Equipment is taxed as real property under the Real Property Tax Law. Does that mean selling it is exempt from sales tax as a sale of real property?

Plain-English summary

Consolidated Edison owns installed transformers, network protectors, and vaults in its electric distribution system. Some customers want to switch to high-tension service and, rather than buy new gear, plan to buy Con Edison's existing installed equipment. That equipment is assessed and taxed as real property under the Real Property Tax Law (RPTL). Con Edison asked whether that means selling it is a sale of real property — and so exempt from sales tax under § 1105(a).

The Department held that RPTL status does not settle the sales tax question — the equipment may still be taxable tangible personal property.

• The RPTL is not controlling for sales tax. Section 1105(a) taxes retail sales of tangible personal property, which does not include real property (20 NYCRR 526.8(c)). But the way property is classified under the Real Property Tax Law does not control what counts as a capital improvement for sales tax purposes (Matter of Roberson v. State Tax Commission). The manner and purpose of the affixation govern.
• The sales-tax test is § 1101(b)(9). An installation is an exempt capital improvement only if it meets all three criteria: it (i) substantially adds to the property's value or appreciably prolongs its life; (ii) becomes part of or is permanently affixed to the real property so that removal would cause material damage to the property or the item; and (iii) is intended to be a permanent installation.
• Vaults yes, removable equipment no. Concrete foundations and vaults have been treated as capital improvements. But equipment that keeps its identity as tangible personal property and can be removed without material damage is not part of a capital improvement (Matter of Wood Enterprises; Multi-View Communication, TSB-A-86(12)S). Transformers and network protectors are that kind of removable equipment.
• Con Edison must collect tax unless it proves otherwise. Receipts from selling tangible property are presumed taxable; the burden of proving exemption is on the seller. Con Edison did not supply enough facts to establish capital-improvement treatment, so it must collect and remit sales tax on the sale unless it does.
• Mixed sales must be itemized. If a sale includes both exempt real property and taxable tangible personal property, the invoice must itemize the taxable and exempt charges; if the records lack that detail, the entire amount is taxed (20 NYCRR 532.2(b)(2)).

What this means for you

"Real property" for one tax is not "real property" for another. Equipment can be assessed as real property under the RPTL and still be taxable tangible personal property when you sell it. Don't assume real-property-tax treatment carries a sales tax exemption with it.

Removability is the pivot. New York's capital-improvement test hinges on whether removal would cause material damage. Concrete vaults and foundations tend to qualify; machinery and equipment that unbolts and comes out intact generally does not — so selling it is a taxable sale.

Itemize mixed installations. If you sell an installation that is part exempt real property and part taxable equipment, separate the charges clearly on the invoice. Fail to, and the Department can tax the whole price.

Common questions

Q: My equipment is taxed as real property by the assessor. Isn't its sale exempt from sales tax?
A: Not automatically. Real Property Tax Law classification does not control sales tax. The sale is taxable unless the equipment meets the three-part capital-improvement test in § 1101(b)(9).

Q: What makes something a capital improvement for sales tax?
A: It must add substantial value or prolong the property's life, be so permanently affixed that removal would cause material damage, and be intended as a permanent installation — all three.

Q: We're selling a vault plus the equipment inside it in one deal. How is it taxed?
A: Itemize the exempt real-property portion (e.g., the vault) and the taxable equipment separately. If your records don't distinguish them, the whole amount is taxed.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 1105(a) — taxes retail sales of tangible personal property
• Tax Law § 1101(b)(9) — three-part definition of a capital improvement
• 20 NYCRR 526.8(c) — tangible personal property does not include real property
• 20 NYCRR 532.2(b)(2) — itemize taxable and exempt charges or the entire amount is taxed
• Real Property Tax Law § 102(12)(f), (12)(h), (17) — transformers, network protectors, and special franchises taxed as real property
• Matter of Robert Roberson v. State Tax Commission, 65 AD2d 898 — RPTL is not controlling for sales tax
• Matter of Wood Enterprises v. State Tax Commission, 67 AD2d 1042; Multi-View Communication, TSB-A-86(12)S — removable equipment that keeps its identity is not part of a capital improvement

Department guidance:

• Publication 862 — Classification of Improvements and Repairs to Real Property for Sales Tax Purposes

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_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(30)S
Sales Tax
August 31, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S870428A

On April 28, 1987, a Petition for Advisory Opinion was received from Consolidated Edison
Company of New York, Inc., 4 Irving Place - Room 208, New York, New York 10003.
The issue raised is whether the sale of installed transformers, network protectors and vaults,
which are taxable as real property under the Real Property Tax Law, would be subject to the sales
tax imposed under Section 1105(a) of the Tax Law.
Consolidated Edison Company of New York, Inc. (Con Edison) is a public utility corporation
engaged in the manufacture, distribution and sale of electricity to customers in the City of New York
and in the County of Westchester. As part of its electric distribution system, Con Edison owns and
maintains transformers and network protectors.
Transformers convert the electricity maintained in Petitioner's distribution lines (feeders)
from high tension voltage to a lower voltage at which service is provided to the customer. Network
protectors are switches and similar devices designed to interrupt the flow of electricity to prevent
damage to Petitioner's distribution network or to equipment of customers served from the same
feeders.
Pursuant to Con Edison's tariff, a customer owning transformation equipment is eligible to
be billed for electricity at lower cost high tension rates. A high tension customer receives power at
high voltage directly from Con Edison's distribution feeders and is responsible for converting the
electricity so received into a lower voltage for its own use. A number of Con Edison's customers
intend to convert from low tension to high tension service. Rather than purchase and install new
equipment to do so, however, these customers intend to buy Con Edison's existing transformers,
network protectors, and vaults.
Transformers and network protectors are either contained in a concrete vault or mounted on
a concrete slab or on a pole. The vaults, slabs or poles are situated on the customer's premises or in
the public streets adjacent to them.
Petitioner points out that under Real Property Tax Law section 102(17), the right to occupy
the public streets with electrical equipment is defined as a "special franchise." Special franchises are
defined as real property by Real Property Tax Law section 102(12)(h), and both the value of the right
to occupy the public streets as well as the tangible property located therein are assessed and subjected
to real property taxes. Similarly, transformers and network protectors located on a customer's
premises are defined and taxed as real property under Real Property Tax Law section 102(12)(f).
Petitioner inquires whether, in view of the taxability of the installations at issue under the
Real Property Tax Law, their disposal would qualify as the sale of real property under the sales tax
law.
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-87(30)S
Sales Tax
August 31, 1987

Section 1105(a) of the Tax Law imposes a tax on "[t]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
The Sales and Use Tax Regulations of the State Tax Commission explain that the term
"tangible personal property" does not include real property. 20 NYCRR 526.8(c).
Although the definition of real property, property and land contained in Regulation Section
527.7 generally corresponds to the classifications of the Real Property Tax Law, under the sales tax
law the manner and purpose of the affixation of tangible property to realty determines whether the
entire completed installation qualifies as capital construction. Thus, the Real Property Tax Law is
not controlling on the issue of what constitutes a capital improvement to real property for sales tax
purposes. Matter of Robert Roberson v State Tax Commission, 65 AD2d 898.
Pursuant to Section 1101(b)(9) of the Tax Law, a capital improvement is an addition or
alteration to real property which meets all three of the following criteria: [It]
(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.

The construction of concrete foundations (including poles permanently installed therein) and
vaults has been determined to be capital improvements to real property. See: Department of Taxation
and Finance Publication 862 [2/81], Classification of Improvements and Repairs to Real Property
for Sales Tax Purposes, pg. 7; Matter of Slattery Associates, Inc., Decision of the State Tax
Commission, Aug. 16, 1977, STH 77-65; 20 NYCRR 528.12[c][3]; Matter of Utica Wilbert Vault
Co., Decision of the State Tax Commission, October 7, 1983, TSB-H-84 (40)S.
However, equipment which retains its identity as tangible personal property after affixation
to the realty and is removable therefrom without causing material damage to itself or the supporting
structures is not considered to become part of a capital improvement. Matter of Wood Enterprises
v State Tax Commission, 67 AD2d 1042; Multi-View Communication, State Tax Commission
Advisory Opinion, March 26, 1986, TSB-A-86(12)S.
Receipts from the sale of tangible property are presumed to be subject to tax until the
contrary is established. The burden of proving exemption is upon the person required to collect tax
or the taxpayer.

-3­
TSB-A-87(30)S
Sales Tax
August 31, 1987

Accordingly, Petitioner is required to collect and remit sales tax on the receipts from the sale
of its transformers, network protectors, and vaults unless it establishes that such property qualifies
as a capital improvement under section 1101 (b)(9) of the Tax Law. The taxability of such property
for purposes of the Real Property Tax Law is not controlling. Petitioner has not supplied sufficient
information to make a determination regarding qualification as capital improvements within the
context of this advisory opinion.
Additionally, if Petitioner sells an installation which, pursuant to the foregoing explanation,
consists both of real property and of tangible personal property subject to tax, it must itemize the
taxable and exempt charges on the invoice rendered and collect the applicable sales tax. If the sales
record lacks sufficient detail for determining taxable and exempt charges, the total amount billed will
be subject to tax. 20 NYCRR 532.2(b)(2).

DATED: August 31, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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