N.Y. Comp. Codes R. & Regs. tit. 20 § 541.2

Current through Register Vol. 46, No. 45, November 2, 2024

Section 541.2 - Definitions

The words, terms and phrases used in this Part have the following definitions except when the context clearly indicates a different meaning:

(a) Construction contract.

(1) A construction contract means a contract to erect, construct, alter, repair or maintain any building or other structure, project, development or other improvement on or to real property, property or land.

(2) All forms of capital improvement contracts, including, but not limited to, a lump sum, time and material, cost plus, and any other capital improvement contract are treated the same for sales and use tax purposes.

(b) Preexisting contract.

(1) A preexisting contract means a construction contract to improve real property by a capital improvement where the amount payable to the contractor or subcontractor is fixed without regard to the costs incurred by him which was either:

(i) irrevocably entered into prior to the date of enactment of a law increasing the tax rate; or

(ii) resulted from the acceptance by a governmental agency of a bid accompanied by a bond or other performance guaranty irrevocably submitted prior to such date.

(2) When a prime contract qualifies as a preexisting contract, all subcontracts also qualify as a preexisting contract even though one or more of the subcontracts may have been entered into after the date of enactment of a law increasing the tax rate.

(3) Though a contractor must pay tax at the rate in effect at the time of purchase, the contractor may be entitled to a refund or credit of the excess tax paid over the preexisting rate with respect to purchases used solely in the performance of a preexisting contract.

Cross-reference:For application for refund or credit, see Part 534 of this Title.

Example 1:Prior to the enactment date of a law increasing the tax rate, a contractor enters into a contract to erect a building. The construction contract provides a fixed amount to furnish and install the materials. Such a contract qualifies as a preexisting contract.

Example 2:Prior to the enactment date of a law increasing the tax rate, a contractor enters into a contract to erect a building. The construction contract provides that the owner (the contractor's customer) will reimburse the contractor for the cost of the work plus a fee with a guaranteed maximum cost. Since the contract provides for reimbursement of actual costs incurred, which would include sales tax, the amount payable is not fixed with regard to costs incurred. Such contract would not qualify as preexisting.

(4) Change orders. [Reserved]

(c) An agency contract means an agreement which permits a contractor and subcontractor to act as an agent of, that is, in the place of the principal, his customer. Purchases made by the agent-contractor or agent-subcontractor on behalf of the principal are treated in the same manner as if the purchases were made by the principal. All purchases (including rentals of contractor's tools, supplies, machinery and equipment) made by the agent-contractor or agent-subcontractor on behalf of the principal are treated in the same manner as if the purchases were made by the principal.

Cross-reference:For principal/agent relationship, see sections 541.3(d)(4) and 541.5(c) of this Part.

(d) A construction contractor means any person who engages in erecting, constructing, adding to, altering, improving, repairing, servicing, maintaining, demolishing or excavating any building or other structure, property, development, or other improvement on or to real property, property or land.

(e) Contractor means a construction contractor, subcontractor or repairman.

(f) Real property, property, and land means real property, property or land as defined in subdivision 12 of section 102 of the Real Property Tax Law. Among the items considered in this classification are:

(1) land, including trees thereon and mines and quarries therein;

(2) building and structures erected upon, under, or above land, or affixed thereto;

(3) railroad structures and tracks;

(4) telephone and telegraph lines, wires, poles and appurtenances;

(5) mains, pipes and tanks for conducting steam, heat, water, oil, gas and electricity; and

(6) boilers, heating, ventilating, lighting apparatus and plumbing.

Cross-reference:For a detailed discussion and description of mobile homes and factory manufactured homes, see Part 544 of this Title.

(g) Capital improvement.

(1) A capital improvement means an addition or alteration to real property, which:

(i) substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property;

(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 article itself; and

(iii) is intended to become a permanent installation.

Example 3:A homeowner hires a general contractor to remove a portion of a masonry wall for the purpose of installing a door and window. The general contractor hires a masonry contractor (subcontractor) to repair the wall. The charge to the contractor by the subcontractor represents a constituent part of the services performed in adding to or improving real property by a capital improvement and therefore is not subject to tax in accordance with section 527.7(b)(4) of this Title.

(2)

(i) A capital improvement does not include a contract for the sale and installation of tangible personal property which when installed remains tangible personal property.

(ii) A capital improvement does not include the sale of tangible property to a customer under contract if the contractor who sells the tangible personal property is not responsible for the affixation or installation of the tangible personal property furnished.

Example 4:A customer enters into an agreement with a supplier to supply all materials necessary for the framing of a home and enters into a separate and distinct agreement with a contractor for the installation of the materials purchased from the supplier. The customer is liable for the payment of tax on all of the materials purchased from the supplier as the purchase is a purchase of tangible personal property and not the purchase of a capital improvement. Upon the issuance of a capital improvement certificate by the customer to the contractor, no tax is due on the labor charge for installing the materials.

(iii) A capital improvement does not include the installation of floor covering unless the installation is of the initial finished floor covering in new construction, in a new addition to existing construction or in a total reconstruction of existing construction. For a detailed discussion of the taxability of the installation of floor covering, see section 541.14 of this Part.

(iv) A capital improvement does not include the installation of a mobile home, regardless of how it is installed. For a detailed discussion of the taxability of mobile homes and factory-manufactured homes, see Part 544 of this Title.

(h) Tangible personal property means corporeal personal property of any nature having a material existence and perceptibility to the human senses, including, but not limited to, materials, tools and/or equipment and supplies.

(i) The term materials means those items which become a physical component part of real or personal property such as lumber, bricks and steel.

(j) The term tools and/or equipment means those items used to perform various functions for a contractor in the conduct of his business activities such as hammers, saws and earth moving equipment.

(k) The term supplies means those items which are consumed by a contractor in the performance of a contract and which are not incorporated into real property such as lubricating oils, sanding disks, gasoline used to operate power equipment and safety apparel.

Cross-reference:For examples of tangible personal property, see section 526.8 of this Title.

(l) Maintaining, servicing, or repairing are terms which are used to cover all activities that relate to keeping real or personal property in a condition of fitness, efficiency, readiness or safety, or restoring it to such condition. Among the services included are services on a building itself such as painting; services to the grounds, such as lawn services, tree removal and trimming; trash and garbage removal; sewage service and snow removal.

(m) Fabrication is the alteration or modification of tangible personal property to the specifications of the owner without a change in the identity of the product. Fabrication includes cutting, perforating, and similar operations.

Cross-reference:For installation by a fabricator, see section 541.11(b) of this Part.

(n) Manufacturing is the production of tangible personal property that has a different identity from its ingredients. Manufacturing includes the production of standardized items as well as the production of items to a customer's specifications.

Cross-reference:For installation by a manufacturer, see section 541.11(c) of this Part.

(o) Resident contractor.

(1) A resident contractor for statewide purposes means any contractor having a place of business in the State or engaged in any manner in carrying on any employment, trade, business or profession in New York State regardless of whether incorporated in this State or another state or whether the resident contractor may have a place of business or conduct any employment, trade, business or profession outside New York State.

(2) A resident contractor for local jurisdictions within New York State means any contractor having a place of business in a local jurisdiction within New York State or engaged in any manner in carrying on any employment, trade, business or profession in a local jurisdiction within New York State regardless of whether incorporated in this State or another state or whether the resident contractor may have a place of business or conduct any employment, trade, business or profession outside New York State.

(3) A nonresident contractor for purposes of the New York State and local sales and use taxes means a contractor who is not a resident contractor.

Example 5:A nonresident, out-of-state contractor, on June 1st, irrevocably entered into a contract with a company to erect a building in New York State. The date the contractor irrevocably entered into the contract, June 1st, is the date the out-of-state contractor's status changed from nonresident to resident contractor in New York State. The out-of-state contractor owes the applicable New York State and local sales and compensating use taxes due on the purchase of tools, supplies and equipment purchased and delivered within New York State and on such property purchased outside New York State on or after June 1st which are subsequently used or consumed in New York State. Regardless of the date of purchase, the contractor also owes the applicable New York State and local sales and compensating use taxes on the purchase of tangible personal property which is brought into or purchased in New York State and is incorporated into and becomes part of the capital improvement to real property.

Cross-reference:For the general definition of the term resident, see section 526.15 of this Title.

(p) Rental, lease and license to use.

(1) The terms rental, lease and license to use refer to all transactions in which there is a transfer of possession of tangible personal property without a transfer of title to the property.

(2) For the purposes of this Part, when a rental, lease or license to use a vehicle or equipment includes the services of a driver or operator, such transaction is presumptively the sale of a service, rather than the rental of tangible personal property, where dominion and control over the vehicle or equipment remain with the owner or lessor of the vehicle or equipment. Dominion and control remain with the owner or lessor of the vehicle or equipment when pursuant to an agreement or contract the lessor:

(i) does not transfer possession, control and/or use of the equipment or vehicle to the lessee during the term of the agreement or contract;

(ii) maintains the right to hire and fire the drivers and operators;

(iii) uses his own discretion in performing the work (even though the lessee may designate the area where material is to be picked up and delivered) and generally selects his own routes;

(iv) retains responsibility for the operation of the equipment or vehicle; and

(v) directs the work, pays all operating expenses, including drivers' and/or operators' wages, insurance, tolls and fuels.

Whether a transaction is a sale (license to use, rental or lease) of a vehicle or equipment or is the sale of a service, such as a transportation service, must be determined in accordance with the facts and circumstances of the particular transaction and provisions of the agreement between the contractor and his customer.

Example 6:A company enters into an agreement to lease a crane, together with the services of the operator of the crane. The operator will take instructions from the company's foreman, and the company determines the working hours and locations. The operator's wages are separately stated. This transaction is within the definition of sale, as the transfer of possession has occurred by reason of the company foreman's right to direct and control the operator's use of the equipment. The separately stated operator's wages are excludable from the taxable receipts.

Cross-reference:See section 527.15 of this Title for special rules pertaining to certain leases of motor vehicles, vessels and noncommercial aircraft.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 541.2