Are standalone elevator inspection services subject to New York sales tax?

Plain-English summary

National Elevator Inspection Services, Inc. inspects elevators -- by observation and interview -- to determine whether they meet state and local codes. The inspections are used as a guide for insurance underwriters and as proof of code compliance. The company does no installation, maintenance, or repairs, and its inspectors don't even carry tools. It asked whether its inspection charges are subject to New York sales tax.

The Department drew a line based on who the customer is:

• Inspections are taxable maintenance of real property. An installed elevator is real property. Inspecting it is a diagnostic service aimed at keeping it in a condition of "fitness, efficiency, readiness and safety" -- which counts as maintaining real property under Tax Law 1105(c)(5) and 20 NYCRR 527.7(b)(1) and 527.5(a)(3). The fact that the inspector does no repairs doesn't matter (the regulation's diagnostic-service examples are taxable). So when the inspection is performed for the owner or lessee, it is taxable.
• But not if the buyer isn't the owner or lessee. If the person paying for the inspection report is not the owner or lessee of the inspected property (for example, an insurer), the charge is not subject to sales tax under section 1105(c)(5), following the Matocha opinion (TSB-A-90(12)S).

The Department also noted that an older 1977 declaratory ruling on elevator inspection/maintenance contracts predates the June 1, 1990 amendments to section 1105(c) and no longer reflects its position.

What this means for you

Inspection and testing businesses

A pure inspection or diagnostic service can be taxable even if you never touch or repair anything. If the item inspected is real property (or tangible personal property), New York treats diagnostic inspection as taxable maintaining/servicing when billed to the owner or lessee.

Who you bill changes the answer

The single most important fact here is the customer's relationship to the property. Billing the owner or lessee = taxable. Billing a third party who is not the owner or lessee (an insurer, a prospective buyer's lender, etc.) for the report = not taxable under section 1105(c)(5). Document who your customer is.

"We don't do repairs" is not a defense

The company argued it does no maintenance or repairs. That didn't exempt it -- the regulations treat diagnostic inspection to keep property fit and safe as taxable servicing/maintenance.

Common questions

Q: We only inspect -- we never repair anything. Why is that taxable?
A: Because inspecting to determine an elevator's fitness and safety is a diagnostic service that counts as maintaining real property under section 1105(c)(5). The regulation's examples treat diagnostic services as taxable.

Q: When is an elevator inspection not taxable?
A: When the customer paying for the inspection report is not the owner or lessee of the inspected property -- for instance, an insurance underwriter buying the report.

Q: What about the old 1977 ruling on elevator inspection contracts?
A: The Department said it predates the June 1, 1990 amendments to section 1105(c) and no longer reflects its position.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner and the facts described. Treat it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(c)(5) (sales tax on maintaining, servicing, or repairing real property)
• 20 NYCRR 527.7(b)(1) (imposition of tax on services to real property)
• 20 NYCRR 527.5(a)(3) (maintaining/servicing includes keeping property in a condition of fitness/safety)
• Joseph A. Matocha, Adv. Op., March 21, 1990, TSB-A-90(12)S (report bought by non-owner not taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_49s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-93 (49)S
Sales Tax
September 17, 1993

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930521A

On May 21, 1993, a Petition for Advisory Opinion was received from National Elevator
Inspection Services, Inc., 120 South Central, Suite 1120, St. Louis, Missouri 63105.
The issue raised by Petitioner, National Elevator Inspection Services, Inc., is whether elevator
inspections performed by Petitioner are subject to New York State and local sales and use taxes.
Petitioner, an out-of-state corporation duly authorized to do business in the State of New
York, provides a service of inspecting elevators through observation and interview to determine,
generally, if the elevators satisfy local and/or state codes and standards. The sole purposes of the
inspections is for use as a guide to insurance underwriters and for proof of compliance with state
codes.
The inspection services performed are not in conjunction with, related to or part of any
maintenance or repairs done to the elevators. The inspection reports are not submitted to or used by
the companies which maintain and service the elevators. Those companies all conduct their own
inspections to determine what maintenance, repairs, lubrication and adjustments are necessary to
keep the elevators in fit condition.
Petitioner does not install, maintain, repair, lubricate or grease any elevators. The employees
of Petitioner do not carry tools, lubricant or grease. They do not conduct any repairs, nor would they
if requested to do so. Petitioner's inspections are similar to, and performed in a similar manner as
those provided by professional engineers and licensed architects, but in fact are not performed by
professional engineers or licensed architects.
Section 1105(c) of the Tax Law, as amended June 1, 1990, provides, in part, as follows:
Sec. 1105. Imposition of sales tax.-- On and after June first, nineteen hundred
seventy-one, there is hereby imposed and there shall be paid a tax of four percent
upon:
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(c) The receipts from every sale, except for resale, of the following services:
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TSB-A-93 (49)S
Sales Tax
September 17, 1993
(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 527.7 of the Sales and Use Tax Regulations provides, in part, as follows:
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(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.
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Example 2: Company A enters into an agreement to provide
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. (emphasis added)
Similarly, Section 527.5 of the Sales and Use Tax Regulations imposes sales tax on the
installing, repairing, servicing and maintaining of tangible personal property. While an elevator, once
installed, is real property, the similarity in the imposition of sales tax upon such services for real and
tangible property is to be noted.
Section 527.5 of the Sales and Use Tax Regulations provides, in part, as follows:
Section 527.5 Installing, repairing, servicing and maintaining
tangible personal property
(a) Imposition
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(3) Maintaining, servicing and repairing are terms used to cover all
activities that relate to keeping tangible personal property in a
condition of fitness, efficiency, readiness or safety or restoring it to
such condition.

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TSB-A-93 (49)S
Sales Tax
September 17, 1993
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Example 6: A company operates a diagnostic service in which it tests
an appliance for a set fee, but does not repair the appliance. The
charge for the diagnostic service is taxable. (emphasis added)
Where the purchaser of an inspection service is not the owner of the real property which is
the subject of the inspection report, the charge paid by the purchaser for the report will not be subject
to sales tax pursuant to Section 1105(c)(5) of the Tax Law as a charge for maintaining, servicing or
repairing real property, property or land. See: Joseph A. Matocha, Adv 0p Comm T & F, March 21,
1990, TSB-A-90(12)S.
Moreover, Declaratory Ruling 77-01, dated August 15, 1977, as it relates to interior cleaning
and maintenance service contracts for the inspection, maintenance and repair of elevators and
escalators is not relevant to this opinion, since the ruling preceded the amendments made to Section
1105(c) of the Tax Law, effective June 1, 1990 and no longer reflects the Tax Department's position
as it applies to elevator and escalator maintenance.
In the instant case, Petitioner is providing a service of inspecting elevators through
observation and interview to determine if the elevators satisfy local and/or state codes and standards.
Pursuant to Section 1105(c)(5) of the Tax Law and Section 527.7(b)(1) of the Sales and Use Tax
Regulations the inspection of elevators constitutes the maintaining of real property. Moreover, in
accordance with the rationale set forth in Section 527.5(a)(3) of the Sales and Use Tax Regulations,
the inspection of elevators is a diagnostic service for the keeping of the real property in a condition
of fitness, efficiency, readiness and safety. Therefore, the elevator inspection services performed by
Petitioner are subject to sales tax where they are performed for the owner or lessee of the real
property.
It is noted, however, that if the purchaser of the elevator inspection service is not the owner
or lessee of the real property which is the subject of the elevator inspection report, the charge paid
by the purchaser for the report will not be subject to sales tax pursuant to Section 1105(c)(5) of the
Tax Law as a charge for maintaining, servicing or repairing real property, Joseph A. Matocha, supra.

DATED: September 17, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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