Are fees for residential security alarm monitoring, the equipment used to provide it, and related installation/repair charges subject to New York sales tax?

Plain-English summary

Price Waterhouse asked six related questions on behalf of "Company B," which was starting to sell residential security alarm systems and monitoring services in New York. Company B's standard system (steel cabinet, electronic boards, telephone dialer, backup battery, siren, keypad, door/window contacts, motion sensors, plus optional add-ons like heat/smoke detectors and panic buttons) stays Company B's property under a roughly 24-month service contract; customers only get the right to use it while paying for monitoring, and the equipment is removed at the end (except wiring left in walls/ceilings). Optional equipment, by contrast, is actually sold to the customer, with title passing to them. A future patrol-car service was also planned.

The Department worked through each of the six questions:

1. Monitoring service fees are taxable. Payments for using the security system and monitoring are receipts from "protective and detective services" under § 1105(c)(8), which taxes services provided through any alarm or protective system.
2. Company B's own equipment purchases don't qualify for the resale exemption. Because Company B keeps ownership of the standard equipment and removes it at contract's end (rather than transferring it to the customer or having it become part of the customer's property), the resale exclusion under § 526.6(c)(6) doesn't apply -- Company B owes sales or use tax on this equipment when it buys it (citing U-Need-A-Roll Off Corp.).
3. Maintenance/repair fees on the alarm systems are taxable under § 1105(c)(3).
4. Sales of optional equipment to customers are taxable retail sales, since title actually passes to the customer -- but Company B can buy this optional equipment tax-free for resale (with a Resale Certificate, Form ST-120), since it's genuinely reselling it.
5. Installation, maintenance, and repair fees for the optional equipment are taxable under § 1105(c)(3).
6. Patrol car service fees are taxable as protective and detective services under § 1105(c)(8).

The Department also noted the standard use-tax credit rule: if Company B buys equipment outside New York and pays sales tax to another state, it can get a credit against New York use tax to the extent the rates match, with New York's use tax applying only to the difference if New York's rate is higher.

What this means for you

Residential security alarm and monitoring companies

Almost everything you charge a residential customer is taxable -- monitoring fees, maintenance/repair, optional equipment sales, installation, and any patrol services. The one place to save tax is on equipment you genuinely sell to the customer (title passes) rather than equipment you retain ownership of and remove at the end of the contract: only the former qualifies for the resale exemption on your own purchase.

Accountants and tax professionals advising alarm/monitoring businesses

This is a comprehensive, multi-issue worked example of how New York's protective-and-detective-services tax (§ 1105(c)(8)) and the resale exclusion (20 NYCRR § 526.6(c)(6)) interact for a subscription-style equipment/monitoring business model. The key distinguishing fact throughout is whether title to the equipment passes to the customer -- retained-title equipment used in providing a taxable service is not a resale purchase, while equipment actually sold to the customer is. This is a companion ruling to TSB-A-98(63)S, issued the same day to the same law firm for a related commercial-customer alarm business ("Company A"), reaching largely parallel conclusions.

Common questions

Q: Are residential alarm monitoring fees taxable in New York?
A: Yes, as protective and detective services under Tax Law § 1105(c)(8).

Q: Can an alarm company buy its equipment tax-free if it keeps ownership and uses it to provide monitoring?
A: No. Equipment retained by the provider (not sold or transferred to the customer) doesn't qualify for the resale exemption -- the provider owes tax on that equipment when purchased.

Q: What about equipment the company actually sells to the customer?
A: That equipment can be purchased tax-free for resale, and the company then collects sales tax when it sells the equipment to the customer.

Q: Are patrol car services taxable?
A: Yes, as protective and detective services under § 1105(c)(8).

Q: Can another alarm company rely on this ruling directly?
A: Not automatically. This advisory opinion binds the Department only as to the petitioner and the specific facts (retained-title equipment, service-contract structure) described.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(4) (definition of retail sale)
• Tax Law § 1101(b)(5) (definition of sale, selling or purchase)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(3) (tax on installing, maintaining, servicing, or repairing tangible personal property)
• Tax Law § 1105(c)(8) (tax on protective and detective services)
• Tax Law § 1118(7)(a) (credit for sales/use tax paid to another jurisdiction)
• 20 NYCRR § 526.6(c)(6) (resale exclusion for property transferred in conjunction with a taxable service)
• Matter of U-Need-A-Roll Off Corp. v. State Tax Commission, 67 NY2d 690

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_62s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(62)S
Sales Tax
September 9, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S980122A

On January 22, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Price Waterhouse LLP, 400 South Hope Street,
Los Angeles, California, 90071-2889. Petitioner, Price Waterhouse LLP, submitted
additional information relating to the Petition on February 13, 1998.
The issues raised by Petitioner, Price Waterhouse LLP, are the following:

1. Whether fees paid to Petitioner’s client for the use of security alarm
   systems and monitoring services are subject to sales or compensating use tax.
2. Whether purchases of security alarm equipment by Petitioner’s client
   for use in providing protective services are exempt from sales tax as purchases
   for resale.
3. Whether fees charged by Petitioner’s client for maintenance and repair
   of security alarm systems are subject to sales tax.
4. Whether receipts from the sales of optional security alarm equipment
   are subject to sales tax.
   5.
   Whether fees charged by Petitioner’s client for installation,
   maintenance and repair of optional security alarm equipment are subject to sales
   tax.
5. Whether fees charged by Petitioner’s client for patrol car services are
   subject to sales tax.
   Petitioner submitted the following facts as the basis for this advisory
   opinion.
   Petitioner’s client, Company B, is headquartered outside New York State
   with offices in several states. Company B recently began providing security
   alarm systems and monitoring services to residential customers located in New
   York. The security alarm systems generally consist of a standard package or
   standard wireless package, both of which remain the property of Company B. The
   standard package includes a steel cabinet, electronic boards, an electronic
   telephone dialer, an optional wireless receiver, an optional phone access board,
   backup battery, transformer, siren, keypad, telephone jack, door and window
   contacts, and motion sensors. The standard wireless package also includes a
   receiver board and a key chain remote control.
   In addition to the above,
   optional alarm equipment is available for sale including heat detectors, smoke
   detectors, panic buttons, additional door or window sensors, motion sensors and
   remote controls.

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Monitoring services are provided from a communications center located in
the state where Company B is headquartered. When a protected premises goes into
a state of alarm, the system dials the communications center and transmits a
digital message to the communications center. The operator in the communications
center processes the message and takes appropriate action to resolve the
situation. Additionally, patrol car services consisting of a Company B employee
periodically patrolling the protected premises may be made available sometime in
the future.
Company B provides residential customers with a security alarm system and
monitoring service for a stated fee. The standard system package is provided for
a specified period of time in accordance with the terms of a service contract.
Under the terms of the service contract, title to the security system remains
with Company B. The time period of the service contract is anticipated to be 24
months and the customer will have the option of renewing indefinitely. Customers
only obtain the right to use the system for the period during which the
monitoring services are being provided.
Service contract customers are responsible for remitting a lump sum payment
on a monthly, quarterly, semi-annual or annual basis for their use of the system
and the monitoring service. Fees for optional alarm equipment will be charged
in a lump sum for product, materials and labor. Title to the additional security
alarm equipment will pass to the customer. Charges for patrol car services will
be separately stated.
Company B purchases the security alarm systems in component form. Company
B estimates the material cost of the standard alarm package to be less than 10%
of the total service contract fee. None of the equipment is permanently affixed
or becomes part of the real property.
Upon termination of the lease, all
equipment is removed except for communications cables which are left in the
ceilings or walls.
Company B employees assemble and install the equipment and perform service
and training at the customer’s residence.
Applicable Law and Regulations
Section 1101(b)(4) of the Tax Law provides, in part:
Retail sale. (i) A sale of tangible personal property to any person
for any purpose, other than (A) for resale as such or as a physical
component part of tangible personal property, or (B) for use by that
person in performing the services subject to tax under paragraphs
(1),(2),(3),(5),(7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component
part of the property upon which the services are performed or where
the property so sold is later actually transferred to the purchaser
of the service in conjunction with the performance of the service
subject to tax.
Section 1101 (b)(5) of the Tax Law provides, in part:

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Sales Tax
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Sale, selling or purchase.
Any transfer of title or
possession or both, exchange or barter, rental, lease or license to
use or consume (including, with respect to computer software, merely
the right to reproduce), conditional or otherwise, in any manner or
by any means whatsoever for a consideration, or any agreement
therefor, including the rendering of any service, taxable under this
article, for a consideration or any agreement therefor.
Section 1105(a) of the Tax Law imposes sales tax on the receipts of every
retail sale of tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes a sales tax on the following:
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...
*

*

*

(8)Protective and detective services, including, but not limited to,
all services provided by or through alarm or protective systems of
every nature, including, but not limited to, protection against
burglary, theft, fire, water damage or any malfunction of industrial
processes or any other malfunction or damage to property or injury
to persons, detective agencies, armored car services and guard,
patrol and watchman services of every nature other than the
performance of such services by a port watchman licensed by the
waterfront commission of New York harbor, whether or not tangible
personal property is transferred in conjunction therewith.
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 it is shown
that such other state or jurisdiction allows a corresponding

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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 526.6(c)(6) of the Sales and Use Tax Regulations provides:
Tangible personal property purchased for use in performing services
which are taxable under section 1105(c)(1),(2),(3),(5),(7) and (8)
of the Tax Law is purchased for resale and not subject to tax at the
time of purchase, where the property so sold (i) becomes a physical
component part of the property upon which the services are
performed, or (ii) is later actually transferred to the purchaser of
the service in conjunction with the performance of the service
subject to tax.
*

*

*

Example 9: A painter purchases plastic drop cloths and sandpaper and
after painting a customer’s premises, leaves the used drop cloths
and sandpaper at the premises. The drop cloths and sandpaper, even
though limited or no use after the painting, have not been purchased
for resale as they are items used by the painter in performance of
a taxable service. The drop cloths and sandpaper are not actually
transferred to the purchaser of the service in conjunction with the
performance of the service.
Opinion
Issue 1
Payments received by Company B for use of the security systems and
monitoring services are taxable receipts from protective and detective services.
Under Section 1105(c)(8) of the Tax Law, all services provided by or through
alarm or protective systems of every nature are taxable protective and detective

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services. Since these payments are receipts from services provided through an
alarm system, they are subject to sales tax.
Issue 2
Company B is providing taxable protective and detective services as
described in Section 1105(c)(8) of the Tax Law. To provide this service, Company
B installs security alarm and monitoring systems which link its customers to its
communications center outside New York. Under Section 1101(b)(4)(i)(B) of the
Tax Law and Section 526.6(c)(6) of the Sales and Use Tax Regulations, purchases
of tangible personal property for use in performing services which are subject
to sales tax may be excluded from sales tax as sales for resale under certain
conditions. To qualify for this resale exclusion, tangible personal property
must become a component part of the property upon which the services are
performed, or tangible personal property must be later actually transferred to
the purchaser of the service in conjunction with the performance of the service
subject to tax. The security alarm equipment purchased by Company B for use in
performing its protective services remains the property of Company B, does not
become part of the real property being protected, and is removed at the end of
the contract period. Therefore, this equipment does not become a component part
of the property upon which the services are being performed and is not actually
transferred to the purchaser of the services. Accordingly, purchases of security
alarm equipment by Company B for use in providing its detective and protective
services do not qualify as purchases for resale as described in Section
1101(b)(4) of the Tax Law and Section 526.6(c)(6) of the Sales and Use Tax
Regulations and are subject to sales or compensating use tax when purchased by
Company B. (See Matter of U-Need-A-Roll Off Corp. v. State Tax Commission, 67
NY2d 690)
If such equipment is purchased outside New York for use within New York,
use tax is due on the purchase price of the equipment under Section 1110 of the
Tax Law.
If such equipment is purchased outside New York for use within New York
and sales tax is paid to another jurisdiction, a credit shall be allowed to the
extent of the tax paid if the other taxing jurisdiction does not allow a credit
or refund of the sales tax paid, and if the other taxing jurisdiction allows a
corresponding credit for sales taxes paid to New York. If the rate of tax
imposed by New York is higher than that of the jurisdiction in which the sales
tax was paid, use tax is due to the extent of the difference in the two rates.
(See Section 1118(7) of the Tax Law)
Company B’s purchases of optional security alarm equipment which is later
sold to its customers constitute purchases of tangible personal property for
resale. Company B would not be required to pay sales tax on these purchases, but
would collect sales tax upon sale of these items to its customers. For purchases
occurring in New York State, Company B must furnish the seller of such equipment
with a properly completed resale certificate (Form ST-120) within 90 days of the
date of sale to avail itself of such exclusion from tax.

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September 9, 1998

Issue 3
Fees charged by Company B for maintenance and repair of the security alarm
systems are subject to sales tax. Under Section 1105(c)(3) of the Tax Law,
sales tax is imposed on the services of maintaining, servicing or repairing
tangible personal property.
Issue 4
Sales of optional security equipment, including heat detectors, smoke
detectors, panic buttons, and remote controls, made by Company B to its customers
in New York for use in New York constitute retail sales of tangible personal
property subject to sales tax under Section 1105(a) of the Tax Law. Purchases
of this optional equipment by Company B would constitute purchases for resale and
would not be subject to tax, as noted in Issue 2 above.
Issue 5
Fees charged by Company B for installation, maintenance and repair of the
optional security alarm equipment are subject to sales tax under Section
1105(c)(3) of the Tax Law.
Issue 6
Fees charged by Company B for patrol car services are subject to sales tax.
Under Section 1105(c)(8) of the Tax Law, protective and detective services
including guard, patrol and watchman services of every nature except for the
performance of such services by a port watchman licensed by the waterfront
commission of New York harbor are subject to sales tax.

DATED:

September 9, 1998

NOTE:

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

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