Is the sale and installation of power-grid equipment for an electric utility taxable when the seller never received an exemption certificate from the utility?

Plain-English summary

ABB Power Transmission, Inc. sold and installed a Static Var Compensator (SVC) — a package of thyristor valves, reactors, capacitor banks, power transformers, and a control system — for Niagara Mohawk Power Corporation near Leeds, New York. The SVC connects, through step-up and step-down transformers, to the utility's transmission system, and its purpose is to stabilize the voltage of the transmission system during network disturbances (such as the loss of a 345 kV feeder line). ABB argued the sale and installation were exempt under the production-machinery exemption, § 1115(a)(12), because the equipment relates to the utility's generation and sale of electricity.

The Department held the transaction is taxable.

• Installing property is a taxable service. Under § 1105(c)(3), installing tangible personal property (not held for resale) is a taxable service, and ABB's installation of the SVC is the installation of tangible personal property.
• All receipts are presumed taxable without a certificate. Under § 1132(c), receipts are presumed taxable unless, within 90 days, the vendor takes from the purchaser a properly signed exemption or resale certificate. The § 1115(a)(12) exemption reaches only machinery or equipment used directly and predominantly in production (§ 528.13(c)), and the SVC was described as stabilizing the transmission system.
• No certificate, so tax is due on the whole charge. Because ABB did not receive an appropriate exemption document from Niagara Mohawk, ABB is liable for collecting New York State and local sales tax on the total charge for the sale and installation of the SVC.

What this means for you

Even a plausible exemption fails without the certificate in hand

The decisive point is documentation. New York presumes every sale taxable until the seller holds a properly completed exemption certificate from the buyer. A seller who believes a sale qualifies for the production exemption — but never collects the certificate — is still on the hook to collect tax on the full charge. Get the paperwork before you rely on an exemption.

The seller, not just the buyer, bears the collection risk

ABB is the one held liable here. When you sell and install equipment to a utility or manufacturer that thinks its purchase is exempt, you must obtain the exemption document; if you don't, the Department can look to you for the tax on the entire sale-and-installation charge, including the labor.

The production exemption ends where production ends

The opinion also signals a substantive limit worth noting: the § 1115(a)(12) exemption covers machinery used directly and predominantly in production, and the SVC was described as stabilizing the transmission system — the part of the grid that moves electricity after it is generated. Equipment on the transmission side raises a real question about whether it is "production" machinery at all. Here the Department didn't need to resolve that, because the missing certificate settled it.

Common questions

Q: Why did ABB owe tax if the equipment served an electric utility?
A: Because it never received an exemption certificate from the utility. Under § 1132(c), receipts are presumed taxable without one, so ABB owed tax on the full sale-and-installation charge.

Q: Is installing equipment a taxable service?
A: Yes. Installing tangible personal property not held for resale is taxable under § 1105(c)(3), and the charge includes the installation labor.

Q: Would the production exemption have applied if ABB had the certificate?
A: The opinion doesn't decide that. The § 1115(a)(12) exemption covers machinery used directly and predominantly in production, and the SVC stabilized the transmission system — but the case turned on the missing certificate, not on that question.

Q: Who has to get the exemption certificate?
A: The seller. The vendor must take a properly completed certificate from the purchaser within 90 days to overcome the presumption of taxability.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) — exemption for machinery or equipment used directly and predominantly in production of tangible personal property (including electricity) for sale
• Tax Law § 1105(c)(3) — tax on installing tangible personal property not held for sale
• Tax Law § 1132(c) — presumption of taxability; exemption certificate must be taken within 90 days
• 20 NYCRR § 528.13(c) — "directly and predominantly" in production

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_34s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-90 (34)S
Sales Tax
July 17, 1990

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880623A

On June 23, 1988 a Petition for Advisory Opinion was received from ABB Power
Transmission, Inc., 1460 Livingstone Avenue, North Brunswick, New Jersey 08902.
The issue raised by Petitioner, ABB Power Transmission, Inc., is whether the receipts from
its sale and installation of a Static Var Compensator (hereinafter referred to as SVC) to Niagara
Mohawk Power Corporation (hereinafter referred to as Purchaser) for use in conjunction with
Purchaser's generation and sale of electricity are exempt from New York State and Local Sales and
Use Tax pursuant to Section 1115(a)(12) of the Tax Law.
The SVC consists of a series of components being separately sold by Petitioner and installed
as part of Purchaser's facility near Leeds, New York. The SVC is principally comprised of a series
of thyristor valves, reactors and capacitor banks, power transformers and a control system which is
to be connected by step-down and step-up transformers to Purchaser's transmission system.
A brochure submitted by Petitioner refers to a project where two SVCs were installed at
substations located within a transmission system. Power is transmitted over a distance of 100 miles
from a nuclear power station to the area in which the SVCs are located via two 345kv lines. The
stated purpose of the compensators is to stabilize the voltage of the transmission system in such area
during various network conditions including major disturbances such as loss of either 345kv feeding
line.
Section 1115 of the Sales Tax Law states:
Exemptions from sales and use taxes.
(a)

Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five
*

(12)

*

*

Machinery or equipment for use or consumption directly and predominantly
in the production of ... electricity ... for sale ...by ... generating ... .

Section 528.13(c) of the Sales Tax Regulations provides as follows:
Directly and predominantly.
(1)
TP-9 (9/88)

Directly means the machinery or equipment must, during the production
phase of a process:

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Sales Tax
July 17, 1990

(i)

act upon or effect a change in material to form the product to be sold,
or

(ii)

have an active causal relationship in the production of the product to
be sold... .
*

(4)

*

*

Machinery or equipment is used predominantly in production, if over 50
percent of its use is directly in the production phase of a process.

In the Matter of Niagara Mohawk Power Corporation v. George W. Wanamaker, 286 App.
Div. 446, aff'd. no op 2 2d 764, various substations, transformers, towers, poles, conductors, voltage
regulators, circuit breakers and similar equipment located at the steam plant and elsewhere were
deemed to be used in transmission or distribution rather than in production of electricity. Production
was deemed to stop at the generator, and the increase in voltage by transformers at the plant was
simply to facilitate distribution.
A report issued by the New York Power Pool and acquired from the New York State
Department of Public Service, entitled N.Y.P.P. Post Marcy South Voltage Study, dated December
7, 1984, states that Purchaser's facility at Leeds, New York is part of and is located approximately
midway within a N.Y.P.P. transmission system wherein electricity produced at various generating
plants located in western and northern upstate New York and in Canada is transmitted to locations
in southern and southeastern New York State.
The N.Y.P.P. Post Marcy South Voltage Study also indicates that the purpose for installing
the SVC at Leeds is to provide for a more complete utilization of the transmission system. The report
indicates the SVC is capable of accomplishing that objective, in that even though it is not a voltage
source, it will provide automatic voltage regulation and adjustable reactive compensation.
The SVC at Leeds is not a generating device. The SVC does not and cannot generate
electricity. Therefore, the SVC is not capable of producing electricity nor aiding in the production
of electricity.
Inasmuch as the SVC is not a generating device and as it does not and cannot produce
electricity nor aid in the production of electricity, it is not considered to be used directly and
predominantly, as defined under Section 528.13(c) of the Sales Tax Regulations, in the production
of electricity for sale. Accordingly, the SVC does not qualify for the exemption from sales tax
afforded production equipment under the provisions of Section 1115(a)(12) of the Tax Law.
It is noted that Petitioner states that no sales tax was to be collected from Purchaser under
the contract of sale for the SVC. However, the Tax law does not contain any provision whereby
Purchaser's sales tax liability is determined by the language of a contract. Instead, the nature of the
transaction between Petitioner and Purchaser will be the basis for determining whether the purchaser
incurs a sales tax liability.

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Sales Tax
July 17, 1990
Section 525.2 of the Sales and Use Tax Regulations states:
Nature of Tax
(a)(2) The sales tax is a "transaction tax", liability for the tax occurring at the time
of the transaction. ...the taxed transaction is an act resulting in the receipt of
consideration for the transfer of title, or possession or both to property or rendition
of services from one person to another. ... the tax becomes due at the time of transfer
of property or rendition of service.
(4)

The sales tax is a "consumer tax", that is, the tax is imposed on the retail sale of
tangible personal property and certain services and is collected from the person who
purchases at retail- the consumer. The consumer cannot shift the liability for payment
of tax to another person nor otherwise relieve himself of such liability, although the
vendor is personally liable for the tax he was responsible for collecting.

(b)

The compensating use tax is imposed on the use within the state of tangible personal
property and services which would have been subject to sales tax if purchased in this
State. It is designed to equalize the tax burden and to make the purchaser of property
or services liable for tax, measured by the purchase price, where for various reasons,
the sales tax was not paid at the time of purchase.

Section 1132 (c) of the Tax Law states:
For the purpose of the proper administration of this article and to prevent evasion of
the tax hereby imposed, it shall be presumed that all receipts for property or services
of any type mentioned in subdivisions (a)(b)(c) and (d) of section eleven hundred
five, ... are subject to tax until the contrary is established, and the burden of proving
that any receipt ... is not taxable hereunder shall be upon the person required to
collect tax or the customer. ... unless a vendor, not later than ninety days after
delivery of the property or the rendition of the service, shall have taken from the
purchaser a certificate in such form as the tax commission may prescribe, signed by
the purchaser and setting forth his name and address and ... the number of his
registration certificate, together with such other information as said Commission may
require, to the effect that the property or service was purchased for resale or for some
use by reason of which the sale is exempt from tax under the provisions of section
eleven hundred fifteen, ... the sale shall be deemed a taxable sale at retail.
Section 1105 of the Sales Tax Law imposes sales tax on:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

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July 17, 1990
(c) The receipts from every sale, except for resale, of the following service:
(3) Installing tangible personal property ... not held for sale in the regular course of
business.
Petitioner's installation of the SVC at Leeds, New York is considered to be the installation
of tangible personal property. Therefore, Petitioner is liable for collecting the state and local sales
tax imposed under section 1105 of the Tax Law on the total charge to Purchaser for the sale and
installation of the SVC at Leeds, New York since it did not receive an appropriate exemption
document pursuant to Section 1132(c) of the Tax Law.

DATED: July 17, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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