When did Connecticut Ruling 89-116 treat an initial building fit-out as nontaxable new construction rather than a taxable renovation?

Plain-English summary

Initial fit-out work in an overbuilt but never-used portion of an occupied company building was treated as nontaxable new construction. If the unfinished area had first been used for storage or any other purpose, however, the later fit-out became a taxable renovation.

The same new-construction treatment applied when a newly constructed rental building was fitted out for industrial or office tenants before original occupancy.

What this means for you

Under the provision applied in 1989, the key distinction was whether the unfinished space was being prepared for its first use. Even storage before the work changed the first example from new construction to renovation.

Common questions

Was fit-out work in unused overbuilt space taxable? No, if the space had never been used before the initial fit-out.

What if the unfinished area had been used for storage? The ruling said the fit-out would then be taxable as a renovation.

What about finishing rental space for its first tenants? Work completed before original occupancy was treated as nontaxable new construction.

Citations and references

• Conn. Gen. Stat. § 12-407(2)(i)(I), as amended by Public Act No. 89-251, as cited in the ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 89-116

Original ruling text

Ruling 89-116, Renovation

Example 1: A company overbuilt a building prior to July 1, 1989 and left the overbuilt portion idle to accommodate future growth of the organization. After the building had been occupied by the corporation, further construction was performed within the unused portion of the building to prepare it for the company's use.

In Example 1, the initial fit out work provided to the unused portion of the building is not subject to sales and use tax because it is considered to be new construction pursuant to section 12-407(2)(i)(I) of the Connecticut General Statutes, as amended by Public Act No. 89-251. However, if any use, e.g., storage, is made of the unfinished portion of the building prior to the initial fit out work being performed, then the fit out work would be taxable as a renovation to the building.

Example 2: A new building is constructed for rental purposes. The building will be rented to industrial business and other firms for offices. The building is fitted out or finished out as the space is allocated to the new tenants prior to the original occupancy.

In Example 2, the initial fit out work or finish out work rendered to the building is considered services to new construction and is not taxable pursuant to section 12-407(2)(i)(I) of the Connecticut General Statutes, as amended by Public Act No. 89-251.

Please note that the services referred to in both situations are services that fall under the purview of section 12-407(2)(i)(I) of the Connecticut General Statutes, as amended by Public Act No. 89-251.

LEGAL DIVISION

September 26, 1989