Are elevator consulting firms' inspection, evaluation, design, and expert-witness services subject to New York sales tax?

Plain-English summary

Ten elevator consulting firms jointly petitioned the Department to classify the full range of services they provide: (1) visual inspections evaluating elevator condition and code compliance (for real estate deals, modernization decisions, or checking a third-party maintenance contractor's work); (2) advising clients on structuring maintenance contracts with third-party contractors; (3) pedestrian-traffic-capacity studies to size new elevator systems; (4) writing detailed "book form" specifications for a modernization project, plus reviewing contractor bids; (5) post-installation evaluations to confirm proper installation; (6) full design-and-oversight consulting for new elevator installations, including blueprints, specifications, bid review, shop-drawing approval, field meetings, and final inspection; (7) expert witness testimony for law firms and insurance companies; (8) code-violation inspections and reports for municipal building departments, plus representing private clients seeking building permits; and (9) evaluating compliance with laws like local fire codes and the ADA. Crucially, the firms' own inspection reports are never submitted to or used by the third-party contractors that actually maintain and service the elevators -- those contractors run their own separate inspections to determine what maintenance work is needed.

New York taxes maintaining, servicing, or repairing tangible personal property (§ 1105(c)(3)) and real property (§ 1105(c)(5)), but the Department found none of these consulting services fit those categories, precisely because the firms' reports are disconnected from the actual maintenance/repair work performed by others. The Department treated the code-compliance inspection services (categories 1, 8, and 9) as pure regulatory-compliance evaluations, not tied to any repair or maintenance -- and non-enumerated. The post-installation evaluation and full design/oversight consulting services (categories 5 and 6) were found merely incidental to the elevator's INSTALLATION as a capital improvement to real property, also untaxed. All the other described services (contract-structuring advice, traffic studies, specification writing, bid review, expert witness work, permit assistance) simply aren't among New York's enumerated taxable services at all. Separately stated filing fees the firms pay on a client's behalf are likewise not taxable.

Because none of the services were taxable, the petition's questions about exemptions for government/exempt-organization clients or for engineers/architects became moot -- but the Department still flagged the underlying rule for future reference: services performed directly for an exempt organization (church, synagogue, government entity) under § 1116(a) are untaxed, but services performed for an engineer or architect are only exempt if that engineer/architect is genuinely acting as the exempt organization's AGENT -- which requires a real agency relationship (the organization authorizing the fiduciary relationship, and the professional consenting to act on its behalf, subject to its control), a fact question resolved case by case.

What this means for you

Elevator, building-systems, and similar technical consulting firms

If your inspection or evaluation reports are genuinely independent of -- and not submitted to or used by -- the contractors who perform the actual maintenance/repair/installation work, your consulting, code-compliance, design, and expert-witness services are likely outside New York's enumerated taxable service categories, following this opinion's reasoning. Keep your consulting/advisory work functionally separate from any maintenance contractor's own process to preserve this treatment.

Property owners, developers, and municipalities hiring elevator/building consultants

Expect independent inspection, code-compliance, design consulting, and expert-witness fees from a firm like this to come untaxed -- a different result than hiring a contractor to actually perform maintenance or repairs, which IS taxable.

Engineers, architects, and firms working for exempt organizations

If you're providing otherwise-taxable services on behalf of a church, government entity, or other § 1116(a) exempt organization, the exemption only follows through to you if you're genuinely acting as that organization's AGENT (with real authorization and control) -- not merely providing services that happen to benefit the exempt entity.

Common questions

Q: What's the key fact that made all these services non-taxable?
A: The firms' inspection reports are never submitted to or used by the third-party contractors who actually maintain and service the elevators -- those contractors conduct their own separate inspections, so the consulting firms' work isn't tied to any maintenance or repair service.

Q: Are separately stated filing fees always untaxed?
A: In this opinion, yes -- separately stated filing fees paid on a client's behalf in connection with inspection services are not subject to sales tax.

Q: When would services for an architect or engineer be exempt because their client is tax-exempt?
A: Only when the architect or engineer is acting as a genuine agent of the exempt organization -- there must be a real fiduciary relationship, with the organization authorizing it and the professional consenting to act on the organization's behalf, subject to its control; this is a fact question in each case.

Q: Can another consulting firm rely on this ruling?
A: No. This advisory opinion binds the Department only with respect to the ten named petitioner firms and the specific facts they described.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(3) (tax on installing/maintaining/servicing/repairing tangible personal property)
• Tax Law § 1105(c)(5) (tax on maintaining/servicing/repairing real property)
• Tax Law § 1116 (exempt organizations)
• 20 NYCRR § 541.5(c) (agency contracts)

Prior rulings and cases referenced:

• Matter of Hooper Holmes v. Wetzler, 152 AD2d 871, lv den, 75 NY2d 706
• Matter of Swet, Dec Tax App Trib, February 22, 1991, TSB-D-91(10)S

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_67s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (67) S
Sales Tax
October 7, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960328B

On March 28, 1996, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Cattabiani and Associates, Charles Calderone Associates, D.T.M., Inc., George
Murray & Associates, Hubert H. Hayes, Inc., John A. Van Deusen & Associates, Inc., Joseph Neto
and Associates, Inc., Lerch, Bates and Associates, United Elevator, Vertical Systems Analysis, and
Walsh Associates, Ltd., collectively, Elevator Service Companies, c/o George Murray & Assoc., 60
Fire Island Avenue, Babylon, New York 11702.
The issues raised by Petitioners, collectively, Elevator Service Companies, are:
1.

Whether the services all or some of the Petitioners perform as enumerated
within the facts below are subject to State and local sales and use taxes.

2.

Whether in performing inspection services, filing fees which must be paid on
behalf of Petitioner's client, if separately stated from charges for other
services, are subject to State and local sales and use taxes.

3.

Whether the services enumerated below would be exempt from tax if
performed for:

4.

a.

A federal, state or governmental entity, a church, or synagogue, or
other tax-exempt entity.

b.

A licensed engineer or architect.

Whether the services enumerated below would be exempt if performed for
licensed engineers or architects who are themselves rendering services to a
tax-exempt entity.

Petitioners submit the following facts as the basis for this Advisory Opinion.

1. Some Petitioners are hired to evaluate elevator performance. These evaluations are
   performed by visual inspection to determine if an elevator meets applicable building code safety
   requirements. These services are generally performed under the following circumstances:
   a.

In connection with an acquisition of real estate or the financing of a real
estate project. This evaluation is generally ordered by a purchaser, financial
institution, architect or engineer to determine the remaining life of an
elevator.

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b.

In connection with a request for a Petitioner's recommendations as to whether
to modernize elevator equipment ("Modernizing Equipment"). Such
evaluations generally include cost estimates with regard to such
modernization.

c.

To determine if maintenance on elevators previously performed by third-party
maintenance contractors has allowed the elevators to meet industry and
regulatory standards. When necessary, the Petitioner will provide a list of
corrections to be undertaken by such contractors so that the elevators meet
the proper standards.

2. Some Petitioners provide guidance to clients as to the structuring of maintenance contracts
   between the client and its third-party maintenance contractor. This includes delineating the
   specifications of the subject equipment to be maintained and the items of maintenance which must
   be performed by the contractor.
3. Some Petitioners perform studies of the pedestrian traffic capacity of both new and
   existing buildings to determine the elevator equipment necessary to adequately service the buildings.
   This study is generally performed by an owner (or developer) in connection with planned building
   or renovation of an elevator system.
4. After performing a Modernization Survey (as discussed in paragraph 2. above), if a
   modernization project goes forward, a Petitioner may be requested to put the recommended
   equipment changes and/or new equipment in "book form." Book form constitutes writing detailed
   specifications and information necessary for a contractor to bid on installing the new or updated
   equipment. The Petitioner's responsibilities often also include reviewing and analyzing project bids
   received by third-party contractors.
5. After the installation of an elevator, Petitioners are often requested to evaluate the elevator
   to determine if it was properly installed.
6. Some Petitioners are requested on occasion to design and oversee the installation of new
   elevators. This broad-scope consulting service usually commences with a study of pedestrian traffic
   to determine the number of elevators necessary to service the building. Thereafter, the Petitioner
   often creates blueprints, prepares specifications, and possibly oversees the bidding process. This
   service may also include approval of shop drawings, attendance at field meetings and supervision
   of construction. The final step of this consulting service is the final inspection of the newly-installed
   elevator.
7. Some Petitioners are hired by law firms and insurance companies to provide expert witness
   testimony.
8. Some Petitioners are hired by building departments of municipalities to determine whether
   and to what extent elevators within the municipality are in violation of applicable building codes and
   to prepare a written report to the building owner which addresses any violations. In addition, there

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are occasions when Petitioners are hired by private clients to act as their representatives to assist in
obtaining a building permit from a municipality building department. These types of services are
charged either on an hourly or a fixed fee basis.

9. Some Petitioners are occasionally requested to evaluate whether elevators satisfy federal,
   state or local laws (c.f., local law 10-81). These inspections include determining if elevators comply,
   for example, with applicable fire codes and the Americans With Disabilities Act.
   The inspection reports prepared by Petitioners are not submitted to or used by the third
   party contractors which maintain and service the elevators. Those contractors all conduct their
   own inspections to determine what maintenance, repairs, lubrication and adjustments are
   necessary to properly maintain the elevators.
   Petitioners do not incorporate the findings and recommendations with respect to a particular
   client in reports furnished to third parties.
   The inspection of elevators are similar to, and performed in a similar manner as those
   provided by professional engineers and licensed architects.
   Section 1105(c) of the Tax Law imposes sales tax, in part, 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.
*

*

*

(5) Maintaining, servicing or repairing real property, property or land, as such terms
are defined in the real property tax law, 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 as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter, but excluding services rendered by an individual who
is not in a regular trade or business offering his services to the public.
Section 1116 of the Tax Law provides, in part:

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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;
(2) The United States of America, and any of its agencies and
instrumentalities, insofar as it is immune from taxation where it is the purchaser, user
or consumer, or where it sells services or property of a kind not ordinarily sold by
private persons;
(3) The United Nations or any international organization of which the United
States of America is a member where it is the purchaser, user or consumer, or where
it sells services or property of a kind not ordinarily sold by private persons;
(4) Any corporation, association, trust, or community chest, fund or
foundation, organized and operated exclusively for religious, charitable, scientific,
testing for public safety, literary or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its activities involve
the provision of athletic facilities or equipment), or for the prevention of cruelty to
children or animals, no part of the net earnings of which inures to the benefit of any
private shareholder or individual, no substantial part of the activities of which is
carrying on propaganda, or otherwise attempting to influence legislation, (except as
otherwise provided in subsection (h) of section five hundred one of the United States
internal revenue code of nineteen hundred fifty-four, as amended), and which does
not participate in, or intervene in (including the publishing or distributing of
statements), any political campaign on behalf of any candidate for public office ....
With respect to issue "1", a number of the services provided by the Petitioners as described
above consist of inspections or evaluations of elevators. Under the facts described above, however,
these services are not subject to tax under Section 1105(c)(3) or (5) as maintaining, servicing or
repairing tangible personal property or real property. The inspection reports prepared by Petitioners
are not submitted to or used by the third party contractors which maintain and service the elevators.
This Advisory Opinion presumes that the evaluation services numbered 1, 8 and 9 above, are
performed solely for the purpose of demonstrating compliance with government building

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codes. Inspection services performed solely for purposes of mandatory governmental code
compliance, and which are not related to or performed in conjunction with repairing, maintaining
or servicing tangible personal property or real property are not enumerated taxable services. The
inspections performed in connection with the services numbered 5 and 6 above are incidental to the
installation of elevators as a capital improvement to real property. Therefore, the receipts received
from the performance of these services are not subject to State and local sales and use taxes. The
other kinds of services provided by Petitioner are not included among the enumerated taxable
services of Section 1105(c). The receipts from these other services are also not subject to State and
local sales and use taxes.
Concerning issue "2", separately stated charges for filing fees are not subject to sales tax.
As for issues "3" and "4", the questions are moot due to the determination that the services
are not taxable. We note, however, that services performed for organizations, such as churches or
synagogues, or government entities, described in Section ll16(a) of the Tax Law are not subject to
sales and use taxes. Otherwise taxable services performed for engineers or architects would not be
exempt unless such engineers or architects were members of organizations described in Section
ll16(a) of the Tax Law.
With respect to issue "4", otherwise taxable services performed for engineers and architects
are exempt only if the engineer or architect is an agent of the exempt organization. To establish
agency or representative relationships there must be a "manifestation" that a Petitioner consents to
act on behalf of the exempt organization, subject to its control, and that the exempt organization
authorizes the fiduciary relationship. (See, Matter of Hooper Holmes v Wetzler, 152 AD2d 871, iv
den, 75 NY2d 706; Matter of Swet, Dec Tax App Trib, February 22, 1991, TSB-D-91(10)S.)
Whether a Petitioner acts as an agent is a question of fact that must be resolved based upon the
circumstances in each case. See also Section 541.5(c) of the Sales and Use Tax Regulations for
guidelines on agency contracts.

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.