Tricky New York Sales Tax on Capital Improvements

The NY Department of Finance issued an updated Bulletin on the application of New York sales tax to capital improvements.  New York, as expected, makes this a challenging element for sales tax administrators to deal with.

In general, capital improvement projects are not subject to sales tax.  These must meet the following 3 tests: (1) substantially adds to the value of the real property, (2) becomes par of real property or is permanently affixed to real property, (3) is intended to become a permanent installation.

If the project qualifies as a “capital improvement” the contractor must obtain form ST-124 from the customer or be able to defned the nature of the project as a capital improvement.  If the item is a capital improvement, tax is paid by the contractor on the items purchased and no tax is collected from the customer.

If the project is not a capital improvement but is a “repair”, then the project is taxable on the materials and the labor charges. 

If out-of-state vendors are working in NY and are doing work that does not qualify as a capital improvement and they have paid tax on the materials used, then there could be significant tax implications and double taxation related to materials.   Be sure to carefully identify the nature of the projects you perform in NY to determine whether they are taxable repair services or nontaxable capital improvements.

Ned Lenhart, CPA