Does a cable-TV operator owe sales and use tax on the materials it builds into its system and on the tools, vehicles, and equipment it uses to operate?

Plain-English summary

Seneca Cable TV asked whether New York State and local sales taxes are due on two categories of purchases: (1) materials its employees or subcontractors assemble or construct into buildings, the head end, the trunk distribution system, and test equipment for the cable-TV plant, and (2) the tools, equipment, vehicles, furniture, and fixtures used to run the operation.

The answer: yes — all of it is taxable.

• § 1105(a) taxes receipts from every retail sale of tangible personal property.
• A "retail sale" (§ 1101(b)(4)) excludes property bought for resale or for use in furnishing certain taxable services under § 1105(c)(1),(2),(3),(5) (information services; producing/fabricating/printing TPP; installing/repairing TPP; maintaining/repairing real property).
• Seneca buys the property neither for resale nor to furnish one of those taxable services — it is the ultimate consumer — so the sales to Seneca are taxable retail sales.
• It is "not relevant" that some materials get assembled or constructed into the buildings, head end, or distribution system. And the Department confirmed no § 1115 or § 1116 exemption applies to Seneca or to these transactions.
• The same result applies to the local taxes imposed by cities, counties, and school districts under Article 29.

What this means for you

A cable-TV operator is the consumer of its own system. Because the operator sells a service to subscribers (not the wires, amplifiers, and hardware "as such"), it doesn't buy its plant materials for resale — so it pays sales/use tax on everything it buys to build and run the system.

Building materials into a larger structure doesn't create an exemption. The Department said flatly that assembling property into buildings, the head end, or the distribution system is "not relevant." What matters is that Seneca is the consumer and no specific statutory exemption reaches it.

Don't assume a production or component exemption applies to communications infrastructure. The § 1105(c) service-component exclusion and the § 1115/§ 1116 exemptions are specific; here none of them fit, so the general rule (tax on the consumer's purchases) governs.

Common questions

Q: Why can't the operator buy its cable, amplifiers, and hardware for resale?
A: Because it doesn't resell that property to subscribers "as such." It uses the equipment to deliver a service, which makes the operator the consumer of the equipment and the purchases taxable.

Q: Does it help that crews build the materials into a permanent system?
A: No. The ruling says the later assembly into buildings, head end, or distribution system is not relevant to whether tax is due on the purchase of the materials.

Q: Could any exemption ever apply?
A: The Department found none in § 1115 or § 1116 for these facts. A different operation with different facts would need to identify a specific exemption; the general rule taxes the operator's purchases.

Citations and references

Statutes:

• Tax Law § 1105(a) — taxes receipts from every retail sale of tangible personal property
• Tax Law § 1101(b)(4) — defines "retail sale"; excludes purchases for resale and for use in furnishing § 1105(c)(1),(2),(3),(5) services
• Tax Law §§ 1115, 1116 — exemptions; the Department found none applicable here
• Tax Law Article 29 — authorizes the parallel local sales and use taxes that also apply

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_112s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80(112)S
Sales Tax
July 1, 1980

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

Petition No. S800331A

On March 31, 1980 a Petition for Advisory Opinion was received from Seneca
Cable TV, Inc., River Mall, Downer Street, Baldwinsville, New York 13027.
The issue raised is whether State and local sales taxes, which are imposed
under Articles 28 and 29 of the Tax Law, are due on Petitioner's purchase of
(1)materials intended to be assembled or constructed, either by Petitioner's
employees or by sub-contractors, so as to become part or the whole of buildings,
head end, trunk distribution system, and test equipment used in a cable TV
operation, and (2) tools, equipment, automotive equipment, furniture and fixtures
used in a cable TV operation.
Section 1105(a) of the Tax Law, contained in Article 28, imposes a State
sales tax on the "...receipts from every retail sale of tangible personal
property, except as otherwise provided in this article." Section 1101(b)(4)
defines a retail sale as 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) and (5) 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." The services
so referred to, by paragraph numbers, are (1) the furnishing of information, (2)
producing, fabricating, processing, printing or imprinting tangible personal
property for a person who furnishes such property not purchased by him for
resale, (3) installing tangible personal property or maintaining, servicing or
repairing tangible personal property not held for sale in the regular course of
business, and (5) maintaining, servicing or repairing real property, property or
land as defined in the Real Property Tax Law. The foregoing provisions are also
applicable to sales taxes imposed by cities, counties and school districts under
the authority of Article 29 of the Tax Law.
Inasmuch as Petitioner purchases the tangible personal property in question
neither for resale nor for use by it in furnishing one of the taxable services
described in section 1105(c)(1), (2), (3) or (5) of the Tax Law, it follows that
sales tax is due on the receipts from the sales to Petitioner of such property.
It is not relevant to this opinion that certain of the property may be assembled
or constructed, whether by corporate personnel or subcontractors, so as to become
buildings, head end, trunk distribution system, and test equipment. In addition,
this opinion is based in part upon a determination that none of the exemption
provisions contained in section 1115 or 1116 of the Tax Law are applicable to the
Petitioner or to transactions of the type under discussion.

Dated: June 16, 1980

s/ LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR