Is the sale and installation of a wood or coal burning stove — and its chimney and masonry — a tax-exempt capital improvement to real property?

Plain-English summary

AA Nursery, Inc. sells and installs coal and wood burning stoves. Each stove needs a chimney — usually an insulated metal pipe run through the ceiling and roof (or up an outside wall), sometimes a brick chimney — plus masonry work behind or around the stove and a concrete base for fire safety. Installing the metal chimney can require cutting floor joists and adjusting wall studs; the chimney is bolted to joists, wall, or roof. AA Nursery asked whether selling and installing the stoves is an exempt capital improvement.

The Department drew a line: the stove is taxable, but the permanent masonry is an exempt capital improvement.

• The rule. Tax Law 1105(a) taxes retail sales of tangible personal property, and 1105(c)(3) taxes installation services — except installing property that, when installed, becomes a capital improvement to real property.
• The three-part test (all required). Under Tax Law 1101(b)(9), a capital improvement must (i) substantially add value or prolong the life of the realty; (ii) become part of or be permanently affixed to the realty so that removal would cause material damage; and (iii) be intended as a permanent installation. The "and" is conjunctive — fail any one prong and there is no exemption.
• The stove is taxable. A wood or coal burning stove retains its identity as tangible personal property and does not become a permanent part of the realty, so the stove and its installation are taxable under 1105(a) and 1105(c)(3) (M & C Stove World, Inc., TSB-A-81(42)S; Publication 862).
• The masonry is an exempt capital improvement. The brick chimney, the masonry fireproofing behind/around the stove, and the concrete base have the necessary permanence to qualify as a capital improvement (assuming intended permanence and added value), so those installations are exempt.
• The metal chimney depends on how it's attached. Assuming intended permanence, the metal chimney is exempt only if installed so that its removal would cause material damage to the real property or the chimney itself.
• Mixed unit. When taxable and exempt items are sold as a single unit, tax is collected on the total unless the non-taxable items and charges are separately stated (20 NYCRR 527.1(b)).
• Documenting the exempt work. For the capital-improvement portion, AA Nursery pays tax on its own materials and does not collect tax on its separately stated charge — but to be relieved of the collection duty it must take a properly completed Certificate of Capital Improvement (Form ST-124) from the customer (Tax Law 1132(c); 20 NYCRR 532.4(f)).

What this means for you

Selling equipment and doing masonry are taxed differently — even in one job. The stove is tangible personal property that stays taxable no matter how it's installed. The permanent brickwork, fireproofing, and concrete base are capital improvements and can be exempt.

Permanence is the whole test — and all three prongs must be met. Value added, permanent attachment (removal would cause material damage), and intended permanence. A metal chimney only clears the bar if it's fixed so firmly that taking it out would damage the structure or the chimney.

Separate your invoice, or lose the exemption. When you sell taxable and exempt items as one unit, tax applies to the entire price unless you separately state the exempt charges. Break out the stove from the capital-improvement work.

Get the ST-124 in hand. For the capital-improvement portion, you pay tax on your own materials and don't collect from the customer — but only if you hold a properly completed Certificate of Capital Improvement (Form ST-124).

Common questions

Q: Is installing a wood or coal stove a tax-exempt capital improvement?
A: The stove itself and its installation are taxable — a stove stays tangible personal property. The permanent masonry (brick chimney, fireproofing, concrete base) can be an exempt capital improvement.

Q: What about the metal chimney pipe?
A: It's exempt only if installed so permanently that removing it would cause material damage to the real property or the chimney. Otherwise it's taxable.

Q: How do I bill a job that includes both the stove and permanent masonry?
A: Separately state the taxable stove/installation and the exempt capital-improvement work. If it's billed as one lump unit, tax applies to the whole amount. For the exempt work, pay tax on your materials and collect a Certificate of Capital Improvement (Form ST-124) from the customer.

Citations and references

Tax Law:

• 1105(a) — retail sale of tangible personal property is taxable
• 1105(c)(3) — installation service is taxable, except installing property that becomes a capital improvement
• 1101(b)(9) — three-part definition of "capital improvement" (value/life; permanent attachment; intended permanence)
• 1132(c) — Certificate of Capital Improvement (Form ST-124) relieves the installer's collection duty on exempt work

Regulations (20 NYCRR):

• 527.1(b) — a single unit of taxable and exempt items is taxed on the total unless separately stated
• 532.4(f) — the capital-improvement certificate

Authority cited:

• M & C Stove World, Inc., TSB-A-81(42)S — a stove retains its identity as tangible personal property (see also Publication 862, Classification of Improvements and Repairs to Real Property)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_32s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(32)S
Sales Tax
August 21, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841114B

On November 14, 1984 a Petition for Advisory Opinion was received from AA Nursery, Inc.,
2077 Jericho Tpke., Commack, New York 11725.
The issue raised by Petitioner is whether the sale and installation of coal or wood burning
stoves constitute capital improvements to real property which are exempt from sales tax.
Petitioner sells and installs coal and wood burning stoves. The stoves require a chimney for
exhausting smoke and unburnt gases. Sometimes a brick chimney is built, but most often a metal
insulated chimney pipe is used. The metal chimney stack is either run up directly from the stove
through the ceiling and roof or else is run through an adjacent wall and along an outside wall to the
roof. In order to install the chimney through the roof, it is necessary to cut floor joists to make room
for the insulated chimney and fire stops required by safety codes. Adjustments in the wall studs are
also necessary in some chimney installations. Petitioner states that the chimney is permanently
secured to the ceiling joists, wall or roof with wall supports, wall bands or roof braces and are held
with nuts and bolts.
Mason work of either brick or stone is done behind or around the stove to render the wall
fireproof. A concrete base is built below the stove and extends to at least 18 inches around the stove
to insure a fireproof base. All chases and holes through the walls, ceiling and roof are sealed off to
prevent infiltration of air or moisture.
Section 1105(a) of the Tax Law imposes a sales tax on the receipts from every retail sale of
tangible personal property with certain limited exceptions. Section 1105(c)(3) of the Tax Law
imposes a sales tax on the receipts from every sale, except for resale, of the service of "[i]nstalling
tangible personal property . . . except . . . (iii) for installing property which, when installed, will
constitute an addition or capital improvement to real property. . .". The Tax Law defines the term
"capital improvement" as 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
(iii) Is intended to become a permanent installation." Tax Law,
1101(b)(9).

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

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

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TSB-A-85(32)S
Sales Tax
August 21, 1985

The use of the conjunctive "and" in the Tax Law definition of the term "capital improvement"
mandates that the three requirements be met as a unit. If the installation fails to meet any one
requirement, it does not qualify for exemption.
A wood or coal burning stove, when installed, retains its identity as tangible personal
property and does not become a permanent part of the real property. The stove and its installation
are therefore subject to tax pursuant to Tax Law, 1105(a) and 1105(c)(3). M & C Stove World, Inc.,
Advisory Opinion TSB-A-81-(42)S, (See Publication 862 (2/81), Classification of Improvements
and Repairs to Real Property for Sales Tax Purposes, p. 12.)
The installation of a brick chimney, masonry work done behind or around the stove to render
the wall fire proof and the concrete base built below the stove have the necessary element of
permanence to qualify as a capital improvement in accordance with Tax Law 1101(b)(9).
Presumably, there is an intent to make a permanent installation and substantial value is added to the
real property. It follows, therefore, that such installations are exempt from tax.
The tax status of the installation of the metal chimney, assuming there is an intent to make
a permanent installation, is determined by the mode of installation. If the installation is made in such
a way that the metal chimney is permanently attached to the real property so that its removal would
cause material damage to the real property or the chimney, the installation is exempt from tax.
The conclusions drawn herein as to what installations constitute a capital improvement are
predicated upon the assumption that the installations are made for the owner of the real property or,
where installed for a tenant, that there is a lease which provides that title to improvements is to vest
in the landlord and that the improvements are to become a part of the premises and remain in the
premises. Cf. Beaman Corporation, State Tax Commission Advisory Opinion, TSB-A-82(32)S.
The Sales and Use Tax Regulations provide that "[w]hen tangible personal property,
composed of taxable and exempt items is sold as a single unit, the tax shall be collected on the total
price." 20 NYCRR 527.1(b). Inasmuch as the sale of the stove is taxable, Petitioner is required to
collect and remit tax on the entire charge unless the non-taxable items and the applicable charges
therefore are separately stated on the customer's bill.
Where Petitioner performs a capital improvement it must pay sales tax on its purchase of
materials, but is not required to collect tax on its separately stated charge to its customers. Tax Law,
1101(b)(4), 1105(c)(3)(iii), 1105(c)(5), 20 NYCRR 527.7(a)(3). In order for Petitioner to be relieved

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TSB-A-85(32)S
Sales Tax
August 21, 1985

of its obligation to collect sales tax where its customer asserts that the installation constitutes a
capital improvement, Petitioner must take from its customer a properly completed Certificate of
Capital Improvement (Form ST-124). Tax Law, 1132(c); 20 NYCRR 532.4(f).

DATED: July 15, 1985

s/ANDREW F. MARCHESE
Chief of Advisory Opinions

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.