NY TSB-A-16(7)S Sales Tax 2016-03-16

Is equipment a repair shop buys to perform taxable repairs itself subject to sales tax?

Short answer: Yes. A car dealer's purchase of a wheel-alignment machine is a taxable retail sale of tangible personal property. The machine is used to perform the dealer's repair and alignment work, which is a taxable service - and the dealer does collect sales tax on the repairs. But that does not exempt the equipment, because the equipment is not bought for resale and does not become a physical component of the customer's car or get transferred to the customer. Equipment a business buys to use in performing a taxable service - that stays with the business rather than being resold or built into the serviced property - is itself subject to sales and use tax.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A new-car franchise dealer that repairs vehicles and sells parts bought a wheel-alignment machine so it can align tires and complete repairs (the work cannot be done without it). The dealer collects sales tax on the repairs (which include the alignment) and asked whether its purchase of the machine is also subject to sales/use tax.

The Office of Counsel concluded the equipment purchase is taxable:

Sales tax applies to every retail sale of tangible personal property (Tax Law section 1105(a)). A "retail sale" excludes purchases for resale or to become a physical component part of property (Tax Law section 1101(b)(4)).
The dealer's alignment/repair work is a taxable service (Tax Law section 1105(c)(3)) — and the dealer does collect tax on it.
But the machine is not bought for resale and does not become part of the customer's car or get transferred to the customer. Equipment a business uses to perform a taxable service, which stays with the business, is itself a taxable retail purchase (citing TSB-A-97(26)S, TSB-A-89(2)S). Collecting tax on the downstream repairs does not exempt the tool.

What this means for you

Your tools are taxable even though your service is taxed

Buying equipment to perform a taxable repair/service is a taxable purchase. The resale exclusion only covers things you resell or that become a physical part of (or are transferred with) the customer's property — a lift, an alignment machine, or a diagnostic tool that stays in your shop is not one of those.

Don't confuse "I charge tax on the job" with "my tools are exempt"

Collecting sales tax on the repair does not flow back to exempt the machine you used. They are separate transactions: your tool purchase is taxed when you buy it; the repair is taxed when you bill the customer.

Common questions

Q: I collect sales tax on every repair — why do I also owe tax on the machine?
A: Because the machine is your own equipment, not something you resell or build into the customer's car. Equipment used to perform a taxable service is a taxable purchase.

Q: When would shop equipment be exempt?
A: Generally only if you buy it for resale, or if the item becomes a physical component of, or is transferred to, the customer with the service. A tool that stays in your shop does not qualify.

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 retail sales of tangible personal property)
Tax Law section 1101(b)(4) (definition of retail sale; component-part/transfer test)
Tax Law section 1105(c)(3) (installing, maintaining, servicing, repairing tangible personal property)

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_7s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(7)S
Sales Tax
March 16, 2016

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

PETITION NO. S150615A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTED
(hereinafter “Petitioner”). Petitioner asks whether its purchase of a piece of equipment is subject
to sales and use tax where sales tax is collected by Petitioner on the repair services performed for
its customers using the equipment.
We conclude that Petitioner’s purchase of equipment is subject to sales and use tax
because it is a retail sale of tangible personal property that is not subject to any exemptions.
Facts
Petitioner is a New Car Franchise Dealer that repairs vehicles and sells parts and
equipment. Petitioner purchased a Wheel Alignment Machine (“Equipment”) so that when a tire
is sold or a car is repaired, the tire can be aligned and the repair can be completed by Petitioner.
This work cannot be completed without the Equipment. Sales tax is collected on the repair,
which includes the cost of the alignment.
Analysis
Tax Law § 1105(a) imposes tax upon the receipts from every retail sale of tangible
personal property unless otherwise exempt. A retail sale includes a sale of tangible personal
property to any person, other than for resale, or use of tangible personal property by that person
in performing services subject to sales and use tax where the tangible personal property becomes
a physical component part of the property or the property itself is actually transferred to the
purchaser of the service in conjunction with the performance of the service. See Tax Law §
1101(b)(4). Included in the services subject to sales and use tax is the installing, maintaining,
servicing or repairing of tangible personal property. Tax Law § 1105(c)(3).
The purchase of tangible personal property to be used in performing a taxable service
where the property does not become a physical component part of the property serviced or is not
transferred to the purchaser of the service is subject to sales and compensating use tax. See TSBA-97(26)S. Where a business’s services are the maintaining, servicing or repairing of tangible
personal property, the business’s purchases of equipment for use in performing such services are
subject to State and local sales and use tax. See TSB-A-89(2)S.

-2-

TSB-A-16(7)S
Sales Tax
March 16, 2016

Here, as acknowledged by Petitioner, the alignment and repair service it provides is a
repair or maintenance to tangible personal property subject to sales and use tax. See TSB-A89(2)S. Additionally, as the Equipment used by Petitioner in performing its service is not for
resale or for use in performing a taxable service where it will become part of the property
serviced or be transferred to the purchaser of the service, Petitioner’s purchase of the Equipment
constitutes a retail sale subject to sales and use tax. See TSB-A-97(26)S.

DATED: March 16, 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.