Are charges for the annual government-mandated inspection of backflow prevention devices subject to New York sales tax?

Plain-English summary

A company installs and inspects backflow prevention devices — the valves that keep contaminated water from flowing back into a drinking-water supply. New York State's Sanitary Code and New York City rules require these devices to be tested by a certified tester at installation, after any repair, and every year. The company asked whether its charges for the annual inspections are taxable.

The Office of Counsel drew a line. A stand-alone, government-mandated inspection done solely for code compliance is not taxable. Ordinarily a diagnostic test of equipment is a taxable maintenance service (20 NYCRR 527.5(a)(3), Example 6) even if nothing is repaired — but the Department recognizes an exception for inspections that are government-mandated, performed purely for code compliance, and not connected to installing, repairing, maintaining, or servicing the property. The required annual backflow inspection fits that exception, so it's not subject to sales tax.

However, if the inspection is performed at the time of, or in conjunction with, a taxable installation or repair of the device, it's taxable — it's part of that taxable work. And the company's installation, repair, and maintenance charges are always taxable, whether or not the law requires them.

What this means for you

Backflow testers and certified inspectors

Your annual (and other code-mandated, stand-alone) inspections done purely for compliance aren't taxable. But the initial-installation test and the after-repair test ride along with taxable work, so those inspections are taxable. Separate your billing accordingly.

Plumbing, fire-protection, and code-compliance inspectors generally

The principle extends beyond backflow devices: a purely regulatory inspection, unconnected to taxable install/repair/maintenance, is generally not taxable, while diagnostic testing tied to (or part of) a repair or installation is. Don't assume "it's just an inspection" — ask whether it's standalone code compliance or part of taxable work.

Accountants and tax professionals

Watch the conjunction test. Annual compliance inspection alone = not taxable (TSB-A-17(14)S, TSB-A-05(11)S, TSB-A-96(67)S). Inspection bundled with installation/repair, or the install/repair/maintenance itself = taxable (§ 1105(c)(3), (5)). The mandate by law doesn't make the install/repair exempt.

Common questions

Q: Is my annual backflow inspection charge taxable?
A: No, when it's the stand-alone, government-mandated annual compliance inspection not tied to an installation or repair.

Q: What about the test I do right after a repair or at installation? A: Taxable. It's performed in conjunction with taxable installation/repair work.

Q: Are my repair and installation charges taxable even though the law requires the device? A: Yes. Installation, repair, and maintenance of the devices are taxable regardless of any legal mandate.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner, but it reflects a consistent line of inspection opinions. Confirm your own facts and billing.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(3), (5) (installing/servicing/repairing TPP and real property)
• 20 NYCRR 527.5(a)(3) (diagnostic testing as taxable maintenance); 20 NYCRR 527.7(a)(1)
• 10 NYCRR 5-1.31(a)(3); 15 RCNY § 20-04(e)(1) (mandatory backflow testing)

Guidance cited:

• TSB-A-17(14)S; TSB-A-05(11)S; TSB-A-96(67)S; TSB-A-13(39)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-12s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(12)S
Sales Tax
June 2, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
[ REDACTED ] (Petitioner). Petitioner asks whether receipts from annual inspections of backflow prevention devices are subject to New York State and local sales and use taxes. We conclude that inspection of backflow prevention devices solely for purposes of mandatory governmental code compliance are not subject to sales tax. However, inspections of those devices that are performed in conjunction with an installation or repair are taxable. Facts Certain property owners must install backflow prevention devices to prevent water from flowing back into a drinking water supply. Petitioner operates a business that installs and inspects backflow prevention devices. Petitioner notes that both the New York State Sanitary Code and New York City regulations require regular testing of backflow prevention devices by a certified device tester. Analysis New York State and local sales taxes are imposed on receipts from the service of installing tangible personal property, and the services of maintaining, servicing or repairing tangible personal property and real property. See Tax Law § 1105(c)(3), (5); TSB-A-13(39)S. The terms “maintaining, servicing and repairing” include “all activities that relate to keeping property in a condition of fitness, efficiency, readiness or safety, or restoring it to such condition.” 20 NYCRR 527.5 (a)(3), 527.7(a)(1). 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. 20 NYCRR 527.5(a)(3), Example 6. However, inspections that are government mandated and are performed solely for code compliance and are not related to or performed in conjunction with installing, repairing, maintaining or servicing tangible personal property or real property are not subject to sales tax. See TSB-A-17(14)S; TSB-A-05(11)S; TSB-A-96(67)S. The New York State Sanitary Code requires that backflow prevention devices be inspected by a certified tester “at the time of initial installation, after each repair, and annually thereafter.” 10 NYCRR 5-1.31(a)(3). The Rules of the City of New York have similar requirements. See 15 RCNY § 20-04(e)(1). Accordingly, Petitioner’s charges for annual inspections are considered government-mandated inspections for code compliance and will not be subject to sales tax, provided they are not performed in conjunction with the installation or

-2-

TSB-A-20(12)S
Sales Tax
June 2, 2020

repair of those devices. However, inspections of backflow prevention devices that are performed at the time of installation or repair are subject to sales tax because they are related to or performed in conjunction with taxable installation and maintenance services, even though they are performed pursuant to government regulations. In addition, Petitioner’s receipts from installation, repair and maintenance services are subject to sales tax, regardless of whether they are required by State or local law or regulation. DATED: June 2, 2020

/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.