Are fees for commercial security alarm monitoring, the sale/installation of the alarm system, and maintenance/repair charges subject to New York sales tax?

Plain-English summary

Price Waterhouse asked five related questions on behalf of "Company A," a commercial security alarm and monitoring provider. Company A's systems (video transmitters, CCTV cameras, sensors, motion detectors, alarms, control panels, and wiring) connect to a remote command center where operators can even adjust cameras, gates, locks, lights, and environmental controls. Systems are either sold outright or provided under 3-to-5-year service contracts where Company A keeps title and the customer only gets the right to use the system while paying for monitoring; at contract's end, all equipment is removed except wiring and communications cables left in the walls/ceilings. None of the equipment is permanently affixed, and removal doesn't damage the property. Company A subcontracts most installation.

The Department addressed each of the five questions:

1. The security systems themselves generally aren't capital improvements. Except for the electrical wiring and communications cables, nothing is permanently affixed to the property or becomes part of it, so the systems don't meet the capital-improvement test and their sale is taxable. Wiring and cables are a special exception, though: separately stated charges for wiring/cables sold to a commercial property owner are treated as capital improvements (and exempt), while the same charges sold to a commercial tenant are presumed non-permanent (and taxable) unless the tenant can show real permanence and that title passes to the landlord (citing 100 Park Avenue and Flah's of Syracuse). Systems provided only under a service contract (where Company A keeps title) are never capital improvements regardless of the wiring issue.
2. Installation charges for the non-capital-improvement equipment are taxable, though Company A itself can hire its installation subcontractor tax-free (as a purchase for resale), passing the tax on to its own customer instead. Installation of any qualifying wiring/cables is exempt, matching their capital-improvement status.
3. Monitoring fees are taxable protective and detective services under § 1105(c)(8), covering all services provided through an alarm system.
4. Equipment Company A keeps under a service contract doesn't qualify for the resale exemption (following Albany Calcium Light) since it's used to perform a taxable service rather than being transferred to the customer -- Company A owes sales/use tax on that equipment. But equipment Company A actually sells to a customer can be bought tax-free for resale (with a Resale Certificate, Form ST-120).
5. Maintenance and repair fees for the security systems are taxable under § 1105(c)(3).

What this means for you

Commercial security alarm and monitoring companies

Structure and itemize your invoices carefully: wiring and cables sold (not just leased) to a commercial property owner can be an exempt capital improvement, but nearly everything else -- the electronic components, monitoring fees, installation of non-wiring equipment, and maintenance/repair -- is taxable. Whether your equipment purchase qualifies for the resale exemption turns entirely on whether you keep title (taxable to you) or actually sell the equipment to the customer (exempt to you, taxable to them).

Commercial property owners and tenants installing alarm systems

If you own your building and buy wiring/cables as part of a permanent installation, ask for that portion to be separately stated -- it can be exempt as a capital improvement. If you're a tenant, the same wiring is presumed taxable unless you can show real permanence and that title passes to your landlord.

Accountants and tax professionals

This is a companion ruling to TSB-A-98(62)S, issued the same day to the same law firm for a related residential alarm business ("Company B"). Compare the two: this commercial ruling adds the wiring/cables capital-improvement wrinkle (and the owner-vs.-tenant presumption from 100 Park Avenue/Flah's of Syracuse) that doesn't appear in the residential ruling, since residential customers are typically property owners rather than commercial tenants.

Common questions

Q: Is a commercial security alarm system a capital improvement?
A: Generally no, except for separately stated wiring and communications cables sold (not just leased) to the property owner, which can qualify.

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

Q: Can the alarm company buy its equipment tax-free if it keeps ownership under a service contract?
A: No. Retained-title equipment used to provide a taxable service doesn't qualify for the resale exemption.

Q: What if the alarm company actually sells the equipment to the customer?
A: Then the company can buy it tax-free for resale and simply collects sales tax when it sells the equipment to the customer.

Q: Can another commercial 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 service contracts, wiring left behind) 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 § 1101(b)(9) (definition of capital improvement)
• 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 § 1115(a)(17) (exemption for materials incorporated into a capital improvement by a contractor)
• 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 100 Park Avenue v. Boyland, 144 NYS 2d 88, aff'd 309 NY 685
• Matter of Flah's of Syracuse v. Tully, 89 AD2d 729
• Matter of Albany Calcium Light v. State Tax Commission, 44 NY2d 987

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_63s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(63)S
Sales Tax
September 9, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S980122B

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 sales of security alarm systems used in providing monitoring
   services are exempt from sales tax as capital improvements.
2. Whether charges for installation of security alarm systems are exempt
   from sales tax as capital improvements.
3. Whether fees paid for the use of security alarm systems and monitoring
   services are subject to sales or compensating use tax.
   4.
   Whether purchases of security alarm equipment used in providing
   protective services are exempt from sales tax as sales for resale.
4. Whether fees charged for maintenance and repair of security alarm
   systems are subject to sales tax.
   Petitioner submitted the following facts as the basis for this advisory
   opinion.
   Petitioner’s client, Company A, is headquartered outside New York State
   with offices in several states. Company A recently began providing security
   alarm systems and monitoring services to commercial customers located in New
   York. The security alarm systems generally consist of a microprocessor based
   video transmitter, closed circuit television cameras, sensors, motion detectors,
   an alarm, control panel, keypad and electrical wiring. The security system is
   connected to a remote visual command center located in the state where Company
   A is headquartered where the monitoring services are provided. Integrated voice
   communications allow the command center and the remote site to communicate
   interactively. Company A employees in the visual command center are able to
   adjust certain camera features, motorized gates, electric door locks, lights, and
   environmental controls.
   Company A provides commercial customers with both security systems and
   monitoring services for a stated fee. The systems are either sold to customers
   or 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 A. The length of time of service contracts is
   anticipated to be three to five years, and the customer will have the option of
   renewing indefinitely. At the end of the service contract, the system will be

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returned to Company A. Service contract customers will only obtain the right to
use the system for the period during which the monitoring services are being
provided.
Service contract customers are billed on a monthly, quarterly, or semi­
annual basis. Each billing includes separately stated charges for the use of the
system and a monitoring service fee.
Customers who purchase the security systems are required to purchase the
monitoring service and installation from Company A. The monitoring service may
not be purchased from another service provider. The equipment must be used
exclusively with Company A monitoring services. Customers who purchase the
security system are responsible to remit periodic payments to Company A for the
monitoring service.
Company A purchases the systems in a completed condition. Company A
estimates the material cost of the system to be less than 20% of the total
service contract fee. Company A supplies completed, turn-key installed systems
with no manufacturing or assembly performed by Company A. None of the equipment
is permanently affixed or becomes part of the real property, and removal of this
equipment does not cause damage to the property. Upon termination of a service
contract, all equipment is removed except for communications cables which are
left in the ceilings or the walls.
Company A subcontracts the majority of the installation. However, there
will be cases when Company A employees will install the equipment and perform
repair service and training.
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:
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

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therefor, including the rendering of any service, taxable under this
article, for a consideration or any agreement therefor.
Section 1101(b)(9) of the Tax Law provides the following definition:
(9) Capital improvement.
which:

An addition or alteration to real property

(i) Substantially adds to the value of the real property, or
appreciably prolongs the useful life of the real property; and
(ii) 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 the article itself; and
(iii) Is intended to become a permanent installation.
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, 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;
*

*

*

(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

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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 1115(a)(17) of the Tax Law provides an exemption from sales tax for
the following:
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(7)(a) of the Tax Law provides:
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
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.
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

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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
For sales of tangible personal property to qualify for exemption from sales
tax as a capital improvement, the property must substantially add to the value
of the real property or prolong its useful life, become part of the real property
or be permanently installed on the real property so that it cannot be removed
without material damage to the real property or the tangible personal property
itself, and be intended to be a permanent installation. See Section 1101(b)(9)
of the Tax Law.
The security systems sold by Company A, except for the
electrical wiring and communications cables, are not permanently affixed to the
real property, do not become part of the real property, and can be removed
without damage to the underlying real property or system components. Since the
installed property must meet all the requirements of Section 1101(b)(9) to
qualify as a capital improvement, Petitioner’s security systems are not exempt
from sales tax when sold to the customer, except for the wiring and
communications cables as discussed below.
Separately stated charges for wires and cables are exempt as capital
improvements when sold to an owner of commercial property, but are presumed not
to be permanent and to be taxable when sales are made to a commercial tenant.
See Matter of 100 Park Avenue v. Boyland, 144 NYS 2d 88, affd 309 NY 685. This
presumption of impermanence may be overcome if the property is permanently
affixed to the real property and lease provisions indicate that title passes to
the landlord upon installation. (Matter of Flah’s of Syracuse v. Tully, 89 AD2d
729)
Security systems provided in accordance with a service contract are not
capital improvements since Company A retains title to the system.
Issue 2
Charges for installation of tangible personal property which do not
constitute capital improvements are subject to sales tax under Section 1105(c)(3)
of the Tax Law. Since this security alarm system does not meet the requirements
of a capital improvement, except for the wiring and cables discussed above,
charges for its installation are subject to sales tax. When Company A hires a
subcontractor for installing the equipment, sales tax would not be paid by
Company A since the purchase of the installation would constitute a sale for
resale, but Company A would collect the sales tax from its customers. If the
wiring and cables are capital improvements, as discussed in Issue 1, separately
stated charges for their installation will not be subject to tax. See Section
1105(c)(3)(iii) of the Tax Law.

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Issue 3
Payments received by Company A for the use of security alarm 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
services. Since these payments are receipts from services provided through an
alarm system, they are subject to sales tax.
Issue 4
Company A is providing taxable protective and detective services as
described in Section 1105(c)(8) of the Tax Law. To provide this service, Company
A either sells security alarm systems to its customers or provides the systems
for a specified period of time in accordance with a service contract. These
security alarm and monitoring systems link Company A’s customers to its
communications center outside New York (i.e., a central station alarm system).
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
provided by Company A for the term of the service contract for use in performing
its protective services remains the property of Company A and service contract
customers only obtain the right to use the system for the period during which the
monitoring services are being provided. Since it is well settled that tangible
personal property purchased by a vendor and supplied to its customers as a
component of its services to its customers is not purchased for resale within the
meaning of Section 1101(b)(4) of the Tax Law, then the equipment provided by
Company A is not actually transferred to the purchaser of the services but is
used by Company A in performance of a taxable service. See Matter of Albany
Calcium Light v. State Tax Commission, 44 NY2d 987. Accordingly, purchases of
security alarm systems by Company A which are not sold to the customer, for use
in providing its detective and protective services do not qualify as purchases
for resale as described in 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 A.
If such equipment is purchased outside New York for use within New York,
use tax would be due on the purchase price of the equipment under Section 1110(A)
of the Tax Law.
If sales tax is paid on the equipment to another jurisdiction,
a credit would be allowed to the extent of the tax paid if the other taxing
jurisdiction does not allow for 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 would be due to the extent
of the difference in the two rates. (See Section 1118(7)(a) of the Tax Law).

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When Company A sells the security system to a customer, Company A may
purchase the system exempt from sales tax, as a purchase for resale. Company A
must furnish the seller of such equipment with a properly completed Resale
Certificate (Form ST-120) within 90 days of the date of delivery to make a
nontaxable purchase for resale. When Company A sells such equipment to its
customers, Company A would collect the applicable sales tax. However, purchases
of wiring and communication cables will not qualify for the resale exclusion if
the wiring and cables are installed as capital improvements.
Issue 5
Fees charged by Company A 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.

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.