Is a freestanding walk-in freezer bolted to a concrete slab a tax-exempt capital improvement, or a taxable purchase?

Plain-English summary

Dairy Barn Stores, Inc. buys freestanding walk-in freezers and installs them outdoors on a concrete slab at its stores (some owned, some leased). Installation — usually by an appliance dealer, and requiring a building permit — means assembling the unit from sections, wiring it to the electric supply, and bolting it to a concrete foundation that a construction contractor prepares. The freezers have an estimated useful life of 12 to 15 years. Dairy Barn argued the freezer becomes a permanent fixture and therefore a capital improvement to real property.

The Department split the transaction.

• The freezer fails the capital-improvement test. A capital improvement must meet all three conditions of Tax Law § 1101(b)(9): (i) it substantially adds value or appreciably prolongs the life of the real property; (ii) it is so permanently affixed that removal would cause material damage; and (iii) it is intended to be permanent. A walk-in freezer is an appliance that will be replaced after 12-15 years, its removal would not cause material damage, and freestanding appliances retain their identity as tangible personal property even after installation (20 NYCRR 541.5(d)). Failing all three, it is not a capital improvement.
• So the freezer and its installation are taxable. State tax under Article 28 and local tax under Article 29 are due on Dairy Barn's purchase of the freezer and the labor to install it (wiring and bolting are taxable installation charges under 20 NYCRR 541.6(d)).
• But the concrete foundation is a capital improvement. The Department has held that building a concrete foundation is an addition to real property that is a capital improvement (Slattery; Multi-View Communication, TSB-A-86(12)S). So the contractor's entire charge for preparing the foundation is not taxed — and to secure that treatment, Dairy Barn should give the contractor a Certificate of Capital Improvement (Form ST-124).

What this means for you

A freestanding appliance usually stays taxable even if you bolt it down. New York's regulations specifically list freestanding appliances (refrigerators, stoves, window air conditioners, and the like) as items that remain tangible personal property after installation. Wiring and bolting an appliance in place don't turn it into a capital improvement.

Capital-improvement status needs all three tests — and permanence is the sticking point. An item with a limited useful life that will be replaced, and that can be removed without material damage, doesn't qualify no matter how it's attached. If any one of the three § 1101(b)(9) tests fails, the whole installation is taxable.

Split the job: the structural foundation can be exempt even when the equipment isn't. The concrete slab a contractor pours is a capital improvement, so that charge is exempt if you give the contractor a Certificate of Capital Improvement (Form ST-124) — while the appliance sitting on it, and the labor to hook it up, remain taxable.

Common questions

Q: We bolted our equipment to a foundation. Is it now a capital improvement?
A: Not necessarily. If it's a freestanding appliance with a limited life that can be unbolted without material damage, it fails the § 1101(b)(9) tests and stays taxable — attachment alone isn't enough.

Q: Is any part of the job tax-free?
A: Yes — the concrete foundation itself is a capital improvement, so the contractor's charge to build it is exempt. Give the contractor a Certificate of Capital Improvement (Form ST-124).

Q: Does it matter that installation needed a building permit and took a lot of work?
A: No. The Department focused on the three statutory tests — value, damage-on-removal, and intended permanence — not on how involved the installation was. A replaceable freestanding appliance fails them.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(9) — a capital improvement must (i) add value or prolong the life of real property, (ii) be permanently affixed so removal causes material damage, and (iii) be intended as permanent
• Tax Law § 1115(a)(17) — exempts property sold by a contractor that becomes an integral component of a capital improvement
• Tax Law § 1105(d)(3)(iii) — installing property that becomes a capital improvement is not taxed (installing property that stays tangible personal property is)
• 20 NYCRR 541.5(d) — lists freestanding appliances as items that remain tangible personal property after installation
• 20 NYCRR 541.6(d) — wiring to make equipment operational and bolting it to a foundation are taxable installation charges
• Form ST-124 (Certificate of Capital Improvement) — secures exemption for the foundation work

Decisions cited:

• Matter of Slattery Associates, Inc., Decision of the State Tax Commission, Aug. 16, 1977, STH 77-65
• Multi-View Communication, Inc., State Tax Commission Advisory Opinion, March 26, 1986, TSB-A-86(12)S

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_39s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-86(39)S
Sales Tax
October 2, 1986

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

PETITION NO. S860709A

On July 9, 1986, a Petition for Advisory Opinion was received from Dairy Barn Stores, Inc.,
544 Elwood Road, East Northport, New York 11731.
The issue raised is whether the purchase of a freestanding walk-in freezer, installed outdoors
on a concrete slab foundation, constitutes a capital improvement to real property for the purpose of
taxation under Articles 28 and 29 of the Tax Law.
Petitioner states such fixtures have an estimated useful life of 12 to 15 years. Installation,
usually performed by an appliance dealer, requires a building permit and is accomplished by
assembling the unit on site from sections, wiring it to the electric supply, and bolting it to a concrete
foundation prepared by a construction contractor. These freezers may be installed at any of
Petitioner's stores, which may be company owned or located on leased premises.
Petitioner contends that to move such a freezer would substantially impair its usefulness and,
moreover, that no such removal is contemplated since the unit is intended to become a permanent
fixture and therefore a capital improvement to real property.
The Tax Law (1105[a]) imposes a tax on "[t]he receipts from every retail sale of tangible
personal property, except as otherwise provided in this article." Section 1115(a)(17) of the Tax Law
exempts from the tax so imposed "[t]angible personal property sold by a contractor . . . to a person
. . . for whom he is adding to, or improving real property, property or land by capital improvement,
or for whom he is about to do any of the foregoing, if such tangible personal property is to become
an integral component part of such structure, building or real property".
Tax Law Section 1105(d)(3)(iii) provides, in part, that tax is due on the sale of the services
of installing tangible personal property, except for installing property which, when installed, will
constitute an addition or capital improvement to real property, property or land.
The term "capital improvement" is defined in section 1101(b)(9) of the Tax Law as follows:
(9)

Capital improvement.
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)

An addition or alteration to real

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

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TSB-A-86(39)S
Sales Tax
October 2, 1986
(iii)

Is intended to become a permanent installation.

The Sales and Use Tax Regulations explain further:
A capital improvement does not include . . . a contract for the sale and
installation of tangible personal property which when installed
remains tangible personal property . . . . 20 NYCRR 541.2(g)(2)(i).
....
If a contract includes the sale of tangible personal property which
remains tangible personal property after installation, the contractor
must collect the appropriate New York State and local taxes from the
customer on the selling price, including any charge for installation .
. . . 20 NYCRR 541.5(b)(4)(iii).
....
Installation charges include but are not limited to:
(i)
the wiring from the electrical panel to the machinery or
equipment to make it operational;
(ii)
attaching the machinery and equipment by bolts or other
means to a foundation. 20 NYCRR 541.6(d).
....
Some items of tangible personal property that retain their identity as
tangible personal property after installation are . . . free standing
shelves, counters, bars and appliances (refrigerators, stoves, window
air conditioning units) . . . . 20 NYCRR 541.5(d)(ii).
The State Tax Commission has determined that the construction of a concrete foundation is
an addition to real property which constitutes a capital improvement. See Matter of Slattery
Associates, Inc., Decision of the State Tax Commission, Aug. 16, 1977, STH 77-65; Multi-View
Communication, Inc., State Tax Commission Advisory Opinion, March 26, 1986, TSB-A-86(12)S.
Accordingly, pursuant to the above quoted sections of the Tax Law, the contractor's entire charge
to the Petitioner for preparing the freezer foundation is not subject to tax. To be assured of the tax
exemption, Petitioner should furnish a properly completed Certificate of Capital Improvement (Form
ST-124, [4/82]) to the contractor.
Inasmuch as the walk-in freezer is an appliance which will require replacement after 12 to
15 years of use, its affixation to the underlying real property does not demonstrate the intent of the
Petitioner to make a permanent installation, nor can it be held that such temporary annexation either
enhances the value of the real property or prolongs the useful life of real property. Furthermore, it
does not appear that removal of the freezer from its foundation would cause material damage to the
real property or the equipment itself. Since all three of the conditions set down in Tax Law
1101(b)(9), supra, must be met before an installation qualifies as a capital improvement, the
installation of such walk-in freezers does not qualify as a capital improvement.

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TSB-A-86(39)S
Sales Tax
October 2, 1986
Consequently, State sales tax imposed under Article 28 and local sales tax imposed under
Article 29 of the Tax Law are due on charges arising from Petitioner's purchase of a walk-in freezer
and the labor necessary for its installation.

DATED: October 2, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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