A custom kitchen and bathroom counter-top fabricator asked the Department to walk through four common transaction types — installing for a general-contractor customer with or without a resale/capital-improvement certificate, doing manufacturer-paid warranty repair work with the manufacturer's own materials, and the same warranty work using some of the fabricator's own materials — and explain exactly who owes sales tax, on what, and what paperwork controls each scenario.

Plain-English summary

United Marble is a Long Island wholesale fabricator: it casts its own cultured-marble products (bathroom sinks/accessories) and also cuts, routes, glues, polishes, and seams DuPont Corian sheet stock into custom bathroom vanity tops and kitchen counter tops — sometimes using its own employees to install, sometimes hiring subcontractors (DuPont requires United Marble to handle installation to preserve its 10-year warranty). Customers include plumbing/tile/kitchen-and-bath retailers, builders, and contractors. United Marble laid out four real transaction patterns and asked the Department to confirm the tax treatment of each:

Transaction 1 — installing for a contractor-customer who supplied a blanket resale certificate. Here United Marble's customer is really acting as a general contractor and United Marble as its subcontractor. Since a custom, permanently installed counter top generally qualifies as a capital improvement, United Marble should get a proper Certificate of Capital Improvement (Form ST-124) — not a resale certificate, which is the wrong document for a contractor relationship — within 90 days. With that certificate, United Marble doesn't collect tax from its customer, but must itself pay sales tax on the materials it used to fabricate the counter top (it's the "ultimate consumer" of those materials as the installing contractor). If instead the installation doesn't qualify as a capital improvement (not intended as permanent), United Marble's entire charge — materials and labor together — becomes taxable to the customer, and United Marble can then claim a refund/credit for the tax it separately paid on the incorporated materials. A subcontractor United Marble hires should get a copy of the same capital-improvement certificate (for capital-improvement jobs) or a Contractor Exempt Purchase Certificate (Form ST-120.1, for non-capital-improvement jobs) to avoid double-taxing the installation labor. This same analysis holds even if the customer is a builder constructing a house to sell later — but that builder should use Form ST-124 (capital improvement certificate), never Form ST-120 (resale certificate), since a builder-contractor isn't a retailer.

Transaction 2 — same facts, but no certificate at all from the customer. Without any documentation, United Marble's entire labor-and-materials charge is presumptively taxable, and United Marble must collect tax on the full amount. Critically, though, the absence of a certificate doesn't permanently lock in that result — United Marble can still later prove the job was a nontaxable capital improvement using other contract or transaction records, and if it does, it can seek a refund for tax over-collected (net of its own materials tax liability). The subcontractor relationship works the same way as in Transaction 1.

Transaction 3 — warranty repair work billed to a manufacturer, using the manufacturer's own supplied materials. Because the manufacturer is contractually obligated to provide warranty repairs (whether under the original sale or an extended warranty), United Marble's repair/maintenance work performed for that manufacturer is treated as a purchase for resale by the manufacturer — not taxable to the manufacturer — as long as the manufacturer furnishes United Marble a properly completed exemption document (a Resale Certificate if the manufacturer is a retailer selling uninstalled goods, or a Contractor Exempt Purchase Certificate if the manufacturer itself installs products as capital improvements; a Certificate of Capital Improvement if the warranty work is itself part of a capital improvement).

Transaction 4 — same warranty work, but United Marble also supplies some of its own materials (lumber, adhesives). United Marble's charge to the manufacturer stays untaxed with a proper exemption document, same as Transaction 3. But United Marble's own tax liability on ITS materials depends on what kind of warranty work it's doing: if the warranty work is part of a qualifying capital improvement, United Marble owes tax on its own materials with no refund available (per the specific guarantee/warranty regulation); if the warranty work is instead a repair (not a capital improvement), United Marble CAN claim a refund/credit for tax paid on materials/parts actually transferred to the customer as part of that repair.

What this means for you

Custom fabricators and installers (kitchens, baths, and similar built-ins)

The single biggest variable across all four transactions is which certificate you get, and from whom: a genuine capital-improvement job needs Form ST-124 (never a resale certificate, which is for retailers, not contractors); a job that isn't a capital improvement needs an exemption certificate covering the installation service itself. Missing paperwork doesn't automatically mean you're stuck paying — but it does shift the initial presumption to "taxable," with the burden on you to later prove otherwise.

Businesses performing warranty/guarantee repair work for manufacturers

Warranty work billed back to the manufacturer that required the repair is generally treated as a resold service to that manufacturer, not taxable to them — but your own liability for tax on materials YOU supply (versus materials the manufacturer supplies) depends on whether the underlying work is a capital improvement (no refund on your materials) or an ordinary repair (refund available).

Subcontractors working under a fabricator/prime contractor

Always confirm which certificate you're being handed and why — a capital-improvement certificate protects your installation charge to the prime contractor, while a Contractor Exempt Purchase Certificate is the right document for non-capital-improvement installation work being "resold" up the chain.

Common questions

Q: Should a contractor ever use a Resale Certificate (Form ST-120) for installation work?
A: No — Form ST-120 is for retailers reselling uninstalled goods. A contractor/builder should use Form ST-124 (Certificate of Capital Improvement) for capital-improvement installation jobs instead.

Q: If I never receive a capital-improvement certificate from my customer, am I stuck treating the whole job as taxable forever?
A: No — the absence of a certificate creates a rebuttable presumption of taxability, but you can still prove non-taxability later using the contract terms or other transaction records, and seek a refund if you over-collected.

Q: Is warranty repair work I do for a manufacturer taxable to the manufacturer?
A: Generally no, if the manufacturer is contractually obligated to provide the warranty repair — your work is treated as a resold service, provided the manufacturer gives you a properly completed exemption document.

Q: If I supply my own materials during warranty work, do I get a refund on the tax I paid for them?
A: It depends: no refund if the warranty work is part of a capital improvement; yes, a refund/credit is available if the warranty work is an ordinary repair (not a capital improvement).

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (retail sale; contractor deemed-retail-sale rule), § 1101(b)(9)(i) (capital improvement definition)
• Tax Law § 1105(a) (retail sales tax), § 1105(c)(3) (installing tangible personal property)
• Tax Law § 1110 (compensating use tax; manufacturer/fabricator use tax basis)
• Tax Law § 1115(a)(17) (contractor sale to another contractor for capital improvement)
• Tax Law § 1119(c) (refund/credit for materials transferred with a taxable service)
• Tax Law § 1132 (tax collection; exemption certificate acceptance)
• Tax Law § 1139 (refund/credit procedure)
• 20 NYCRR § 526.6 (retail sale; contractor special rule)
• 20 NYCRR § 527.7(b)(5) (contractor liable for tax on materials in capital improvements)
• 20 NYCRR § 531.3(b) (use tax basis for manufactured/fabricated products, Examples 2, 4)
• 20 NYCRR § 541.1 (contractor sales; guarantee/warranty work)
• 20 NYCRR § 541.5 (capital improvement contracts; certificate documentation, incl. Example items)
• 20 NYCRR § 541.11 (fabricators and manufacturers as contractors)
• NYS Dept. of Taxation and Finance Publication 862 (4/01), page 6 (Sales and Use Tax Classifications of Capital Improvements and Repairs)

Prior rulings and cases referenced:

• Affordable Homes, Inc., TSB-A-86(21)S
• Custom Design Kitchens, Inc., TSB-A-96(66)S
• William J. McAteer, CPA, TSB-A-99(56)S
• G & I Homes, Inc., TSB-A-95(11)S
• Crystal Telecom, Corp., TSB-A-02(37)S
• Matter of Castomatic, Division of Arwood Corp., TSB-H-83(62)S
• British Telecom (CBP) Inc., TSB-A-90(3)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_23s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(23)S
Sales Tax
May 12, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020905A

On September 5, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from United Marble, Inc., 98 Lincoln Avenue, PO Box 366, Sayville, NY 11782.
Petitioner, United Marble, Inc., provided additional information pertaining to the Petition on
October 10, 2002.
Petitioner sets forth a number of questions concerning the application of sales and
compensating use taxes to the installation of custom kitchen counter tops by manufacturers,
contractors, and subcontractors.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a wholesale manufacturer located in Suffolk County on Long, Island, NY.
Petitioner manufactures a cultured marble product that is generally sold to retail outlets. The
product is produced by mixing and casting a resin-filled material into molds. Its main use is in
bathrooms in the form of bathroom sinks and accessories.
Another part of Petitioner’s business is the wholesale fabrication of Dupont Corian and other
similar products. The Corian is delivered to Petitioner in the form of sheets of raw material.
Petitioner cuts, routes, glues, polishes, and seams together this material. The finished product could
be a bathroom vanity top or a kitchen counter top. In order to pass along a ten-year warranty,
Dupont requires that Petitioner install the product. Petitioner installs these kitchens and bathrooms
by using its own employees and by hiring subcontractors.
Petitioner’s customers include various plumbing supply companies, tile stores, kitchen and
bath dealers, builders, and contractors. When a new customer contracts with Petitioner it supplies
a resale certificate or, if Petitioner does not receive such certificate, Petitioner collects sales tax on
all jobs performed for that customer. When Petitioner receives a capital improvement certificate,
it pays sales and use tax on the materials that are used to fabricate the finished product.
Petitioner describes four transactions involving its sales of custom kitchen counter top
installations and inquires as to the sales tax obligations and liabilities in each instance. These
transactions are described in the opinion portion of this Advisory Opinion.
Applicable Law and Regulations
Section 1101(b)(4)(i) of the Tax Law defines "retail sale," in part, as:

-2­
TSB-A-03(23)S
Sales Tax
May 12, 2003
. . . a sale of any tangible personal property to a contractor, subcontractor or
repairman for use or consumption in erecting structures or buildings, or building on,
or otherwise adding to, altering, improving, maintaining, servicing or repairing real
property, property or land . . . regardless of whether the tangible personal property
is to be resold as such before it is so used or consumed. . . .
Section 1101(b)(9)(i) of the Tax Law defines the term “capital improvement” to mean:
An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property; and
(B) 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; and
(C) Is intended to become a permanent installation.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes a tax on the receipts from every sale, except for
resale, of the following services:
*

*

*

(3) Installing tangible personal property . . . not held for sale in the regular
course of business . . . except:
*

*

*

(iii) for installing property which, when installed, will constitute an addition
or capital improvement to real property, property or land, as the terms real property,
property or land are defined in the real property tax law as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter. . . .
*

*

*

(5) Maintaining, servicing or repairing real property, property or land, as such
terms are defined in the real property tax law, whether the services are performed in
or outside of a building. . . .

-3­
TSB-A-03(23)S
Sales Tax
May 12, 2003
Section 1110 of the Tax Law provides, in part:
(a) Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred
seventy-one except as otherwise exempted under this article, (A) of any tangible
personal property purchased at retail, (B) of any tangible personal property . . .
manufactured, processed or assembled by the user, (i) if items of the same kind of
tangible personal property are offered for sale by him in the regular course of
business or (ii) if items are used as such or incorporated into a structure, building or
real property by a contractor, subcontractor or repairman in erecting structures or
buildings, or building on, or otherwise adding to, altering, improving, maintaining,
servicing or repairing real property . . . if items of the same kind are not offered for
sale as such by such contractor, subcontractor or repairman or other user in the
regular course of business. . . .
(b) For purposes of clause (A) of subdivision (a) of this section, the tax shall
be at the rate of four percent of the consideration given or contracted to be given for
such property, or for the use of such property, including any charges for shipping or
delivery. . . .
*

*

*

(d) For purposes of subclause (ii) of clause (B) of subdivision (a) of this
section, the tax shall be at the rate of four percent of the consideration given or
contracted to be given for the tangible personal property manufactured, processed or
assembled into the tangible personal property the use of which is subject to tax,
including any charges for shipping or delivery. . . .
(e) Notwithstanding the foregoing, provisions of this section, for purposes of
clause (B) of subdivision (a) of this section, there shall be no tax on any portion of
such price which represents the value added by the user to tangible personal property
which he fabricates and installs to the specifications of an addition or capital
improvement to real property, property or land, as the terms real property, property
or land are defined in the real property tax law, over and above the prevailing normal
purchase price prior to such fabrication of such tangible personal property which a
manufacturer, producer or assembler would charge an unrelated contractor who
similarly fabricated and installed such tangible personal property to the
specifications of an addition or capital improvement to such real property, property
or land.
Section 1115(a) of the Tax Law provides, in part:

-4­
TSB-A-03(23)S
Sales Tax
May 12, 2003
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
*

*

*

(17) Tangible personal property sold by a contractor, subcontractor or
repairman to a person other than an organization described in subdivision (a) of
section eleven hundred sixteen, for whom he is adding to, or improving real property,
property or land by a capital improvement, or for whom he is about to do any of the
foregoing, if such tangible personal property is to become an integral component part
of such structure, building or real property. . . .
Section 1119(c) of the Tax Law provides, in part:
A refund or credit . . . of sales or compensating use tax . . . paid on the sale
or use of tangible personal property, shall be allowed the purchaser where such
property is later used by the purchaser in performing a service subject to tax under
paragraph (1), (2), (3), (5), (7) or (8) of subdivision (c) of section eleven hundred
five or under section eleven hundred ten and such property has become a physical
component part of the property upon which the service is performed or has been
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax or if a contractor, subcontractor or repairman purchases
tangible personal property and later makes a retail sale of such tangible personal
property, the acquisition of which would not have been a sale at retail to him but for
the second to last sentence of subparagraph (i) of paragraph (4) of subdivision (b) of
section eleven hundred one. . . .
Section 1132 of the Tax Law provides, in part:
(a)(1) Every person required to collect the tax shall collect the tax from the
customer when collecting the price . . . to which it applies. . . .
*

*

*

(c)(1) For the purpose of the proper administration of this article and to
prevent evasion of the tax hereby imposed, it shall be presumed that all receipts for
property or services of any type mentioned in subdivisions (a), (b), (c) and (d) of
section eleven hundred five . . . are subject to tax until the contrary is established,
and the burden of proving that any receipt . . . is not taxable hereunder shall be upon
the person required to collect tax or the customer. Except as provided in subdivision
(h) or (k) of this section, unless (i) a vendor, not later than ninety days after delivery
of the property or the rendition of the service, shall have taken from the purchaser

-5­
TSB-A-03(23)S
Sales Tax
May 12, 2003
a resale or exemption certificate in such form as the commissioner may prescribe,
signed by the purchaser and setting forth the purchaser’s name and address and,
except as otherwise provided by regulation of the commissioner, the number of the
purchaser’s certificate of authority, together with such other information as the
commissioner may require, to the effect that the property or service was purchased
for resale or for some use by reason of which the sale is exempt from tax under the
provisions of section eleven hundred fifteen, and, where such resale or exemption
certificate requires the inclusion of the purchaser’s certificate of authority number
or other identification number required by regulations of the commissioner, that the
purchaser’s certificate of authority has not been suspended or revoked and has not
expired as provided in section eleven hundred thirty-four . . . the sale shall be
deemed a taxable sale at retail . . . Where such a resale or exemption certificate . .
. has been furnished to the vendor, the burden of proving that the receipt . . . is not
taxable hereunder shall be solely upon the customer. The vendor shall not be
required to collect tax from purchasers who furnish a resale or exemption certificate
. . . in proper form. . . .
Section 1139 of the Tax Law provides, in part:
(a) . . . the tax commission shall refund or credit any tax, penalty or interest
erroneously, illegally or unconstitutionally collected or paid if application therefor
shall be filed with the tax commission (i) in the case of tax paid by the applicant to
a person required to collect tax, within three years after the date when the tax was
payable by such person to the tax commission as provided in section eleven hundred
thirty-seven . . . Such application shall be in such form as the tax commission shall
prescribe. . . .
Section 526.6 of the Sales and Use Tax Regulations provides, in part:
(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
(b) Special rule – sales specifically included as retail sales. (1) A sale of any
tangible personal property to a contractor, subcontractor or repairman for use or
consumption in erecting structures or buildings or adding to, altering, improving,
maintaining, servicing or repairing real property, property or land, is deemed to be
a retail sale, regardless of whether the tangible personal property is to be resold as
such before it is used or consumed. . . .
Section 527.7(b)(5) of the Sales and Use Tax Regulations provides:

-6­
TSB-A-03(23)S
Sales Tax
May 12, 2003
Any contractor who is making a capital improvement must pay a tax on the
cost of materials to him, as he is the ultimate consumer of the tangible personal property.
Section 531.3(b) of the Sales and Use Tax Regulations provides, in part:
Tangible personal property manufactured, processed or assembled by the
user. (1) A compensating use tax is imposed when a manufacturer, processor or
assembler uses its product as such in New York State or incorporates the product into
real property in New York State. This is so whether or not it offers items of the same
kind for sale in the regular course of business and whether the product was
manufactured, processed or assembled inside or outside New York State. The basis
on which compensating use tax is computed, however, depends on whether the user
offers items of the same kind for sale in the regular course of business. A
compensating use tax is not imposed, however, to the extent the user was required
to pay sales tax without a right to a refund or credit upon the purchase of the
ingredients, parts or materials manufactured, processed or assembled into the product
the use of which is subject to tax.
*

*

*

(i) If the user offers items of the same kind for sale in the regular course of
business, the basis on which use tax is computed is the price at which items of the
same kind of tangible personal property are offered for sale by the user. The price
at which items are offered for sale is evidenced by a price list, catalog price or record
of sales. In the absence of a catalog price or price list, the average of the prices
charged various customers will be deemed to be the price at which the user would
sell such item during the regular course of business.
(a) Items of the same kind mean that items belong to an identifiable class, but
need not be identical.
*
Example 2:

*

*

. . . When items which are not standard or cataloged are made
to the specifications of a particular job, these will not be
considered items of the same kind with catalog or inventory
sales.
Items made to the specifications of a particular job will not be
considered items of the same kind as items made to the
specifications of another particular job.
*

*

*

-7­
TSB-A-03(23)S
Sales Tax
May 12, 2003
Example 4:

A manufacturer produces standard type pre-cast steps (all of
which are installed by the manufacturer), concrete block and
various ornamental pre-cast items.
For purposes of identifying items of the same kind sold by
this manufacturer, the three distinct types of products must be
considered separately. Therefore, the steps, the blocks and
the ornamentals are each items of the same kind.

(b) Offered for sale in the regular course of business means that a person
sells in excess of 10 percent of his product for each 12 month period beginning
December 1st, measured by weight, volume, size or other unit on which the price is
based, to persons other than organizations exempt under section 1116(a) of the Tax
Law. For the purpose of this calculation, the amount of product sold to all persons
except exempt organizations will constitute the numerator of the fraction and the
total amount of the product sold and used in performing work for others, with the
exclusion of products sold to or used in performing work for exempt organizations,
will constitute the denominator. When it is determined that a person is selling in
excess of 10 percent of his product in the regular course of business as defined
herein, he will be considered a person required to pay compensating use tax on the
basis set forth in subparagraph (i) of this paragraph. The formula to be used in
determining whether the product is being sold in the regular course of business is:
Tot. amt. sold minus amt. sold to exempt organizations
Tot. amt. sold and used minus (amt. sold to plus amt. used for ex. organ.)
*

*

*

(ii) If the user does not offer items of the same kind for sale in the regular
course of business as described in subparagraph (i) of this paragraph, the basis on
which use tax is computed is the consideration given or contracted to be given for
the tangible personal property manufactured, processed or assembled into the
tangible personal property the use of which is subject to tax, including any charges
by the user’s seller to the user for shipping or delivery of that property to the user.
*

*

*

(2)(i) Where a manufacturer, processor or assembler fabricates its
manufactured, processed or assembled product and installs it to the specifications of
a capital improvement to real property, the value added by this fabrication is not
included in the basis on which compensating use tax is computed. However, the
installation by the manufacturer, processor or assembler of its fabricated product to

-8­
TSB-A-03(23)S
Sales Tax
May 12, 2003
the specifications of a capital improvement to real property is a use of the product
subject to compensating use tax. The basis on which the use tax is computed
depends on whether the manufacturer, processor or assembler offers its fabricated
product for sale in the regular course of business.
*

*

*

(iii) If the manufacturer, processor or assembler does not offer its fabricated
product for sale in the regular course of business, the basis on which use tax is
computed is the consideration given or contracted to be given for the tangible
personal property manufactured, processed or assembled into the tangible personal
property the use of which is subject to tax, including any charges by the user’s seller
to the user for shipping or delivery of the raw material to the user.
Section 541.1 of the Sales and Use Tax Regulations provides, in part:
*

*

*

(b) The principal distinguishing feature of a sale to a contractor, as compared
to a sale to other vendors who purchase tangible personal property for resale, is that
the sale of tangible personal property to a contractor for use or consumption in
construction is a retail sale and subject to sales and use tax, regardless of whether
tangible personal property is to be resold as such or incorporated into real property
as a capital improvement or repair. . . .
*

*

*

(c) Receipts from the performance of a capital improvement to real property
by a contractor are not subject to the sales tax.
*

*

*

(g) Guarantee and warranty work. (1) Payments by a contractor to another
contractor to perform maintenance, service and repair of real and tangible personal
property when purchased to fulfill a guarantee or warranty are not subject to tax.
(2) Where a contractor services real or tangible personal property and a
charge is made to the customer, the charge is subject to the tax even though some of
the work is performed partially under a guarantee or warranty.
(3)(i) The contractor is not entitled to a refund or credit of the tax paid on the
purchase of tangible personal property used in guarantee or warranty work in the
performance of a capital improvement.

-9­
TSB-A-03(23)S
Sales Tax
May 12, 2003
(ii) If the guarantee or warranty work is on a repair to real property, tangible
personal property or tangible personal property that remains tangible personal
property after installation, a refund or credit may be claimed by the contractor for the
tax paid on the materials and parts transferred to the customer, whether or not a
charge is made to the customer for the guarantee or warranty work, providing the
claim is timely submitted as set forth in Part 534 of this Title. However, if any
charge is made to the customer, the charge is subject to tax.
Section 541.5 of the Sales and Use Tax Regulations provides, in part:
*

*

*

(b) Capital improvements contracts. (1) Purchases. All purchases of tangible
personal property . . . which are incorporated into and become part of the realty or
are used or consumed in performing the contract are subject to tax at the time of
purchase by the contractor or any other purchaser. A certificate of capital
improvement may not be validly given by any person or accepted by a supplier to
exempt the purchase of these materials.
(2) Labor and material charges. All charges by a contractor to the customer
for adding to or improving real property by a capital improvement are not subject to
tax provided the customer supplies the contractor with a properly completed
certificate of capital improvement.
*

*

*

(4)(i) When a properly completed certificate of capital improvement has been
furnished to the contractor, the burden of proving the job or transaction is not taxable
and the liability for the tax rests solely upon the customer.
(a) The prime contractor should obtain a certificate of capital improvement
from the customer and retain it as part of his records. Copies of such certificate must
be furnished to all subcontractors on the job and retained as part of their records.
(Emphasis added)
(b) A certificate of capital improvement may not be issued by a contractor,
subcontractor or any other person to a supplier on the purchase of tangible personal
property.
(ii) Where a contractor does not receive a capital improvement certificate
from a customer, the contract or other records of the transaction will prevail. In such
case:

-10­
TSB-A-03(23)S
Sales Tax
May 12, 2003
(a) where the contractor does not receive a capital improvement certificate,
collects tax on the full invoice price and the job is a capital improvement to real
property, the contractor is liable for the tax on the cost of materials incorporated into
the job, plus the tax collected from the customer. The customer is entitled to a
refund of the tax paid to the contractor; or
(b) where the contractor does not receive a capital improvement certificate,
collects no tax on the charges billed to the customer and the job is a capital
improvement to real property, the contractor is liable for the tax on the cost of
materials incorporated into the job performed.
(iii) If a contract includes the sale of tangible personal property which
remains tangible personal property after installation, the contractor must collect the
appropriate New York State and local taxes from the customer on the selling price,
including any charge for installation, of the tangible personal property unless a
properly completed exemption certificate is issued by the customer. The contractor
may apply for a credit or refund of taxes he has paid on purchases of the tangible
personal property that remain tangible personal property after installation.
*

*

*

(d)(1)(i) Charges for . . . installation of tangible personal property which
retains its identity as tangible personal property are taxable to the customer based on
the full invoice price.
(ii) Some items of tangible personal property that retain their identity as
tangible personal property after installation are:
*

*

*

(c) free-standing shelves, counters, bars . . .
*

*

*

(iii) A subcontractor must collect tax on all his charges to a prime contractor
for . . . installation of tangible personal property unless the prime contractor issues
a properly completed exemption certificate or a capital improvement certificate to
the subcontractor.
Section 541.11 of the Sales and Use Tax Regulations provides, in part:
(a) Fabricators and manufacturers who install their fabricated or
manufactured product into real property are contractors.

-11­
TSB-A-03(23)S
Sales Tax
May 12, 2003
(b) Fabricators as contractors. (1) When a contractor-fabricator purchases
tangible personal property which he fabricates and installs to the specifications of a
capital improvement, the value added by such fabrication is not subject to the use
tax.
Opinion
Transaction 1
Petitioner contracts with a customer to measure and install a custom kitchen counter top.
The job is measured by one of Petitioner’s employees or subcontractors who ultimately installs the
counter top after it is fabricated. Petitioner currently maintains a blanket resale certificate on file for
the customer since the customer also buys and stocks other products that are not installed by
Petitioner. Petitioner bills its customer for the fabrication and installation and does not charge sales
tax on the job. If a subcontractor is used, the subcontractor bills Petitioner to install the job.
Petitioner’s customer charges its customer (the ultimate consumer or contractor) sales tax on the
installed job.
Question 1
(a) Should Petitioner charge sales tax for this job and to whom? If so, what part of the job is
taxable?
Answer

In this transaction, Petitioner’s customer is acting in the capacity of a general
contractor and Petitioner is acting as its customer’s subcontractor. See Affordable
Homes, Inc., Adv Op State Tax Commission, May 28, 1986, TSB-A-86(21)S. The
taxability of charges by a contractor to a customer depends on the nature of the job
(capital improvement or installation of tangible personal property) being performed.
The installation of the custom-made counter top by Petitioner generally constitutes
a capital improvement to real property where the installation is intended to be
permanent. See Custom Design Kitchens, Inc., Adv Op Comm T&F, October 7,
1996, TSB-A-96(66)S. In that case, Petitioner is not required to collect sales tax
from its customer on the sale of the installed, permanent counter top, provided
Petitioner obtains a copy of Form ST-124, Certificate of Capital Improvement, from
its customer, within 90 days from the date of performing the capital improvement.
See William J. McAteer, CPA, Adv Op Comm T&F, December 1, 1999,
TSB-A-99(56)S; G & I Homes, Inc., Adv Op Comm T&F, April 21, 1995,
TSB-A-95(11)S; Affordable Homes, Inc., supra. If Petitioner obtains such a timely
and properly completed exemption document in good faith, Petitioner cannot be held
liable for sales tax it did not collect from its customer. See Section 1132(c) of the
Tax Law. (It is noted that the use of Form ST-120, Resale Certificate, for this
transaction is not appropriate).

-12­
TSB-A-03(23)S
Sales Tax
May 12, 2003
Any contractor who is making a capital improvement must pay tax on the cost of
materials to him, as he is the ultimate consumer of the tangible personal property.
See Section 527.7(b)(5) of the Sales and Use Tax Regulations. Generally the
contractor must pay sales tax on such materials at the time of purchase in accordance
with Section 1101(b)(4) of the Tax Law. Therefore, if Petitioner has not paid sales
tax on its purchase of materials used to fabricate a counter top it installs as a capital
improvement, Petitioner is subsequently required to pay tax on such materials. See
William J. McAteer, CPA, supra; Custom Design Kitchens, Inc., supra; Affordable
Homes, Inc., supra.
If Petitioner’s installation of the custom counter top does not qualify as a capital
improvement because the counter top is not intended to be permanent, then
Petitioner’s entire charge (for both materials and labor) to its customer is subject to
State and local sales and use taxes. Custom Design Kitchens, Inc., supra. Petitioner
must collect tax on such total charge (unless its customer provides substantiation that
an exemption from tax exists), and Petitioner would then be entitled to a refund or
credit of the tax paid on those materials incorporated into real property or later
transferred to the customer in conjunction with Petitioner’s performance of this
taxable installation service. See Section 1119(c) of the Tax Law.
(b) Should Petitioner be paying tax on materials used to fabricate this custom counter top? If so,
is Petitioner entitled to any credit for taxes collected by its customer?
Answer

Yes. Petitioner is required to pay sales and use tax based on the cost of the materials
contained in the counter top including any charges for shipping or delivery of such
materials.
When Petitioner installs a counter top that does not qualify as a capital improvement
to real property, Petitioner is entitled to a refund or credit of sales and use tax which
Petitioner has paid on the purchase of materials used to make such counter top, in
accordance with Section 1119(c) of the Tax Law.
The basis on which use tax is computed depends on whether Petitioner offers items
of the same kind for sale in the regular course of business. For purposes of
identifying items of the same kind sold by Petitioner, since the cultured marble and
the Corian (and similar) products are two distinct types of products, they must be
considered separately. Since the custom counter top is an item made to the
specifications of a particular job, it is not considered an item of the same kind with
catalog or inventory sales. See Section 531.3(b)(1)(i)(a) of the Sales and Use Tax
Regulations. Since Petitioner is required to install the Corian in order for the
manufacturer’s warranty to apply, it is assumed that Petitioner is not selling in excess
of 10% of the Corian without installation. Therefore, provided Petitioner is not
selling (without providing installation) in excess of 10% of “similar products” which

-13­
TSB-A-03(23)S
Sales Tax
May 12, 2003
would necessitate the alternative computation for the basis of use tax, as described
in Section 531.3(b)(1)(i)(b) of the Sales and Use Tax Regulations, its use tax may be
computed on the consideration given for the cost of the materials. See Section
531.3(b)(1)(ii) of the Sales and Use Tax Regulations.
It is noted that if the portion of Petitioner’s sales of any standardized items of its
cultured marble product is more than 10%, then the basis on which use tax would be
computed for such items of the same kind being installed by Petitioner would be
based on the retail selling price of the product and not the cost of materials.
(c) Should there be any tax charges by or to Petitioner’s subcontractor who installs the job?
Answer

A subcontractor must collect tax on all its charges to a prime contractor for installing
real and tangible personal property unless the prime contractor issues a timely and
properly completed exemption document to the subcontractor. See Section 1132(c)
of the Tax Law.
In this case, the subcontractor’s charge to Petitioner for the installation of a counter
top which qualifies as a capital improvement is not subject to New York State and
local sales and use taxes. Petitioner should provide the subcontractor with a copy of
the Form ST-124, Certificate of Capital Improvement, that was provided to
Petitioner by its customer. See William J. McAteer, CPA, supra; G & I Homes, Inc.,
supra. The subcontractor must retain a copy of this form for its records. The
subcontractor is responsible for the tax on its materials incorporated into the job as
discussed in Question 1(a) above.
With regard to the installation of a counter top that does not qualify as a capital
improvement, Petitioner may purchase the subcontractor’s service exempt from tax.
Petitioner should issue the subcontractor a timely and properly completed Form
ST-120.1, Contractor Exempt Purchase Certificate indicating that the service will
be resold. As discussed in Question 1(a) above, the subcontractor would then be
entitled to a refund or credit of sales or use tax which it has paid on the purchase of
materials used to perform such installation.

(d) Would the answers to the above three questions be the same if Petitioner’s customer is a builder
who is building a house to sell at a later date?
Answer

Yes.

(e) If Petitioner’s customer is such a builder, can the builder issue Petitioner a capital improvement
or a resale certificate?

-14­
TSB-A-03(23)S
Sales Tax
May 12, 2003

Answer

Form ST-120, Resale Certificate, should only be used by retailers, not contractors.
See New York State Department of Taxation and Finance Sales and Use Tax
Classifications of Capital Improvements and Repairs to Real Property, Publication
862 (4/01), page 6. As a contractor and property owner in this case, the builder may
issue Petitioner Form ST-124, Capital Improvement Certificate, when purchasing the
installation of a counter top that constitutes a capital improvement to such property.

Transaction 2
The same facts as Transaction 1 except Petitioner does not have a resale certificate on file
for the customer, nor does the customer provide any type of exemption certificate. Petitioner installs
the custom counter top and charges sales tax on the entire job to the customer.
Question 2
(a) Should Petitioner be charging sales tax for this job? If so, what part of the job is taxable?
Answer

Having received no documentation from its customer to verify that the installation
of the counter top is eligible for the capital improvement exclusion provided in
Section 1105(c)(3)(iii) of the Tax Law, or that the installation is being purchased for
resale, Petitioner’s total charge (labor and materials) to its customer for such
installation is presumptively subject to tax. See Crystal Telecom, Corp., Adv Op
Comm T&F, July 25, 2002, TSB-A-02(37)S. However, where a contractor does not
receive a Certificate of Capital Improvement from a customer for a qualifying capital
improvement job, or a Contractor Exempt Purchase Certificate, the contract or other
records of the transaction will prevail. See Section 541.5(b)(4)(ii) of the Sales and
Use Tax Regulations. Petitioner’s failure to receive an exemption certificate from
its customer does not preclude Petitioner from proving the nontaxability of the
transaction by the presentation of other documentation. See Section 532.4(b)(6) of
the Sales and Use Tax Regulations.

(b) Should Petitioner be paying tax on materials to fabricate this custom counter top? If so, is
Petitioner entitled to any credit for sales tax which it collected from its customer?
Answer

Petitioner is required to pay sales and compensating use tax on materials used if it
is performing a capital improvement contract.
If the contract includes the sale of a counter top which remains tangible personal
property after installation, in the absence of a properly completed exemption
document Petitioner must collect and remit the appropriate New York State and local
sales taxes on the total charge to its customer. Crystal Telecom, Corp., supra.
Petitioner may then apply for a credit or refund of taxes it has paid on the portion of

-15­
TSB-A-03(23)S
Sales Tax
May 12, 2003
the materials used in the performance of this taxable installation service. See Section
541.5(b)(4) of the Sales and Use Tax Regulations.
(c) Should there be any tax charged by or to Petitioner’s subcontractor who installed the job?
Answer

The subcontractor should collect tax on all its charges to Petitioner for installing
tangible personal property, unless Petitioner issues a timely and properly completed
exemption document to the subcontractor.
For installations that are capital improvements, the subcontractor’s charge to
Petitioner is not subject to sales and use tax. Petitioner should furnish the
subcontractor with a copy of Form ST-124, Certificate of Capital Improvement,
which was provided to Petitioner by its customer. The subcontractor is responsible
for the tax on its materials incorporated into the job.
For installations that are not capital improvements, Petitioner may purchase the
subcontractor’s service exempt from tax. Petitioner should furnish the subcontractor
a timely and properly completed Form ST-120.1, Contractor Exempt Purchase
Certificate. The subcontractor would then be entitled to a refund or credit of sales
or use tax which it has paid on the purchase of materials used to perform the
installation. See Question 1(c).

Transaction 3
Petitioner does warranty work for another manufacturer. The other manufacturer
(Petitioner’s customer) provides all material for the job, such as replacement parts. Petitioner will
replace or fix the warranty item in question. Petitioner will bill its customer, not the consumer for
whom the work is ultimately being done.
Question 3
(a) Should Petitioner be charging sales tax for this job?
Answer

Since Petitioner’s customer (the manufacturer) is required to provide the warranty
repair and maintenance work (whether as part of the original sale or an extended
warranty), such work, when done by Petitioner is considered for resale. See Matter
of Castomatic, Division of Arwood Corp., State Tax Commission, April 14, 1983,
TSB-H-83(62)S. Accordingly, the repair and maintenance warranty work Petitioner
provides to the manufacturer are services the manufacturer purchases for resale and
are not subject to tax. In some instances the warranty work performed by Petitioner
may not be taxable due to the fact that it constitutes part of a capital improvement.
The manufacturer should timely furnish Petitioner with a properly completed

-16­
TSB-A-03(23)S
Sales Tax
May 12, 2003
exemption document. See British Telecom (CBP) Inc., Adv Op St Tx Comm,
January 18, 1990, TSB-A-90(3)S; Castomatic, Division of Arwood Corp., supra.
(b) May Petitioner accept a resale certificate or capital improvement certificate from the customer?
Answer

If the manufacturer is a retailer (sells uninstalled products at retail), Petitioner may
accept Form ST-120, Resale Certificate, from the manufacturer. If the manufacturer
is a contractor (sells installed products as part of capital improvement projects),
Petitioner should obtain an ST-120.1, Contractor Exempt Purchase Certificate,
instead. If the warranty work constitutes part of a capital improvement, Petitioner
should obtain Form ST-124, Certificate of Capital Improvement. See discussion
below with respect to purchases of materials by Petitioner for use in performing
warranty work.

Transaction 4
The same facts apply from Transaction 3 above, except Petitioner uses some materials, such
as lumber and adhesives, that are not provided by its customer.
Question 1
(a) Should Petitioner be charging sales tax for this job?
Answer

No, provided it receives a timely and properly completed exemption document from
its customer. See Question 3(a).

(b) Should Petitioner be paying sales and use tax on materials used on this job?
Answer

Yes, if the warranty repair materials are constituent parts of a qualifying capital
improvement project. Petitioner is not entitled to a refund or credit of any tax paid
on the purchase of materials used in warranty work made in conjunction with a
qualifying capital improvement. See Section 541.1(g)(3)(i) of the Sales and Use Tax
Regulations.
If the warranty work performed is not in conjunction with a qualifying capital
improvement, but rather is a repair, Petitioner may claim a refund or credit for tax
paid on materials and parts transferred to its customer in connection with the repair
and maintenance service provided under the warranty agreement. See Section
541.1(g)(3)(ii) of the Sales and Use Tax Regulations.

-17­
TSB-A-03(23)S
Sales Tax
May 12, 2003
(c) May Petitioner accept a resale certificate or capital improvement certificate from its customer?
Answer

With respect to work performed by Petitioner to fulfill its customer’s warranty,
Petitioner’s customer should furnish Petitioner with either a resale certificate or a
contractor exempt purchase certificate or capital improvement certificate as
explained in Question 3(b) above.

DATED: May 12, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.