Is building a ski lift a tax-exempt capital improvement to real property, or a taxable installation of equipment?

Plain-English summary

Peek 'n Peak Recreation, Inc. built a large ski lift at its mountain resort — pouring concrete foundations for the terminals and eight towers, then erecting the steel towers, hanging cable, and mounting 196 chairs. It asked whether the engineering, materials, labor, and other construction costs were payments for a capital improvement to real property (excluded from sales tax under § 1105(c)(3)(iii)) or a taxable installation.

The Department held the ski-lift equipment is taxable to install, but the foundations are an exempt capital improvement.

• The three-part capital-improvement test. Under § 1101(b)(9) and 20 NYCRR 541.2(g)(1), an addition is a capital improvement only if it (i) substantially adds value or prolongs the property's life; (ii) is so permanently affixed that removal would cause material damage to the property or the item; and (iii) is intended as permanent. All three must be met.
• Bolting isn't permanence. Ski lifts and most machinery are affixed somehow, but the test is whether the equipment is affixed so much that it loses its separate identity or can't be removed without material damage. Property is not "materially damaged" just because it's worth less once removed.
• Towers and equipment: taxable. Courts have found ski-lift towers removable without material damage — bolts set in foundations can simply be cut and the towers lowered and trucked away (West Mountain Corp. v. Miner), like the bolted-down amusement rides in Charles R. Wood Enterprises v. State Tax Commission. So the ski lift's structural and mechanical components don't qualify, and the charge to install them is taxable under § 1105(c)(3) (whether or not separately stated).
• Foundations: exempt. The excavation and poured concrete foundations meet all three criteria, so charges for the excavation and materials in the foundations — and the labor to install them, if separately stated — are exempt.
• Engineering, design, and freight. Engineering and design services aren't taxable on their own, but become taxable if billed as an integral part of the ski lift rather than purchased separately. Separately stated transportation of the materials may be deducted from the taxable amount (§ 1101(b)(3)), as may a trade-in accepted for resale.

What this means for you

"Bolted down" doesn't equal "capital improvement." New York's exemption turns on whether the item loses its identity or can't come out without material damage — not on whether it's attached. Heavy equipment that unbolts and trucks away, even towers and rides, is taxable to install.

Split the job on the invoice. The foundation work here is an exempt capital improvement while the equipment install is taxable. To capture the exemption on the foundations — including their labor — the contract has to separately state those charges. Lump everything together and you risk tax on the whole.

Mind how engineering and freight are billed. Standalone engineering/design and separately stated transportation can stay out of the tax base. Fold them into the price of the equipment and they become taxable. Presentation on the contract changes the tax.

Common questions

Q: We permanently installed massive steel towers. Isn't that a capital improvement?
A: No. Because the towers can be unbolted and removed without material damage, they don't meet the test, and installing them is taxable — even though they're bolted into concrete.

Q: Is any of the ski-lift project exempt?
A: Yes — the excavation and poured concrete foundations are a capital improvement, so those charges and the separately stated labor to install them are exempt.

Q: How should we handle engineering and shipping charges?
A: Buy engineering/design separately and it isn't taxed; bundle it into the equipment price and it is. Separately stated transportation of the materials can be deducted from the taxable amount.

Citations and references

Statutes, regulation, and cases:

• Tax Law § 1101(b)(9); 20 NYCRR 541.2(g)(1) — three-part definition of a capital improvement
• Tax Law § 1105(c)(3) — taxes the service of installing tangible personal property (excluding capital improvements)
• Tax Law § 1101(b)(3) — definition of "receipt"; excludes trade-in for resale and separately stated transportation
• West Mountain Corporation v. Miner, 85 Misc 2d 416 (1976) — ski-lift towers removable without material damage
• Charles R. Wood Enterprises, Inc. v. State Tax Commission, 67 AD2d 1042 (1979) — bolted amusement rides not improvements to real property

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(24)S
Sales Tax
July 9, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S870410A

On April 10, 1987, a Petition for Advisory Opinion was received from Peek 'n Peak
Recreation, Inc., Ye Olde Road, Clymer, New York 14724.
The issue raised is whether amounts paid for engineering, design, transportation of materials,
labor and other construction costs and material costs for construction of a ski lift for Petitioner's
mountain resort are amounts paid for a capital improvement to real property as defined in Section
1101(b)(9) of the Tax Law and excluded from sales tax under section 1105(c)(3)(iii) of the Tax Law.
Petitioner described its ski lift as follows:
In preparation for construction of the ski lift, Petitioner had to demolish and remove its two
existing T-Bar ski lifts and do excavation work to make room for the new larger ski lift. The two
T-Bar lifts had been in place for approximately twenty years. These lifts were torn down and
salvageable parts were traded in as partial payment for a snow-grooming machine. The salvage
(trade-in) value allowed Petitioner for these T-Bar parts was $20,000, or less than three percent of
the cost of the new lift. The concrete footings of the old lifts could not be removed. Bulldozers and
backhoes were brought in to bury these foundations or push them into lower areas.
Excavation work also had to be done to allow pouring of the concrete foundations for the
new lift. Holes were dug for these foundations, which Petitioner estimates to be six to eight feet
deep. The digging was done by backhoes and, in especially steep areas, bulldozers were also
required for this preparation work. Approximately 60 yards of concrete were poured for the founda­
tion for the two terminals of the new ski lift, the drive terminal and the return terminal, and
approximately 84 yards of concrete were required for the foundations for the eight towers comprising
the ski lift. The cost of excavation work and concrete for the foundation of the ski life was $84,755.
The separate structural and mechanical components of the ski life include:
an A-frame drive terminal;
a fixed return terminal;
eight steel towers;
a DC-SCR 100 horsepower prime mover;
an auxiliary engine;
forty pulley blocks;
196 galvanized steel chairs;
8306 feet of wire rope;
motor room enclosure materials;

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

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TSB-A-87(24)S
Sales Tax
July 9, 1987
operator enclosure;
anchor bolts;
counterweight;
wiring and other electrical materials; and
paint.
These components were brought to Petitioner's parking lot from Utah in twelve semi-trailers.
The terminals and towers range from twenty-five to forty-five feet in height, are made of steel
and weigh up to six tons. Special adjustment bolts, each approximately six feet in length and 1-1/4"
in diameter and weighing approximately 35 lbs., were deeply imbedded in the concrete bases so that
the terminals and steel towers could be mounted in a manner that allowed them to be adjusted to
align them. A helicopter was used to transport the terminals and towers to the slope and lower them
onto the concrete bases and bolts. Once mounted on the bolts, the towers were aligned to conform
to each other.
After excavation of the foundations and erection of the terminals and towers, the ski lift was
further assembled by hanging the cable, clamping on the lift chairs, constructing the motor room,
aligning the pulley blocks and installing the electrical wiring. The ski lift contains one hundred
ninety-six chairs, each of which weighs approximately 200 lbs. The ski lift covers a 1950-foot slope
with a vertical lift of 334 feet. It has a capacity to lift 3600 persons per hour. It was designed in
accordance with New York State Tramway codes.
The total cost of the ski lift included payment to the contractor to design the ski lift and to
supply the labor, materials and equipment to construct the ski lift, including:
1)

a construction staking survey,

2)

excavation of foundations,

3)

all materials for excavation of foundations,

4)

all concrete, reinforcement and forming materials for foundations,

5)

the labor to install the tower and terminal foundations, counterweight
and other concrete, including anchor bolts and reinforcing,

6)

the labor to install alltowers and terminal steel,

7)

the assembly of all structural and mechanical chairlift components,

8)

the installation of all high voltage wiring and low voltage electrical components from
tie-in of Petitioner's main disconnect,

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Sales Tax
July 9, 1987
9)

the interconnection of high voltage wiring and low voltage wiring, including
communication cables,

10)

stringing and splicing of the main haul rope,

11)

applying the final coat of paint,

12)

aligning the pulley blocks,

13)

installing the chairs, and

14)

labor and materials for a load test.

The cost of the equipment and materials and freight for these components represent
approximately fifty-seven percent of the total cost paid by Petitioner. Over ten percent (11.5%) of
the total cost breakdown represents engineering and design with the remaining approximately 31%
of the total cost representing labor costs. In the past, all components of Petitioner's former and
remaining ski lifts except for chairs and cables have been included in Petitioner's real property
assessment and thus have been subject to real property taxes. The new ski lift, with the exception
of the chairs and cables, has also been assessed for real property taxes.
Sales and Use Tax Regulations section 541.2(g)(1) provides as follows:
(g)

Capital improvement. (1) A capital improvement means 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.

(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.

The criteria for a capital improvement must be met in their entirety. The inability to meet
any one of the three conditions will prevent the property in question for qualifying as a capital
improvement.
Ski lifts and most other forms of machinery and equipment normally require some form of
affixation to real property. However, the test is not merely whether such machinery and equipment
is affixed to real property. Rather, the test is whether the machinery and equipment is affixed to such
a degree that it loses its separate identity and becomes part of the real property or to such a degree
that removal would cause material damage to the property or to the article. Material damage is not
considered to exist merely because the property in question is worth less when it is removed than it
was worth when it was installed and in operating condition.

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Sales Tax
July 9, 1987
Within the context of the real property tax, it has been determined that ski lifts were
removable without material damage where "the towers were attached by long bolts set into poured
foundations and the removal process, simply enough, involved no more than its cutting and
severance of the bolts to permit the towers to be lowered gently to the ground and trucked to its new
site." West Mountain Corporation v. Miner, 85 Misc 2d 416(1976).
Similarly, within the context of the sales tax, it has been held that various amusement park
rides which were all bolted into bases, but which could be readily removed without damage to the
property, were not improvements to real property. Charles R. Wood Enterprises, Inc. v State Tax
Commission, 67 AD 2d 1042(1979).
Based on the above, the mere bolting and welding of equipment to real property does not, in
and of itself, create the degree of permanence necessary to establish that a particular installation is
a capital improvement. Accordingly, it must be concluded that the installation of the separate
structural and mechanical components of Petitioner's ski lift does not qualify as a capital improve­
ment. However, the installation of the ski lift foundations meets each of the criteria for qualification
as capital improvements to real property. Accordingly, the charges to Petitioner for excavation of
the foundations and materials incorporated into the foundations are exempt from tax. Other charges
attributable to the performance of this capital improvement, such as the labor charges for the
installation of the foundations, are similarly exempt but only if they are separately stated in the
contract.
Additionally, section 1101(b)(3) of the Tax Law defines receipt as:
The amount of the sale price of any property and the charge for any
service taxable under this article, valued in money, whether received
in money or otherwise, including any amount for which credit is
allowed by the vendor to the purchaser, without any deduction for
expenses or early payment discounts, but excluding any credit for
tangible personal property accepted in part payment and intended for
resale and excluding the cost of transportation of tangible personal
property sold at retail where such cost is separately stated in the
written contract, if any, and on the bill rendered to the purchaser. For
special rules governing computation of receipts, see section eleven
hundred eleven. (Emphasis supplied)
Based upon the above provision of the Tax Law, if the cost of transportation of materials
incorporated into the ski lifts is separately stated, such amount may be deducted when computing
the amount subject to tax.

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Sales Tax
July 9, 1987
Engineering and design services are not among those services subject to the sales tax.
However, if these services were not purchased separately from the purchase of the ski lift, but as an
integral part of the ski lift they are considered a part of the selling price of the tangible personal
property and subject to the sales tax.
Section 1105(c)(3) of the Tax Law imposes a tax on the service of installing tangible personal
property. Accordingly, the charge for the service of installing the ski lift (other than the
foundations), whether or not separately stated, is subject to tax.

DATED: July 9, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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