When a company sells modular homes, is sales tax figured on the full selling price or only on the cost of the materials used to build them?

Plain-English summary

Poloron Homes of Penn., Inc., sells modular homes on a wholesale, uninstalled basis. It had been collecting New York sales tax using a tax base of 62% of the selling price — an amount it said represented its cost of the materials used to manufacture the homes. It asked what the proper basis is for computing the tax.

The Department held the tax base is the full sale price of the modular homes, not the cost of their component parts.

• A modular home is a taxable retail sale. Section § 1105(a) taxes receipts from retail sales, and "retail sale" (§ 1101(b)(4)) reaches a sale of tangible personal property — including a sale to a contractor for use in erecting or improving real property — "regardless of whether the tangible personal property is to be resold as such before it is so used or consumed." Poloron's sales of modular homes are retail sales, so their receipts are taxable.
• "Receipt" means the sale price. Section § 1101(b)(3) defines "receipt" as the amount of the sale price of the property — not the cost of its components.
• Result. The taxable receipts equal the sale price of the modular homes, not Poloron's material cost. So Poloron must use the sale price (not 62% of it) as the tax base in computing the sales and use tax it collects. (Compare Anthony J. Brown d/b/a Tony Brown Quality Homes, Tax Commission Decision, Jan. 9, 1981, TSB-H-81(19)S.)

What this means for you

Tax the price you charge, not your cost. New York sales tax on tangible personal property is computed on the sale price (the receipt), full stop. Backing the base down to your material or component cost understates the tax.

Selling a "building product" doesn't change the base. Even for something destined to become part of real property — a modular home sold to a builder — the taxable amount is the sale price of the item you sell.

Fix an under-collection method before it compounds. A percentage-of-price shortcut like taxing 62% of the price isn't authorized here; using it leaves you exposed for the uncollected tax.

Common questions

Q: Do I compute sales tax on my modular homes using the sale price or my material cost?
A: The sale price. The taxable "receipt" is the amount of the sale price (§ 1101(b)(3)), not the cost of the components.

Q: My homes get installed into real property by the buyer. Does that reduce the base?
A: No. The sale is still a retail sale of tangible personal property taxed on its sale price, regardless of later installation or resale before use (§ 1101(b)(4)).

Q: Can I keep taxing a fixed percentage of the price?
A: No. The Department directed using the full sale price as the tax base; a 62%-of-price method under-collects the tax.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1101(b)(4) — "retail sale," including sales to contractors regardless of resale before use
• Tax Law § 1101(b)(3) — "receipt" is the amount of the sale price

Department decision:

• Anthony J. Brown d/b/a Tony Brown Quality Homes, TSB-H-81(19)S (Tax Commission Decision, Jan. 9, 1981)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_9s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(9)S
Sales Tax
March 9, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S811125A

On November 25, 1981, a Petition for Advisory Opinion was received from Poloron Homes
of Penn., Inc., 79 Ridge Road, Middleburg, Pennsylvania 17842.
The issue raised is the proper basis for computing the sales tax required to be collected by
Petitioner on its sales of modular homes in New York.
Petitioner is engaged in the business of selling modular homes on a wholesale, uninstalled
basis. Petitioner collects sales tax from its customers, using as a tax base an amount equal to 62%
of the selling price, which purportedly represents the cost to Petitioner of the materials used in manu­
facturing the modular homes.
Section 1105(a) of the Tax Law imposes a sales tax on the receipts from retail sales. The term
"retail sale" is defined to include:
". . . a sale of any tangible personal property to a contractor, subcontractor or repairman for
use or consumption in erecting structures or buildings, or building on, or otherwise adding
to, altering, improving, maintaining, servicing or repairing real property, property or land;
as the terms real property, property or land are defined in the real property tax law, . . .
regardless of whether the tangible personal property is to be resold as such before it is so
used or consumed." Tax Law, § 1101(b)(4).
Section 1101(b)(3) of the Tax Law defines the term "receipt" as the " . . . amount of the sale price
of any property . . . . "
Petitioner's sales of modular homes constitute retail sales of tangible personal property. As
such, the receipts from these sales are subject to tax. Tax Law, §§1101(b)(4), 1105(a). The amount
of taxable receipts is equal to the sale price of the modular homes, and not the cost of the component
parts thereof. Tax Law, §1101(b)(3). Cf., Anthony J. Brown D/B/A Tony Brown Quality Homes,
Tax Commission Decision, January 9, 1981, TSB-H-81(19)S. Petitioner, therefore, must use the sale
price of the modular homes as the tax base in computing the sales and use tax required to be
collected.

DATED: February 9, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR