NY TSB-A-20(17)S Sales Tax 2020-06-09

Can a contractor buy glue tax-free when it is used to bond ceramic tile to the floor of a building owned by the Port Authority?

Short answer: Yes. When a contractor improves real property owned by a tax-exempt governmental entity, materials that become an integral component part of that property are exempt from sales and use tax. The glue is permanently integrated into the Port Authority's building, so the contractor may buy it tax-free using Form ST-120.1. Tools and equipment that do not become part of the building would still be taxable.

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 construction company contracted to replace ceramic tile in a terminal at JFK Airport. The terminal is owned by the Port Authority of New York and New Jersey (a tax-exempt governmental entity) and leased to a for-profit tenant, who hired the contractor. The contractor needed to buy glue to bond the tile to the floor and asked whether that glue is taxable.

The Office of Counsel concluded the glue may be purchased without sales or use tax. When a contractor improves real property owned by an entity that is exempt under Tax Law § 1116(a), materials that become an integral component part of that real property are exempt (Tax Law §§ 1115(a)(15), (16)). The glue permanently bonds the tile to the Port Authority's building, so it becomes part of exempt real property. By contrast, a contractor's tools, supplies, and equipment that do not become part of the building remain taxable.

What this means for you

Contractors on government / exempt-entity jobs

Materials that are permanently incorporated into the exempt owner's real property (here, adhesive bonding tile to the floor) can be bought tax-free. To do it, give your supplier a properly completed Form ST-120.1 (Contractor Exempt Purchase Certificate). Keep documentation, including a copy of the lease showing the exempt owner, in your records.

Tenants leasing from exempt entities

Furnish the contractor a copy of your lease with the exempt owner so the exempt nature of the materials can be substantiated. Both you and the contractor should retain it.

Accountants and tax professionals

Watch the integral-component line: adhesives, fasteners, and like materials that become part of the realty qualify; tools, scaffolding, fuel, and consumed equipment that don't become part of the building stay taxable (20 NYCRR 541.3(d)(2)).

Common questions

Q: Does it matter that a for-profit tenant, not the Port Authority, hired the contractor?
A: No. What matters is that the improved real property is owned by the exempt governmental entity and the material becomes an integral component of it.

Q: What form is used?
A: Form ST-120.1, the Contractor Exempt Purchase Certificate, given to the supplier (Tax Law § 1132(c)(1)).

Q: Are the contractor's tools and equipment also exempt?
A: No. Items that do not become part of the exempt entity's real property remain subject to tax.

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

Statutes and guidance:
- Tax Law §§ 1115(a)(15), (16); § 1116(a)(1); § 1132(c)(1)
- 20 NYCRR 528.16(a)(2), 528.17, 541.1(e), 541.3(d)(2); TSB-A-08(35)S; TSB-A-00(34)S; TSB-A-07(4)S
- Form ST-120.1 (Contractor Exempt Purchase Certificate)

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/a20-17s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(17)S
Sales Tax
June 9, 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 asks whether the glue purchased by a contractor to bond ceramic tile
to the floor in a building owned by the Port Authority is subject to sales or compensating use
tax.
We conclude that the glue may be purchased without the payment of sales or use tax
when it will be incorporated as an integral component part of real property owned by a
governmental entity.
Facts
Petitioner is a construction company that has a contract to install ceramic tile at a
terminal in John F. Kennedy International Airport (JFK). In its facts, Petitioner states that the
terminal is owned by the Port Authority of New York and New Jersey (Port Authority) and
leased to a for-profit entity (“the tenant”) that is contracting with Petitioner to replace ceramic
tile in the terminal. Petitioner must purchase glue that it will use to bond the ceramic tile to the
floor.
Analysis
When a contractor makes improvements or repairs to real property owned by an
organization or governmental entity exempt from tax under Tax Law § 1116(a), materials
purchased by the contractor that become an integral component part of such real property are
exempt from sales and use tax. See Tax Law §§ 1115(a)(15), (16); 20 NYCRR 528.16(a)(2),
528.17, 541.1(e), 541.3(d)(2)(i). In contrast, a contractor’s purchases of the supplies, tools, and
equipment it uses in performing the installation that do not become part of the exempt entity’s
real property are subject to tax. See 20 NYCRR 541.3(d)(2)(iv).
The Port Authority is a governmental entity exempt from sales tax. See Tax Law §
1116(a)(1); 20 NYCRR 529.2(a), (b). The glue in question will be integrated into the Port
Authority’s property because it will be used to bond ceramic tiles to the floor. Since the glue will
become an integral component part of a building owned by a governmental entity, it may be
purchased by Petitioner without the payment of sales or use tax. See Tax Law §§ 1115(a)(15),
(16); see also, TSB-A-08(35)S; TSB-A-00(34)S.

-2-

TSB-A-20(17)S
Sales Tax
June 9, 2020

To purchase the glue exempt from sales tax, Petitioner should furnish its supplier with a
properly completed Form ST-120.1, Contractor Exempt Purchase Certificate. See Tax Law §
1132(c)(1). The tenant should also furnish Petitioner with a copy of the lease between the tenant
and the Port Authority. Petitioner and the tenant should maintain a copy of the lease in their
records as substantiation of the exempt nature of the transaction. See TSB-A-07(4)S.
DATED: June 9, 2020

/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.