Is the installed sale of a modular home a taxable sale of goods when the home sits on land leased (not owned) by the buyer?

Plain-English summary

Greenwood Village Planned Retirement Community, Inc. (Center Moriches, New York) sells modular homes as single-family residences and installs them on lots it owns and leases to the buyers under written one-year (renewable) leases. The homes are placed on crawl-space foundations and permanently bolted down with lag bolts (some on a concrete perimeter, some on 24 concrete supports). The buyer pays the real estate taxes on the structure and may sell the home (subject to the community's approval of the buyer). Greenwood Village asked whether an installed sale is a capital improvement, so the receipts are exempt.

The Department ruled the installed sales are taxable sales of tangible personal property, not capital improvements.

• § 1105(a) taxes retail sales of tangible personal property; § 1105(c)(3) exempts installations that become a capital improvement to real property (three-part test, 20 NYCRR 527.7(a)(3)).
• The controlling case is Broadway Mobile Home Sales Corp. v. State Tax Commission, 67 A.D.2d 1029 (1979), which held that selling homes installed on rented land is a taxable sale of tangible personal property. The court weighed three factors: (1) most significantly, the homes sit on another's land rented short-term, so they can be sold separately from the land; (2) the homes could be removed and transported; and (3) the owners weren't (uniformly) billed directly for real estate taxes.
• Those factors are present here. The buyers place their homes on Greenwood Village's land under a short-term lease (short compared with the home's useful life); despite being described as immovable, the homes appear removable; and they can be sold separately from the land. Real-estate-tax billing wasn't decisive (and Real Property Tax Law determinations don't control Tax Law issues).
• Result: the installed modular-home sales are subject to sales tax under Article 28.

What this means for you

Installing a building on leased land usually keeps it "goods," not real property. For a sale to be a tax-free capital improvement, the item generally has to become part of real property the buyer owns. When the buyer only leases the land — especially on a short-term lease relative to the structure's life — the home is treated as tangible personal property, and the installed sale is fully taxable.

Bolting it down doesn't settle the question. Even homes permanently affixed with lag bolts were taxed, because they could still be sold apart from the land and, practically, removed. The Department looked at the whole relationship (short-term land lease, separate salability, removability), not just the method of attachment.

Property-tax treatment isn't controlling. How the home is billed for real estate taxes doesn't decide the sales-tax question. The Real Property Tax Law and the Tax Law can reach different results, so don't rely on local property-tax treatment to claim a capital improvement.

Common questions

Q: We sell modular homes bolted to foundations — is the installed sale a tax-free capital improvement?
A: Not when the buyer only leases the land. Under Broadway Mobile Home, an installed home on short-term-rented land is a taxable sale of tangible personal property, so the full installed price is subject to sales tax.

Q: The homes are permanently bolted down — doesn't that make them real property?
A: Not by itself. The Department found the homes were still separately salable and, practically, removable, and it emphasized the short-term land lease. So they were taxed as tangible personal property despite the lag bolts.

Q: The buyer pays the property taxes — doesn't that show it's real property?
A: No. The court said Real Property Tax Law determinations aren't necessarily dispositive of Tax Law issues, and the billing wasn't decisive. It doesn't convert the sale into a tax-free capital improvement.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1105(c)(3) — taxes the service of installing tangible personal property, except where the installed property becomes a capital improvement to real property
• 20 NYCRR 527.7(a)(3) — defines "capital improvement" (adds value or prolongs useful life; permanently affixed so removal causes material damage; intended to be permanent)
• Broadway Mobile Home Sales Corp. v. State Tax Commission, 67 A.D.2d 1029 (1979) — sales of homes installed on rented land are taxable sales of tangible personal property; key factors are short-term land lease, separate salability and removability

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81(16)S
Sales Tax
February 4, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800925A

On September 25, 1980, a Petition for Advisory Opinion was received from
Greenwood Village Planned Retirement Community, Inc., P.O. Box 671, Center
Moriches, New York 11934.
The issue raised is whether sales tax is due on receipts from the sale
of certain modular homes on an installed basis, where the homes are located on
land leased to the purchaser of the home.
Petitioner sets forth the following as the basis for the requested
Advisory Opinion: "Greenwood Village Planned Retirement Community, Inc.
("Greenwood Village") is a planned retirement community located in the Town of
Brookhaven, Suffolk County. Greenwood Village intends to sell modular homes to
families as single family residences and to permanently install them on lots
owned by Greenwood Village and leased under written lease agreements to buyers
of the modular homes.
"The modular homes are of two types. One type will be placed on a crawl
space foundation of concrete and permanently bolted to the perimeter of the
concrete foundation with lag bolts. The second type will be placed on a crawl
space foundation. Twenty-four concrete supports will be placed under the house
and at each support the home will be permanently attached by lag bolts. Both
homes will be permanently attached to their foundations and lots, and neither
will be moveable."
Petitioner has submitted copies of the purchase agreement and lease
forms utilized in its operations. These indicate that a home when purchased is
placed on land owned by Greenwood Village which is leased to the purchaser.
The lease is for a term of one year and by its terms ". . .may be renewed for
an additional one-year term upon the mutual agreement of both parties." The
purchaser is made responsible for payment of real estate taxes levied against
the structure irrespective of whether the Town of Brookhaven bills the
purchaser himself or the management directly. The purchaser has the right to
sell his home but the Community (Greenwood Village Community Management, Inc.)
"....reserves the right to approve the purchaser of its home...."
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every
retail sale of tangible personal property, except as otherwise provided in
this article." 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, property or land. . ."

TP-8 (4/80)

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

2
TSB-H-81(16)S
Sales Tax
February 4, 1981
The Sales and Use Tax Regulations provide that
"(3)

A capital improvement is 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).

The issue raised herein was treated in Broadway Mobile Home Sales Corp.
v. State Tax Commission 67 AD 2d 1029 (1979). The court there held that the
sale of mobile homes on an installed basis, where the owners of the homes
rented the land on a monthly basis, constituted sales of tangible personal
property subject to the sales tax imposed under Article 28 of the Tax Law. The
court cited three factors in support of its holding, as follows: "Here, as in
Roberson, and most significantly, the homes were located on another’s land
which land was rented on a monthly basis. They could thus be sold by their
owners separately from the land. Second, the testimony at the hearing revealed
the possibility that the homes could be removed by their owners and
transported elsewhere. Third, the owners of the homes, except those entitled
to partial exemptions, were not billed directly for real estate taxes." Id.,
at 1030.
The factor cited as most significant by the court in Broadway Mobile
Home is present in the instant matter. That is, as in Broadway Mobile Home,
Petitioner's customers locate their homes on the land of another rented
pursuant to a short-term lease (i.e., short-term as compared with the useful
life of the structure). The second factor cited by the court is also present
here. Although Petitioner characterizes the installed homes as not moveable,
it appears from Petitioner's own description that the homes could be removed
even though it may be the case, as in Broadway Mobile Home, that ". . .due to
practical reasons, this apparently never occurred." Id., at 1029. Also as in
the case of Broadway Mobile Home, in the present case the homes can be sold
separately from the land. The third factor cited by the Court, direct billing
to the purchaser for real estate taxes, appears not to have been a central
factor because such billing was not universal. It should be noted in this
regard that the court itself stated that determinations under the Real
Property Tax Law are not necessarily dispositive of issues raised under the
Tax Law. At any rate, the documents submitted by Petitioner appear to
contemplate either direct or indirect billing to the purchaser of the homes.
Accordingly, the sales by Petitioner described above constitute sales
the receipts from which are subject to the sales tax imposed under Article 28
of the Tax Law.

Dated January 13, 1981

s/ LOUIS ETLINGER
Deputy Director
Technical Services Bureau