NY TSB-A-17(14)S Sales Tax 2017-08-02

Are charges for inspecting backflow / cross-control prevention devices subject to New York sales tax?

Short answer: It depends on whether the inspection is government-mandated. A diagnostic test of equipment is normally a taxable maintenance service even if no repair is done. But inspections that are mandated for code compliance are not taxable. Because New York Department of Health rule 10 NYCRR 5-1.31 requires annual testing of cross-control (backflow prevention) devices, charges for those required inspections are not subject to State and local sales tax. Inspections that are not mandated — done at a customers or third partys request, even in anticipation of a required inspection — are taxable services to real or tangible personal property.

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 company that inspects cross-control / backflow prevention devices (the devices that keep contaminated water from flowing back into the drinking-water supply) asked whether its inspection charges are taxable.

The Office of Counsel drew a bright line based on whether the inspection is government-mandated:

A diagnostic service that tests how equipment functions is generally a taxable maintenance service, even if no repair is performed (20 NYCRR 527.5(a)(3), Example 6).
But inspections that are mandated for code compliance are not taxable (the opinion analogizes to required vehicle safety/emissions inspections).
The NYS Department of Health rule 10 NYCRR 5-1.31 requires annual testing of cross-control devices. So charges for those required inspections are not subject to State and local sales tax.
Inspections that are not mandated — performed at a customers or third partys request, even in anticipation of a required inspection — are taxable services to real or tangible personal property (Tax Law section 1105(c)(3), (5)).

What this means for you

Inspection and testing businesses

Ask one question: is the law requiring this inspection? A mandated code-compliance inspection is not taxable. A voluntary test you sell — even a pre-check before the official inspection — is a taxable maintenance/servicing charge.

Separate the mandated from the voluntary

If you do both, keep them distinct on your invoices, because their tax treatment differs. Lumping a voluntary diagnostic in with a mandated inspection invites tax on the whole charge.

Building owners and plumbers

The required annual backflow test under 10 NYCRR 5-1.31 should not carry sales tax. Other diagnostic or repair-related visits generally do.

Common questions

Q: Why is a mandated inspection different from a normal diagnostic test?
A: A diagnostic test is normally a taxable maintenance service, but New York treats inspections required by law for code compliance as non-taxable.

Q: I ask for a pre-inspection before the official one. Is that taxable?
A: Yes. An inspection done at your request, even in anticipation of the mandated one, is a taxable service.

Q: Which rule makes the backflow test mandatory?
A: New York Department of Health regulation 10 NYCRR 5-1.31 requires annual testing of cross-control devices.

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(c)(3) (servicing/maintaining tangible personal property)
Tax Law section 1105(c)(5) (maintaining/servicing real property)
20 NYCRR 527.5(a)(3), Example 6 (diagnostic test is a taxable maintenance service)
10 NYCRR 5-1.31 (Dept. of Health rule requiring annual testing of cross-control devices)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2017.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a17_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-17(14)S
Sales Tax
August 2, 2017

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

PETITION NO. S141209C

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTE (“Petitioner”).
Petitioner asks whether receipts from the inspections of cross-control or backflow prevention
devices used in the installation of plumbing fixtures are subject to New York state and local sales
taxes.
We conclude that Petitioner’s receipts from government-mandated inspections of crosscontrol devices are not subject to New York State and local sales taxes.
Facts
Petitioner operates a business that inspects cross-control or backflow prevention devices
(“cross-control devices”) used in the installation of plumbing fixtures for the supply of drinking
water. Hydraulic events, such as a broken water main, severe or widespread power outages
and/or firefighters using large quantities of water, may result in the backflow of contaminated
water into the water distribution system. When properly installed, cross-control devices prevent
contaminants from entering a water distribution system when the water pressure is greater than
or less than the pressure in the water distribution system. For plumbing fixtures where excess or
negative water pressure could result in the backflow of contaminants in the water distribution
system, the Bureau of Water Supply Protection of the New York State Department of Health
(“DOH”) requires the installation and annual testing of a cross-control device in compliance with
the requirements of Department of Health regulations 10 NYCRR 5-1.31.
Analysis
A diagnostic service that tests the function of a piece of equipment is generally
considered a taxable maintenance service, even if no repair is performed. See 20 NYCRR
527.5(a)(3), Example 6. However, inspections that are government-mandated for code
compliance are not subject to New York State and local sales taxes. See TSB-A-05(11)S; TSBA-96(67)S; cf Publication 838, A Guide to Sales Tax for Automobile Dealers (stating that the
service of performing required New York safety and emission inspections is not subject to sales
tax). If Petitioner is inspecting a cross-control device, as required by 10 NYCRR 5-1.31, charges

-2-

TSB-A-17(14)S
Sales Tax
August 2, 2017

for the inspection are not subject to New York State and local sales taxes. However, inspections
that are not government-mandated, but rather are performed at the request of a customer or third
party (even if performed in anticipation of a government-mandated inspection), are subject to
New York State and local sales taxes. See Tax Law § 1105(c)(3) and (5).
DATED: August 2, 2017

/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.