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New York: Capital Improvements v. Repairs to Real Property

author photo of Tom Mazurek

One of my fellow contributors here at (Guy Nevers) recently posted an article about the taxability differences between business fixtures and real property in Ohio, and it got me thinking about how real property-related services are treated here in New York State for sales and use tax purposes.

Services to real property in New York State are treated as either nontaxable capital improvements or taxable repair and maintenance services. Now I'm pretty sure I can write a novella on this topic, but for our purposes, I'm going to keep things simple and just summarize some key points here.

A capital improvement means an addition or alteration to real property, which:

  1. substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property.
  2. becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property or article itself.
  3. is intended to become a permanent installation.

For example, installing a hot water heater for the office or electrical wiring and breaker panels for a new piece of machinery would be considered capital improvements. The contractor performing this work should get a properly completed Form ST-124, Certificate of Capital Improvement from the customer and not collect sales tax on the project. The contractor should keep this exemption certificate in their files to show why no sales tax was charged on the work.

An addition or alteration to real property that qualifies as a capital improvement when made by the owner of the property may be treated differently for sales and use tax purposes if made by a tenant leasing the property. If the lease requires the tenant to return the property to its original state when the lease expires, then any leasehold improvements made by the tenant may be considered temporary in nature and not intended to be permanent, therefore subject to tax.

Charges for repairing, maintaining or servicing real property are subject to sales and use tax. This includes any activities that relate to keeping real property in a condition of fitness, efficiency, readiness or safety, or restoring it to such condition. For example, repairing a hole in a wall, replacing light bulbs, repairing an air conditioner, as well as lawn-care services and garbage removal services would all be considered taxable services.

Contractors purchasing tangible personal property are required by the Tax Law to pay sales tax on these purchases at the point of sale. A contractor cannot use Form ST-120, Resale Certificate to purchase building materials; however there are limited instances where a contractor can use other exemption certificates depending on the circumstances. Contractors can include the sales tax they paid on building materials just like any other expense (i.e., markup or overhead) in the price when they bill a customer for a capital improvement project, however there is no sales tax due on these charges.

On the other hand, when a contractor uses building materials for a taxable repair or maintenance job, the contractor has to charge sales tax to the customer on both the labor and materials. In this situation, the contractor is entitled to a claim a credit for the sales tax paid on these materials on their sales tax return.

New York State has published a number of publications and technical bulletins addressing these issues including Publication 862, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property, which provides detailed information on various types of work and what New York State considers nontaxable capital improvements and/or taxable repair to real property.

Because this is such a complex sales and use tax issue and there are so many facets that simply cannot be covered adequately in this format, my firm, Tronconi Segarra & Associates, will be offering a free webinar entitled New York Sales & Use Tax: Capital Improvements and Repairs to Real Property on Thursday May 7, 2015 from 1:00 - 2:30pm EST to discuss these issues in greater detail. If you are interested in registering for this free webinar, please email Barbara Harmel at by May 1, 2015 please.

Questions or Comments?

Do you have questions about NEW YORK (and/or MULTI-STATE) sales tax - or does your business need assistance with other tax issues? Please use the "Request a Consultation" link on Tom Mazurek's FIRM PROFILE page to submit your business sales tax question and/or consultation request.

Other recent “New York (NY)” posts by Tom Mazurek, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.


10 Responses to New York: Capital Improvements v. Repairs to Real Property

  • Posted by John on August 12, 2017 7:57am:

    I'm having a contractor replace the Heat Pump on my inground swimming pool. i believe this is a Capital improvement and if I fill out an ST-124 form, I should not have to pay sales tax. Am I correct?

    • Posted by Author photo of Tom Mazurektommazurek on August 14, 2017 6:51am:

      Unfortunately, I believe the replacement of a heat pump for an in-ground swimming pool will not qualify as a capital improvement for NY sales tax purposes. Typically repairs and maintenance on real property are subject to sales tax.

      NY Pub. 862 describes the following as taxable repairs and maintenance activities related to swimming pools:

      Installation or replacement of:
      • above ground swimming pool including excavation work done in connection with the installation
      • pumps, filters etc.
      • heater for above ground swimming pool

      Repair or maintenance of above ground or in-ground
      swimming pool, including:
      • cleaning
      • repairing of liners
      • repairing pumps and heaters

      Based on this information, I would say the replacement heat pump and related installation cost should be subject to sales tax. Please let me know if there is anything else I can assist you with.


  • Posted by Jo on September 22, 2016 7:18am:

    If the owner does not provide a ST-124 Certificate of a Capital Improvement, do I have to show taxes on the total sale price including labor and markup, or only on material & equipment? What is the difference between residential jobs & commercial jobs, regarding charging taxes?

    • Posted by Tom on September 27, 2016 6:56am:

      If a property owner does not provide you with an ST-124 for a job qualifying as a capital improvement, you should charge sales tax on the total sales price of your service including labor, materials, equipment, markup, etc. Otherwise, an auditor from the Department of Taxation and Finance may assess you tax on those charges if your business is ever audited and you cannot provide documentation for not charging the tax. There is no difference in sales tax treatment for commercial and residential work.

      Please see NY Publication 862 for more details:

  • Posted by William on August 22, 2016 5:05am:

    Hi tom
    One thing that is not clear even after visiting the New York state website is whether by virtue of submitting a form ST 124 would subject home owners to an increase in their property tax assessment?

    • Posted by Author photo of Tom Mazurektommazurek on September 9, 2016 11:50am:


      I have never heard of an instance when providing a contractor an ST-124, Capital Improvement Certificate resulted in a property being assessed by the local city, town or village. The contractor does not provide or release that form to anyone else...they just keep it as documentation for why they did not charge sales tax, in the event they are audited by the State.

      I thinking filing a building permit with your locality may result in a visit from the local assessor and a possible adjustment in your property value, however that still doesn't mean you are going to be assessed more taxes.

  • Posted by Nicole on January 26, 2016 1:39pm:

    Is a company required to keep the original copies of the Capital Improvement Form or will an electronic copy suffice? Also if they are required to keep the original, how long should it be kept on file?

    • Posted by Author photo of Tom MazurekTom Mazurek on February 4, 2016 3:19pm:


      Thanks for the question. States have different requirements when it comes to maintaining paper v. electronic copies of exemption and resale certificates. I know New York authorized the use and acceptance of electronic versions of certain sales tax exemption documents (e-certificates) back in 2007. You can check out TSB-M-07(1)S on the tax department's website for specific details on departmental policy.

      You should maintain these certificates at least until the transactions covered by the certificate are past the statue of limitations (3-4 years depending on the state). In some cases, you may want to hold onto longer.


  • Posted by Zach on September 30, 2015 9:02am:

    We are a plumbing, heating, and air conditioning company and I just want to make sure of something. If we install a furnace, which qualifies for a capital improvement, we charge tax on all material, just not on the subtotal? If we do more work like adding on an a/c unit or running new water lines, does that go under the capital improvement as well?

    • Posted by Author photo of Tom Mazurektommazurek on December 9, 2015 11:32am:


      Thanks for your question. If you're billing work that results in a capital improvement, you don't charge your customer tax on labor or materials.

      You can include the sales tax you paid on the purchase of the materials as part of what you're billing for materials. For example:

      If you purchased $50 of PVC pipe for the project and the supplier charged you $4 in sales tax at checkout, you can pass $54 in materials cost along to your customer. You cannot however, charge them sales tax on top of that when the project results in a capital improvement.

      Any additional work that qualifies as a capital improvement would also be nontaxable. You may want to check out Publication 862 (see link above) for examples of what qualifies as capital improvements.


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