When a private company operates a county-owned golf course and restaurant under a long-term concession agreement and must fund capital improvements that become the county's property, are its construction materials, equipment, and architectural fees exempt from sales tax?

Subject

Issue raised by Petitioner, Suffolk County Department of Parks, is whether purchases made by Global Golf, Inc.

What this means for you

Global Golf, Inc. holds a roughly ten-year concession agreement (with renewal options) to operate the golf course, golf school, driving range, pro shop, miniature golf course, and restaurant/catering/bar at Suffolk County's Bergen Point Country Club. As part of the deal, Global Golf must spend at least $10,000/year on new equipment and refurbishment, and separately fund a detailed capital-improvement plan -- fairway/rough/tee/green reclamation, cart paths, an automatic irrigation system, landscaping, clubhouse/restaurant/garage renovations, berms and tide gates, a miniature golf course, drainage work, and additional parking -- with everything becoming the County's property, free of liens, upon completion or when the agreement ends.

New York exempts materials sold to a contractor for erecting, altering, or repairing real property owned by an exempt government entity -- but ONLY if the materials actually become an integral, physically incorporated part of that real property (mere use in the job isn't enough). Since Suffolk County is an exempt political subdivision and all these capital improvements become part of county-owned real property with title vesting in the county, materials that get built into the fairways, irrigation system, clubhouse renovations, drainage, parking, and similar improvements are exempt purchases. But that exemption is narrow: tools, equipment, and supplies that Global Golf's contractors use to perform the work but that DON'T themselves become part of the county's real property (cranes, forms, other job equipment) remain fully taxable, following the Department's own regulatory examples and a prior opinion on a similar leasehold-improvement arrangement. Separately, licensed-architect design services for the project aren't taxed at all, since architectural services aren't among the enumerated taxable services -- though if an architect performs interior decorating/design work (as opposed to licensed architectural work), that specific work is taxable and the architect must collect the tax.

Q&A

Q: We operate under a concession or license agreement requiring us to fund capital improvements that become the government owner's property -- are our construction material purchases exempt?
A: Per this opinion, yes, for materials that actually become an integral, physically incorporated part of the government-owned real property -- but not for tools, equipment, or supplies your contractors use that stay separate from (don't become part of) that property.

Q: Does the exemption cover equipment rentals like cranes, bulldozers, or forms used during construction?
A: No -- per this opinion (citing 20 NYCRR § 528.16's own examples), equipment rentals like cranes and bulldozers, and materials like form lumber that never become part of the finished structure, are subject to tax even on an otherwise-exempt government capital-improvement job.

Q: Are architectural and design fees for a project like this taxable?
A: Generally no, per this opinion -- licensed-architect design services aren't an enumerated taxable service. But the same architect performing interior decorating/design work (rather than licensed architectural services) must collect sales tax on that portion of the work.

Citations

• Tax Law § 1105(a) -- imposes sales tax on retail sales of tangible personal property.
• Tax Law § 1110 -- imposes the compensating use tax, including on materials incorporated into real property by a contractor.
• Tax Law § 1101(b)(4)(i) -- defines "retail sale" to include sales to a contractor for erecting/altering/repairing real property, regardless of resale.
• Tax Law § 1115(a)(15) -- exempts materials sold to a contractor for erecting/improving an exempt organization's real property, if they become an integral component part.
• Tax Law § 1115(a)(16) -- the parallel exemption for maintaining/repairing an exempt organization's real property.
• Tax Law § 1116(a)(1) -- exempts New York State, its agencies, and political subdivisions (including counties) as purchaser/user/consumer.
• 20 NYCRR § 528.16 -- implements the contractor construction-materials exemption, with examples distinguishing incorporated materials (exempt) from equipment rentals and form lumber (taxable).
• Insurance Services Office, Inc., Adv Op Comm T&F, February 22, 1991, TSB-A-91(23)S -- distinguished exempt incorporated building materials from taxable tool/equipment rentals on a leasehold-improvement job for a government lessor.
• TSB-M-83(17)S, Taxable Status of Leasehold Improvements For or By Tenants (June 15, 1983) -- addresses when leasehold improvements are presumed permanent vs. temporary.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_29s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (29)S
Sales Tax
July 11, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940309A

On March 9, 1994, a Petition for Advisory Opinion was received from Suffolk County
Department of Parks, Post Office Box 144, Montauk Highway, West Sayville, New York 11796.
The issue raised by Petitioner, Suffolk County Department of Parks, is whether purchases
made by Global Golf, Inc., (hereinafter the "Licensee"), under contract to operate the concessions
at the Bergen Point Country Club are subject to sales and use taxes.
The Licensee entered into an agreement with the County of Suffolk (the "Licensor") to
operate the concessions at the Bergen Point Country Club which is owned by the county. By
agreement the Licensor granted to the Licensee exclusive rights and privileges to operate and
maintain a golf course, golf school, driving ranges; to manage the golf professional shop; to operate,
construct and maintain a miniature golf course and to operate and maintain the restaurant, catering
and bar facilities; and to undertake necessary improvements and repairs necessary and incidental for
the operation and maintenance of the facilities.
The term of the agreement is from March 5, 1993 through December 31, 2002, with options
to renew for two additional five year terms. The Licensee has to satisfy certain capital improvement
requirements set forth in the agreement within eight years of the execution of the agreement.
The Licensee is required to expend a minimum of ten thousand dollars each year during the
term of the License for new equipment, furnishings and/or refurbishment of existing equipment or
facilities to be used on the golf course and in the restaurant, catering and bar concessions and related
facilities. All equipment becomes the property of the Licensor upon expiration or termination of the
agreement, free and clear of any and all liens and encumbrances.
Further, the Licensee has to pay for the total cost of all construction and renovations
including, professional, legal and permit fees. All improvements, upon completion, become the
property of the Licensor.
The capital improvement plan includes the following:
1.

Purchase of equipment

2.

Fairway reclamation

3.

Rough reclamation

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4.

Tee and green reclamation

5.

Fairways and bunkers

6.

Cart path construction

7.

Automatic irrigation system

8.

Landscaping and planting

9.

Building renovations to clubhouse, restaurant and garage

10.

Berms and tide gates

11.

Renovations to driving range

12.

Architectural and design services

13.

Construction of miniature golf and pitch and putt course

14.

Renovations to course drainage

15.

Construction of additional parking spaces

Section 1105(a) of the Tax Law imposes a sales tax on "[t]he receipts from every retail sale
of tangible personal property, except as otherwise provided in this article."
Section 1110 of the Tax Law provides, in part, as follows:
Imposition of Compensating Use Tax.
Except to the extent that property or services have already been or will be subject to
the sales tax under this article, there is hereby imposed on every person a use tax for
the use within this state...except as otherwise exempted under this article, (A) of any
tangible personal property purchased at retail, (B) of any tangible personal property
(other than computer software used by the author or other creator) manufactured,
processed or assembled by the user,...(ii) if items are used as such or incorporated
into a structure, building or real property by a contractor, subcontractor or repairman
in erecting structures or buildings, or building on, or otherwise adding to, altering,
improving, maintaining, servicing or repairing real property, property or land...
Section 1101(b)(4)(i) of the Tax Law defines the term "retail sale" to include:
...a sale of any tangible personal property to a contractor, subcontractor or repairman
for use or consumption in erecting structures or buildings, or building on, or
otherwise adding to, altering, improving, maintaining, servicing or repairing real

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property, property or land are defined in the real property tax law...regardless of
whether the tangible personal property is to be resold as such before it is so used or
consumed...
Section 1115(a) of the Tax Law exempts from the sales tax imposed under Section 1105(a)
of the Tax Law and from the compensating use tax imposed under Section 1110:
*

*

*

(15) Tangible personal property sold to a contractor, subcontractor, or repairman
for use in erecting a structure or building of an organization described in subdivision
(a) of section eleven hundred sixteen, or adding to, altering or improving real
property, property or land of such an organization as the terms real property, property
or land are defined in the real property tax law; provided, however, no exemption
shall exist under this paragraph unless such tangible personal property is to become
an integral component part of such structure, building or real property.
(16) Tangible personal property sold to a contractor, subcontractor or repairman
for use in maintaining, servicing or repairing real property, property or land of an
organization described in subdivision (a) of section eleven hundred sixteen, as the
terms real property, property or land are defined in the real property tax law;
provided, however, no exemption shall exist under this paragraph unless such
tangible personal property is to become an integral component part of such structure,
building or real property.
Section 1116 of the Tax Law provides, in pertinent part, as follows:
Sec. 1116. Exempt organizations--(a) Except as otherwise provided in this
section, any sale or amusement charge by or to any of the following or any use or
occupancy by any of the following shall not be subject to the sales and compensating
use taxes imposed under this article:
(1) The state of New York, or any of its agencies, instrumentalities, public
corporations (including a public corporation created pursuant to agreement or
compact with another state or Canada) or political subdivisions where it is the
purchaser, user or consumer, or where it is a vendor of services or property of a kind
not ordinarily sold by private persons;
Section 528.16 of the Sales and Use Tax Regulations provides, in part, as follows:
Reg. Sec. 528.16. Tangible personal property sold to contractors for use in erecting
structures of tax exempt organizations.--(Tax Law, Sec. 1115(a)(15)). (a) Exemption.
(1) Tangible personal property sold to a contractor, subcontractor or repairman for
use in erecting a structure or building of an organization described in Part 529 of this

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title, is exempt when it is to become an integral component part of such structure or
building.
Example 1: An exempt organization contracts to have a building erected on
its land. Purchases by its contractor of tangible personal property, such as nails, sheet
rock and plywood that become part of the structure are exempt.
*

*

*

Example 5: Lumber and other materials that are used to build forms are not
exempt since they do not become a component part of the structure.
Example 6: Equipment rentals such as cranes, bulldozers, back hoes, etc. for
use in building a structure for an exempt organization are subject to tax.
(2) Tangible personal property sold to a contractor, subcontractor or
repairman for use in adding to, altering, or improving real property, property, or land
owned by an organization described in Part 529 of this title is exempt when it
becomes an integral component part of the structure, building or real property.
(b)
Form of contract. (1) The form of contract entered into between an exempt
organization and its contractor is not relevant. (emphasis added)
In Insurance Services Office, Inc., Adv Op Comm T&F, February 22, 1991, TSB-A-91(23)S
the Commissioner opined that Petitioner's contractors and subcontractors could purchase tangible
personal property which would be incorporated as an integral component part of the real property
leased by Petitioner from a governmental entity tax exempt provided Petitioner furnished the
building material suppliers with a properly completed Form ST-120.1, Contractor Exempt Purchase
Certificate. The Commissioner further opined that tools and equipment rented by Petitioner's
contractors and subcontractors for use in installing tangible personal property into the leased
premises did not become an integral component part of the exempt organizations real property and
were considered to be used or consumed by the contractors and subcontractors. Thus, such rentals
did not qualify for the exemption provided under Sections 1115(a)(15) and (16) of the Tax Law and
were subject to the taxes imposed under Sections 1105(a) and 1110 of the Tax Law.
Technical Service Bureau Memorandum, TSB-M-83(17)S, dated June 15, 1983, entitled
Taxable Status of Leasehold Improvements For or By Tenants, provides, in pertinent part, that:
Additions or alterations to real property for or by a tenant of such property will be
presumed to be temporary in nature... unless a contrary intention is demonstrated.
A specific lease provision which states that: 1) immediately upon installation, title

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to such installation vests in the lessor, and 2) the addition or alteration becomes part
of and remains with the premises after the termination of the lease, will be
recognized as a demonstration of contrary intention (i.e., an intention of
permanence). A provision granting the lessor the right to require removal of the
improvement will not negate this demonstration of intention of permanence; nor will
a provision which states that the improvements becomes the property of the lessor
upon expiration of the lease or upon termination of the tenancy.
Where tangible personal property purchased by the Licensee's contractors or subcontractors
becomes an integral component part of the Bergen Point Country Club which is owned by Suffolk
County, such tangible personal property is considered to be incorporated into improvements to real
property of an organization described in Section 1116(a)(1) of the Tax Law. Accordingly, in those
instances where the items of tangible personal property purchased by the Licensee's contractors or
subcontractors for use in performance of the construction work or repair work contemplated in the
Licensee's agreement with the Licensor becomes integral components of real property owned by the
Licensor and where the Licensor will take title to tangible personal property and such tangible
personal property will be and remain a part of the demised property, pursuant to Section 528.16 of
the Sales and Use Tax Regulations, Insurance Services Office, Inc., supra, and Technical Services
Bureau Memorandum, TSB-M-83(17)S, supra, the purchases of such tangible personal property will
be exempt from the sales and compensating use tax as provided under Sections 1115(a)(15) and
1115(a)(16) of the Tax Law.
Thus, in the instant case, tangible personal property purchased by the Licensee's contractors
or subcontractors which becomes an integral part in the Licensor's real property, such as the fairway
reclamation, rough reclamation, tee and green reclamation, fairway and bunkers, cart path
construction, automatic irrigation system, landscaping and plantings, building renovations to the
clubhouse, restaurant and garage, berms and tide gates, driving range, construction of miniature golf
and pitch and putt course, course drainage, and additional parking spaces, will be considered
incorporated into improvements to real property of an organization described in Section 1116(a)(1)
of the Tax Law and will be exempt from sales and compensating use tax as provided under Sections
1115(a)(15) and 1115(a)(16) of the Tax Law. Purchases of tangible personal property which does
not become an integral part of the Licensor's real property will be subject to sales tax.
It is noted, however, that tools, equipment and supplies purchased or rented by the Licensee's
contractors and subcontractors for use in repairing or installing tangible personal property into the
Bergen Point Country Club which will not become a part or integral component of the Licensor's real
property, will be considered to be used or consumed by the contractors or subcontractors. Therefore,
pursuant to Section 528.16 of the Sales and Use Tax Regulations and Insurance Services Office, Inc.,
supra, such purchases will not qualify for the exemption provided under Sections 1115(a)(16) and
1115(a)(16) of the Tax Law and thus are subject to the taxes imposed under Sections 1105(a) and
1110 of the Tax Law.

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It is further noted that architectural and design services performed by a licensed architect are
not enumerated services subject to sales tax under Section 1105(c) of the Tax Law with the
exception of design services which do not require an architectural license to perform. Accordingly,
expenditures by the Licensee for such architectural and design services will not be subject to sales
tax. However architects are required to collect appropriate sales tax when they perform interior
decorating and design services.

DATED: July 11, 1994

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

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