NYS Department of Taxation & Finance Announces Latest Policy Concerning Sales Tax Treatment of Scaffolding

By:
David A. Shuster, JD, LLM
Published Date:
Dec 1, 2014

Just like a midtown Manhattan city block, the NYS Tax Department’s position concerning the application of the state’s sales tax rules to scaffolding transactions appears to be continually under construction. On October 23, 2014, the Department issued TSB-M-14(15)S to clarify its policy in this area. The TSB-M represents the third technical services bulletin that the Department has issued within the last 27 months addressing the sales tax treatment of scaffolding.

To the extent the Department’s statements expressed in the TSB-M conflict with any prior statements, the new statements will be effective January 1, 2015. Statements that the Department issued prior to 2015 that conflict with the TSB-M will remain applicable to contracts entered into before 2015 for the duration of those contracts. Three statements in the TSB-M worth mentioning are discussed below.

Separately Stated Rental Charges: Capital Improvement Projects

In general, receipts from the installation of tangible personal property are subject to sales tax, as are receipts from maintaining, servicing, or repairing real property. [NY Tax Law § 1105(c)(3), (5).] But receipts from the installation of a capital improvement to real property are not subject to sales tax. [NY Tax Law § 1105(c)(3)(iii).] This exception extends to receipts from the installation of materials and the labor to provide a temporary facility, such as a sidewalk bridge or scaffolding, at a construction site when such temporary facility is a necessary prerequisite to the construction of the capital improvement. [20 NYCRR § 541.8(a); see TSB-A-12(18)S (Aug. 3, 2012)Matter of L & L Painting Co., Inc.(Tax App. Trib. June 2, 2011); see also TSB-A-13(11)S (Apr. 11, 2013).]

The TSB-M provides that not only are the installation charges for scaffolding used in connection with capital improvements not subject to sales tax, but also that the periodic rental charges and the dismantling charges are not subject to sales tax as well, whether these charges are invoiced on a lump-sum or separately stated basis. As to separately stated periodic rental charges, this represents a departure from prior guidance [see TSB-A-13(11)S); TSB-A-12(18)S], but perhaps one that contractors and their customers will welcome.

Separately Stated Dismantling Charges: Taxable Installation, Maintenance, Service, and Repair Projects

When the scaffolding is provided in connection with a taxable installation, maintenance, service, or repair project, the TSB-M provides that all charges are subject to sales tax, whether invoiced on a lump-sum or separately stated basis, including charges for dismantling. In prior guidance, however, the Department had confirmed that the service of dismantling any tangible personal property (not just scaffolding) is not a taxable service. The Department thus confirmed that charges for dismantling scaffolding, whether in connection with the installation of a capital improvement or not, are not subject to sales tax, as long as the dismantling charges are reasonable in relation to the charges for the other services provided, the dismantling service may be purchased separately from the other services, and the dismantling charges are separately stated on invoices. [TSB-A-12(18)S.]

To be sure, the scenario provided in that prior guidance involved two companies, one of which provided installation and dismantling services only, the other of which furnished the scaffolding materials, but provided no services, such as installation or dismantling. Thus, by its nature, the dismantling service discussed in that guidance could be purchased separately from the other services. The scenario in the TSB-M, by contrast, involves a single company providing the scaffolding materials and the installation and dismantling services, the provision of all three of which, collectively, the Department views as the provision of a “scaffolding service.”

There are thus four ways to interpret the application of the TSB-M to the prior guidance from 2012 in connection with dismantling charges for scaffolding used in taxable installation, maintenance, service, or repair projects. The TSB-M is clarifying that the 2012 guidance either:

1) was always limited to the two-company scenario (that is, it was not ever applicable to the situation involving a single scaffolding contractor providing “scaffolding services”), thus no change in position, 
2) was not, but will now be, limited to the two-company scenario, thus a change in position, 
3) was always limited to the two-company scenario, but now not even that works, or 
4) was not limited to the two-company scenario, but now neither that nor the one-company scenario will be a viable option.

Stated differently, those using the two-company scenario and not treating the dismantling charges as being subject to sales tax have been doing so consistent with the Department’s prior guidance. Whether the Department will respect that type of treatment for transactions entered into after 2014, however, is not entirely clear. Further, whether a single scaffolding contractor’s practice of not charging sales tax for dismantling was consistent with the Department’s prior statements is not entirely clear. For contracts entered into after 2014, however, the Department’s position is clear that such charges are subject to sales tax.

Regardless, because dismantling is not a taxable service, the charges for dismantling scaffolding, whether in connection with a capital improvement or not, should not be subject to sales tax, as long as the dismantling charges are reasonable in relation to the charges for the other services provided, the dismantling service may be purchased separately from the other services, and the dismantling charges are separately stated on invoices. In our experience, however, a significant portion of the transactions that scaffolding contractors enter into is in connection with capital improvements, the dismantling charges for which, as mentioned, the Department agrees are not subject to sales tax.

Uncertainty will therefore arise in perhaps relatively few cases, those not involving capital improvements. Nevertheless, the Department’s policy, to the extent that it would maintain that separately stated scaffolding dismantling charges are subject to sales tax, would appear to be indefensible as a matter of law. Indeed, the TSB-M does not explain or offer any analysis why the dismantling charge is subject to sales tax. Most likely, then, the Department’s policy concerning the taxability of the dismantling services that the single scaffolding contractor described in the TSB-M provides does not extend to taxing the dismantling services provided by a company that is not furnishing the scaffolding materials also, as described in the 2012 guidance.

Contractor Purchase of Scaffolding Materials

The TSB-M provides that a scaffolding contractor’s purchases (or rentals) of scaffolding materials are subject to sales tax. Citing the sale-for-resale exception set forth in the regulations, the Department previously indicated, however, that scaffolding contractors could purchase their materials free of sales tax if the contractors’ rental charges to their customers in connection with capital improvements were stated separately from other charges, such as for installation or dismantling. [See TSB-A-13(11)S (citing 20 NYCRR § 541.9(b)(1)(ii)).] In abandoning the sale-for-resale exception, the Department has now reverted to relying on the temporary facilities regulation [20 NYCRR § 541.8(b)], which provides that these purchases are indeed taxable. [See TSB-M-14(15)S, example 1.]

Conclusion

The Department’s policy is not necessarily the law, only the Department’s interpretation of it and, thus, an indication of what one might expect on audit. 


David A. Shuster, JD, LLMDavid A. Shuster, JD, LLM, is a Tax Principal at Grassi & Co. serving as its Director of Tax Controversy Services. For more information on this or other related topics, please feel free to contact David directly at 516-336-2436 or via email at dshuster@grassicpas.com.

 
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