New York Advisory Opinion TSB-A-96(32)S: Is installing custom-cut, permanently anchored closet shelving a tax-exempt capital improvement, and does it matter whether it's going into a brand-new building or an existing one?

Plain-English summary

Home Insulation & Supply Inc. installs closet shelving custom-cut to fit each individual closet in homes and commercial buildings, permanently anchored to interior walls or concrete with screws, nails, or other hardware designed to hold heavy loads and vibration and to last the life of the structure. It asked whether this installation qualifies as a tax-exempt "capital improvement" to real property.

The Department drew a clear line based on new versus existing construction. Shelving installed in a NEW home or commercial building, as part of that building's construction, is automatically treated as part of the overall capital improvement project -- so the installation isn't subject to sales tax under Tax Law § 1105(c)(3)(iii). But shelving installed in an EXISTING building doesn't get the same automatic pass. The Department explained that merely anchoring shelving to an interior wall doesn't necessarily satisfy the second capital-improvement condition (that removal would cause material damage) -- shelving anchored to sheetrock with plastic anchors, molly bolts, or toggle bolts, for example, could often be removed just by unscrewing the brackets and pushing the anchors through the sheetrock, without materially damaging the wall or the shelving itself. So for existing buildings, the Department said it's necessary to review the SPECIFIC manner of installation in each case to determine whether a true capital improvement results. Either way, the contractor isn't required to collect sales tax on an installation if it accepts, in good faith, a properly completed Certificate of Capital Improvement (Form ST-124) from the customer within 90 days after the job is finished.

What this means for you

Shelving, closet, and cabinetry installers

New-construction jobs get automatic capital-improvement treatment -- no need to separately analyze the anchoring method. But for retrofit jobs in existing buildings, look closely at HOW you're attaching the shelving: robust anchoring into structural material that would genuinely damage the wall or the shelving upon removal supports capital-improvement treatment, while lighter anchoring methods (sheetrock anchors, molly bolts, toggle bolts) that come out cleanly likely don't. Get a Certificate of Capital Improvement from the customer within 90 days whenever you're treating a job as exempt.

Homeowners and building owners having shelving installed

If your project is part of new construction, the shelving installation should come without sales tax as part of the overall capital improvement. If you're adding shelving to an already-built space, ask your installer how it's classifying the job, since the anchoring method actually used determines the tax treatment.

Common questions

Q: Why does new construction get an automatic pass but existing buildings don't?
A: Shelving installed as part of building a brand-new structure is simply folded into that whole capital improvement project. In an existing building, there's no larger ongoing construction project to attach to, so the shelving installation has to independently satisfy all three capital-improvement conditions -- including that removal would cause material damage -- which depends heavily on the specific anchoring hardware used.

Q: What anchoring methods are more likely to qualify as a capital improvement in an existing building?
A: The opinion doesn't give a bright-line list, but it contrasts heavy-duty anchoring meant to withstand heavy loads and last the life of the structure against lighter methods like plastic anchors, molly bolts, or toggle bolts into sheetrock, which the Department suggests can often be removed without material damage -- so more permanent/damaging removal methods point toward exemption, and easily reversible ones point away from it.

Q: What protects the installer if it doesn't collect tax on a job it believes is exempt?
A: Accepting a properly completed Certificate of Capital Improvement (Form ST-124) from the customer in good faith, within 90 days of finishing the installation, relieves the contractor of the duty to collect tax -- "good faith" here means the contractor has no knowledge that the certificate is false.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(9) (definition of capital improvement)
• Tax Law § 1105(c)(3), (c)(3)(iii) (installation service tax and capital improvement exception)
• Tax Law § 1132(c) (exemption certificate requirements)
• 20 NYCRR 527.7(a)(3)(i) (capital improvement definition)
• 20 NYCRR 532.4 (good-faith acceptance of exemption certificates)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_32s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-96 (32)S
Sales Tax
May 23, 1996

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960220A

On February 22, 1996, a Petition for Advisory Opinion was received from Home Insulation
& Supply Inc., 154 Cemetery Road, Lancaster, New York 14086.
The issue raised by Petitioner, Home Insulation & Supply Inc, is whether the installation of
permanently attached closet shelving in new homes and commercial building applications results in
a capital improvement to real property.
Petitioner indicates that the shelving is cut to exact size of each individual closet for each
individual home or office. This shelving is permanently anchored to interior wall or concrete finish
using screws, nails, or other anchoring hardware meant to withstand heavy loads and vibration and
to last the life of the structure.
Section ll01(b)(9)of the Tax Law defines "capital improvement" as follows:
(i) An addition or alteration to real property which:
(A)
(B)
(C)

Substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property; and
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
Is intended to become a permanent installation.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.-- ... there is hereby imposed and there shall be paid a tax ...
upon:
*
*
*
(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(3) Installing tangible personal property, excluding a mobile home, or maintaining,
servicing or repairing tangible personal property, including a mobile home, not held for sale
in the regular course of business, whether or not the services are performed directly or by
means of coin-operated equipment or by any other means, and whether or not any tangible
personal property is transferred in conjunction therewith, except:
*

*

*

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TSB-A-96 (32)S
Sales Tax
May 23, 1996
(iii) for installing property which, when installed, will constitute an addition or
capital improvement to real property, property or land, as the terms real property, property
or land are defined in the real property tax law as such term capital improvement is defined
in paragraph nine of subdivision (b) of section eleven hundred one of this chapter;
Section 527.7(a)(3)(i) of the Sales and Use Tax Regulations provides:
A capital improvement is an addition or alteration to real property:
(a)
(b)

(c)

which substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property;
which 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
is intended to become a permanent installation.

In this case, Petitioner states that the shelving is cut exactly to the size of the closet and is
permanently attached, by the use of anchoring devices such as screws, nails or other anchoring
hardware, to withstand heavy loads and vibrations and to last the life of the structure. In order for
the installation to be exempt from sales tax it must meet all three criteria of a capital improvement
as described in Section l101(b)((9) of the Tax Law and Section 527.7(a)(3) of the Sales and Use Tax
Regulations.
Shelving installed in a new home or commercial building in conjunction with the
construction of the home or commercial building is deemed to be part of the capital improvement
project. Accordingly, the installation of shelving in a new home or commercial building is not
subject to sales tax, pursuant to Section ll05(c)(3)(iii) of the Tax Law.
However, the installation of shelving in an existing office or commercial building, in the
manner described above, may not result in a capital improvement. The mere anchoring of shelving
to an interior wall does not necessarily result in a capital improvement. We could foresee many
instances where shelving anchored to sheetrock by means of plastic anchors, molly bolts or toggle
bolts can be removed merely by unscrewing the brackets and then pushing the anchors through the
Sheetrock. Removal of the shelving in these instances would not seem to cause material damage to
the real property or the shelving itself, as provided in Section ll01(b)(9)(i)(B) of the Tax Law.
Therefore, it would be necessary to review the specific manner of installation in each case to
determine whether a capital improvement results.
Petitioner is not required to collect tax on the installation of shelving when it accepts and
executes in good faith a properly completed certificate of capital improvement, Form ST-124, from
its customer within 90 days after completion of the installation. A certificate is accepted in good

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TSB-A-96 (32)S
Sales Tax
May 23, 1996
faith when the contractor has no knowledge that it is false. See Section 1132(c) of the Tax Law and
Section 532.4 of the Sales and Use Tax Regulations.

DATED: May 23, 1996

/s/
Doris S. Bauman
Director
Technical Services Bureau

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