Does an elevator company owe use tax on materials it uses in taxable maintenance and repair jobs, and can it recover that tax?

Plain-English summary

An elevator company (Armor Elevator) provides a full range of elevator and escalator work — maintenance service contracts, repairs, modernization, and new installations. It collects sales tax from customers on the full value of repair and service contracts (materials plus labor) and also accrues and remits use tax on the materials and supplies it buys and uses on jobs. It asked whether it really owes use tax on those materials, and whether it can get a refund or credit.

The Department explained how New York's rules fit together:

• The service is taxable. Maintaining, servicing, or repairing elevators and escalators is taxable real-property maintenance under Tax Law § 1105(c)(5), and the tax is collected on the full invoice price billed to the customer — except where the work is a capital improvement (e.g., a new installation).
• Avoid double tax with a refund/credit. Because the company already pays tax on materials and then charges tax on the full customer invoice (which includes those materials), it may apply for a refund or credit of the tax it paid on materials and supplies that become part of the property serviced (resold) or are transferred to the customer in performing the taxable service (20 NYCRR § 527.7(b), § 541.5(d)).
• Capital-improvement materials stay taxable. When the company's work is a capital improvement, it is the ultimate consumer of the materials, so its purchases of those materials are subject to tax with no resale-type refund.
• Three-year window. Any refund or credit must be claimed within three years after the tax was paid (Tax Law § 1139(a)).

What this means for you

Repair and maintenance contractors (elevators, HVAC, and the like)

If your service is taxable real-property maintenance, bill tax on the whole invoice — labor and materials together. Then don't eat the tax on the materials twice: because those materials are effectively resold to the customer through the taxable service, you can claim a refund or credit for the tax you paid on materials that go into the serviced property or are handed to the customer. Materials consumed in a capital-improvement job are the exception — you're the consumer there and the tax sticks.

The mechanics that trip people up

The distinction is taxable repair/maintenance (materials refundable, service taxed on full price) versus capital improvement (materials taxable to you, customer charge not taxed with a certificate). Sort each job into the right bucket before deciding whether the material tax is recoverable — and file within the three-year limit or lose the claim.

Accountants and tax professionals

This opinion lines up § 1105(c)(5) (taxable real-property maintenance on full invoice) with the resale-type refund in § 527.7(b) and the contractor-purchase rule in § 541.5(d)(3): tax paid on materials incorporated into the serviced property and later transferred to the customer is refundable, while materials for a capital improvement are taxed to the contractor as consumer. The § 1139(a) three-year claim period governs.

Common questions

Q: Is elevator maintenance and repair taxable in New York?
A: Yes. It's taxable real-property maintenance under Tax Law § 1105(c)(5), and tax is collected on the full invoice price — unless the work is a capital improvement.

Q: Does the company owe tax on the materials it uses?
A: It pays tax on the materials, but may claim a refund or credit for tax paid on materials that become part of the serviced property or are transferred to the customer in performing the taxable service.

Q: Are materials used in a new installation (capital improvement) refundable?
A: No. When the work is a capital improvement, the company is the ultimate consumer of the materials, so its purchases of those materials are taxable with no resale-type refund.

Q: How long does the company have to claim the refund or credit?
A: Three years after the date the tax was paid, under Tax Law § 1139(a).

Q: Can another company rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1105(c)(5) (tax on maintaining, servicing or repairing real property)
• Tax Law § 1139(a) (refunds; three-year claim period)
• 20 NYCRR § 527.7(b) (imposition of tax on real-property maintenance; refund/credit for parts that become part of the property serviced for resale or are transferred to the customer)
• 20 NYCRR § 541.5(d) (charges for repair/service/maintenance/installation; contractor purchases and refund for materials transferred to the customer)

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_76s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (76) S
Sales Tax
November 4, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920803A

On August 3, 1992, a Petition for Advisory Opinion was received from Armor Elevator
Company, Inc., 12540 Westport Road, Louisville, Kentucky 40245.
The issues raised by Petitioner, Armor Elevator Company, Inc., are:
1.

Whether use tax must be paid on materials and supplies that are used in maintenance
service contracts or repair orders for elevators and escalators.

2.

Whether a refund or credit for the use tax paid on materials and supplies that are used
in maintenance service contracts or repair orders for elevators and escalators may be
claimed.

Petitioner is an elevator company which offers a full line of services in elevator and escalator
products. The services provided include service maintenance contracts, repairs, modernization to
equipment and construction (new installation) of new elevators and escalators.
Sales tax is collected from customers on the total value of repair and service contracts, which
includes both material and labor costs. In addition, Petitioner accrues and remits use tax to New
York State on all material and supplies purchased and used on jobs both directly and incidentally.
Section 1105(c) of the Tax Law imposes sales tax on the receipts from every sale, except for
resale, of the following services:
*
*
*
(5) Maintaining, servicing or repairing real property, property or land, as such terms
are defined in the real property tax law, whether the services are performed in or
outside of a building, as distinguished from adding to or improving such real
property, property or land, by a capital improvement as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter, but excluding services rendered by an individual who
is not in a regular trade or business offering his services to the public.
Section 1139(a) of the Tax Law provides, in pertinent part, as follows:
Sec. 1139. Refunds.--(a) In the matter provided in this section the tax
commission shall refund or credit any tax, penalty or interest erroneously, illegally
or unconstitutionally collected or paid if application therefor shall be filed with the
tax commission (i) in the case of tax paid by the applicant to a person required to
TP-9 (9/88)

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TSB-A-92 (76) S
Sales Tax
November 4, 1992

collect tax, within three years after the date when the tax was payable by such person
to the tax commission as provided in section eleven hundred thirty-seven, or (ii) in
the case of a tax, penalty or interest paid by the applicant to the tax commission,
within three years after the date when such amount was payable under this article, or
...
Section 527.7(b) of the Sales and Use Tax Relations provides, in part, as follows:
(b) Imposition. (1) The tax is imposed on receipts from every sale of the
services of maintaining, servicing or repairing real property, whether inside or
outside of a building.
*
*
*
Example 2: Company A enters into an agreement to provide periodic
maintenance services on elevators and escalators belonging to its customers. The
contract provides for inspection, lubrication and the performance of necessary
repairs. These services are taxable as maintaining, servicing of real property which
is subject to the sales tax.
*
*
*
(3) When the servicing of maintaining, servicing or repairing real property is
performed in conjunction with the transfer of title to tangible personal property, the
price of the tangible personal property is also subject to tax.
Example 8: A customer has a maintenance contract with a heating and air
conditioning company to supply all parts and emergency services for his heating and
air conditioning system for one year for a set fee. The cost of the contract is taxable,
whether or not any services or parts are actually furnished, as it is a contract for
maintenance of real property. The company may apply for a refund or credit of any
tax paid on parts purchased for use under the contract which become part of the
property serviced for resale, or are transferred to the purchaser in performance of the
service. (emphasis added)
Section 541.5(d) of the Sales and Use Tax Regulations provides, in part, as follows:
*
*
*
(d) Maintaining, installing, repairing, and servicing tangible personal property and real
property.--(1) Tangible Personal Property. (i) Charges for repair, service, maintenance, and
installation of tangible personal pro erty which retains its identity as tangible personal property are
t xable to the customer based on the full invoice price.

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TSB-A-92 (76) S
Sales Tax
November 4, 1992

(3) Purchases. Purchases of any tangible personal property (excluding qualifying production
machinery and equipment exempt under section 1115 of the Tax Law) made by a contractor,
subcontractor, or repairman for use or consumption in maintaining, servicing, or repairing real or
personal property of others are subject to tax. The contractor is entitled to a refund or credit of tax
paid on such materials incorporated into real property where such property is later transferred to the
purchaser in conjunction with the performance of a service subject to the tax.
Example 6:
The repainting of a building is not a capital improvement. The customer must
pay tax on the total contract charge for this service. The painter is liable for the tax on the materials,
tools and supplies he uses for painting (e.g., paint, spackling, brushes and drop cloths), subject to
a right of refund or credit for the tax paid on the cost of the materials incorporated into the real
property (e.g., paint, spackling).
Accordingly, pursuant to Section 1105(c)(5) of the Tax Law and Sections 527.7(b) and
541.5(d) of the Sales and Use Tax Regulations, Petitioner's charges for maintaining, installing,
repairing and servicing elevators and escalators are subject to sales tax based on the full invoice price
billed to the customer except in those instances when the installation constitutes a capital
improvement. Petitioner, however, may apply for a refund or credit of any sales tax paid on materials
and supplies purchased for use under the maintenance service contracts or repair orders which
become part of the property serviced for resale, or transferred to the purchaser in performance of the
service. Petitioner's purchases of materials used in capital improvements are subject to sales tax.
Pursuant to Section 1139(a) of the Tax Law such refund or credit must be claimed within three years
after the date when the tax was paid.

DATED: November 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.