Sales Tax State Activity Update - November 2004

ATM Installations May be Exempt in New York

The New York Tax Appeals Tribunal upheld an administrative law judge (ALJ) determination entitling a refund of sales tax paid on the installation of ATM’s (automated teller machines) because they qualified as a capital improvement to real property.

A three-prong test was applied to the installations:

• Substantially adds to the value of the real property
• Becomes part of the realty so that removal would cause material damage to the property
• Is intended to be permanently installed

The petitioner installed ATM’s at its owned, and leased facilities, 71 of which failed to meet all the criteria of the three-prong test. The leases for those facilities permitted or required removal by the owner upon expiration of the lease. As a result refunds on those ATM’s were denied. The New York Division of Taxation appealed the ALJ’s decision to allow a refund on 23 installations. The approved installations were at owned facilities or at leased facilities that did not require or permit removal of the ATM’s at the termination of the lease.

Taxpayer's Position
A refund petition was filed by the taxpayer claiming the installation of ATM’s qualified as a capital improvement to real property. Installations were accomplished with the help of the ATM’s manufacturer. The taxpayer testified the installation is an integrated process that requires extensive planning, coordination, and the use of varied resources, including architects, electricians, and construction contractors. The end result of the installation required a significant dollar investment, and no two installations were exactly alike.

Department's Position
During the audit of the refund claim the auditor had several discussions with the ATM’s manufacturer. The manufacturer stated the ATM’s required minimal installation. The manufacturer also stated some models are bolted to the floor, but not required. Others are inserted through wall openings, and are clamped to secure them. Some may be bolted to concrete, but can be removed by simply unbolting them. ATM’s are self-contained units. Accessibility to the unit results in no damaged to the real property, and removal results in little or no damage to the existing real property. The manufacturer also stated that to the best of his knowledge financial institutions do not leave ATM’s because it less expensive to remove them, and put them in a new location .He testified that their ATM maintenance equipment files would indicate the latter. Also, old ATM’s could be traded in.

ALJ's Position
The ALJ’s noted the criteria for a capital improvement was contained in Tax Law Section 1101(b) (9)(i ) and examined each one in relation to the installed ATM’s. First the ALJ noted the price of the ATM’s exclusive of installation was substantial, and added to the value of the realty. Thus, the first criterion for a capital improvement was met. Based on a review of the physical preparation, and construction the ALJ concluded the ATM do become part of the real property, and removal would cause material damage to the real property. On the third issue concerning permanent installation the ALJ noted the ATM’s are for the purpose of conducting business of the tenant, and are not for the enjoyment of the landlord. As a result in those instances in which the leases required removal or permitted removal at the termination of the lease it can be presumed the ATM’s are not intended to be permanent. Refunds were only allowed on the installations at owned facilities, or at leased facilities that required fixtures to remain, and become part of the landlord’s estate.

Tribunal's Position
The Tribunal agreed with the ALJ’s thorough analysis of each installation, and the conclusion reached that 23 installations were exempt and 71 were taxable. The Division’s argument, on exception, that the ATM’s did not add value to the realty, were not part of the realty, and retained their tangible identity after installation were not persuasive enough based on the facts presented. The 23 that qualified for the exemption met all three criteria of the statue.

This opinion may be viewed at: http://www.nysdta.org/Decisions/818657.dec.pdf (New York Division Of Tax Appeals, Tax Appeals Tribunal, TSB-A-04 (20) S, September 21, 2004)

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