Are a tenant's animal-cremation units (removable trade fixtures) a capital improvement, and is the fuel used to run them taxable?

Plain-English summary

Pet Crematory Service of America, Inc. cremates animals for pet owners and veterinarians. As a tenant, it bought two crematory units, which the vendor installed: set in poured concrete, vented through the walls and ceiling, and plumbed to the building's oil-storage system. It asked whether the purchase of the units and the fuel consumed in cremation are subject to sales/use tax — arguing, in part, that the installation was a capital improvement.

The Department held the units are removable trade fixtures (not a capital improvement) and that the fuel is taxable.

• Installation is taxable unless it's a capital improvement. Section § 1105(c)(3) taxes the service of installing tangible personal property, except where the result is a capital improvement to real property, defined in § 1101(b)(9) (value/life, permanent affixation with damage on removal, and intended permanence).
• Tenant trade fixtures are presumed impermanent. Following Beaman Corp., TSB-A-82(32)S, absent a contrary lease term, a tenant's removable trade fixture is not a capital improvement because it fails the intended-permanence requirement. A trade fixture is personalty a tenant annexes to carry on its business, generally removable without substantial injury to the realty.
• Concrete, venting and plumbing don't compel permanence. Being set in concrete (Craine Silo) or having venting and plumbing connections (Dow's Music Mart) does not overcome the presumption; the specialized nature of the units and the commercial lessor-tenant relationship point away from permanence.
• The lease carves out trade fixtures. The lease has the landlord retain tenant improvements except trade fixtures — reinforcing that these units stay the tenant's property. So the installation is not a capital improvement (§ 1101(b)(9)(iii) unmet), and they are not "additions" either.
• Resale doesn't apply; fuel is taxable. The resale provisions don't apply because the units are not transferred to a customer. And fuel consumed in cremation is taxable under § 1105(b).

What this means for you

"Set in concrete" is not the test — intended permanence is. New York strongly presumes a tenant's trade fixtures are temporary, and physical anchoring (concrete, venting, plumbing) doesn't defeat that presumption. To be a nontaxable capital improvement, the item must be intended as a permanent part of the realty and cause material damage on removal.

Read the lease's fixture clause — it can decide the tax. Here the lease let the landlord keep tenant improvements but excepted trade fixtures, which confirmed the equipment remained the tenant's removable property. A lease that instead gives all additions permanently to the landlord can push the other way (as in the Department's other tenant-improvement opinions). The lease language is doing real work.

Fuel to run equipment is separately taxable. Even setting installation aside, the fuel consumed in the operation is taxable under § 1105(b). Utility and fuel purchases have their own rules and aren't swept into a capital-improvement or resale theory.

Common questions

Q: We anchored our equipment in concrete and plumbed it in. Is it now part of the real property?
A: Not necessarily. For a tenant's trade fixtures, New York presumes impermanence, and concrete, venting and plumbing don't overcome it. The installation here was taxable, not a capital improvement.

Q: Does our lease affect whether equipment is a capital improvement?
A: Yes. A clause carving out trade fixtures (as here) confirms the equipment stays yours and is removable — supporting "not a capital improvement." A clause giving all additions permanently to the landlord can point toward a capital improvement.

Q: Is the fuel we burn in the equipment taxable?
A: Yes. Fuel consumed in the cremation is taxable under § 1105(b), independent of the installation question.

Citations and references

Statutes:

• Tax Law § 1105(c)(3) — tax on installation, except capital improvements
• Tax Law § 1101(b)(9) — definition of "capital improvement" (including intended permanence)
• Tax Law § 1105(b) — tax on fuel and utilities

Regulations:

• 20 NYCRR § 527.7(a)(3) — capital-improvement regulation (codified by Ch. 471, L. 1981)

Authorities cited:

• Beaman Corp., TSB-A-82(32)S — tenant's removable trade fixture is not a capital improvement
• Craine Silo Co. v. Alden State Bank; Dow's Music Mart; Potter v. Cromwell — fixtures and permanence

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(21)S
Sales Tax
May 2, 1983

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820209A

On February 9, 1982, a Petition for Advisory Opinion was received from Pet Crematory
Service of America, Inc., 164 Cabot Street, West Babylon, New York 11704.
The issues raised in this Petition are whether purchases of cremation units used exclusively
for the cremation of animals, and of fuel consumed exclusively in the cremation of animals, are
subject to sales and compensating use tax.
Petitioner is engaged in the business of cremating the bodies of animals. Petitioner's clients
include both individual owners of the deceased animals and veterinarians. Petitioner purchased two
crematory units for use in its business. The units were installed by the vendor in the building
occupied by Petitioner as a tenant. The units are set in poured concrete. They are vented through the
walls and ceiling by means of metal and tubular piping. In addition, the units are connected to the
oil storage system of the building by means of plumbing connections.
Section 11 of the lease agreement between Petitioner and its lessor provides as follows:
"All improvements made by the Tenant to or upon the demised premises,
except said trade fixtures, shall when made, at once be deemed to be attached to the
freehold, and become the property of the Landlord, and at the end or other expiration
of the term, shall be surrendered to the Landlord in as good order and condition as
they were when installed, reasonable wear and damages by the elements excepted."
Section 1105(c)(3) of the Tax Law imposes a tax on the receipts from the service of
"installing tangible personal property . . . . except . . . (iii) for installing property which, when
installed, will constitute an addition or capital improvement to real property . . . . " The term "capital
improvement" is defined in section 1101(b)(9) of the Tax Law as follows:
(9)

Capital improvement. An addition or alteration to real property
which:

(i)

Substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property; and

(ii)

Becomes part of the real property or is permanently affixed to the real
property so that removal would cause material damage to the property
or article itself; and

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-83(21)S
Sales Tax
May 2, 1983

(iii) Is intended to become a permanent installation.
This provision was enacted by Chapter 471 of the laws of 1981, effective July 7, 1981. However,
such provision represents a legislative enactment of the substance of the Tax Commission's
previously promulgated regulation on the subject, located at 20 NYCRR 527.7(a)(3).
As was set forth in Beaman Corporation, State Tax Commission Advisory Opinion, August
19, 1982, TSB-A-82(32)S, absent a lease provision to the contrary, where a tenant installs a
removable trade fixture such installation does not constitute a capital improvement because of a
failure to satisfy the criterion of intended permanence set forth at Tax Law, § 1101(b)(9)(iii). A trade
fixture is an article of personal property which a tenant places upon or annexes to leased real
property for the purpose of carrying on his trade or business. 23 N. Y. Jur, Fixtures §29. These are
generally considered not to become part of the realty, because not intended as a permanent
installation, and to be removable by the tenant, where removal would not cause substantial injury
to the real property to which they are attached. People v. Boyland, 144 N.Y.S. 2d 88, aff'd 309 N.Y.
685; Matter of City New York, 192 N.Y. 295; Antonowsky v. State of New York, 14 Misc. 2d 689.
In the present matter, the data supplied by Petitioner does not indicate that removal of the
incinerators would cause such substantial injury to the underlying freehold as would rebut the law's
strong presumption of the intended impermanence of tenant-installed trade fixtures.
The mere fact that the incinerators are set in concrete does not compel such a result (Craine
Silo Co., Inc. v. Alden State Bank, 218 A. D. 263; Beaman Corporation, supra.), nor does the
presence of the venting and plumbing connections (Dow's Music Mart, 205 Misc. 852). In addition,
the unique nature of the personalty here annexed, taken together with the relationship of lessor to
commercial tenant, particularly militates against a finding of intended permanence. Finally, while
the lease between Petitioner and the lessor does provide for the retention by the landlord of
improvements made by the tenant, an exception is specifically carved out for trade fixtures.
Accordingly, the installation at issue does not constitute a capital improvement by reason of failure
to satisfy the requirement set forth at Tax Law, § 1101(b)(9)(iii). This failure of the requirement of
permanence also concludes any question of the incinerators' constituting "additions," within the
meaning of the statute. Potter v Cromwell, 40 N.Y. 2d 287.
Petitioner's reliance on the resale provisions of the Tax Law is misplaced. Such provisions
relate to those instances where property is purchased for resale as such or as a component part of
property sold, or for use in performing certain taxable services where the property is transferred to
the customer in conjunction with the performance of the service. Here there is no such transfer.

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TSB-A-83(21)S
Sales Tax
May 2, 1983

Finally, Petitioner inquires as to whether tax is due on the purchase of fuel consumed in
cremation. Such purchase is subject to tax under section 1105(b) of the Tax Law. The provisions of
the Tax Law relating to capital improvements and resale have no bearing on such purchases.

DATED: April 5, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau