Are a contractor's charges for mold-mitigation work on homes damaged by fire subject to New York sales tax?

Plain-English summary

A contractor's sole business is mold mitigation in homes damaged by fire: after a fire is put out, the resulting water damage leaves walls, ceilings, and flooring damp and musty, and the contractor removes those damaged structures and dries out what's left to keep mold from forming or spreading. The question was whether that work is a taxable service.

The Department held it's normally a taxable real-property repair. New York taxes services that "maintain, service, or repair" real property — meaning anything that keeps or restores property to a condition of fitness, efficiency, or safety — and mold mitigation after fire damage fits that description exactly: it's restoring damaged property to a usable condition, not adding new value that wasn't there before. Because it's a repair rather than a capital improvement (an addition that substantially adds value or prolongs useful life, becomes a permanent part of the property, and is intended to be permanent), the contractor must collect sales tax on its charges. It can, however, apply for a credit or refund of the sales tax it already paid on the materials that became part of the job.

There's an important exception: if the property owner or a general contractor is doing an entire capital-improvement project on the fire-damaged property — say, a full rebuild — and this contractor's mold-mitigation work is done as a subcontracted piece of that larger project, its work is swept into the overall capital improvement and stops being separately taxable. To get that treatment, the contractor needs a copy of the Certificate of Capital Improvement (Form ST-124) that the general contractor received from the property owner.

What this means for you

Mold remediation and fire-restoration contractors

Treat your mold-mitigation charges as taxable real-property repair services by default, and collect sales tax on them. You can offset some of that cost by claiming a refund or credit for the sales tax you paid on the materials that went into the job.

Subcontractors working under a general contractor on a rebuild

If your mold-mitigation or drying work is one piece of a bigger capital-improvement project (a full reconstruction, not just cleanup), ask the general contractor for a copy of the Certificate of Capital Improvement it received from the property owner. With that certificate in hand, your portion of the job is treated as part of the exempt capital improvement rather than a standalone taxable repair.

Homeowners and property owners after a fire

Expect your restoration contractor's mold-mitigation invoice to include sales tax unless that work is bundled into a certified capital-improvement rebuild of the property.

Common questions

Q: Is mold mitigation after a fire always taxable in New York?
A: By default, yes — it's a taxable repair to real property. It's only exempt when it's genuinely part of a larger capital-improvement project and the contractor holds a Certificate of Capital Improvement covering that work.

Q: Can the contractor recover the sales tax it already paid on materials?
A: Yes. Under Tax Law § 1119(c), a contractor performing a taxable repair can apply for a credit or refund of sales tax paid on materials that become part of the job or are transferred to the customer as part of the service.

Q: What paperwork makes mold-mitigation work part of an exempt capital improvement?
A: A properly completed Certificate of Capital Improvement (Form ST-124), passed down from the customer to the general contractor and then to the mold-mitigation subcontractor, covering that portion of the overall project.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(9) (definition of capital improvement)
• Tax Law § 1105(c)(3) (installing tangible personal property; capital-improvement exclusion)
• Tax Law § 1105(c)(5) (maintaining, servicing, or repairing real property)
• Tax Law § 1119(c) (contractor's credit/refund for materials used in a taxable service)
• 20 NYCRR 527.7 (maintaining/servicing/repairing real property; capital improvement definition)
• 20 NYCRR 541.2(g), 541.5(b)(4) (capital improvement definition and certificates)

Prior authority relied on:

• Matter of Saf-Tee Plumbing v Tully, 77 AD2d 1 (subcontractor's capital-improvement work)
• Ronald Webb Builder and Contractor Inc., TSB-A-03(2)S (contractor refund for materials used in a taxable repair)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(18)S
Sales Tax
July 22, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S031118B

On November 18, 2003, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Paul J. Carucci, 9 Scott Drive, New City, NY 10956.
The issue raised by Petitioner, Paul J. Carucci, on behalf of his client (“Client”) is whether
charges for services to homes that have suffered fire damage are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Client’s sole activity is to perform mold mitigation to homes that have suffered a fire. This
service is performed as part of the repair and reconstruction of the damaged property, and the
process involves the removal of damp and musty structures such as walls, ceilings, flooring, etc.,
and the drying of the underlying structures to mitigate the formation or spreading of mold.
Applicable law and regulations
Section 1101(b)(9) of the Tax Law, in part, defines a capital improvement as follows:
(i) 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.
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(iii) Notwithstanding the provisions of subparagraph (i) of this paragraph: (A) Floor
covering, such as carpet, carpet padding, linoleum and vinyl roll flooring, carpet tile,
linoleum tile and vinyl tile, installed as the initial finished floor covering in new construction
or a new addition to or total reconstruction of existing construction shall constitute an
addition or capital improvement to real property, property or land; and
(B) Floor covering, such as carpet, carpet padding, linoleum and vinyl roll flooring,
carpet tile, linoleum tile and vinyl tile, installed other than as described in clause (A) of this

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subparagraph shall not constitute an addition or capital improvement to real property,
property or land.
Section 1105(c) of the Tax Law imposes a tax on the receipts from every sale, except for
resale, of the following services:
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(3) Installing tangible personal property, excluding a mobile home, or maintaining,
servicing or repairing tangible personal property, including a mobile home, not held for sale
in the regular course of business, whether or not the services are performed directly or by
means of coin-operated equipment or by any other means, and whether or not any tangible
personal property is transferred in conjunction therewith, except:
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(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;...
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(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, as distinguished from adding to or improving such real property, property or land,
by a capital improvement as such term capital improvement is defined in paragraph nine of
subdivision (b) of section eleven hundred one of this article....
Section 1119(c) of the Tax Law provides, in part:
A refund or credit equal to the amount of sales or compensating use tax imposed by
this article and pursuant to the authority of article twenty-nine, and 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....

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Section 527.7 of the Sales and Use Tax Regulations provides, in part:
(a) Definitions. (1) Maintaining, servicing and repairing are terms which are used to
cover all activities that relate to keeping real property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition. Among the services included are
services on a building itself such as painting; services to the grounds, such as lawn services,
tree removal and spraying; trash and garbage removal and sewerage service and snow
removal.
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(3)(i) A capital improvement is an addition or alteration to real property:
(a) which substantially adds to the value of the real property, or appreciably prolongs
the useful life of the real property;
(b) which 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.
(ii) (a) Floor covering is a capital improvement only when it is installed as the initial
finished floor covering in new construction, in a new addition to existing construction or in
a total reconstruction of existing construction.
(b) The term floor covering includes carpet, carpet tile, carpet padding, linoleum and
vinyl roll floor covering, linoleum tile, vinyl tile and other similar floor coverings. For a
detailed discussion and description, see section 541.14 of this Title.
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(b) Imposition. (1) The tax is imposed on receipts from every sale of the services of
maintaining, servicing or repairing real property, whether inside or outside of a building.
*

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(4) The imposition of tax on services performed on real property depends on the end
result of such service. If the end result of the services is the repair or maintenance of real
property, such services are taxable. If the end result of the same service is a capital
improvement to the real property, such services are not taxable.
Example 9: The replacement of some shingles or patching of a roof is a repair, but
a new asphalt shingle roof is a capital improvement.

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Section 541.2(g) of the Sales and Use Tax Regulations provides, in part:
Capital Improvement. (1) A capital improvement means an addition or alteration to
real property, which:
(i) substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property;
(ii) 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
(iii) is intended to become a permanent installation.
Example 3: A homeowner hires a general contractor to remove a portion of a
masonary wall for the purpose of installing a door and window. The general
contractor hires a masonary contractor (subcontractor) to repair the wall. The charge
to the contractor by the subcontractor represents a constituent part of the services
performed in adding to or improving real property by a capital improvement and
therefore is not subject to tax in accordance with section 527.7(b)(4) of this Title.
(2)(i) A capital improvement does not include a contract for the sale and installation
of tangible personal property which when installed remains tangible personal property.
Section 541.5(b)(4) of the Sales and Use Tax Regulations provides, in part:
Documents; capital improvement contracts. (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.
(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:
(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

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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.
Opinion
Client’s sole business activity is mold mitigation. The service is performed only to homes
that have suffered water damage as a result of extinguishing a fire and is done as part of the repair
and reconstruction of the damaged property. The service involves the removal of damp and musty
structures such as walls, ceilings, flooring, etc. and the drying of the underlying structures to
mitigate the formation or spreading of mold.
Section 527.7 of the Sales and Use Tax Regulations defines maintaining, servicing or
repairing real property as the service of keeping real property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition. The service performed here is required due to
water damage sustained as a result of extinguishing a fire. The service of removing the damaged
walls, ceilings, and flooring and the drying of the underlying structures is a repair service necessary
to keep the real property in a condition of fitness, efficiency, or readiness. Such repair services to
real property are subject to sales tax under section 1105(c)(5) of the Tax Law, except as discussed
below. Pursuant to section 1119(c) of the Tax Law, Client may apply for a credit or refund of the
tax paid on the materials used to complete the taxable repair as an offset against the tax collected
from the customer, if such materials become a physical component part of the property upon which
the service is performed or are transferred to the purchaser in conjunction with the performance of
the service. See Ronald Webb Builder and Contractor Inc., Adv Op Comm T&F, January 24, 2003,
TSB-A-03(2)S.
Although Client’s services constitute the repair of real property, Client’s services might be
contracted by a contractor or land owner in conjunction with and as part of an overall capital
improvement being performed upon the damaged realty. Under such circumstances, to the extent
the service performed by Client becomes part of any capital improvement to the damaged property,
then the services would be considered to be part of the capital improvement and not subject to State

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or local sales tax. See section 527.7(b)(4) of the Sales and Use Tax Regulations. In such instances,
Client, as a subcontractor, should be provided with a copy of the Certificate of Capital Improvement
(Form ST-124) that was provided to the contractor by its customer. See Matter of Saf-Tee
Plumbing v Tully, 77 AD2d 1. See also, section 541.14 of the Sale and Use Tax Regulations for
special rules for capital improvements as related to repair and installation of flooring and floor
coverings.

DATED: July 22, 2004

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.