Is a modular home a 'mobile home' for New York sales tax, and who collects or pays the tax when it's sold and installed?

Plain-English summary

Affordable Homes, Inc., a mobile-home dealer about to start selling modular homes, asked (I) whether a modular home is a "mobile home" for sales tax, (II) who collects or pays the tax, and (III) how the tax is figured. The modular home comes in two sections trucked to the site and fixed to a permanent foundation; it is not built on a permanent frame-and-wheels chassis but on a returnable chassis the dealer has put a deposit on, and the manufacturer installs it.

A modular home is not a "mobile home." Section 1101(b)(10) requires a "mobile home" to be built on a permanent chassis, comprised of frame and wheels. Because the modular home is built on a returnable chassis, it fails the definition and the special mobile-home tax rules don't apply.

Who pays turns on who installs it — three scenarios:

• Manufacturer installs it (a capital improvement). Fixing the home to a permanent foundation is a capital improvement. The manufacturer acts as the dealer's subcontractor and is the "user" of the home under 20 NYCRR 531.3, so the manufacturer owes use tax. If the manufacturer sells more than 10% of its homes uninstalled, that use tax is based on the uninstalled price (price list/catalog/record of sales); if not, it's based on the manufacturer's cost of materials. The rate is the rate where the home is installed. The dealer collects no sales tax from the customer (the sale to the customer is a capital improvement), and the manufacturer needn't charge the dealer sales tax — though it may pass the use tax along as a cost.
• Dealer (or its non-manufacturer agent) installs it. Now the dealer's purchase from the manufacturer is a taxable retail sale of tangible personal property; the manufacturer collects sales tax from the dealer on the total price less separately stated freight and any refundable frame deposit, at the rate where the manufacturer delivers to the dealer. If the delivery locality and the installation locality differ, the dealer pays the use tax difference (or claims a credit). The dealer's sale to the customer is a capital improvement, not taxed.
• Dealer sells it uninstalled; the customer arranges installation. Then the customer is the contractor. The dealer buys from the manufacturer tax-free for resale and must collect sales tax from the customer on the total price less separately stated freight and any refunded deposit, at the rate where the dealer delivers to the customer.

Freestanding furniture and appliances included with the home are never a capital improvement — the manufacturer can sell them to the dealer tax-free for resale, but the dealer's sale of them to the customer is a taxable retail sale.

What this means for you

"Modular" and "mobile" are different tax animals. A mobile home rides on a permanent frame-and-wheels chassis and gets special sales-tax treatment. A modular home that ships on a returnable chassis and bolts to a foundation is just a building that becomes real property — so the ordinary contractor/capital-improvement rules govern, not the mobile-home rules.

Decide up front who installs — it changes everyone's tax job. If the manufacturer installs to a foundation, the tax lives with the manufacturer as use tax and the customer sees a tax-free capital improvement. If you install, you're buying taxable equipment. If you sell it uninstalled, you collect tax from the buyer. Same house, three very different answers.

Loose furnishings never ride along tax-free. Freestanding appliances and furniture that aren't built into the structure stay taxable tangible personal property — buy them for resale and collect tax when you sell them to the customer.

Common questions

Q: My modular home ends up permanently on a foundation — doesn't that make it a "mobile home"?
A: No. The § 1101(b)(10) definition keys on a permanent frame-and-wheels chassis. A returnable chassis fails the test, so it isn't a mobile home for sales tax regardless of how permanently it ends up sitting.

Q: If the factory installs my modular home, do I charge my customer sales tax?
A: No. That installation is a capital improvement; you collect no sales tax from the customer. The manufacturer, as user, owes the use tax and may build it into its price to you.

Q: What can I subtract before figuring the tax?
A: Separately stated freight charges and any frame deposit that will be refunded when the frame is returned are excluded from the taxable amount.

Citations and references

Statutes and regulation:

• Tax Law § 1101(b)(10) — defines "mobile home," requiring a permanent chassis of frame and wheels
• Tax Law § 1105(a) — taxes retail sales of tangible personal property
• Tax Law § 1101(b)(4) — "retail sale," including contractor purchases of materials
• Tax Law § 1101(b)(9) — "capital improvement" (adds value/prolongs life, becomes part of realty, intended permanent)
• 20 NYCRR 531.3 — use tax on property manufactured/assembled by the user; the 10% "regular course of business" test and the price/cost-of-materials basis
• 20 NYCRR 526.5(g), (j) — exclusions (freight, refundable deposits) in computing the taxable amount

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(21)S
Sales Tax
May 28, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S851212B

On December 12, 1985, a Petition for Advisory Opinion was received from Affordable
Homes, Inc., Route 11, Cicero, New York 13039.
The issues raised are (I) whether a modular home sold by Petitioner qualifies as a mobile
home for purposes of section 1101(b)(10) of the Tax Law, (II) who is liable for collection of the sales
and use tax on the sale of such a modular home and (III) how is the applicable tax to be calculated.
Petitioner is a mobile home dealer who is about to commence selling modular homes. The
modular home in question is made in two pieces which are delivered to the installation site by truck
and thereafter affixed to a permanent foundation. The modular home is not built on a permanent
chassis, comprised of a frame and wheels but rather on a returnable chassis upon which Petitioner
has paid a deposit. The manufacturer of the modular home will install it in its permanent location
for Petitioner.
Issue I
Section 1101(b)(10) of the Tax Law sets forth the characteristics of a "mobile home" for
purposes of the sales and use tax. It provides:
(10) Mobile home. (i) A structure which is:
(A)

A type of manufactured housing; and

(B)

Not self-propelled; and

(C)

Transportable in one or more sections:

(I)
that may be folded, collapsed or telescoped when being towed and
expanded later to provide additional cubic capacity, or
(II)
that may be separately towable and designed to be joined into one
integral structure capable of being again separated into the sections for repeated
towing; and
(D)
Built on a permanent chassis, comprised of frame and wheels, that is to be
connected to utilities; and
(E)
Designed to be used as a permanent dwelling, with or without permanent
foundation; and
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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(F)

Used for residential or commercial purposes.

(ii)
The term "mobile home" shall also include structures commonly called
"double wides".
(iii)

The term "mobile home" shall not include:

(A)
Structures designed and constructed primarily for temporary living quarters,
recreations, camping or travel; or
(B)
Furniture, fixtures, furnishings, appliances, attachments or similar tangible
personal property not incorporated as component parts of a mobile home at the time of
manufacture.
Inasmuch as the modular home to be sold by Petitioner is not built on a permanent chassis,
comprised of a frame and wheels, it does not meet the definition of "mobile home" and does not
come within the special provisions of the Tax Law applicable to mobile homes.
Issues II & III
Section 1105(a) of the Tax Law imposes a tax upon the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1101(b)(4) of the Tax Law defines "retail sale" as "[A] sale of tangible personal
property to any person for any purpose, other than for resale as such . . . (provide however) 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 . . . real
property . . . is deemed to be a retail sale regardless of whether the tangible personal property is to
be resold as such . . . ."
Section 1101(b)(9) of the Tax Law defines "capital improvement" as "[A]n addition or
alteration to real property which: (i) Substantially adds to the value of the real property, or appre­
ciably 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 . . . ."
Section 531.3(b)(1) of the sales and use tax regulations provides, in part, that "[A]
compensating use tax is imposed on the use of any tangible personal property which was
manufactured, processed or assembled by the user, if items of the same kind of tangible personal
property are offered for sale by him in the regular course of business ....'(ii)Offered for sale in the
regular course of business' means that a person sells in excess of 10 percent of his product for each
12 month period beginning December 1st, measured by weight, volume, size or other unit on which
the price is based, to persons other than organizations exempt under section 1116(a) of the Tax Law.

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For the purpose of this calculation, the amount of product sold to all persons except exempt
organizations will constitute the numerator of the fraction and the total amount of the product sold
and used in performing work for others, with the exclusion of products sold to or used in performing
work for exempt organizations, will constitute the denominator. When it is determined that a person
is selling in excess of 10 percent of his product in the regular course of business as defined herein,
he will be considered a person required to pay compensating use tax on the basis set forth in
paragraph (3) of this subdivision...." 20 NYCRR 531.3.
Section 531.3(b)(3) of the sales and use tax regulations provides, in part, that "[W]here the
user sells items of the same kind to other persons in the regular course of business, the basis of the
tax on the use of tangible personal property which is manufactured, processed or assembled by the
user is the price at which such items are sold as evidenced by a price list, catalog price or record of
sale. In the absence of a catalog price or price list, the average of the prices charged various
customers will be deemed the price which the user would sell such item to the persons during the
regular course of business...." 20 NYCRR 531.3.
Section 531.3(b)(5) of the sales and use tax regulations provides, in part, that [W]hen it is
determined that a person is not selling in the regular course of business, as defined in subparagraph
(ii) of paragraph (1) of this subdivision, he is required to pay a tax on the cost of the materials he
used in manufacturing, processing or assembling the product he used...." 20 NYCRR 531.3.
In the instant case, Petitioner is acting in the capacity of a general contractor. The modular
home manufacturer is acting as Petitioner's subcontractor and is considered to be the user of the
modular home since it is using the modular home in performing a capital improvement. Petitioner,
as general contractor, is not under any duty to collect sales tax. However, the manufacturer, as user
of the modular home within the meaning of regulation section 531.3, is required to pay use tax. If
the manufacturer sells in excess of ten percent of its modular homes on an uninstalled basis as
computed under regulation section 531.3(b)(1)(ii), the manufacturer's use tax will be calculated on
the uninstalled price of such modular homes as evidenced by a price list, catalog price or record of
sales. If the manufacturer does not sell in excess of 10% of its modular homes on an uninstalled
basis as computed under regulation section 531.3(b)(1)(ii), its use tax is based upon the cost of
materials used by the manufacturer in manufacturing the modular home. In either event, the
applicable rate of tax is the rate in effect where the modular home is installed by the manufacturer.
The manufacturer is not required to collect sales tax on the receipts from its sales to Petitioner.
However, the manufacturer may, if it wishes, pass on to the Petitioner the use tax it paid as one of
the elements of its cost.
It should be noted that if Petitioner contracts with its customer to sell to the customer a
modular home installed by Petitioner or by another individual (other than the manufacturer) acting
as the agent of the Petitioner, the Petitioner's purchase of the modular home from the manufacturer
is considered to be the purchase of tangible personal property and is subject to sales tax. The

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manufacturer is required to collect sales tax from Petitioner on such a purchase. The tax is based
upon the total sales price of the modular home charged by the manufacturer less separately stated
freight charges and any frame deposit to the extent that such deposit will be refunded to Petitioner
upon return of the frame. 20 NYCRR 526.5(g), (j); Tax Law section 1105(c)(3)(iii). The applicable
rate of tax is the rate in effect in the locality where the modular home is delivered by the
manufacturer to the Petitioner or to the Petitioner's designee.
If the locality where Petitioner takes delivery of the modular home and the locality where the
modular home is installed are not the same, then Petitioner must also pay use tax for the difference
if the rate is higher in the locality of installation and may claim a credit for the difference if the rate
is lower in the locality of installation.
Petitioner's sale of the modular home to Petitioner's customer under these circumstances is
not subject to sales tax inasmuch as it constitutes a capital improvement.
It should also be noted that if Petitioner contracts with his customer to sell to the customer
a modular home on an uninstalled basis, with the customer arranging for installation, then it is the
customer who is deemed to be the contractor. In such a case, the Petitioner may purchase the
modular home from the manufacturer without payment of sales tax. However, Petitioner must
collect sales tax on his sale of the modular home to his customer since such sale is a retail sale
subject to tax. The tax is based upon the total sales price of the modular home charged by Petitioner
less any separately stated freight charges charged by Petitioner and any deposit which is refunded
to the customer. 20 NYCRR 526.5(g),(j). The applicable rate is the rate of sales tax in effect in the
locality where the modular home is delivered by Petitioner or his agent to Petitioner's customer.

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Additionally, it should be noted that, in all cases, property included in the modular home
which is not incorporated as a component part of the structure (e.g. freestanding furniture or
appliances) may never become a capital improvement. Thus, the sale of such property by the
manufacturer to the Petitioner is not subject to tax (provided the Petitioner furnishes to the
manufacturer a properly completed resale certificate) but the sale of such property by the Petitioner
to the customer is a retail sale subject to tax.

DATED: May 28, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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