How does New York sales and use tax apply to a kitchen cabinet and countertop manufacturer that sells its products both installed and uninstalled?

Plain-English summary

Custom Design Kitchens, Inc. manufactures kitchen cabinets, buying materials both inside and outside New York. About half its cabinets are sold uninstalled; the rest it installs itself. It also makes custom Corian countertops -- measured with cardboard templates at the customer's home and fabricated to fit -- which are only ever sold installed. Petitioner asked how sales and use tax applies across these different sale types.

Uninstalled cabinets are a straightforward retail sale: Petitioner must collect sales tax from the customer on the sale price. Because Petitioner is a "contractor" for Tax Law purposes even when just selling cabinets, it can't buy its own raw materials tax-free under a resale exemption (§ 541.1(b)) -- it pays sales tax on New York materials and compensating use tax on out-of-state materials (with a credit for tax legitimately paid to another state under § 1118(7)) — but it can later claim a refund or credit under § 1119(c) for that materials tax once the cabinets are actually resold uninstalled at retail.

Installed cabinets and installed Corian countertops work differently once the installation qualifies as a "capital improvement" (an addition that adds real value or prolongs useful life, becomes part of the real property, and is intended to be permanent, per § 1101(b)(9)(i)). In that case, Petitioner does NOT collect sales tax from the customer on the installation charge -- but Petitioner still owes tax on the underlying materials (sales tax on New York purchases, use tax on out-of-state purchases, same as above), AND owes a separate compensating use tax on the fabricated product itself that it manufactures and installs. For cabinets, since Petitioner also sells the same kind of cabinets uninstalled in the regular course of business, that use tax is measured by the price Petitioner would charge for an equivalent uninstalled cabinet (§ 1110(c)). For the Corian countertops, since Petitioner never sells them uninstalled, the use tax instead is measured by the cost of the materials that went into them, including shipping (§ 1110(d)). Either way, credits are available for sales/use tax already paid on the underlying materials, and the use-tax rate applied is whatever combined state-and-local rate is in effect where the installation happens.

Finally, if a Corian countertop installation does NOT qualify as a capital improvement (i.e., it isn't intended to be permanent), the whole analysis flips back to a taxable retail transaction: Petitioner must collect sales tax on its full charge to the customer, but can then claim a refund or credit for the tax it already paid on the materials.

What this means for you

Cabinet, countertop, and similar custom-fabrication businesses that both sell and install

Track whether each sale is (a) uninstalled retail, (b) installed as a genuine permanent capital improvement, or (c) installed but NOT intended as permanent -- each triggers a different tax treatment. If you sell the same product both installed and uninstalled, expect the "price you'd charge uninstalled" to become the yardstick for the use tax you owe on installed capital-improvement jobs; if you only ever install a product (never sell it loose), expect your own materials cost to be the yardstick instead.

Contractors buying materials to fabricate custom products

You generally can't claim a resale exemption on materials just because you're a manufacturer -- as a contractor, New York taxes you on materials purchases (sales tax in-state, use tax on out-of-state purchases), separate from whatever tax treatment applies to the finished installation. Keep records of materials tax paid so you can claim available credits and refunds.

Homeowners and businesses buying custom cabinets or countertops

Whether you pay sales tax on your purchase depends on whether it's installed as a permanent capital improvement (generally no separate sales tax charged to you, since the contractor pays tax further upstream) or sold to you uninstalled (sales tax charged on the purchase price).

Common questions

Q: Why does Petitioner owe use tax on cabinets it manufactures AND installs itself, on top of tax already paid on the raw materials?
A: New York's compensating use tax reaches a manufacturer's own use of self-made property, separate from any tax on the raw materials that went into it -- the theory being that Petitioner is essentially both the manufacturer and the "consumer" of the finished cabinet when it installs one as a capital improvement, and that consumption is taxed at the cabinet's fair value (measured by its uninstalled sale price here), not just its material cost.

Q: Why is the use tax on installed countertops measured differently (materials cost) than the use tax on installed cabinets (uninstalled sale price)?
A: Because Petitioner never sells the Corian countertops uninstalled -- there's no comparable "price for an equivalent uninstalled item" to use as a yardstick, so the regulations fall back to the cost of the materials that went into the countertop instead.

Q: What happens if an "installed" countertop turns out not to be a genuine capital improvement?
A: Then it's treated as an ordinary taxable sale after all -- Petitioner must collect sales tax on its full charge to the customer for the countertop and its installation, though it can claim a refund or credit for the materials tax it already paid.

Q: Can another manufacturer or contractor rely on this exact tax treatment for its own products?
A: No. This advisory opinion binds the Department only as to Custom Design Kitchens, Inc. and the specific facts described; another business's facts (for example, whether it sells the same product both installed and uninstalled) should be confirmed against its own advisory opinion request.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (retail sale to a contractor)
• Tax Law § 1101(b)(9)(i) (definition of "capital improvement")
• Tax Law § 1105(a) (sales tax on retail sales of tangible personal property)
• Tax Law § 1110 (compensating use tax, including subdivisions (a), (c), (d), (e))
• Tax Law § 1115(a)(17) (capital-improvement materials exemption)
• Tax Law § 1118(7) (credit for tax paid to another state)
• Tax Law § 1119(c) (refund/credit for contractor retail sales)
• 20 NYCRR § 527.7(b)(5) (contractor's tax on materials for a capital improvement)
• 20 NYCRR § 531.1(a) (compensating use tax imposition)
• 20 NYCRR § 531.3(b) (use tax on self-manufactured property)
• 20 NYCRR § 534.5(b) (contractor retail sales credit/refund)
• 20 NYCRR § 541.1(b) (sales to contractors)

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_66s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-96 (66) S
Sales Tax
October 7, 1996

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S951128A

On November 28, 1995, a Petition for Advisory Opinion was received from Custom Design
Kitchens, Inc., 219 Nott Terrace, Schenectady, NY 12307-1025.
The issues raised by Petitioner, Custom Design Kitchens, Inc., are:
1.

Whether materials purchased by Petitioner to manufacture kitchen cabinets
and counter tops are subject to sales or compensating use tax.

2.

Whether kitchen cabinets and counter tops to be sold on an installed or
uninstalled basis are subject to sales or compensating use tax.

Petitioner presents the following facts. Petitioner is a manufacturer of kitchen cabinets.
Materials needed to construct the cabinets are purchased by Petitioner both within and without New
York State. The kitchen cabinets may be purchased by Petitioner's customers on an installed or
uninstalled basis. Approximately fifty percent of the kitchen cabinets sold by Petitioner are sold
uninstalled.
Petitioner also manufactures custom counter tops known as Corian Counters. These counter
tops are not available through a catalog. Petitioner displays the counter tops in its showroom. If a
customer desires to purchase the counter tops, Petitioner goes to the customer's home and makes
cardboard templates of the counter tops fitted to the dimensions of the customer's kitchen. From
these templates, Petitioner custom manufactures counter tops to fit the customer's kitchen. Materials
needed to construct these counter tops may be purchased by Petitioner both within and without New
York State. These counter tops, as well as other counter tops sold by Petitioner, may only be
purchased on an installed basis.
Applicable Law and Regulations
Section ll01(b)(4)(i) of the Tax Law provides, in part, as follows:
... 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
property, property or land, as the terms real property, property or land are defined in
the real property tax law, is deemed to be a retail sale regardless of whether the
tangible personal property is to be resold as such before it is so used or consumed ....

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Section ll01(b)(9)(i) of the Tax Law defines the term "capital improvement" to mean:
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
(C) Is intended to become a permanent installation.
Section 1105(a) of the Tax Law imposes sales tax upon the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1110 of the Tax Law provides, in part, as follows:
(a) 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 on and after June first, nineteen hundred seventy­
one 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, (i) if items of the same kind of tangible personal property are
offered for sale by him in the regular course of business or (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, as the terms real property, property or land are defined in
the real property tax law, if items of the same kind are not offered for sale as such by
such contractor, subcontractor or repairman or other user in the regular course of
business, . . .
*
*
*
(c) For purposes of subclause (i) of clause (B) of subdivision (a) of this
section, the tax shall be at the rate of four percent of the price at which items of the
same kind of tangible personal property are offered for sale by the user, and the mere
storage, keeping, retention or withdrawal from storage of tangible personal property
by the person who manufactured, processed or assembled such property shall not be
deemed a taxable use by him.
(d)For purposes of subclause (ii) of clause (B) of subdivision (a) of this
section, the tax shall be at the rate of four percent of the consideration given or
contracted to be given for the tangible personal property manufactured,

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processed or assembled into the tangible personal property the use of which is subject
to tax, including any charges for shipping or delivery as described in paragraph three
of subdivision (b) of section eleven hundred one.
(e) Notwithstanding the foregoing, provisions of this section, for purposes of
clause (B) of subdivision (a) of this section, there shall be no tax on any portion of
such price which represents the value added by the user to tangible personal property
which he fabricates and installs to the specifications of 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, over and above the prevailing normal
purchase price prior to such fabrication of such tangible personal property which a
manufacturer, producer or assembler would charge an unrelated contractor who
similarly fabricated and installed such tangible personal property to the specifications
of an addition or capital improvement to such real property, property or land.
Section ll15(a) of the Tax Law provides in part:
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; provided, however, that if such sale is
made pursuant to a contract irrevocably entered into before September first, nineteen
hundred sixty-nine, no exemption shall exist under this paragraph.
Section 1118 of the Tax Law provides in part:
The following uses of property shall not be subject to the compensating use
tax imposed under this article:
*

*

*

(7)(a) In respect to the use of property or services to the extent that a retail
sales or use tax was legally due and paid thereon, without any right to a refund or
credit thereof, to any other state or jurisdiction within any other state but only when

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it is shown that such other state or jurisdiction allows a corresponding exemption
with respect to the sale or use of tangible personal property or services upon which
such a sales tax or compensating use tax was paid to this state. To the extent that the
tax imposed by this article is at a higher rate than the rate of tax in the first taxing
jurisdiction, this exemption shall be inapplicable and the tax imposed by section
eleven hundred ten of this chapter shall apply to the extent of the difference in such
rates, except as provided in paragraph (b) of this subdivision.
(b) To the extent that the compensating use tax imposed by this article and a
compensating use tax imposed pursuant to article twenty-nine are at a higher
aggregate rate than the rate of tax imposed in the first taxing jurisdiction, the
exemption provided in paragraph (a) of this subdivision shall be inapplicable and the
taxes imposed by this article and pursuant to article twenty-nine shall apply to the
extent of the difference between such aggregate rate and the rate paid in the first
taxing jurisdiction. In such event, the amount payable shall be allocated between the
tax imposed by this article and the tax imposed pursuant to article twenty-nine in
proportion to the respective rates of such taxes.
Section 1119(c) of the Tax Law provides a refund or credit of sales or compensating use tax
paid on the sale or use of tangible personal property "if a contractor, subcontractor or repairman
purchases tangible personal property and later makes a retail sale of such tangible personal property,
the acquisition of which would not have been a sale at retail to him but for the second to last
sentence of subparagraph (i) of paragraph (4) of subdivision (b) of section eleven hundred one."
Section 527.7(b)(5) of the Sales and Use Tax Regulations provides as follows:
(5) Any contractor who is making a capital improvement must pay a tax on
the cost of materials to him, as he is the ultimate consumer of the tangible personal
property.
Section 531.1(a) of the Sales and Use Tax Regulations provides as follows:
(a) Imposition. The compensating use tax is imposed on every person for the
use within New York State of tangible personal property and certain services
described in subdivision (b) of this section, except to the extent they have been or
will be subject to sales tax and except to the extent they are exempt from use tax.
Example 1:

A lumber yard in New York State purchases, for resale, a carload of
lumber from a west coast supplier who is not a registered vendor and
who will deliver the lumber to the purchaser by rail with this State.
No tax is collected by the supplier. Upon delivery of the lumber, the
purchaser withdraws enough lumber to construct workbenches

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Sales Tax
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and shelves in its milling room. The lumber withdrawn for use by the
lumber yard is subject to a compensating use tax on its cost.
Section 531.3(b) of the Sales and Use Tax Regulations provides, in part, as follows:
(b) Tangible personal property manufactured, processed or assembled by the
user. (1) A compensating use tax is imposed when a manufacturer, processor or
assembler uses its product as such in New York State or incorporates the product into
real property in New York State. This is so whether or not it offers items of the same
kind for sale in the regular course of business and whether the product was
manufactured, processed or assembled inside or outside New York State. The basis
on which compensating use tax is computed, however, depends on whether the user
offers items of the same kind for sale in the regular course of business.
A
compensating use tax is not imposed, however, to the extent the user was required
to pay sales tax without a right to a refund or credit upon the purchase of the
ingredients, parts or materials manufactured, processed or assembled into the product
the use of which is subject to tax.
Example 1:

Company A, located in Suffolk County, manufactures and sells its
own brand of garage doors. Approximately 80 percent of the doors
are installed by Company A; the balance of the doors are installed by
the purchaser. Company A pays sales tax to its New York State
suppliers of wood and glass that become part of the doors. When
determining the amount of use tax it owes Company A may take
credit for the New York State and local sales taxes paid on these
materials.

(i) If the user offers items of the same kind for sale in the regular course of
business, the basis on which use tax is computed is the price at which items of the
same kind of tangible personal property are offered for sale by the user. The price at
which items are offered for sale is evidenced by a price list, catalog price or record
of sales. In the absence of a catalog price or price list, the average of the prices
charged various customers will be deemed to be the price at which the user would
sell such item during the regular course of business.
(a) Items of the same kind mean that items belong to an identifiable class, but
need not be identical.
Example 2:

Windows are items of the same kind when they are a standard size
and materials whether or not they are sold from inventory or produced
to order from a catalog description. A manufacturer of windows
produces from a catalog description square, round and hexagon

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shaped windows from various materials. The windows regardless of shape,
size or materials are considered to be items of the same kind.
When items which are not standard or cataloged are made to the
specifications of a particular job, these will not be considered items of the
same kind with catalog or inventory sales.
Items made to the specifications of a particular job will not be considered
items of the same kind as items made to the specifications of another
particular job.
*
Example 4:

*

*

A manufacturer produces standard type pre-cast steps (all of which
are installed by the manufacturer), concrete block and various
ornamental pre-cast items.
For purposes of identifying items of the same kind sold by this
manufacturer, the three distinct types of products must be considered
separately. Therefore, the steps, the blocks and the ornamentals are
each items of the same kind.
*

*

*

(b) Offered for sale in the regular course of business means that a person sells
in excess of 10 percent of his product for each 12 month period beginning December
1st, measured by weight, volume, size or other unit on which the price is based, to
persons other than organizations exempt under section ll16(a) of the Tax Law. ...
Section 531.3(b)(1)(ii) of the Sales and Use Tax Regulations provides, in part, as follows:
(ii) If the user does not offer items of the same kind for sale in the regular
course of business as described in subparagraph (i) of this paragraph, the basis on
which use tax is computed is the consideration given or contracted to be given for the
tangible personal property manufactured, processed or assembled into the tangible
personal property the use of which is subject to tax, including any charges by the
user's seller to the user for shipping or delivery of that property to the user.
*

*

*

Example 12: Company A produces factory manufactured homes at its plant in
Vermont. The components are manufactured in Vermont and the
homes are shipped in sections to customer prepared sites where
Company A erects the home.

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Company A only sells its product on an installed basis. It does not
sell the individual components.
Company A owes use tax on the individual building components
manufactured at its plant in Vermont which were used in erecting homes of
customers in New York. The use tax is based on the cost to Company A of the raw
materials it used to manufacture the building components. The tax due is computed
by multiplying the cost of the raw materials by the tax rate in effect at the site in New
York where the home is erected.
Section 534.5(b) of the Sales and Use Tax Regulations provides as follows:
(b) Contractor retail sales. A contractor, subcontractor or repairman who makes a
retail sale of tangible personal property upon which tax was required to be paid when
purchased by the contractor, subcontractor or repairman pursuant to the provisions
of section l101(b)(4) of the Tax Law may apply for a credit or refund of such tax.
Example 5:

Construction contractor A has surplus roofing shingles on which tax
has been paid. Contractor B purchases the surplus shingles at retail
from contractor A and pays sales tax. Contractor A is entitled to a
refund or credit for the tax paid by him on the shingles sold to B.

Section 541.1(b) of the Sales and Use Tax Regulations provides as follows:
(b) The principal distinguishing feature of a sale to a contractor, as compared
to a sale to other vendors who purchase tangible personal property for resale, is that
the sale of tangible personal property to a contractor for use or consumption in
construction is a retail sale and subject to sales and use tax, regardless of whether
tangible personal property is to be resold as such or incorporated into real property
as a capital improvement or repair ....
Opinion
In this case, Petitioner is a manufacturer of kitchen cabinets and counter tops. Materials
needed to construct the cabinets and the counter tops are purchased by Petitioner both within and
without New York State. Once completed, the kitchen cabinets may be purchased by Petitioner's
customers with or without installation. The counter tops may only be purchased on an installed basis.
Kitchen Cabinets - Uninstalled
In a transaction where Petitioner sells kitchen cabinets without installation, Petitioner is
required to collect the sales tax imposed under Section l105(a) of the Tax Law and any local sales
tax imposed pursuant to the authority of Article 29 of the Tax Law.

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Petitioner must also pay sales tax on any materials it purchased within New York State. As a
contractor, Petitioner is not entitled to purchase the material to construct the kitchen cabinets exempt
as a purchase for resale. See Section 541.1(b) of the Sales and Use Tax Regulations.
Petitioner must also pay a compensating use tax on any materials it purchased outside of New
York State for use in this State. The use tax is based on the cost of the materials including any
charges for shipping or delivery. See Section lll0(b) of the Tax Law. Petitioner may take a credit
against the use tax due if it paid sales or use tax on the materials to another state without any right
to a refund or credit, and the other state allows a corresponding credit for sales or use tax paid to
New York State. See Section 1118(7) of the Tax Law.
Petitioner would be entitled to a refund or credit of any sales or use tax which it paid on the
purchase or use of such materials used to construct kitchen cabinets for sale on an uninstalled basis,
in accordance with the provisions of Section 1119(c) of the Tax Law and Section 534.5(b) of the
Sales and Use Tax Regulations.
Kitchen Cabinets - Installed
In those cases where Petitioner sells the kitchen cabinets on an installed basis, Petitioner is
providing a capital improvement upon installation of the kitchen cabinets and, therefore, is not
required to collect sales tax from its customers. Petitioner is required to pay sales tax on its purchases
within New York of the materials used or consumed to construct the kitchen cabinets in accordance
with Section 541.1(b) of the Sales and Use Tax Regulations. Petitioner is also required to pay
compensating use tax on its purchases of material outside of New York State, based on the cost of
the materials. A credit may be taken against the use tax due for sales or use tax paid to another state,
as stated above.
In addition, Petitioner owes compensating use tax on the cabinets that it manufactures and
uses in making installations as capital improvements. Since Petitioner offers uninstalled kitchen
cabinets of the same kind for sale in its regular course of business, pursuant to Section lll0(c) of the
Tax Law Petitioner is required to pay a compensating use tax with respect to such cabinets based on
the price at which Petitioner offers such uninstalled cabinets for sale. See Section 531.3(b)(i) of the
Sales and Use Tax Regulations. The applicable rate of use tax is the tax rate in effect in the locality
where the kitchen cabinet is installed. When paying the combined State and local use tax on the
cabinets, Petitioner may take a credit for the State and local sales or use taxes paid on its purchase
of the cabinet materials.
Counter Tops - Installed
The custom made Corian Counter Tops can only be purchased on an installed basis. The
installation of the counter tops by Petitioner would constitute a capital improvement where the
installation is intended to be permanent. In that case, Petitioner is not required to collect sales tax
from its customers on the sale of the installed, permanent counter tops.

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Petitioner, however, would be required to pay sales tax on its purchases within New York of the
materials to construct the counter tops in accordance with Sections 527.7(b) and 541.1(b) of the
Sales and Use Tax Regulations. As in the circumstances described above, Petitioner is also required
to pay a compensating use tax on its purchases of material outside of New York State for use in this
State. A credit may be taken against the use tax for sales or use tax paid to another state on the
material, as stated above.
In addition, Petitioner would owe compensating use tax on the counter tops that it
manufactures and installs as a capital improvement. If Petitioner does not offer uninstalled counter
tops of the same kind for sale in the regular course of business, the compensating use tax would be
based on the cost of the materials contained in the counter tops including any charges for shipping
or delivery. See Section lll0(d) of the Tax Law. The rate of the use tax would be the combined state
and local tax rate in effect in the locality where the counter tops are installed. Petitioner may take
a credit against the compensating use tax on the counter tops for New York State and local sales or
use taxes paid on its purchase or use of materials.
If Petitioner's installation of Corian Counter Tops does not qualify as a capital improvement
because the counter tops are not intended to be permanent, then Petitioner's entire charge to its
customer in New York for installation would be subject to State and local sales and use taxes.
In that case, Petitioner should collect tax from its customer and Petitioner would be subject
to State and local sales and use taxes. Petitioner would be entitled to a refund or credit of sales or
use tax which Petitioner paid on the purchase of materials used to make such counter tops, in
accordance with Section 1119(c) of the Tax Law.

DATED: October 7, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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