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«STATE OF NEW YORK COMMISSIONER OF TAXATION AND FINANCE ADVISORY OPINION PETITION NO. S080529A On May 29, 2008, the Department of Taxation and Finance ...»

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New York State Department of Taxation and Finance

TSB-A-08(44)S

Office of Tax Policy Analysis Sales Tax

Taxpayer Guidance Division October 3, 2008

STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE

ADVISORY OPINION PETITION NO. S080529A

On May 29, 2008, the Department of Taxation and Finance received a Petition for Advisory Opinion from JetBlue Airways Corporation, 19 Old Kings Highway, Suite 23, Darien, Connecticut 06820. Petitioner, JetBlue Airways Corporation, provided additional information pertaining to the Petition on July 1, 2008.

The issues raised by Petitioner are:

1. Whether the portion of a contractor’s bill to Petitioner as a tenant in an airport terminal for repairs and maintenance to the terminal that represents the cost of materials incorporated into the real property is subject to sales tax.

2. Whether Petitioner’s purchase of materials that are used to repair or maintain the airport terminal, with the repair and maintenance services being performed either by Petitioner’s employees or a third party contractor hired by Petitioner to perform the repairs and maintenance, are subject to sales tax.

Petitioner submitted the following facts as the basis for this Advisory Opinion.

Petitioner is the prime tenant at Terminal 6 at John F. Kennedy International Airport (JFK) and currently operates out of Terminal 6. JFK is owned by the city of New York and is operated by the Port Authority of New York and New Jersey (Port Authority). Petitioner is a commercial air carrier, which began operating from JFK in January 2000. Petitioner's lease mandated that it spend at least $4 million to improve Terminal 6. Petitioner hires contractors who perform capital improvements or repair and maintenance services to its leasehold. Title to all construction work vests in the city of New York when the property is erected, constructed, or installed or otherwise becomes part of the premises.

Applicable law and regulations

Section 1101(b) of the Tax Law provides, in part:

When used in this article for the purposes of the taxes imposed by subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the

following terms shall mean:

* * *

-2­ TSB-A-08(44)S Sales Tax October 3, 2008 (3) Receipt. The amount of the sale price of any property and the charge for any service taxable under this article…including any amount for which credit is allowed by the vendor to the purchaser, without any deduction for expenses for early payment discounts and also including any charges by the vendor to the purchaser for shipping or delivery,...

(4) 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. Notwithstanding the preceding provisions of this subparagraph, a sale of any tangible personal property to a contractor, subcontractor or repairman for use or consumption in erecting structures or buildings, or building on, or otherwise adding to, altering, improving, maintaining, servicing or repairing real property, property or land...

is deemed to be a retail sale regardless of whether the tangible personal property is to be resold as such before it is so used or consumed,...

Section 1105 of the Tax Law provides, in part:

Imposition of sales tax. On and after June first, nineteen hundred seventy-one,

there is hereby imposed and there shall be paid a tax... upon:

(a) The receipts from every retail sale of tangible personal property, except as otherwise provided in this article.

* * * (c) The receipts from every sale, except for resale, of the following services:

* * * (3) Installing tangible personal property... or maintaining, servicing or repairing

tangible personal property... except:

* * *

–  –  –

is defined in paragraph nine of subdivision (b) of section eleven hundred one of this chapter;...

* * * (5) Maintaining, servicing or repairing real property, property or land, as such terms are defined in the real property tax law, whether the services are performed in or outside of a building, as distinguished from adding to or improving such real property, property or land, by a capital improvement as such term capital improvement is defined in paragraph nine of subdivision (b) of section eleven hundred one of this article,....

Section 1115(a) of the Tax Law provides, in part:

Receipts from the following shall be exempt from the tax on retail sales imposed under subdivision (a) of section eleven hundred five and the compensating use tax





imposed under section eleven hundred ten:

* * * (15) Tangible personal property sold to a contractor, subcontractor or repairman for use in (i) erecting a structure or building (A) of an organization described in subdivision (a) of section eleven hundred sixteen... or (ii) adding to, altering or improving real property, property or land (A) of such an organization... as the terms real property, property or land are defined in the real property tax law; provided, however, no exemption shall exist under this paragraph unless such tangible personal property is to become an integral component part of such structure, building or real property.

(16) Tangible personal property sold to a contractor, subcontractor or repairman for use in maintaining, servicing or repairing real property, property or land (i) of an organization described in subdivision (a) of section eleven hundred sixteen... as the terms real property, property or land are defined in the real property tax law; provided, however, no exemption shall exist under this paragraph unless such tangible personal property is to become an integral component part of such structure, building or real property.

Section 1116(a) of the Tax Law provides for exemption from the sales and compensating use taxes with respect to purchases by New York State governmental entities, United States governmental entities, certain nonprofit organizations and other entities who have received New York State sales tax exempt organization status.

–  –  –

The sales tax is generally a “consumer tax.” That is, the person required to collect tax must collect the tax from the customer (i.e., the consumer) when collecting the taxable receipt, rent or amusement charge to which the tax applies. The customer cannot shift the liability for payment of the tax to another person nor otherwise be relieved of such liability. The vendor, or other person required to collect the tax, collects the tax as trustee for and on account of the State and is also personally liable for the tax required to be collected.

Section 526.6(b) of the Sales and Use Tax Regulations provides, in part:

Special rule—sales specifically included as retail sales. (1) A sale of any tangible personal property to a contractor, subcontractor or repairman for use or consumption in erecting structures or buildings or adding to, altering, improving, maintaining, servicing or repairing real property, property or land, is deemed to be a retail sale, regardless of whether the tangible personal property is to be resold as such before it is used or consumed. …

Section 527.7 of the Sales and Use Tax Regulations provides, in part:

Maintaining, servicing or repairing real property. (a) Definitions. (1) Maintaining, servicing and repairing are terms which are used to cover all activities that relate to keeping real 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 spraying; trash and garbage removal and sewerage service and snow removal.

* * * (b) Imposition. (1) The tax is imposed on receipts from every sale of the services of maintaining, servicing or repairing real property, whether inside or outside of a building.

Section 529.2(a) of the Sales and Use Tax Regulations provides, in part:

New York State, agencies, instrumentalities, public corporations, and political subdivisions thereof. (Tax Law, § 1116(a)(1)) (a) Governmental entities.

–  –  –

(2) A public corporation as used in this section means any corporation created by an act of the Legislature for a public purpose or pursuant to an agreement or compact with another state or Canada.

* * * (3) A political subdivision as used in this section means a county, town, city, village, school district, fire district, special district corporation and board of cooperative educational services of this State.

Section 541.1 of the Sales and Use Tax Regulations provides, in part:

(b) The principal distinguishing feature of a sale to a contractor, as compared to a sale to other vendors who purchase tangible personal property for resale, is that the sale of tangible personal property to a contractor for use or consumption in construction is a retail sale and subject to sales and use tax, regardless of whether tangible personal property is to be resold as such or incorporated into real property as a capital improvement or repair. Whenever a contractor uses materials, on which the contractor has paid sales tax, in a repair or maintenance contract... subject to the sales tax on services under section 1105(c) of the Tax Law, the contractor may be entitled to a refund or credit of the portion of the tax he paid attributable to the materials transferred to the customer.

* * * (d) Receipts from the services of repairing, maintaining or servicing of real property... and tangible personal property, and the receipts from the installation of tangible personal property that remains tangible personal property are subject to the New York State and local sales tax unless otherwise exempt.

(e) Tangible personal property purchased by a contractor that is to become an integral component part of real property owned by an organization described in section 1116(a) of the Tax Law is exempt from the New York State and local sales tax. … Opinion

–  –  –

Section 1101(b)(4)(i) of the Tax Law provides that a sale of any tangible personal property to a contractor, subcontractor, or repairman for use or consumption in erecting structures or buildings, or building on, or otherwise adding to, altering, improving, maintaining, servicing, or repairing real property, property, or land is a retail sale to the contractor regardless of whether the tangible personal property ( hereinafter referred to as “building materials”) is to be resold as such before it is so used or consumed. Section 525.2(a)(4) of the Sales and Use Tax Regulations provides that the sales tax is generally a “consumer tax.” That is, the person required to collect tax must collect the tax from the customer (i.e., the consumer) when collecting the taxable receipt, rent or amusement charge to which the tax applies. Taken together, section 1101(b)(4) of the Tax Law and section 525.2(a)(4) of the Sales and Use Tax Regulations provide that contractors, subcontractors and repairmen are the users or consumers of building materials that they purchase. See section 526.6(b) of the Sales and Use Tax Regulations.

Section 1105(a) of the Tax Law imposes sales tax on all sales of tangible personal property unless specifically exempted and section 1105(c) imposes sales tax on certain enumerated services. Section 1105(c)(5) of the Tax Law imposes the tax on the services of maintaining, servicing, or repairing real property, property or land. When contractors, subcontractors, and repairmen perform these services, they are not making a sale of tangible personal property in the form of building materials taxable to the contractor’s customer under section 1105(a) of the Tax Law. Rather, contractors, subcontractors, and repairmen are performing services that may be taxable under section 1105(c) of the Tax Law. See sections

527.7 and 541.1(b) of the Sales and Use Tax Regulations. In performing these services, they may use or consume tangible personal property in the form of building materials. See Michaels Prospect Plaza, LLC, c/o Arthur Brown, Esq., Levine, Staller, Sklar, Chan, Brown & Donnelly, P. A., Adv Op Comm T & F, February 8, 2007, TSB-A-07(4)S.

Accordingly, when a property owner or tenant purchases the services of a contractor, subcontractor, or repairman to maintain, service or repair real property, property or land, regardless of the type of contract (e.g., lump sum, time and materials, etc.), the property owner or tenant is purchasing services that are taxable under section 1105(c) of the Tax Law. In such instance, the contractor, subcontractor, or repairman is not making a sale of tangible personal property (i.e., building materials) to the property owner or tenant taxable under section 1105(a) of the Tax Law. Rather, the contractor, subcontractor, or repairman is the user or consumer of such building materials in the performance of its contract.

–  –  –

Exempt Purchase Certificate (Form ST-119.1) in lieu of collecting the sales tax from the customer. The contractor, subcontractor, or repairman may purchase building materials that become an integral component part of the real property of an entity exempt from tax pursuant to the provisions of section 1116(a), without payment of sales tax. See section 1115(a)(16) of the Tax Law. However, the provisions of sections 1115(a)(16) and 1116(a) have no bearing on the charge to a customer, which is not an entity exempt from tax pursuant to the provisions of section 1116(a), for a repair or maintenance service subject to tax under section 1105(c)(5) of the Tax Law.



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