New York Tax Board Says Installations Not Subject to Sales Tax
The state of New York’s tax board says a security system installation is a capital improvement and is not subject to a sales tax. The New York State Department of Taxation and Finance issued the Advisory Opinion ruling in response to a petition filed by John Lombardi on behalf of the New York Burglar and Fire Alarm Association (NYBFAA).
However, the opinion, written on Feb. 27, also states that the sales tax exemption only applies to a fixed installation. A wireless installation is not considered a capital improvement. As long as the system is permanently affixed to the property, the alarm contractor is not required to collect sales tax from their customer.
Lombardi told Security Sales & Integration that he filed the request in June 2003 while he was still president of the NYBFAA because of increased pressure from state tax collectors. “In New York state, everybody was under the assumption that an alarm system was a capital improvement. New York sales tax agents started to audit the agency and found only the wire to an alarm system is a capital improvement and the alarm dealer owed the back taxes on the system installed,” says Lombardi, who sought an official interpretation by the state’s tax board. “Lets face it. If a doorbell is a capital improvement, what difference is an alarm system? Now, the alarm dealer has something concrete.”
The Department of Taxation and Finance opinion states: “Where a complete burglar, fire or other security alarm system is installed for the owner of real property, becomes the property of the homeowner upon installation, is sold without the vendor retaining any rights of ownership or rights of removal of the system or any of its components, the system remains fully functional within the residence whether or not the property owner subscribes to the alarm service offered by the vendor of the tangible personal property, and the property is installed so as to be considered permanently affixed to the real property (in the same manner as the building’s electrical system), the installation is considered to meet the conditions set forth … to qualify as a capital improvement to real property. This is also true for installations performed for the owners of commercial real property.”
The opinion says those criteria must be met and that if the alarm system “can be removed from the … property without material damage to the system or the real property” it is not considered a capital improvement.
While applying only to the state of New York, Lombardi says the decision should set precedent for other states either already charging sales taxes to fixed security installations or considering it. “What is happening in New York is some agent determined this was a gray issue and tested the issue. Sooner or later, another state will come up with the idea an alarm system is a taxable system,” he says. “This is beneficial for the whole country.”
Lombardi, president of Commercial Instruments and Alarm (CIA) Security in Poughkeepsie, N.Y., completed his term as NYBFAA president on Oct. 1,with John Morrow now leading the association.
The decision will have little bearing on New York Gov. George Pataki’s proposal for a 3-percent sales tax on security services, according to Lombardi. The “security tax,” which would include services performed by alarm companies, would help fund public safety measures.
“I don’t think anyone could make that correlation because Pataki’s budget is including a 3-percent surcharge to fund homeland security,” Lombardi says. “The irony of it all is you’re penalizing a small segment of society and saying because you guys are doing security we will tax you for homeland security.”
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