SALT Report 2779 – The New York Division of Taxation and Finance issued an advisory opinion regarding whether a Taxpayer is required to pay sales and use tax for contracted security services when it hires a company to monitor a business while it is under construction.
In this case, the Taxpayer is a general contractor who performs commercial, retail and nonresidential capital improvements. In most instances, either the construction contract, the building’s plans and specifications, the building’s rules, or the building’s regulations require that security or monitoring services be provided to ensure that the Taxpayer and its subcontractors are being monitored while performing high risk work, such as demolition, welding, hot roofing, or sprinkler work.
The Taxpayer is currently under contract to provide capital improvement services. As required by its contract with the building owner, the Taxpayer must provide security services. The Taxpayer has contracted with a security services agency and provided them with a Certificate of Capital Improvement. The Taxpayer was subsequently charged sales tax for its purchase of security services. Because of this, the Taxpayer requested a ruling from the Department as to whether it must pay sales tax for its purchase of security services, or if they qualify for an exemption.
In its response, the Department stated that under section 1105(c)(8) sales tax is imposed on the provision of “protective and detective services, including, but not limited to, all services provided by or through alarm or protective systems of every nature…” In addition to that regulation, the Department referred to a previous advisory opinion, TSB-D-92(23)S, in which the Tax Appeals Tribunal concluded that the provision of guard services constituted a taxable service.
Specifically, the Tax Tribunal ruled that these services were essentially “one of many expense items which were necessary to satisfy a contractual obligation…” Additionally, the Tribunal determined that, the taxpayer was not purchasing the protective services for resale, rather that these services were more in line with the businesses overhead costs.
In the case at hand, the Department ruled that like taxpayer in the advisory opinion mentioned above, the protective services that the Taxpayer contracted for were taxable services, not for resale. Consequently, the Taxpayer is required to pay State and local sales taxes on its purchase of those services.
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