Is the sale and installation of lockers bolted into wall alcoves a tax-exempt capital improvement, or a taxable sale and installation of tangible personal property?

Plain-English summary

Republic Steel Corporation (Cleveland, Ohio) placed lockers into preformed wall alcoves built to fit them, attaching each locker to the wall at the rear with sheet-rock anchors or toggle bolts — not anchored to the floor. It asked whether the sale and installation was a taxable sale of tangible personal property or an exempt capital improvement to real property.

The answer: taxable — this is not a capital improvement.

• § 1105(a) taxes receipts from the sale of tangible personal property, and § 1105(c)(3) taxes installation services — except installations that become a capital improvement to real property.
• 20 NYCRR 527.7(a)(3) sets a three-part test for a capital improvement. The improvement must:
  1. substantially add to the value of the real property, or appreciably prolong its useful life;
  2. become part of the real property, or be so permanently affixed that removal would cause material damage to the property or the article itself; and
  3. be intended as a permanent installation.
• The lockers fail the test: they can be removed simply by taking out the sheet-rock anchors or toggle bolts, with no material damage to either the lockers or the building.
• So the work is the installation of tangible personal property, not a capital improvement — and the receipts from the sale and installation are taxable under §§ 1105(a) and 1105(c)(3).

What this means for you

"Bolted to the wall" is not the same as "permanently affixed." The deciding factor is whether removing the item would cause material damage. Lockers held by anchors or toggle bolts come out cleanly, so they stay taxable tangible personal property even though they sit in custom alcoves.

Custom-fit alcoves don't change the tax. Building recessed spaces to match the lockers doesn't make the lockers themselves a capital improvement — the test looks at the lockers' own attachment and removability.

Charge tax on both the goods and the install. Because this isn't a capital improvement, both the price of the lockers and the installation labor are part of the taxable receipt.

Common questions

Q: Why aren't lockers bolted to the wall a capital improvement?
A: They fail the middle part of the three-part test in 20 NYCRR 527.7(a)(3): removing the anchors or toggle bolts causes no material damage to the lockers or the building, so they aren't "permanently affixed."

Q: Does putting the lockers in built-in alcoves make a difference?
A: No. The Department looked at how the lockers themselves are attached and whether they can be removed without damage, not at the alcove construction.

Q: Is the installation labor taxable too?
A: Yes. Because the job is not a capital improvement, the installation service is taxable under § 1105(c)(3) along with the sale of the lockers under § 1105(a).

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from retail sales of tangible personal property
• Tax Law § 1105(c)(3) — taxes installation services, but excludes installations that become a capital improvement to real property
• 20 NYCRR 527.7(a)(3) — three-part definition of a capital improvement (adds value/prolongs life; permanently affixed so removal causes material damage; intended as permanent)

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_260s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80(260)S
Sales Tax
December 28, 1980

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

PETITION NO. S800818B

On August 18, 1980 a Petition for Advisory Opinion was received from
Republic Steel Corporation, P.O. Box 6778, Room 420R, Cleveland, Ohio 44101.
The issue raised is whether receipts from the sale and installation of
lockers by Petitioner are subject to the sales tax imposed under Article 28 of
the Tax Law, or whether the same constituted a capital improvement to real
property the receipts from which are exempt from such tax.
Petitioner placed lockers in preformed alcoves which were built for this
purpose, and which conformed to the dimensions of the lockers. The lockers were
attached to the wall at the rear of each alcove with either sheet rock anchors
or toggle bolts. If a beam was encountered the anchor bolts were attached to the
beam. The lockers were not anchored to the floor.
Section 1105(a) of the Tax Law imposes a tax on receipts from the sale of
tangible personal property. Section 1105(c)(3) of the Tax Law imposes a tax on
receipts from the service of "Installing tangible personal property...except for
installing property which, when installed, will constitute an addition or capital
improvement to real property...."
Section 527.7(a)(3) of the Sales and Use Tax Regulations defines the term
capital improvement as "...an addition or alteration to real property (i) which
substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property, and (ii) which 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 (iii) is intended to
become a permanent installation." 20 NYCRR 527.7(a)(3).
Inasmuch as the lockers in question can be removed by removing the sheet
rock anchors or toggle bolts with no material damage to either the lockers or the
real property, the installation of these lockers constitutes the installation of
tangible personal property and not a capital improvement.
Accordingly, the sale and installation of the lockers by Petitioner
constitutes the sale and installation of tangible personal property the receipts
from which are subject to tax under sections 1l05(a) and 1105(c)(3) of the Tax
Law.

DATED: December 10,1980

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

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