Does a builder owe sales tax on factory manufactured homes it buys, and does it matter who hires and pays the crane crew that sets the home on the foundation?

Plain-English summary

The Grisanzio Corporation (d/b/a North East Homes) builds one-family homes by having a factory — Ritz-Craft of Pennsylvania — manufacture them. Each home was completed at the factory, delivered to the site, and lifted onto the foundation by a crane crew; the builder then took possession and finished the home for a certificate of occupancy and closing. The builder said Ritz-Craft's invoices charged for the home, options, freight, New York sales tax on 65% of the invoice (materials), and a charge for Ritz-Craft to set the home on the foundation. On audit, however, the Department found that the builder itself hired and paid the crane operator (about $1,400/job, reimbursed $600 by the manufacturer) and supplied a setting crew — and that the crane company had no setting agreement with Ritz-Craft until 1992. The question: is the builder liable for sales tax on the homes?

The Department's answer, under Tax Law § 1105(a) and Regulations §§ 544.3(b), 544.4(b):

• An uninstalled factory manufactured home is taxable. Its sale is a taxable sale of tangible personal property on the total sales price (the "70 percent rule" does not apply to factory manufactured homes).
• An installed home sold as one transaction is not taxed to the buyer. Where installation resulting in a capital improvement is a component of the sale, the sale of the (installed) home is not subject to sales tax — but the party that installs it owes use tax on the materials. If installation is arranged independently of the home's sale, the home was bought uninstalled and is taxable even though it ultimately becomes a capital improvement (Lake City Manufactured Housing, Inc.).
• So it all turns on who hired the crane. If the builder hired and paid the crane to set the homes, the purchases were of uninstalled homes and the entire sale is taxable. If Ritz-Craft hired and paid the crane as a component of its sale to the builder, the installation is a nontaxable capital improvement (and Ritz-Craft owes use tax on materials).
• That's a fact question. Whether the builder or Ritz-Craft actually hired and paid the crane cannot be decided in an advisory opinion.

What this means for you

Builders and dealers of factory manufactured homes

Whether you owe sales tax turns on how the home is sold. Buying an uninstalled home is a taxable purchase of tangible personal property. Only when the installation is a genuine component of the sale — arranged and paid for by the seller, resulting in a capital improvement — does the buyer avoid tax on the home.

Who hires the installer is decisive

If you hire and pay the crew that sets the home, you bought it uninstalled and it's fully taxable — even though it ends up permanently on a foundation. Line up installation through the manufacturer as part of the purchase if you want capital-improvement treatment, and keep records (contracts, invoices, payments) that actually show that.

Paperwork must match reality

The builder's invoices recited a manufacturer setting charge, but the audit showed the builder hired and paid the crane and supplied the crew. The Department looks at who actually contracted and paid, not just what the invoice says.

Accountants and tax professionals

The opinion applies Reg. §§ 544.3(b)/544.4(b) and Lake City Manufactured Housing: an uninstalled factory manufactured home is a § 1105(a) taxable sale; installation as a component of the sale yields a capital improvement (installer owes use tax on materials), but installation secured independently doesn't. The controlling who-hired-the-crane issue is a fact question left to the audit.

Common questions

Q: Is a factory manufactured home subject to New York sales tax?
A: An uninstalled factory manufactured home is a taxable sale of tangible personal property on the total sales price. A home sold with installation as a component of the sale (a capital improvement) is not taxed to the buyer.

Q: Why does it matter who hired the crane?
A: If the builder hired and paid the crane, it bought the home uninstalled — fully taxable. If the manufacturer hired and paid the crane as part of the sale, the installation is a nontaxable capital improvement.

Q: Does the home still become a capital improvement if the builder hires the crane?
A: Ultimately yes, but installation secured independently of the home's sale doesn't make the home's purchase exempt — it was bought uninstalled and is taxable.

Q: Who owes use tax on the materials?
A: If the manufacturer installs the home as a capital improvement, the manufacturer owes use tax on the materials used to build it.

Q: Did the opinion decide the builder's liability?
A: No. Whether the builder or the manufacturer hired and paid the crane is a factual question that can't be resolved in an advisory opinion.

Citations and references

Statutes and authorities:

• Tax Law § 1105(a) (tax on receipts from retail sales of tangible personal property)
• Sales and Use Tax Regulations § 544.3(b) (sales of factory manufactured homes; "70 percent rule" inapplicable)
• Sales and Use Tax Regulations § 544.4(b) (installation of factory manufactured homes; capital improvement vs. taxable installation; installer's use tax on materials)
• Lake City Manufactured Housing, Inc., Dec. Tax App. Trib., Nov. 14, 1991

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (45) S
Sales Tax
June 4, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920220A

On February 20, 1992, a Petition for Advisory Opinion was received from The Grisanzio
Corporation d/b/a North East Homes, 5012 Express Drive South, Ronkonkoma, New York 11779.
The issue in the instant case is whether Petitioner, The Grisanzio Corporation d/b/a North
East Homes, is liable for sales tax on the purchase of manufactured homes from Ritz-Craft
Corporation of PA., Inc. (hereinafter "Ritz-Craft"), a Pennsylvania corporation.
In 1983, Petitioner opened an office to build residential, one family homes. Rather than
engage in the customary construction of the homes, Petitioner selected a factory to manufacture
them.
The following are Petitioner's contentions as set forth in its Petition. Each home was
completed in the factory by Ritz-Craft, placed on a home carrier and attached to a Ritz-Craft tractor
that then delivered the home to the site. The home was then lifted off the carrier by a crane crew at
the site and placed on the foundation. The crane crew was supplied, contracted and paid for by RitzCraft. Once the home was placed on the foundation, Petitioner then took possession. Petitioner
completed the home to the last detail so a certificate of occupancy could be issued and a closing
could take place to transfer title to the contracted buyer.
Petitioner contends that every invoice received from Ritz-Craft for each home manufactured
included the following:
1.

A charge for the base price of the home.

2.

A charge for additional options added.

3.

A freight charge for delivery of the home to the site.

4.

New York State sales tax, based and computed on 65% of the total invoice,
representing the tax due on material used in the home, excluding labor.

5.

A charge for Ritz-Craft to set or place the home permanently on the foundation.

The charges set forth on the invoice were totaled and a check was due and payable to RitzCraft by Petitioner 15 days after the home was delivered to the site.
In an audit conducted by the Department of Taxation and Finance, the auditor contends that
the crane operator was hired by and paid for by Petitioner. The auditor states that from 1984 to1988
Petitioner's books reflect such transactions.
TP-9 (9/88)

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TSB-A-92 (45) S
Sales Tax
June 4, 1992
The auditor further contends that the crane operator billed separately for the crane rental plus
sales tax and for the labor costs for the crane operator and an oiler, the crane operator's son. The
crane operator had no other payroll. The crane operator charged approximately $1,400.00 for each
job. Petitioner was reimbursed $600.00 from the manufacturer for each setting.
In addition, the auditor contends that the setting of a house required four or five persons in
addition to the crane operator and the oiler. Petitioner supplied a crew for each job. A video viewed
by the auditor and her supervisor showed four employees of Petitioner actively involved with the
setting of the home on the foundation.
The auditor also contends that an officer of Apollo Crane, Inc., the crane operator, stated that
no agreement between crane company and Ritz-Craft for the setting of the homes on the foundation
existed until 1992. The crane operator further stated the four or five man crew to set each house were
not supplied by him, but rather he believed they were employees of Petitioner.
Section 1105(a) of the Tax Law provides that the receipts from every retail sale of tangible
personal property is subject to sales tax except as otherwise provided.
Section 544.3(b) of the Sales and Use Tax Regulations provides as follows:
(b) Sales of Factory manufactured homes. (1) The sale of a factory
manufactured home which has not been installed on real property as a capital
improvement is subject to the sales and compensating use taxes as the sale of tangible
personal property. Upon a retail sale, tax is computed on the total sales price. The "70
percent rule" described in subparagraph (a)(2)(i) of this section does not apply to the
sale or use of a factory manufactured home.
(2) The sale of a factory manufactured home to a contractor, subcontractor or
repairman to be installed as a capital improvement by such contractor, subcontractor
or repairman is subject to sales and compensating use tax as a retail sale of tangible
personal property. (emphasis added)
Section 544.4(b) of the Sales and Use Tax Regulations concerning the imposition of sales
tax on charges of installing factory manufactured homes provides as follows:
(b) Factory manufactured homes. (1) If the installation of a factory
manufactured home results in a capital improvement, charges for the installation of
such factory manufactured home are not subject to the sales tax, and the installer is
liable for the sales and use tax on any materials used or consumed in such
installation.
(2) If a factory manufactured home is installed upon real property under such
circumstances that the installation does not constitute a capital improvement, the
charges for such installation including labor and materials (including the charge for

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TSB-A-92 (45) S
Sales Tax
June 4, 1992
the factory manufactured home if applicable) is subject to tax. In such event, a
contractor may claim a refund or credit of the sales and compensating use tax it paid
upon its purchase of those materials which were subsequently resold.
The sale of an uninstalled factory manufactured home is subject to sales tax. Conversely, the
sale of an installed factory manufactured home, i.e., sale of an uninstalled home where installation
is a component of the sales transaction, is not subject to sales tax. It is possible for a buyer to
purchase a factory manufactured home from the manufacturer but to make arrangements to have it
installed by another party. The sale of the home would, thus, be subject to sales tax because the home
was purchased on an uninstalled basis. Though the home will ultimately be installed on the real
property of the buyer, thereby constituting a capital improvement, the steps taken to reach this do
not trigger the exemption from sales tax because installation was secured independent of the sale of
the home. Lake City Manufactured Housing, Inc., Dec. Tax App Trib., November 14, 1991.
(emphasis added)
Accordingly, pursuant to Section 1105(a) of the Tax Law, Sections 544.3(b) and 544.4(b)
of the Sales and Use Tax Regulations and Lake City Manufactured Housing, Inc., supra, in the
instant case if Petitioner hired and paid the crane company to install the manufactured homes on the
foundations, the purchase of the manufactured homes would constitute the purchase of tangible
personal property and the entire sale would be subject to sales tax. On the other hand, if as a
component of the sale to Petitioner, Ritz-Craft hired and paid the crane company to install the
manufactured homes on the foundations, resulting in capital improvements, the installation by RitzCraft would not be subject to sales tax. However, Ritz-Craft would be liable for the use tax on any
material used in constructing the manufactured homes.
A determination of whether Petitioner or Ritz-Craft hired and paid the crane company to
install the manufactured homes on the foundations is a factual question which cannot be determined
in an Advisory Opinion. An Advisory Opinion merely sets forth the applicability of pertinent
statutory and regulatory provisions to a "specified set of facts." Tax Law, section 171, subd. twenty­
fourth; 20 NYCRR 23716.1(a).

DATED:

June 4, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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