When an engineering/design/consulting firm also installs and sells the equipment it designs for, is its consulting fee taxable, or does bundling it with installation and equipment make the whole charge taxable?

Subject

Are: (1) Whether New York State and local sales tax should be collected on engineering, consulting and advisory services provided by Petitioner in a situation where taxable equipment is ultimately purchased by the client; and (2) whether the purchase of the equipment from Petitioner versus another vendor is relevant to that question.

What this means for you

A firm that designs, engineers, consults on, and supervises the installation of television/video production facilities for cable, broadcast, and teleproduction clients asked how sales tax applies when its consulting is entangled with equipment it also sells and installs. Sometimes its clients buy the designed equipment straight from the manufacturer instead of from the firm, with the firm just handling shipping, receiving, paperwork, and training for a separate fee. Usually, though, the firm negotiates its consulting/engineering/supervisory contract apart from any equipment sales contract with the same client.

New York doesn't tax design, engineering, consulting, or advisory services on their own -- they aren't among the services the state's sales tax law enumerates. But New York DOES tax installing tangible personal property, and always taxes selling tangible personal property outright. The catch is a bundling rule: under Tax Law § 1101(b)(3) and the Department's own regulations, if a contract's components can't actually be bought separately -- even if they're separately priced or itemized on the invoice -- the whole thing counts as ONE sale, taxed as if it were the taxable component (here, installation). So: if a client's contract locks consulting/design together with installation and/or equipment with no ability to opt out of any piece, the ENTIRE charge is taxable at the installation-service rate. But if the contract genuinely lets the client choose -- buy only the consulting, only the installation, only the equipment, or any combination, with the services and the equipment sale not contingent on each other -- then a separately stated consulting/design fee escapes tax even though the installation and equipment charges next to it remain taxable on their own. And if the firm only ever provides consulting/design/engineering, with the client buying equipment from someone else entirely, none of the firm's own charges are taxable.

Q&A

Q: We provide only design, engineering, consulting, or advisory services -- no installation, no equipment sale -- is that taxable?
A: No, per this opinion. Those services aren't among New York's enumerated taxable services, so charges for them alone escape sales tax.

Q: Our contract requires the client to take our consulting/design AND our installation/equipment as one package, with no option to pick and choose -- is the consulting portion still untaxed?
A: No. Per this opinion, when the components of a contract can't be separately purchased, § 1101(b)(3) and § 526.5(e) of the regulations treat the whole charge as a single taxable sale, taxed at the installation-service rate under § 1105(c)(3) -- even if the consulting/design fee is separately itemized on the invoice.

Q: Our contract lets the client separately elect and pay for consulting, installation, and equipment, with none contingent on the others -- how is each piece taxed?
A: Per this opinion: the separately stated consulting/design/engineering charge is not taxable; the installation or supervisory-service charge is taxable under § 1105(c)(3); and the equipment charge is taxable under § 1105(a) if sold uninstalled, or under § 1105(c)(3) if sold installed.

Q: Our client buys the equipment directly from the manufacturer or another vendor, not from us -- are our consulting/engineering fees still taxable?
A: No, per this opinion, as long as the firm provides only engineering, consulting, and advisory services and performs no other taxable service for that client.

Q: Can other engineering or consulting firms rely on this ruling?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it, though it illustrates how the Department applies the bundling rule to mixed consulting/installation/equipment contracts.

Citations

• Tax Law § 1101(b)(3) -- defines "receipt" as the sale price of property plus the charge for any taxable service, without deduction for expenses; combined with § 526.5(e) of the regulations, this treats a sale's components as one transaction when they cannot be separately purchased.
• Tax Law § 1101(b)(4) -- defines "retail sale" as a sale of tangible personal property to any person for any purpose.
• Tax Law § 1105(a) -- imposes tax on retail sales of tangible personal property.
• Tax Law § 1105(c)(3) -- imposes tax on installing tangible personal property not held for resale.
• Sales and Use Tax Regulations § 526.5(e) -- treats all expenses/components of a vendor's sale as non-deductible from the taxable receipt, regardless of whether separately billed.
• Penfold v. State Tax Commission, 114 A.D.2d 696 (1985) -- held that components of a sale that cannot be separately purchased must be treated as a single transaction for sales tax purposes.

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_66s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (66) S
Sales Tax
December 27, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930730A

On July 30, 1993 a Petition for Advisory Opinion was received from ECVS, Inc., 52 Ralph
Street, Belleville, New Jersey 07109.
The issues raised by Petitioner, ECVS, Inc. are:
(1) Whether New York State and local sales tax should be collected on engineering,
consulting and advisory services provided by Petitioner in a situation where taxable equipment is
ultimately purchased by the client.
(2) Whether the purchase by a client of taxable equipment from Petitioner, the manufacturer,
or another vendor is relevant in determining whether engineering, consulting and advisory services
provided by Petitioner are subject to New York State or local sales tax.
Petitioner performs consulting, advisory, engineering and design, and installation and
supervisory services for clients in the cable, broadcast and teleproduction industries in situations
where equipment subject to sales tax is subsequently purchased and installed. Ultimately, a complete
television facility may be designed and fabricated. However, clients may choose to purchase their
equipment directly from the manufacturer. For a fee, Petitioner will handle the shipping, receiving
and paperwork for such systems. System training for in-house personnel is also available.
Petitioner usually negotiates the contract for performing consulting, engineering and
supervisory services for a client separate from the contract for equipment sales to the same client.
Supervisory services consist of the supervision of the equipment installation.
Petitioner's consulting service consists of consulting with and advising the customer on the
installation of a video production facility.
Petitioner's design and engineering services consist of preparing the design, plans and
specifications necessary for the installation of the video production facility.
Petitioner's installation and supervisory services consist of supervision of the installation of
the equipment according to the designs, plans and specifications prepared by Petitioner and approved
by the customer, whether such equipment is purchased from Petitioner or a third party.
Section 1101(b)(3) of the Tax Law defines receipt as "[T]he amount of the sale price of any
property and the charge for any service taxable ... without any deduction for expenses .... "

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Sales Tax
December 27, 1993
Section 526.5(e) of the Sales and Use Tax Regulations states as follows:
(e) Expenses. All expenses, including telephone and telegraph and other
service charges incurred by a vendor in making a sale, regardless of their taxable
status and regardless of whether they are billed to a customer are not deductible from
the receipts.
Example 1:

A photographer contracts with a customer to furnish
photographs at $50 each in addition to expenses. The
customer is billed as follows:
Photographs (2)
Model fees
Meals
Travel
Props (Flowers)
Total Due

$100
60
10
25
5
$200

Receipt subject to tax is $200
Example 2:

An appliance repairman charges $10 per hour plus
expenses when on a service call. The customer is
billed as follows:
3 hrs. at $10
Travel
Parts
Meals
Total Due

$ 30
15
20
5
$ 70

Receipt subject to tax is $70
Section 1101(b)(4) of the Tax Law defines retail sale as "[a] sale of tangible personal
property to any person for any purpose .... "
Section 1105(a) of the Tax Law imposes tax on "[t]he receipts from every retail sale of
tangible personal property, except as provided in this article."
Section 1105(c) of the Tax Law imposes tax on "[t]he receipts from every sale, except for
resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed matter ... but
excluding the furnishing of information which is personal or individual in nature and which is not
or may not be substantially incorporated in reports furnished to other persons ...
(2) Producing, fabricating, processing, printing or imprinting tangible personal property,
performed for a person who directly or indirectly furnishes the tangible personal property, not
purchased by him for resale ...

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Sales Tax
December 27, 1993
(3) Installing tangible personal property ... or maintaining, servicing or repairing tangible
personal property ... not held for sale in the regular course of business ...
(4) Storing all tangible personal property not held for sale in the regular course of business
...
(5) Maintaining, servicing or repairing real property, property or land ...."
The effect of Section 1101(b)(3) of the Tax Law and Section 526.5(e) of the Sales and Use
Tax Regulations is to treat as a single sale any sale in which any of the components cannot be singly
purchased. Thus, even though the components of a particular sale can be separately stated, calculated
or estimated, if they cannot be separately purchased, the combination of the items must be considered
as one. Penfold v. State Tax Commission, 114 AD 2d 696 (1985).
Section 1105(c) of the Tax Law imposes tax on certain services as enumerated above.
Design, engineering, consulting and advisory services, such as provided by Petitioner, are not
included among the enumerated services. Therefore, in those instances where Petitioner enters into
a contract to only perform a design, engineering, consulting or advisory services or any combination
thereof, without the performance of any other service, the receipts from charges to the client for
performing such services will not be subject to sales tax.
Generally, the installation of tangible personal property which does not result in a capital
improvement will always be subject to the tax imposed under Section 1105(c)(3) of the Tax Law and
generally, sales of tangible personal property will always be subject to the tax imposed under Section
1105(a) of the Tax Law.
Accordingly, in those instances where Petitioner enters into contract to install tangible
personal property and/or to supervise the installation of tangible personal property without the
performance of any other service, the receipts from charges to the client for performing such services
will be subject to the tax imposed under Section 1105(c)(3)of the Tax Law.
In those instances where Petitioner enters into a contract for the purpose of only selling
tangible personal property to a client the receipts from charges to the client for the tangible personal
property will be subject to the tax imposed under Section 1105(a) of the Tax Law.
Where Petitioner performs consulting, advisory, engineering and designing, and installation
and supervisory services and sells tangible personal property to the customer pursuant to a contract
or contracts whereby the client does not have the option of electing to only purchase Petitioner's
consulting, advisory, engineering and designing service, or Petitioner's installation service, or
Petitioner's supervisory service, or to only purchase tangible personal property from Petitioner, or
any combination thereof, the receipts from charges to the client will be considered as receipts from
a single transaction pursuant to Section 1101(b)(3) of the Tax Law and Section 526.5(e) of the Sales

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and Use Tax Regulations and will be subject to the tax imposed under Section 1105(c)(3) of the Tax
Law. Penfold v. State Tax Commission, supra.
In a transaction where the client contracts with Petitioner to perform consulting, advisory,
engineering and design services for the client and to perform supervisory or installation services and
to supply tangible personal property or any combination thereof pursuant to a contract or agreement
whereby the client has the option of electing which services Petitioner is to perform and to purchase
tangible personal property from Petitioner and whereby the sale of Petitioner's services or tangible
personal property is not contingent upon the sale of the other, Petitioner's receipts from separately
stated charges to the client for the consulting, advisory, engineering and design services will not be
subject to New York State or local tax. However, Petitioner's receipts from charges to the client for
supervisory or installation service will be subject to the tax imposed under Section 1105(c)(3) of the
Tax Law and Petitioner's receipts from charges to the client for the sale of tangible personal property
will be subject to the tax imposed under Section 1105(a) of the Tax Law if sold without installation
or subject to the tax imposed under Section 1105(c)(3) of the Tax Law if sold installed.
In any instance where Petitioner only provides engineering, consulting and advisory services
without performing any other service, and the client purchases equipment directly from a
manufacturer or another vendor and not from Petitioner, Petitioner's receipts from charges to the
client for Petitioner's services will not be subject to sales tax.

DATED: December 27, 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.