N.Y. tax board rules in favor of security systems

POUGHKEPSIE, N.Y. - The New York State Department of Taxation and Finance has ruled that security system installation is considered a capital improvement and is not subject to the state’s sales tax. John Lombardi, president of Commercial Instruments and Alarm Security here, petitioned the department’s Office of Tax Policy Analysis last June on behalf of the New York Burglar & Fire Alarm Association. At the time, he was president of the association. Since his term expired in October, he has served as the NYBFAA’s past president. According to Lombardi, a number of installers in the state were being audited and were told “only the wiring counts” toward capital improvements. “They were going to be charged back taxes for the last five years, but they couldn’t appeal because the process had already started against them,” Lombardi said. So Lombardi filed an appeal for an official interpretation of the department’s capital improvement rules with specific regard to security system installations because a number of other types of installations were covered under the rules. “I just couldn’t see how a doorbell could be a capital improvement but not an alarm system,” he said. Despite the positive outcome, Lombardi said the battle may only be beginning when it comes to wireless installations. According to the ruling, which was written on Feb. 27, the sales tax exemption only applies to a fixed installation. “If you read the opinion, you’ll see they kind of danced around the wireless issue,” Lombardi said. The first and second responses Lombardi received from the board maintained that only the “in-wall installation of electric wiring” associated with an alarm system counted as a capital improvement. In the final opinion, the board ruled that it was reasonable to conclude that an alarm system may indeed add substantial value to a property. The opinion states that because a property owner becomes the sole owner of an alarm system upon installation, it is considered “permanently affixed to the real property” and the installation is “considered to meet the conditions set forth … to qualify as a capital improvement.” Although this ruling applies to New York, Lombardi said it may have far-reaching consequences across the country. “A lot of states are looking at the alarm business as a way of bringing in revenues,” he said. “Now we’ve got a precedent on the books that alarm companies in other states can use.” Lombardi said the ruling will not affect New York Gov. George Pataki’s proposed a 3 percent surcharge on protective and detective services (SSN, March 2004). This tax, which was scheduled to take effect April 1, will apply to equipment and services performed by security companies, including alarm systems installations.