Which items a plumbing supplier sells to contractors working for tax-exempt organizations are exempt from New York sales tax as building materials, and which stay taxable as contractor supplies?

Plain-English summary

Bedford Hills Supply, Inc. sells plumbing supplies to plumbing and mechanical contractors, some of whom work on capital improvements and repairs for tax-exempt organizations. Sixteen of Bedford Hills' customers give it a Contractor Exempt Purchase Certificate (Form ST-120.1) for a shopping list of pipe-fitting products -- things like flux, solder, Teflon tape, cutting oils, and cleaning brushes -- and Bedford Hills asked the Department whether charges for all sixteen items are really exempt.

New York's sales tax regulations draw a sharp line between two categories of contractor purchases for an exempt organization's project. "Materials" are items that physically become part of the building or structure -- these are exempt when sold to a contractor working for a tax-exempt organization, because the property itself effectively becomes the exempt organization's property. "Supplies" are items the contractor uses up doing the job but that never become part of the building -- these stay taxable no matter who the contractor's customer is, because the contractor (not the exempt organization) is the one actually consuming them.

Applying that line item by item, the Department found that flux, solder, pipe joint compounds, Teflon tape, wicking, PVC cement, PVC primer, oakum, and the strip of lead poured over soil-pipe joints all get built into the finished plumbing -- so they're exempt when purchased for an exempt organization's project with a completed certificate. But sand cloth, grit cloth, fitting cleaning brushes, Scotch copper cleaning pads, flux brushes, cutting oils, and the acetylene, Mapp, and propane gas used to heat and melt the lead are all tools and supplies the contractor consumes doing the job -- none of that becomes part of the building, so all of it stays taxable, and Bedford Hills must collect tax on those items regardless of the certificate.

What this means for you

Plumbing, HVAC, and other building-trade suppliers

You can't treat a customer's Contractor Exempt Purchase Certificate as a blanket pass for everything on an invoice. Go through your product list and sort each item into "becomes part of the building" (exempt for a qualifying exempt-organization job) versus "used up doing the job" (always taxable) -- the certificate only covers the first category.

Contractors and subcontractors working for tax-exempt organizations

If you paid tax on materials that did end up becoming a physical part of an exempt organization's building or repair job, you may be able to seek a refund or credit under Tax Law § 1119(c). But your own tools, cleaning supplies, abrasives, and shop gases are taxable regardless of whose building you're working on.

Accountants and tax professionals

This is a straightforward application of the long-standing materials/supplies distinction in 20 NYCRR § 541.2 and § 541.3(d)(2), tracing back to earlier opinions on the same distinction (Hendrickson Bros., Sullivan Humes Painting, Suffolk County Dept. of Parks). Note the ruling also flags a separate path: if the contractor enters into a genuine agency contract with the exempt entity (with real manifestation of consent and control), even the "supplies" purchases could become exempt -- but that's a fact-specific inquiry the Department didn't resolve here.

Common questions

Q: Is everything a contractor buys for a tax-exempt organization's project automatically tax-exempt?
A: No. Only items that become an integral, physical component of the exempt organization's structure or real property are exempt. Tools, cleaning supplies, and consumables the contractor uses but doesn't install stay taxable.

Q: What if my customer gives me a Contractor Exempt Purchase Certificate for everything they buy?
A: The certificate doesn't override the underlying materials-vs-supplies distinction. A supplier should still charge tax on items that are genuinely "supplies" even if the customer presents a certificate covering the whole order.

Q: Can a contractor ever buy supplies tax-free for an exempt organization's job?
A: Only through a genuine agency contract, where the exempt entity actually authorizes the contractor to act as its purchasing agent, subject to the entity's control. That's a separate, fact-based analysis under 20 NYCRR § 541.3(d)(4).

Q: Does this ruling apply to my business?
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. Your own product list and customer contracts would need their own review.

Citations and references

• Tax Law § 1105(a) (sales tax on retail sales); § 1110 (compensating use tax)
• Tax Law § 1101(b)(4)(i) (retail sale to a contractor)
• Tax Law § 1115(a)(15), (16) (exemption for materials sold to contractors for exempt organizations)
• Tax Law § 1116(a) (exempt organizations); § 1119(c) (refund/credit)
• 20 NYCRR § 541.2(c) (agency contracts), (i) (materials), (k) (supplies)
• 20 NYCRR § 541.3(d)(2) (non-agency contractor purchases)
• Hendrickson Bros., Inc., Adv Op Comm T&F, May 18, 1993, TSB-A-93(34)S
• Sullivan Humes Painting, Adv Op Comm T&F, August 31, 1987, TSB-A-87(31)S
• Suffolk County Department of Parks, Adv Op Comm T&F, July 11, 1994, TSB-A-94(29)S
• 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_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_46s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(46)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970425B

On April 25, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Bedford Hills Supply, Inc., 332 Adams Street,
Bedford Hills, NY 10507.
Petitioner, Bedford Hills Supply, Inc., provided
additional information pertaining to the Petition on May 6, 1997.
The issue raised by Petitioner is whether charges to contractors for the
items listed below are subject to sales and use taxes when the contractors
purchase the items from Petitioner pursuant to their contracts with tax exempt
entities.
Petitioner is a plumbing supplier whose customers are plumbing and
mechanical contractors. These contractors’ services include capital improvements
and repairs performed for exempt organizations.
Petitioner submitted the following list of items for which its customers
provide a Contractor Exempt Purchase Certificate (Form ST-120.1) to Petitioner:
1.

Sand cloth and grit cloth - abrasive type products used to rough up
and clean copper tubing and PVC pipe fittings

2.

Flux - an acid type cleaner used to clean fittings and copper tubing

3.

Solder - spools of lead used to put pipe and fittings together

4.

Fitting cleaning brushes - brushes used to clean joint fittings
before flux is applied

5.

Scotch copper cleaning pads - abrasive pads used for cleaning copper
tubing

6.

Flux brush - brush used to apply flux to piping and fittings

7.

Pipe joint compounds - materials applied to the fittings of steel
pipe to ensure a tight seal

8.

Teflon tape - tape that is wrapped around the threads on steel pipe
to ensure a tight seal

9.

Wicking - when using joint compounds, this material goes around the
thread to make an even tighter seal; used especially in steam and
other high pressure lines

10.

Cutting oils - lubricants used to decrease friction on machines used
to cut and thread pipes

-2­
TSB-A-97(46)S
Sales Tax

11.

PVC cement - an adhesive that secures PVC pipe to fittings

12.

PVC primer - a cleaner, similar to flux, used to clean PVC pipe and
fittings prior to the application of PVC cement

13.

Oakum - a hard, burlap-like material used in soil pipe (cast iron)
joints, which is required by law to be packed into the fittings

14.

Strip of lead - type of lead poured over the soil pipe joints to
hold the joint together after the oakum is packed in; must be used
in conjunction with oakum

15.

Acetylene and Mapp gas - fuel filled in tanks brought in by the
customer, used to create heat required to melt the lead for
soldering PVC and copper joints

16.

Propane gas - same as # 15, only melts the lead for soil pipe joints

Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax on the "receipts from every
retail sale of tangible personal property. . . ."

state

Section 1110 of the Tax Law imposes a use tax "for the use within this
. . . of any tangible personal property purchased at retail. . . ."
Section 1101(b)(4)(i) of the Tax Law defines "retail sale," in part, as:
. . . 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 . . . regardless of whether the tangible
personal property is to be resold as such before it is so used or
consumed. . . .

Section 1115(a) of the Tax Law exempts from the sales tax imposed by
Section 1105(a) of the Tax Law and from the compensating use tax imposed under
Section 1110:
(15) Tangible personal property sold to a contractor, subcontractor
or repairman for use in erecting a structure or building of an
organization described in subdivision (a) of section eleven hundred
sixteen, or adding to, altering or improving real property, property
or land of such an organization, as the terms real property,
property or land are defined in the real property tax law; provided,
however, no exemption shall exist under this paragraph unless such
tangible personal property is to become an integral component part
of such structure, building or real property.

-3­
TSB-A-97(46)S
Sales Tax

(16) Tangible personal property sold to a contractor, subcontractor
or repairman for use in maintaining, servicing or repairing real
property, property or land of an organization described in
subdivision (a) of section eleven hundred sixteen, as the terms real
property, property or land are defined in the real property tax law;
provided, however, no exemption shall exist under this paragraph
unless such tangible personal property is to become an integral
component part of such structure, building or real property.
Section 1116(a) of the Tax Law provides for exemption from sales and
compensating use taxes with respect to New York State governmental entities,
United States governmental entities, United Nations and certain international
organizations of which the United States is a member, and certain nonprofit
organizations and Indian nations and tribes that have received New York State
exempt organization status.
Section 1119(c) of the Tax Law provides, in part:
A refund or credit . . .of sales or compensating use tax . . .
paid on the sale or use of tangible personal property, shall be
allowed the purchaser where such property is later used by the
purchaser in performing a service subject to tax under paragraph
(1), (2), (3), (5), (7) or (8) of subdivision (c) of section eleven
hundred five or under section eleven hundred ten and such property
has become a physical component part of the property upon which the
service is performed or has been transferred to the purchaser of the
service in conjunction with the performance of the service subject
to tax or 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 541.2 of the Sales and Use Tax Regulations provides, in part:
The words, terms and phrases used in this Part have the
following definitions except when the context clearly indicates a
different meaning:
(c) An agency contract means an agreement which permits a
contractor and subcontractor to act as an agent of, that is, in the
place of the principal, his customer . . . All purchases (including
rentals of contractor’s tools, supplies, machinery and equipment)
made by the agent-contractor or agent-subcontractor on behalf of the
principal are treated in the same manner as if the purchases were
made by the principal.
*

*

*

-4­
TSB-A-97(46)S
Sales Tax

(i)
The term materials means those items which become a
physical component part of real or personal property such as lumber,
bricks and steel.
*

*

*

(k) The term supplies means those items which are consumed by
a contractor in the performance of a contract and which are not
incorporated into real property such as lubricating oils, sanding
disks, gasoline used to operate power equipment and safety apparel.
(Emphasis added)
Section 541.3(d)(2) of the Sales and Use Tax Regulations provides, in part:
Purchase for contracts (other than agency contracts).
(i) Tangible personal property sold to a contractor,
subcontractor, or repairman for use in erecting, repairing, adding
to, or altering a structure or building owned by an exempt
organization, described in section 1116(a) of the Tax Law, is exempt
when it is to become an integral component part of such structure or
building.
*

*

*

(iv) Except for agency contracts, contractors’ purchases of
construction supplies which do not become part of an exempt
organization’s real property and are used or consumed by the
contractor, as well as purchases of taxable services, such as
electricity used by the contractor, are subject to tax.
*

*

*

The following types of property and services are
representative, but not intended to be all-inclusive, of
contractor’s purchases which are subject to tax, irrespective of
whether the contractor has a . . . contract (except agency
contract), with an exempt organization:
*

*

*

(c) contractors’ supplies, tools, and miscellaneous equipment,
whether purchased or rented, including materials to make forms
and scaffolding; and
(d)

any other items purchased or rented by a contractor for
his use in performing the contract and not incorporated
into the realty.

-5­
TSB-A-97(46)S
Sales Tax

Opinion
Petitioner’s customers (contractors) purchase supplies and materials from
Petitioner which are used in both capital construction and repair and maintenance
contracts performed for tax exempt entities described in Section 1116(a) of the
Tax Law. Section 1115(a)(15) and section 1115(a)(16) of the Tax Law provide
exemptions from sales and use taxes for property sold to contractors,
subcontractors or repairmen for use or consumption as described in Section
1101(b)(4) of the Tax Law, if such property is to become an integral component
part of the structure, building or real property of such exempt organization (see
Hendrickson Bros., Inc., Adv Op Comm T&F, May 18, 1993, TSB-A-93(34)S).
Section 541.2 of the Sales and Use Tax Regulations differentiates between
building materials and contractors’ supplies.
The distinction is necessary
because, notwithstanding Section 1101(b)(4) of the Tax Law, materials which
become an integral component part of structures, buildings or real property of
an exempt entity may be purchased tax exempt. If the contractor paid tax on
materials, which are transferred to any business or residential customer in the
performance of a repair and maintenance contract, the contractor may apply for
a refund or credit of such tax under Section 1119(c) of the Tax Law. But no tax
exemption applies to supplies purchased for the contractor’s own use (see
Sullivan Humes Painting, Adv Op Comm T&F, August 31, 1987, TSB-A-87(31)S).
Accordingly, materials purchased by the contractors which become an
integral component part of an exempt entity’s structure, building or real
property, such as flux, solder, pipe joint compounds, teflon tape, wicking, PVC
cement, PVC primer, oakum and strips of lead poured over soil pipe joints are
considered to become an integral component part of the real property. If these
items are purchased to be incorporated into the real property of an organization
described in Section 1116(a) of the Tax Law, the contractor’s purchase of them
would be exempt from sales and compensating use tax as provided under Sections
1115(a)(15) and 1115(a)(16) of the Tax Law. A properly completed Contractor
Exempt Purchase Certificate (Form ST-120.1) should be furnished to Petitioner by
its customers for these items.
Supplies purchased by Petitioner’s customers are not considered to become
an integral component part of the exempt organizations’ real property, but are
considered to be used or consumed by the contractors in the performance of their
contracts (see Suffolk County Department of Parks, Adv Op Comm T&F, July 11,
1994, TSB-A-94(29)S; Sullivan Humes Painting, supra). Therefore, the sand cloth,
grit cloth, fitting cleaning brushes, scotch copper cleaning pads, flux brushes,
cutting oils, and the acetylene, mapp and propane gases purchased by Petitioner’s
customers do not qualify for the exemptions under Sections 1115(a)(15) and
1115(a)(16) of the Tax Law and thus are subject to State and local sales and use
taxes. Petitioner is required to collect sales and use taxes when it sells the
items to its customers.
It should be noted that, if Petitioner’s customers were to enter into an
agency contract with an exempt entity, the customers’ purchases from Petitioner
which are made as agent for the exempt entity would be exempt from sales and use
tax. To establish an agency relationship there must be a "manifestation" that
Petitioner's customer consents to act as agent on behalf of the exempt entity,

-6­
TSB-A-97(46)S
Sales Tax

subject to its control, and that the exempt entity authorizes the fiduciary
relationship. (See, 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.)
Whether Petitioner's customer acts as an agent of an exempt entity is a question
of fact that must be resolved based upon the circumstances in each case. See
Sales Tax Regulations Section 541.3(d)(4) for requirements respecting agency
contracts with exempt organizations.

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.