If a New York marina buys floating cement docks and installs them with its own employees, is the purchase a tax-exempt capital improvement or taxable tangible personal property?

Plain-English summary

A full-service marina replaced an old wooden dock (about 68 slips) with a massive new floating cement dock weighing over 633,000 pounds, anchored to steel pilings driven into the basin floor that it owns. It bought the dock components from an out-of-state marine-supply company, had them shipped to New York, and assembled and installed everything itself using its own employees. The supplier charged New York sales tax on the sale, and the marina paid it. The marina then asked the Department whether that purchase was really a nontaxable capital improvement so it could recover the tax.

The Department said no — the purchase was taxable, and the marina correctly paid the sales tax. Even though the finished, installed dock may well be a permanent fixture that adds value to the real property, that is not the question. New York's capital-improvement exemption applies to the service of installing property when the installed result is a capital improvement (Tax Law § 1105(c)(3)(iii)). Here the marina did not buy an installation service from anyone — it bought only tangible personal property (the dock parts) and did the installation in-house. A retail sale of tangible personal property is taxable under Tax Law § 1105(a), so the supplier's charge was properly taxed.

The lesson is a common and counterintuitive one: doing the installation yourself does not make the materials tax-free just because the end product is a capital improvement. The exemption attaches to a contractor's installation labor, not to your purchase of the parts.

What this means for you

Marinas, contractors, and property owners doing their own installs

If you buy materials and install them yourself, you owe sales tax on the materials — full stop. The "capital improvement" exemption does not exempt your purchase of tangible personal property. It only means that when you hire a contractor whose installed work is a capital improvement, the contractor's charge to you for that job isn't taxed as an installation service (instead, the contractor pays tax on the materials it buys). Self-installers are effectively the end user of the materials and pay tax on them.

When the capital-improvement exemption actually helps

The exemption is about who you hire and how the deal is structured. If a marine-construction contractor had sold and installed the dock as a single capital-improvement job and you gave them a properly completed Form ST-124 (Certificate of Capital Improvement), the contractor would not charge you sales tax on the installation — but the contractor would owe tax on the dock materials it purchased. Buying the parts yourself flips that around and puts the tax on you.

Accountants and tax professionals

The holding turns on the distinction between a taxable retail sale of tangible personal property (§ 1105(a)) and a capital-improvement installation service (§ 1105(c)(3)(iii); capital improvement defined at § 1101(b)(9)). The taxpayer's strong facts on permanence, weight, value, and intent never reached the three-part capital-improvement test, because there was no installation service in the transaction at all — only a purchase of goods. Don't conflate "the finished thing is a capital improvement" with "my purchase of the components is exempt."

Common questions

Q: The dock is permanently attached and adds huge value — why is it still taxable?
A: Because the marina bought the dock as goods and installed it itself. The capital-improvement exemption applies to an installation service, not to a purchase of materials. With no installation service in the transaction, the sale of the parts is just a taxable retail sale of tangible personal property.

Q: Could the marina have avoided the tax?
A: Potentially, by structuring it as a single sale-and-installation job with a contractor and furnishing Form ST-124. Then the contractor — not the marina — would bear the tax (on the materials the contractor buys). Self-installation removes that option.

Q: Does buying materials for a capital improvement project ever come tax-free?
A: Not for the property owner who buys and installs them. The contractor who performs a capital improvement pays sales/use tax on the materials it incorporates; it doesn't get an exemption for those materials either. The exemption is on the labor/installation charge to the customer, not on the goods.

Q: Can I rely on this opinion for my marina?
A: No. An Advisory Opinion binds the Department only as to the petitioner and the exact facts presented, and only if those facts were fully and accurately described. It shows the Department's reasoning but cannot be relied on by another taxpayer.

Citations and references

Statutes and regulations:
- Tax Law § 1105(a) (sales tax on retail sales of tangible personal property)
- Tax Law § 1105(c)(3) (tax on the service of installing tangible personal property)
- Tax Law § 1105(c)(3)(iii) (installation that results in a capital improvement is excluded from tax)
- Tax Law § 1101(b)(9) (definition of "capital improvement")

Department guidance referenced in this summary: Form ST-124 (Certificate of Capital Improvement); Publication 862 (sales and use tax classification of capital improvements vs. repairs).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm

• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-28s.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-28s.pdf

Original ruling text

Sales Tax
August 14, 2024
Office of Counsel

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ redacted ] (Petitioner). Petitioner asks whether its purchase of floating cement docks is a capital improvement and not subject to sales and use tax (sales tax). We conclude that Petitioner’s purchase of floating cement docks is not a capital improvement and is subject to sales tax.

Facts

Petitioner is a full-service marina located on an inland basin. Petitioner offers boat slip rentals, launching and hauling services, parts and repairs, fuel and pump-out service, and sales of new and used boats. Since inception, Petitioner has owned and maintained fixed wooden docks attached to wooden pilings embedded in the basin floor. Petitioner owns the basin floor (land) beneath its docks. Petitioner is in the process of replacing the existing wooden docks with new floating cement docks. In the specific circumstance Petitioner asks about here, Petitioner replaced one entire dock containing about 68 boat slips. The existing wooden dock was completely removed and replaced with a new floating cement dock.

The new floating cement dock was created by attaching cement docks to each other and to the main walk assembly. The cement docks weigh from 60,800 pounds to 185,300 pounds and the main walk assembly, including the dock ramp, weighs 326,100 pounds. In total, the new floating cement dock weighs 633,200 pounds. The cement docks are held together with wooden walers that work to distribute weight over the dock — to increase weightbearing capacity, prevent breakage, and provide a buffer against damage from boats. The cement docks are further attached to pilings made of one-half inch steel pipe that is twelve inches in diameter. These pilings are affixed by being driven deep into the basin floor. The pilings rise ten feet above the floating cement docks, permitting the docks to move vertically up and down as the tides change. Each dock has infrastructure to provide users with electric and water. There are conduit boxes built internally into the polystyrene core that connect electric boxes on shore to power pedestals in front of each boat slip, providing hard-wired electric and water service to each individual slip. The main walk assembly also has a lockable security gate to provide security for the boat slips. The cost of the new floating cement dock was $694,000.00 including sales tax.

Petitioner maintains that the new floating cement dock is a significant investment that substantially increases the value of its real property and prolongs the useful life of its basin and associated business. Petitioner states that the tax assessor considers the entire basin, including the docks, when valuing Petitioner’s realty. Further, Petitioner intends that the new floating cement dock will be a permanent fixture. Petitioner states that removing the cement docks would require either that the docks be disassembled and lifted over the pilings or the pilings be removed and the docks disassembled, floated to a haul out slip, and lifted out by a crane. For these reasons, and because the basin is located inland such that the floating cement dock is protected from damage caused by ice and waves, Petitioner has no intention of removing the dock — in the winter, or otherwise.

Petitioner purchased the floating cement dock from a third-party marine construction supply company (Supplier). The floating cement dock was shipped by Supplier to Petitioner in New York and installed by Petitioner’s own employees. Supplier charged Petitioner, and Petitioner paid, New York State and local sales taxes on its purchase of the floating cement dock.

Petitioner now asks whether its purchase of the floating cement dock was a nontaxable capital improvement.

Analysis

Tax Law § 1105 imposes sales tax on the retail sale of tangible personal property (see Tax Law § 1105[a]) and on specific services, including the service of installing tangible personal property (see Tax Law § 1105[c][3]). However, the service of installing tangible property that when installed is a capital improvement to real property is not subject to sales tax. See Tax Law § 1105(c)(3)(iii); see also Tax Law §1101(b)(9), defining “capital improvement.”

Under the facts presented, Petitioner purchased the floating cement dock from Supplier on an uninstalled basis and then installed it using its own employees. Thus, Petitioner purchased only tangible personal property from Supplier — not an installation service that resulted in a capital improvement, or otherwise, to real property. Petitioner correctly paid sales tax on its purchase of these floating cement docks.

DATED: August 14, 2024

Mary Ellen Ladouceur
Principal Attorney

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.