Is installing a bolted-and-wired trash compactor in an apartment building a capital improvement, or a taxable sale and installation of equipment?

Plain-English summary

Multi-Pak Sales Corp. manufactures trash compactors, sells them from a catalog at a published price, and — because New York code requires it — installs them under the trash chutes of apartment buildings. Installation means fitting the chute to the machine, bolting the compactor to the floor, and wiring it to the building's electrical system; removal for service takes only unbolting and detaching the electrical connection. Multi-Pak asked whether that installation is a capital improvement to real property.

The Department held it is not.

• The three-part test must be met in full. Under 20 NYCRR § 541.2(g)(1), a capital improvement must (i) substantially add to the value or appreciably prolong the life of the real property, (ii) become part of or be permanently affixed so that removal would cause material damage, and (iii) be intended to be permanent. Failing any one condition defeats capital-improvement treatment.
• Bolting and wiring aren't enough. The real question isn't whether equipment is attached, but whether it's attached so firmly it loses its separate identity or can't be removed without material damage. A compactor that's simply bolted down and wired in is readily removable — like the ski-lift towers set in poured foundations but removable by cutting the bolts (West Mountain Corp. v. Miner) and the bolted-down amusement-park rides that were not improvements to realty (Charles R. Wood Enterprises v. State Tax Commission).
• Tax consequences. Because the installation is not a capital improvement, Multi-Pak does not owe use tax on the materials used to manufacture the compactors it sells in New York. But when it delivers and installs a compactor for a New York customer, it must collect sales tax on the compactor, the installation charge, and any installation materials — unless the customer is otherwise exempt.

What this means for you

"Bolted down" is not the same as "permanent"

Attaching equipment to a building — even bolting it to the floor and hard-wiring it — does not by itself make the installation a capital improvement. The test is whether removal would cause material damage to the equipment or the building. If the machine can be unbolted and unplugged and carried out, its installation is a taxable service, not a tax-free improvement to real property.

Material damage means real damage, not lost value

The regulation is explicit that "material damage" doesn't exist just because equipment is worth less once removed than when it was installed and running. A drop in value on removal doesn't convert a removable installation into a capital improvement.

Sellers who install owe tax on the whole job

If you sell and install equipment that isn't a capital improvement, collect sales tax from your customer on the equipment, the installation labor, and the installation materials (unless the customer is exempt). The flip side is that you don't separately owe use tax on the raw materials you consumed to build the unit you sold.

Common questions

Q: We bolt and hard-wire the unit into the building — isn't that permanent?
A: Not for sales-tax purposes. If it can be unbolted and disconnected and removed without material damage, it stays tangible personal property, and installing it is a taxable service, not a capital improvement.

Q: Do we owe use tax on the materials we used to build the compactor?
A: No. Because the installation isn't a capital improvement, you're selling tangible personal property; you don't owe separate use tax on the manufacturing materials — you collect sales tax from the customer instead.

Q: What exactly do we charge tax on when we install one?
A: On the compactor, the installation charge, and any materials used for the installation, unless the customer is otherwise exempt.

Citations and references

Regulation:

• 20 NYCRR § 541.2(g)(1) — three-part capital-improvement test (value/useful life, permanent affixation with material damage on removal, intent to be permanent)

Cited authority:

• West Mountain Corporation v. Miner, 85 Misc 2d 416 (1976) — ski-lift towers bolted into poured foundations were removable without material damage
• Charles R. Wood Enterprises, Inc. v. State Tax Commission, 67 AD 2d 1042 (1979) — bolted amusement-park rides removable without damage were not improvements to real property

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_48s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (48)S
Sales Tax
December 11, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890906A

On September 6, 1989 a Petition for Advisory Opinion was received from Multi-Pak Sales
Corp., 400 Railroad Avenue, Hackensack, New Jersey 07601.
The issue raised is whether the installation of a trash compactor by Petitioner, Multi-Pak
Sales Corp., results in a capital improvement to real property.
Petitioner manufacturers trash compactors and sells them from a catalog at a published price.
The equipment is wired and ready for installation under the trash chutes of the buildings where they
are to be installed. Due to code restrictions in New York State, Petitioner installs the equipment at
the customers' site.
Petitioner's compactors are positioned under trash chutes in apartment buildings. The
compactor is then connected to the chute with a transition connection. The connection involves
fitting the chute to the machine cavity to ensure that fire codes are adhered to. The machine is then
bolted to the floor and wired to the building's electrical system. The equipment is readily removed
from the building and only requires detachment from the electrical service and unbolting from the
building floor when it must be removed for service or repair.
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 from qualifying as a capital
improvement.
Most 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

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TSB-A-89 (48)S
Sales Tax
December 11, 1989

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 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.
Within the context of the Real Property Tax Law, 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).
Therefore, the mere bolting and wiring 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. Consequently, the installation of Petitioner's trash compactor does not qualify as a
capital improvement and, therefore, it is not required to pay use tax on the cost of the materials used
in the manufacture of compactors it sells in New York.
However, it is noted that if the Petitioner delivers and installs a compactor on the premises
of a customer in New York State it must collect sales tax on the charges for the compactor, the
installation of the compactor, and any materials used for the installation of the compactor unless the
customer is otherwise exempt from the payment of sales tax.

DATED: December 11, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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