Is the sale and installation of a residential direct-broadcast satellite receiving system a tax-exempt capital improvement, or is it a taxable sale of tangible personal property?

Subject

Whether the sales and installation of direct broadcast receiving systems sold and permanently installed by Petitioner fall within the meaning of capital improvement as defined under Section 1101(b)(9) of the Tax Law.

What this means for you

A company sells and installs residential direct-broadcast satellite systems: a microwave antenna welded or otherwise attached to a pole set in a concrete base sunk into the ground, with signal wire running underground from the antenna to the house and through the walls to the TV receiver, and electrical wire running underground from the home's service box through the support pole to the antenna.

New York only excuses an installation from sales tax if it's a genuine "capital improvement" -- meaning it substantially adds value or life to the real property, becomes so attached that removing it would cause material damage, and is meant to be permanent. The concrete foundation and buried pole are treated as a classic capital improvement (concrete footings sunk into the ground have long been treated this way), so the charges for installing the concrete base, the underground signal wire, and the underground electrical wire all escape sales tax -- though the company still owes tax on the materials it buys to do that work. The antenna itself is a different story: following an existing precedent on satellite dishes, the antenna is equipment that keeps its own separate identity as tangible personal property even after being welded to the pole, because removing it wouldn't damage the pole or the antenna itself. Since it fails the "permanent, damage-if-removed" test, both the sale of the antenna and the charge for installing it remain fully taxable. Critically, if one invoice bundles the exempt installation work together with the taxable antenna sale/install without separately stating each amount, the ENTIRE invoice becomes taxable.

Q&A

Q: We install a support pole in a concrete base with buried wiring for equipment like a satellite dish or antenna -- is that installation work tax-exempt as a capital improvement?
A: Yes, per this opinion -- the concrete foundation, buried support pole, and underground wiring qualify as capital improvements, so those specific installation charges are exempt from sales tax (though you still owe tax on the materials you buy to do the work).

Q: What about the actual antenna or dish itself, welded or bolted to that pole -- is ITS sale and installation also exempt?
A: No, per this opinion -- the antenna/dish keeps its own identity as tangible personal property (removing it wouldn't damage the pole or the item itself), so both its sale price and its installation charge stay fully taxable under Tax Law § 1105(a) and § 1105(c)(3).

Q: Can we just bill our customer one lump sum covering both the exempt foundation/wiring work and the taxable antenna sale/install?
A: Not without consequences, per this opinion -- if the taxable and nontaxable amounts aren't separately stated on the invoice, the ENTIRE charge becomes subject to state and local sales tax.

Citations

• Tax Law § 1101(b)(9) -- defines "capital improvement" as an addition to real property that substantially adds value/life, becomes permanently affixed such that removal causes material damage, and is intended as a permanent installation.
• Tax Law § 1105(a), (c)(3) -- imposes tax on retail sales of tangible personal property and on installing/servicing/repairing tangible personal property (excepting genuine capital improvements).
• Tax Law § 1115(a)(17) -- exempts materials sold to a contractor that become an integral component part of a capital improvement.
• 20 NYCRR § 528.12(c)(3); § 533.2(a)(1), (b)(2) -- address classification of capital improvements/repairs and the requirement to separately state taxable and exempt amounts on invoices.
• Matter of Slattery Associates, Inc., Dec. St. Tax Comm'n, August 16, 1977, STH 77-65 -- held concrete foundations with permanently installed poles are capital improvements.
• Multi-View Communication, Inc., Adv. Op. St. Tax Comm'n, March 26, 1986, TSB-A-86(12)S -- held a satellite dish retains its own tangible-personal-property identity after installation, remaining taxable; followed here.

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_5s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (5)S
Sales Tax
March 7, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S931130A

On November 30, 1993 a Petition for Advisory Opinion was received from Home Cable
Concepts, Inc., 6266 Centre Park Drive, West Chester, OH 45069.
The issue raised by Petitioner, Home Cable Concepts, Inc., is whether the sales and
installation of direct broadcast receiving systems sold and permanently installed by Petitioner fall
within the meaning of capital improvement as defined under Section 1101(b)(9) of the Tax Law.
Petitioner sells and installs direct broadcast receiving systems to residential customers. The
microwave antennas are welded or attached by other means to a pole sunk in a concrete base which
is set into the ground. Wires are run through the support and then under ground from the microwave
antenna to the house and through the walls of the house to the television receiver. Electrical wires
are run under ground from the service box through the support pole to the antenna.
Section 1101 of the Tax Law states, in part:
Definitions. - ­
(b) When used in this article for purposes of the taxes imposed by subdivisions ...
(c). . . of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to
tax under paragraphs (3). . . (5). . . of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property
upon which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. . . .
(9) Capital improvement. (i) An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property; and
(B) Becomes part of the real property or is permanently affixed to the real property
so that removal would cause material damage to the property or article itself; and

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TSB-A-94 (5)S
Sales Tax
March 7, 1994
(C)

Is intended to become a permanent installation.

Section 1105 of the Tax Law states, in part:
. . . there is hereby imposed and there shall be paid a tax . . upon:
(a) The receipts from every retail sale of tangible personal property . . .
(c) The receipts from every sale, except for resale, of the following services:
(3) Installing tangible personal property, or maintaining, servicing or repairing
tangible personal property except:
(iii) for installing property which, . . . when installed, will constitute an addition or
capital improvement to real property, property or land . . . as . . . defined in
paragraph nine of subdivision (b) of section eleven hundred one of this chapter. . . .
(5) Maintaining, servicing or repairing real property, property or land, 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 . . . .
Section 1115 of the Tax Law states, in part:
Exemptions from sales and use taxes.-- (a) Receipts from the following shall be
exempt from the tax on retail sales imposed under subdivision (a) of section eleven
hundred five and the compensating use tax imposed under section eleven hundred
ten:
(17) Tangible personal property sold by a contractor, subcontractor or repairman to
a person other than an organization described in subdivision (a) of section eleven
hundred sixteen, for whom he is adding to, or improving real property, property or
land by a capital improvement, or for whom he is about to do any of the foregoing,
if such tangible personal property is to become an integral component part of such
structure, building or real property; ....
The construction of concrete foundations, including poles permanently installed therein, has
been determined a capital improvement to real property. (See Department of Taxation and Finance
Publication 862 [1/90], Classification of Improvements and Repairs to Real Property for Sales Tax
Purposes, pg. 6; Matter of Slattery Associates, Inc., Dec St Tx Comm, Aug. 16, 1977; STH 77-65;
20 NYCRR 528.12[c] [3]).
In Multi-View Communication, Inc., Adv Op St Tx Comm, March 26, 1986, TSB-A-86(12)S
it was held that a satellite dish is considered equipment which retains its identity as tangible personal
property after installation, and thus its purchase and the cost of its installation are subject to the
imposition of sales tax pursuant to Sections 1105(a) and 1105(c)(3) of the Tax Law.

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TSB-A-94 (5)S
Sales Tax
March 7, 1994
Accordingly, Petitioner's receipts from charges to customers for the installation of the
concrete base, the installation of the signal wire from the antenna, underground to the house and
through the walls of the house to the television receiver and the installation of electrical wire from
the service box underground to the antenna will not be subject to the tax imposed under Section 1105
of the Tax Law since such installations are considered to be capital improvements as defined under
Section 1101(b)(9) of the Tax Law. It is noted, however, that the Petitioner is required to pay sales
tax on the purchase of materials used in connection with the installation.
However, the microwave antenna, like the satellite dish discussed in Multi-View
Communication, Inc. supra, is considered to be equipment which retains its identity as tangible
personal property after installation, whether it is welded or otherwise affixed to the pole. Since its
removal, under either circumstance, would not cause material injury to the property or the item itself,
it cannot be held that the microwave antenna becomes a permanent part of the real property.
Accordingly, as its installation fails to meet the second condition set forth in Section 1101(b)(9) of
the Tax Law, it does not constitute the performance of a capital improvement. Petitioner's charges
to its customers, both for sale of the microwave antenna and for its installation will be subject to the
tax imposed under Section 1105(a) and 1105(c)(3) of the Tax Law.
It is noted that whenever Petitioner renders to its customer an invoice which includes charges
both for the sale of tangible personal property and for the performance of a capital improvement, the
taxable and nontaxable amounts must be stated separately thereon. If such amounts are not
separately stated, the entire amount charged will be subject to State and local sales tax. (20 NYCRR
533.2(a)(1);(b)(2)).

DATED: March 7, 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.