Is an architectural model maker's charge a non-taxable service or a taxable sale of tangible personal property?

Plain-English summary

Awad Architectural Models, Inc. builds three-dimensional models from architects' two-dimensional drawings. About 90% of its work happens before the model is built — creating scaled drawings, consulting with architects about design and spotting faults the model reveals, correcting the original drawings, and sketching, scoring and marking the model material (wood, plastic, cardboard). The remaining 10% is assembling and coloring the model. Architects use the models briefly, then discard them. Awad already pays sales tax on the materials it buys. It asked whether its charges are a taxable sale or a non-taxable service.

The Department held the charge is a taxable sale of tangible personal property.

• The model isn't an architectural service. Although architects use the models, the models "do not themselves qualify as the furnishing of an architectural service." Awad's sale of drawings, sketches and models is the sale of tangible personal property under § 1105(a).
• The whole charge is taxed. Because "receipts" are the full sale price with no deduction for expenses (§ 1101(b)(3)), the entire charge to the customer is subject to tax — the heavy design-labor component doesn't carve anything out.
• Buy component materials for resale. Materials that become a component part of the models (or other property sold to customers) can be bought without sales tax if Awad gives its supplier a properly completed Resale Certificate (Form ST-120) — so it needn't keep paying tax on those inputs.

What this means for you

Delivering an object is a sale, even when most of the value is your expertise. New York looks at what changes hands. If your customer walks away with a physical thing you made — a model, a prototype, a mock-up — you've sold tangible personal property and the full price is taxable, no matter that 90% of your effort was design thinking and skilled labor. The service-heavy nature of the work doesn't convert it into a non-taxable service.

Your labor doesn't come off the taxable price. Receipts are the total charge with no deduction for expenses, so you can't subtract the design or fabrication labor before computing the tax. Price accordingly and collect on the whole amount.

Stop paying tax on component materials — buy them for resale. Anything that becomes part of the finished model you sell is a resale input. Give your suppliers an ST-120 and buy those materials tax-free; the tax belongs on the final sale to your customer, not on your inputs.

Common questions

Q: My work is mostly design and consultation — isn't that a service?
A: Not for sales tax if the customer receives a physical model. The Department treated the models as tangible personal property, so the entire charge is taxable even though most of the work is design labor.

Q: Can I deduct my labor before charging tax?
A: No. Receipts are the full sale price with no deduction for expenses, so tax applies to the whole charge.

Q: Do I have to keep paying tax on my materials?
A: No — materials that become a component part of the models can be bought for resale. Give your supplier a Resale Certificate (Form ST-120) and buy them tax-free.

Citations and references

Statutes:

• Tax Law § 1105(a) — taxes the receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(3) — "receipts" means the sale price with no deduction for expenses

Form:

• Form ST-120 (Resale Certificate) — supports tax-free purchase of materials that become a component part of the models

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_9s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-86(9)S
Sales Tax
February 14, 1986

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

PETITION NO. S851022A

On October 22, 1985, a Petition for Advisory Opinion was received from Awad Architectural
Models, Inc., 260 West 36th Street, New York, N.Y. 10018.
The issue is whether the services provided by an architectural model maker are subject to the
sales and use taxes imposed under Articles 28 and 29 of the Tax Law.
Petitioner creates three dimensional models of two dimensional architectural drawings.
Initially, Petitioner:
1) creates drawings depicting various scales in relation to original architects drawings;
2) consults with architects pertaining to model design, error and/or fault in plan or drawing
as indicated by the model;
3) corrects original drawings to reflect final approval designs; and
4) sketches, scores and marks model material (wood, plastics, cardboard, etc).
The above services represent approximately ninety percent of the model maker's task. All
of these services are rendered prior to the actual commencement of the construction of the model.
The remaining ten percent of the architectural model maker's task involves assembling and coloring
the model material to form the final model.
The models are used by architects for a short period of time and then discarded. Petitioner
states that he paid sales tax on all materials purchased and used in the fabrication of the model.
Section 1105(a) of the Tax Law imposes a tax on "...the receipts from any retail sale of
tangible personal property...." Section 1101(b)(3) defines receipts as "...the amount of the sale price
of any property...without any deduction for expenses..."

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-86(9)S
Sales Tax
February 14, 1986

The models furnished by Petitioner are used by architects but do not themselves qualify as
the furnishing of an architectural service. Rather, Petitioner's sale of drawings, sketches, and models
is the sale of tangible personal property. Accordingly, the entire charge by Petitioner to its customers
is subject to tax. However, any materials purchased by Petitioner that become a component part of
the models or other property sold to Petitioner's customers may be purchased without payment of
sales tax if Petitioner presents to his supplier a properly completed Resale Certificate (Form ST-120)
for such purchases.

DATED: February 14, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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