility”
that is a necessary prerequisite to a capital improvement, or the job is for an exempt organization
and the contractor provides Petitioner with appropriate documentation to substantiate that the
contractor is an agent of the exempt organization.
FACTS
Petitioner rents and sells scaffolding. On most occasions, it also provides erection and
dismantling services to its customers, as well as accessory items such as debris netting and trash
chutes. Petitioner’s customers typically are general contractors on construction projects.
Petitioner asks under what circumstances it is required to collect sales tax for scaffolding sales,
rental, and associated services provided in accordance with contracts entered into on or after
January 1, 2015 in cases where its customer is a contractor working for an exempt organization.
ANALYSIS
The term “scaffolding systems” includes “fixed structures that are used to support,
protect, or convey people or materials during the construction or repair of buildings and other
real property,” including “shoring and suspended scaffolding” and “hoisting systems” that are
“similar to elevators,” but not including “construction equipment that can be readily moved
within a construction site (e.g., on wheels or casters)…” TSB-M-14(15)S, Sales Tax Treatment
of Certain Temporary Facilities Provided at Construction Sites. On and after January 1, 2015,
the rental or sale of scaffolding systems, when provided in conjunction with installation and/or
dismantling services, is considered a service, regardless of whether or not the installation or
dismantling charges are separately stated. Id.
If the construction project Petitioner is working on is not considered a capital
improvement under Tax Law § 1101(b)(9), Petitioner’s services normally would be subject to
sales tax. See TSB-M-14(15)S. However, Petitioner’s services would not be taxable if the

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TSB-A-16(11)S
Sales Tax
April 22, 2016

scaffolding constitutes a “temporary facility” that is “a necessary prerequisite to the construction
to a capital improvement to real property,” and therefore considered to be “a part of the capital
improvement.” 20 NYCRR § 541.8; see TSB-M-14(15)S; see also L & L Painting Co., Tax
Appeals Tribunal (June 2, 2011). If Petitioner is hired to provide scaffolding on a construction
project that is considered a capital improvement under Tax Law § 1101(b)(9) and Petitioner
timely receives in good faith a copy of a properly completed valid Form ST-124, Certificate of
Capital Improvement provided by the contractor’s customer to the contractor, Petitioner is
relieved of the obligation to collect sales tax.
In cases where Petitioner rents or sells scaffolding without providing any associated
services, its receipts from scaffolding rentals and sales would be treated as receipts from the sale
of tangible personal property, and, accordingly, would be subject to sales tax, even for a capital
improvement project. TSB-M-14(15)S.
If Petitioner’s customer (i.e., the contractor) is performing work for an organization that
is exempt from sales tax under Tax Law § 1116(a), Petitioner’s scaffolding services generally
would be taxable if the project is not a capital improvement. However, the contractor could
purchase property or services from Petitioner exempt from sales tax if it is the properly
appointed agent of the exempt organization. See 20 NYCRR § 541.3(d)(4)(i); see also
Publication 765, Sales and Fuel Excise Tax Information for Properly Appointed Agents of New
York Governmental Entities (2005) at 10-11.
In order for a principal/agent relationship to exist between an exempt organization and a
contractor, the following conditions must be satisfied:
(a) purchases must be billed or invoiced by the vendor to the exempt
organization or to the contractor specifying that the contractor is acting as
agent for the exempt organization (e.g. X contractor, as agent for Y, name of
exempt organization) and identify the place of delivery;
(b) payment must be made by the exempt organization or by the contractor,
acting as agent, directly to the vendor from a special fund created by the
exempt organization for this specific purpose;
(c) deliveries must be made to the job site; and
(d) the contractor must furnish the vendor with the exempt organization
certificate when acting as agent for such organization.
20 NYCRR § 541.3(d)(4)(i). Petitioner’s sale or rental of scaffolding without accompanying
services to a contractor working for an exempt organization would be exempt from tax when the
contractor’s contract with the exempt organization meets the requirements described above. 20
NYCRR § 541.3(d)(4)(ii). In the case of a government entity, Petitioner would need to obtain
copies of signed contracts and government purchase orders from the contractor to establish the
exempt status of the transaction since government entities do not have exempt organization
certificates. See 20 NYCRR § 541.3(d)(2)(v)(a).

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TSB-A-16(11)S
Sales Tax
April 22, 2016

Petitioner indicates that it typically receives a copy of Form ST-120.1 (Contractor
Exempt Purchase Certificate) with Item 3, Box A checked as proof of exemption. However,
because scaffolding does not become an integral component of the completed structure, the
exemption referred to in Box A does not apply and Petitioner should not accept Form ST-120.1
completed in such manner as proof of exemption. Instead, Petitioner should obtain the
documents described above to document the exemption.

DATED: April 22, 2016

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.