Is a can/bottle recycler's pickup service taxable as real-property maintenance, and do its can-sorting machines and electrical transformer qualify for the production-equipment sales tax exemption?

Plain-English summary

Western New York Beverage Industry Collection & Sorting recycles metal cans, plastic bottles, and glass bottles, treating the used containers as its raw materials and selling the recycled output to independent buyers. It also picks up and recycles occasional "full" containers -- unopened, expired beverages -- charging customers less than a disposal facility would charge to simply throw them away. Its Buffalo facility runs cans through an integrated line: a "can machine" separates them, scans their UPC codes with a laser to identify metal content (also used to track can deposits), and routes them by conveyor to the right crusher/compactor. A dedicated electrical transformer, permanently bolted into a concrete foundation, converts standard utility power to the voltage and amperage the recycling machinery needs, with ordinary building power removed from the line before it reaches the transformer. The company asked the Department to resolve three separate tax questions about this operation.

First, is the pickup-and-recycling charge for full containers taxable as a real-property maintenance service? No -- the Department found this materially the same as an earlier case (Marisol, Inc.) involving pickup of spent industrial chemicals for recycling, and concluded the receipts aren't taxable real-property maintenance under § 1105(c)(5). The same conclusion applied to the company's separate plastic-bag pickup and recycling charges.

Second, do the can machines qualify as exempt production equipment? Yes -- because unloading the cans (with no prior weighing, testing, or inspection) marks the start of production under the regulations, and the can machines are the very first equipment the cans hit afterward, actively handling, identifying, and routing them through to the crusher/compactors. The fact that the same laser scan also happens to support the company's can-deposit bookkeeping doesn't disqualify the machine -- the exemption is assessed on the machine as a whole, not component by component, and a machine performing two simultaneous functions doesn't need to have one function crowned as "primary."

Third, does the electrical transformer qualify too, and is it a capital improvement? Yes to both. Ordinarily, a transformer used only to transmit or distribute electricity around a plant doesn't get the production exemption. But here, every watt coming out of this transformer powers only the recycling machinery -- ordinary building power is diverted before it ever reaches the transformer -- so it's treated the same as a motor starter or frequency inverter wired directly to a specific piece of exempt equipment: it "assumes the identity" of the machine it powers and gets the same exemption. Separately, because it's welded to a steel frame embedded in concrete, intended as permanent, and substantially adds value by making the recycling operation possible at all, the transformer also independently qualifies as a "capital improvement" -- meaning its installation is excluded from both state and local installation tax.

What this means for you

Recyclers and salvage operators

A pickup-and-recycling service, even one that competes directly with ordinary trash disposal pricing, can be structured as a nontaxable recycling/resale operation rather than a taxable real-property maintenance service -- the key comparison is to prior recycling-industry rulings like Marisol, not to ordinary trash-hauling rules.

Manufacturers and processors installing dedicated power equipment

A transformer, motor starter, or similar electrical component wired specifically and exclusively to qualifying production machinery can "inherit" that machinery's production-equipment exemption -- but only if ordinary building power is genuinely segregated from the production-only circuit, as it was here.

Anyone assessing whether equipment is used "directly and predominantly" in production

A single integrated machine performing two functions at once (here, physically sorting cans and simultaneously gathering deposit-tracking data) is evaluated as a whole -- you don't need to carve out and disqualify the "administrative" function separately if it's inseparable from the qualifying production function.

Common questions

Q: Is a recycling pickup service always exempt from New York sales tax?
A: Not automatically -- this ruling turned on a close factual match to an earlier recycling case (Marisol). The Department also noted it wasn't deciding whether the company's services might be taxable under some other Tax Law provision.

Q: When does "production" begin for the machinery exemption?
A: If raw materials are weighed, tested, or inspected before storage, production starts at storage; if they're unloaded straight into storage with no such steps, production begins at unloading.

Q: Can equipment that also serves an administrative purpose still qualify for the production exemption?
A: Yes, if the equipment as a whole is used directly and predominantly in production -- an incidental administrative byproduct (like deposit tracking here) doesn't disqualify it, and equipment isn't assessed component by component.

Q: Does this ruling apply to my recycling or manufacturing operation?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else -- equipment exemptions are always assessed on each taxpayer's own fact pattern.

Citations and references

• Tax Law § 1101(b)(9)(i) (capital improvement definition)
• Tax Law § 1105(a) (retail sales); § 1105(c)(3) (installation services, capital improvement exclusion); § 1105(c)(5) (real property maintenance)
• Tax Law § 1105-B (local tax treatment of production equipment installation)
• Tax Law § 1115(a)(12) (production machinery and equipment exemption)
• 20 NYCRR § 527.7(a), (b) (maintaining, servicing, repairing real property)
• 20 NYCRR § 528.13(b) (production phase), (c) (directly and predominantly test)
• Marisol, Inc., Tax App Trib, January 4, 1996, TSB-D-96(2)S
• Western New York Beverage Industry Collection & Sorting, Adv Op Comm T&F, April 15, 1985, TSB-A-85(3)S (prior opinion to same petitioner)
• Lindemann Recycling Equipment, Inc., Adv Op Comm T&F, January 31, 1989, TSB-A-89(3)S
• Vigliotti Recycling Corp., Adv Op Comm T&F, December 24, 1990, TSB-A-90(58)S
• B.R. DeWitt, Inc., Tax App Trib, September 19, 1991, TSB-D-91(77)S
• National Fuel Gas Distribution Corporation, Tax App Trib, March 14, 1991, TSB-D-91(15)S
• Deco Builders, Inc., Tax App Trib, May 9, 1991, TSB-D-91(39)
• Matter of Rochester Independent Packer v Heckelman, 83 Misc.2d 1064
• Matter of Niagara Mohawk Power Corp. v Wanamaker, 286 AD 446, affd 2 NY2d 764
• ABB Power Transmission, Inc., Adv Op Comm T&F, July 17, 1990, TSB-A-90(34)S
• Gernatt Asphalt Products, Inc., Adv Op Comm T&F, December 5, 1985, TSB-A-85(64)S
• Akzo Salt, Inc., Adv Op Comm T&F, January 25, 1993, TSB-A-93(8)S
• Leprino Foods Company, Adv Op Comm T&F, April 28, 1994, TSB-A-94(17)S
• Finch, Pruyn & Co. Inc., Adv Op Comm T&F, September 4, 1996, TSB-A-96(51)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_40s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(40)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S951023A

On October 23, 1995, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Western New York Beverage Industry Collection
& Sorting, 2240 Harlem Road, Cheektowaga, New York 14225-4902.
Petitioner,
Western New York Beverage Industry Collection & Sorting, thereafter submitted
additional information pertaining to the Petition.
The issues raised by Petitioner are as follows:
1.
Whether receipts received by Petitioner from the service of
picking up and recycling full containers are subject to sales tax as
the maintenance of real property, property or land pursuant to
Section 1105(c)(5) of the Tax Law.
2.
Whether the can machines that make up part of Petitioner’s
material handling and testing system constitute production equipment
and are thus eligible for the exemption from sales tax provided by
Section 1115(a)(12) of the Tax Law.

3. Whether Petitioner’s electrical transformer is also eligible for
   the exemption from sales tax as provided by Section 1115(a)(12), and
   if not, whether the transformer, as installed, is a capital
   improvement to real property, property or land within the meaning
   and intent of Section 1101(b)(9)(i) of the Tax Law.
   Petitioner submitted the following facts as the basis for this Advisory
   Opinion.
   Petitioner’s business consists of recycling metal cans, plastic bottles and
   glass bottles (collectively referred to as "containers").
   All recycled
   containers are sold by Petitioner to various independent third parties.
   Petitioner states that, in sum and substance, the "used" containers constitute
   Petitioner’s raw materials.
   Recycling of Full Containers. In addition to recycling empty containers,
   Petitioner from time-to-time accepts for recycling containers that have not been
   opened. These containers hold "stale" products, typically beer that has exceeded
   its "expiration date." Petitioner picks up the full containers and recycles them
   in the same manner that it recycles empty containers. The crusher/compactors
   that perform this recycling function have large drains beneath them to catch the
   fluids that escape when the full containers rupture during compression.
   Petitioner sells these recycled containers in the same manner that it sells all
   other recycled materials.

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Petitioner charges its customers for picking up and recycling the full
containers. The charge which Petitioner imposes on its customers for picking up
and recycling the full containers is less than that which the customers would be
charged by a disposal facility for outright disposal of the full containers.
The containers that Petitioner ultimately recycles are
Can Machines.
placed in plastic bags by retail vendors and then retrieved by Petitioner’s
trucks. The trucks deliver the bags of containers to Petitioner’s facility in
Buffalo, New York, where the containers are unloaded and placed directly in
storage pending recycling. The containers remain in the storage area until there
is sufficient capacity on the appropriate recycling line to recycle them. No
actions are taken on the containers before they are placed in storage; for
example, they are not tested, weighed, or inspected before being placed in
storage.
Each type of container (metal, plastic and glass) is handled by a discrete
group of equipment. Of relevance is the equipment that recycles the metal cans.
When the metal cans are retrieved from storage, the first piece of equipment that
they come in contact with in Petitioner’s continuous and integrated material
handling system is a "can machine." The plastic bags full of cans are emptied
into a collection bin located at one end of the can machine. As they fall out
of the bin, the cans are separated (single-file) onto individual runways. The
cans are then moved by an internal conveyor on the machine past a laser scanner
which is connected to a computer. The laser scanner reads the UPC bar code on
the can. From this information, Petitioner identifies the specific type of metal
can, including the can’s metallic content. This information is also used by
Petitioner to account for the can’s deposit, allowing Petitioner to bill the
appropriate party for reimbursement of the deposit on that can.
Aluminum cans must be recycled separately from bimetallic cans (i.e., cans
with metals other than, or in addition to, aluminum). After being identified for
metallic content, the cans are sent by a connected and continuous web of conveyor
belts to the appropriate crusher/compactor for recycling. The crusher/compactor
compresses the cans into blocks of metal. The blocks of metal are then removed,
placed on skids, weighed, and placed in storage pending delivery to customers.
The can machines are used at all times in the handling of the cans. In
addition, the can machines are used at all times to determine the metallic
content of the cans in order to ensure that aluminum and bimetallic cans are not
recycled together. There is no break in the materials handling network from the
bins at one end of the can machines through to the crusher/compactors.
Electrical Transformer. All of Petitioner’s recycling equipment is powered
by electricity. The machines specifically require different voltage and amperage
than the standard service provided by the local utilities. To meet these needs,
Petitioner purchased a transformer on an installed basis. The sole purpose of
the transformer is to convert Petitioner’s standard electrical service which it
receives from the local utility to a voltage and amperage compatible with the
recycling equipment’s operating specifications. Electrical service of standard

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voltage and amperage used by Petitioner to power conventional lighting and
climate control equipment is removed from Petitioner’s utility stream before the
current enters the transformer.
All electricity that flows out of the
transformer is used to power equipment actively engaged in the recycling of
containers.
The transformer is a single piece of equipment welded to a structural steel
frame. The frame extends downwards to form two horizontal support footings which
run the length of the unit. As installed, the extended support footings that
make up part of the structural frame are embedded in concrete. The transformer
cannot be removed from the facility without either: (1) taking a jackhammer to
the concrete in which it sits; or (2) taking a blowtorch or other device to the
frame and cutting off the support footings. Petitioner intended the transformer
to be a permanent installation.
Recycling of Used Plastic Bags. It is noted that on various occasions
Petitioner picks up used plastic bags from the premises of various retail
establishments. Petitioner compacts these plastic bags and sells them to third
parties for recycling. Petitioner charges its customers a fixed fee per pound
of plastic bags retrieved. The charge is less than the charge that would be
imposed if Petitioner picked up the plastic bags for disposal rather than
recycling.
Applicable Law and Regulations
Section 1101(b)(9) of the Tax Law defines a "capital improvement," in part,
as follows:
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
(C) Is intended to become a permanent installation.
Section 1105(a) of the Tax Law imposes tax on "[t]he receipts from every
retail sale of tangible personal property, except as otherwise provided in this
article."
Section 1105(c) of the Tax Law imposes tax upon the receipts from every
sale, except for resale, of the following services:
*

*

*

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(3) Installing tangible personal property ... 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:
*
*
*
(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 ....
*
*
*
(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 1105-B of the Tax Law provides, in part:
*

*

*

(b) Notwithstanding any other provisions of this article, but
not for the purposes of the taxes imposed by section eleven hundred
seven or eleven hundred eight or authorized pursuant to the
authority of article twenty-nine of this chapter, the taxes imposed
by subdivision (c) of section eleven hundred five on receipts from
every sale of the services of installing ... the tangible personal
property described in paragraph twelve of subdivision (a) of section
eleven hundred fifteen, including the parts with a useful life of
one year or less, tools and supplies described in subdivision (a) of
this section, to the extent subject to such tax ... shall be exempt
from the tax on sales imposed under subdivision (c) of section
eleven hundred five on and after March first, nineteen hundred
eighty-one.
*

*

*

(d) Notwithstanding any other provisions of this section or
this article to the contrary, on and after September first, nineteen
hundred ninety-six, the exemptions provided by subdivisions (a), (b)
and (c) of this section shall apply for purposes of the sales and
compensating use taxes imposed by section eleven hundred seven of
this article.

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Section 1115(a) of the Tax Law provides:
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:
*

*

*

(12) Machinery or equipment for use or consumption directly
and predominantly in the production of tangible personal property
... for sale, by manufacturing, processing, generating, assembling,
refining, mining or extracting ....
Section 527.7(a) of the Sales and Use Tax Regulations provides, in part:
(1) Maintaining, servicing and repairing are
Definitions.
terms which are used to cover all activities that relate to keeping
real property in a condition of fitness, efficiency, readiness or
safety or restoring it to such condition.
Among the services
included are services on a building itself such as painting;
services to the grounds, such as lawn services, tree removal and
spraying; trash and garbage removal and sewerage service and snow
removal.
Section 527.7(b) of the regulations provides, in part:
Imposition. (1) The tax is imposed on receipts from every
sale of the services of maintaining, servicing or repairing real
property, whether inside or outside of a building.
*

*

*

(2) All services of trash or garbage removal are taxable,
whether from inside or outside of a building or vacant land.
Section 528.13 of the regulations provides, in part:
(b) Production. (1) The activities listed in paragraph (a)(1)
of this section are classified as administration, production or
distribution.
(i) Administration includes activities such as sales
promotion, general office work, credit and collection, purchasing,
maintenance, transporting, receiving and testing of raw materials
and clerical work in production such as preparation of work,
production and time records.
(ii) Production includes the production line of the plant
starting with the handling and storage of raw materials at the plant
site and continuing through the last step of production where the
product is finished and packaged for sale.

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(iii) Distribution includes all operations subsequent to
production, such as storing, displaying, selling, loading and
shipping finished products.
(2) The exemption applies only to machinery and equipment used
directly and predominantly in the production phase. Machinery and
equipment partly used in the administration and distribution phases
does not qualify for the exemption, unless it is used directly and
predominantly in the production phase.
(3) The determination of when production begins is dependent
upon the procedure used in a plant. If on receiving raw materials,
the purchaser weighs, inspects, measures or tests the material prior
to placement into storage, production begins with placement into
storage, and the prior activities are administrative.
If the
materials are unloaded and placed in storage for production without
such activities, the unloading is the beginning of production.
*

*

*

(4) Production ends when the product is ready to be sold.
*

*

*

(1) Directly means the
(c) Directly and predominantly.
machinery or equipment must, during the production phase of a
process:
(i) act upon or effect a change in material to form the
product to be sold, or
(ii) have an active causal relationship in the production of
the product to be sold, or
(iii) be used in the handling, storage, or conveyance of
materials or the product to be sold, or
(iv) be used to place the product to be sold in the package in
which it will enter the stream of commerce.
(2)
Usage
in
activities collateral to the actual production process is not deemed
to be used directly in production.
*

*

*

(4) Machinery or equipment is used predominantly in
production, if over 50 percent of its use is directly in the
production phase of a process.

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Opinion
Issue 1
As indicated by Petitioner, containers constitute the "raw materials" from
which Petitioner generates its revenue. The facts presented by Petitioner are
not materially distinguishable from those presented in Marisol, Inc. (Tax App
Trib, January 4, 1996, TSB-D-96(2)S).
In Marisol, the Tax Appeals Tribunal
concluded that, under the circumstances, the petitioner’s receipts from the
service of removal of used or spent industrial chemicals for recycling and sale
by the petitioner were not subject to tax under Section 1105(c)(5) of the Tax
Law. Accordingly, we conclude that the receipts received by Petitioner from the
service of picking up and recycling full containers are not subject to sales tax
as receipts from the sale of the service of maintaining real property, property
or land pursuant to Section 1105(c)(5) of the Tax Law. Similarly, Petitioner’s
receipts from picking up and recycling plastic bags are not subject to sales tax
under Section 1105(c)(5) of the Tax Law. (It is noted that Petitioner does not
inquire, and from the facts presented we do not address, whether any of
Petitioner’s services may be taxable under another provision of the Tax Law. A
previous Advisory Opinion issued to Petitioner [Adv Op Comm T&F, April 15, 1985,
TSB-A-85(3)S] indicated, among other things, that certain services provided by
Petitioner were not subject to tax under Section 1105(c)(2) of the Tax Law. The
facts presented in the Petition for this Advisory Opinion do not appear to be the
same as those addressed in the earlier Opinion.)
Issue 2
The can machines that make up part of Petitioner’s material handling and
testing system constitute production equipment and are eligible for the exemption
from sales tax that is provided by Section 1115(a)(12) of the Tax Law.
Petitioner is in the business of recycling containers, including cans, for sale
to third parties and in this regard is engaged in the production of tangible
personal property for sale.
Cans are collected by Petitioner, unloaded and placed directly into storage
pending recycling. No actions are taken on the cans before they are placed in
storage. Pursuant to Section 528.13(b)(3) of the regulations, the unloading of
the cans constitutes the beginning of production. When the cans are removed from
storage, the first pieces of equipment that they encounter are the can machines.
Each machine is an integrated unit.
The cans are separated into individual
runways and moved by internal conveyors in the machines past laser scanners. The
scanned information provides Petitioner with the specific type of metal cans and
the cans’ metallic content. After being identified for metallic content, the
cans are sent by conveyor to the appropriate crusher/compactor for recycling.
The can machines are used at all times in the handling of the cans, in order to
determine the metallic content of the cans and to ensure that unlike cans are not
recycled together. Thus, the can machines have an active causal relationship in
production and are used in the storage, handling and conveyance of the cans.
Accordingly, as provided in the regulations and based on the procedures used at

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Petitioner’s recycling facility, the can machines are used directly and
predominantly in production of tangible personal property for sale.
(See,
Lindemann Recycling Equipment, Inc., Adv Op Comm T&F, January 31, 1989,
TSB-A-89(3)S; Vigliotti Recycling Corp., Adv Op Comm T&F, December 24, 1990,
TSB-A-90(58)S.)
The fact that the scanned information also provides Petitioner with the
means to account for the cans’ deposits, a function that can arguably be
classified under "administration" (20 NYCRR 528.13(b)(1)(i)), does not negate the
fact that the can machines are used directly and predominantly in production.
Each can machine as a whole (including its laser scanner) makes up part of
Petitioner’s continuous and integrated material handling and testing system.
There is no reason to apply the subject exemption from tax on a
component-by-component basis (see, B.R. DeWitt, Inc., Tax App Trib, September 19,
1991, TSB-D-91(77)S). Nor is it necessary under the Tax Law or regulations to
discern whether the primary function of a can machine’s laser scanner is to
account for deposits or to identify the cans for metallic content so that the
cans may be sent to the appropriate crusher/compactor for recycling (see,
National Fuel Gas Distribution Corporation, Tax App Trib, March 14, 1991,
TSB-D-91(15)S).
Both of these functions occur simultaneously during the
production phase; it is not an "either/or" situation or otherwise quantifiable.
That is, all of the time that a can machine is operating it is accomplishing both
of these tasks.
Issue 3
Petitioner’s electrical transformer is also eligible for the exemption
from sales tax under Section 1115(a)(12) of the Tax Law.
"The determination as to whether a particular piece of machinery [or
equipment] qualifies for the exemption depends upon the peculiarities of a
taxpayer’s operation and must be individually assessed on its own fact pattern."
(See, Deco Builders, Inc., Tax App Trib, May 9, 1991, TSB-D-91(39); Matter of
Rochester Independent Packer v Heckelman, 83 Misc.2d 1064.) Where transformers
are used in the transmission and distribution of electricity rather than in its
production (see, Matter of Niagara Mohawk Power Corp. v Wanamaker, 286 AD 446,
affd 2 NY2d 764; ABB Power Transmission, Inc., Adv Op Comm T&F, July 17, 1990,
TSB-A-90(34)S) and where transformers are used to regulate or transmit
electricity throughout a plant or mine (see, Gernatt Asphalt Products, Inc., Adv
Op Comm T&F, December 5, 1985, TSB-A-85(64)S; Akzo Salt, Inc., Adv Op Comm T&F,
January 25, 1993, TSB-A-93(8)S), the transformers do not qualify for the
exemption from tax.
However, Petitioner’s transformer is more akin to the motor starters and
frequency inverters which were the subject of the Advisory Opinion in Leprino
Foods Company, April 28, 1994, TSB-A-94(17)S. In that matter the Commissioner
opined:

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All electrical parts actually attached to a qualifying piece
of production machinery or equipment are deemed to assume the
identity of such machinery and equipment and are therefore entitled
to the same exemption as the machinery and equipment. All other
electrical components are not used directly in production and
therefore are not entitled to the exemption contained in Section
1115(a)(12) of the Tax Law. (See, New York State and Local Sales
Tax Information for Manufacturers, New York State Department of
Taxation and Finance Publication 852 (9/86) at page 11.)
In the instant matter, the motor starters and the frequency
inverters which are designed to be used specifically with individual
pieces of machinery and equipment and which are directly wired to
the individual pieces of machinery or equipment are considered to
assume the identity of such machinery or equipment and are entitled
to the same exemption afforded the machinery or equipment.
Similar to Leprino Foods, Petitioner’s transformer is integral to
Petitioner’s production equipment. The transformer was purchased by Petitioner
for the sole purpose of converting standard electricity to a voltage and amperage
compatible with the production equipment’s operating specifications. Without the
transformer, the production equipment would not have power, and production could
not take place. Electrical service of standard voltage and amperage that is used
by Petitioner for nonproduction purposes is removed before the electricity enters
the transformer. All electricity that flows out of the transformer is used to
power equipment actively engaged in the recycling of containers.
Thus,
Petitioner’s transformer is considered to assume the identity of the production
equipment and is entitled to the same exemption. (See, also, Finch, Pruyn & Co.
Inc., Adv Op Comm T&F, September 4, 1996, TSB-A-96(51)S.)
The service of installing the transformer is exempt from New York State
sales tax in accordance with Section 1105-B of the Tax Law (L 1996, ch 366, as
amended). However, as provided in Section 1105-B(b), there is no exemption from
the local sales taxes authorized pursuant to the authority of Article 29 of the
Tax Law on this installation service. Accordingly, it is necessary to address
whether the transformer as installed constitutes a capital improvement to real
property, property or land and whether such installation falls within the
exclusion from tax under Section 1105(c)(3)(iii) of the Tax Law.
Petitioner’s electrical transformer, as installed, is a capital improvement
to real property, property or land within the meaning and intent of Section
1101(b)(9)(i) of the Tax Law. The transformer satisfies each of the requirements
of the statutory definition of "capital improvement." The installation of the
transformer substantially adds to the value of Petitioner’s real property. It
was originally purchased and installed for the sole purpose of converting the
voltage and amperage of electricity that is used in recycling.
Without the
installation of the transformer, Petitioner’s production equipment would not have
the power necessary to operate and Petitioner’s facility could not be used for
recycling. In addition, the transformer, as installed, is a single piece of
equipment welded to a structural steel frame that runs the length of the unit and

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is embedded in a concrete foundation. This degree of affixation is permanent in
nature and any attempt to remove the transformer from its welded station would
cause material damage to the transformer itself.
Lastly, Petitioner has
indicated and the circumstances support the fact that the installation of the
transformer was intended to be permanent. Accordingly, the installation of the
transformer is excluded from both the State and local taxes under Section
1105(c)(3)(iii) of the Tax Law.

DATED: July 23, 1997

NOTE:

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

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