NY TSB-A-24(54)S Sales Tax 2024-11-12

If a customer won't sign a capital improvement certificate (Form ST-124) and asks to be charged tax, must the contractor collect sales tax on the installation work?

Short answer: Yes. Without a timely, properly completed Form ST-124, the contractor must collect and remit sales tax on both the installed property and the installation charges. Because the contractor already paid tax on the materials it bought, it may claim a credit (Tax Law § 1119(c)) against its sales tax liability for that period.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A contractor renovated a retail store — installing new track lighting, new circuits and data cables for checkouts, additions to the fire-alarm system, and reconnecting equipment. It believed most of the work (about 90%) was new installation that could qualify as a capital improvement. But the customer would not sign a capital improvement certificate (Form ST-124) and instead asked the contractor to charge sales tax.

The Office of Counsel's answer is straightforward: without a timely, properly completed exemption certificate, the contractor must collect and remit sales tax on both the installed property and the installation charges. Normally, installing tangible personal property is taxable (Tax Law § 1105(c)(3)), with a carve-out when the result is a capital improvement (§ 1105(c)(3)(iii)). But the capital-improvement treatment depends on the customer giving the contractor a signed Form ST-124, which the contractor accepts in good faith. No certificate, no exemption — the contractor charges tax.

Because the contractor already paid sales tax on the materials when it bought them (a contractor can't buy materials for resale), it isn't taxed twice: it may claim a credit under Tax Law § 1119(c) for the tax it paid on those materials, applied to its sales tax liability for the period the work was performed.

The opinion also flags a trap for tenant work: alterations made for or by a tenant on leased premises are presumed temporary and usually don't qualify as capital improvements — and if the lease requires removal at the end of the term, the work cannot be a capital improvement because it isn't intended to be permanent.

What this means for you

Contractors

The capital-improvement exemption runs on paperwork. If the customer won't give you a properly completed Form ST-124 (even if you think the job qualifies), you must charge sales tax on the materials and the installation labor. Don't treat a job as exempt on your own judgment without the certificate.

You won't be double-taxed

You paid tax on the materials when you bought them. When you then have to collect tax from the customer (because there's no ST-124), claim the § 1119(c) credit for the material tax against your sales tax liability for that period so the same materials aren't taxed twice.

Tenant / leased-space improvements

Be cautious calling tenant build-outs capital improvements. They're presumed temporary, and if the lease requires removal at lease-end, they can't be capital improvements. The lease terms can decide taxability.

Common questions

Q: The job really is a capital improvement. Do I still charge tax if the customer won't sign ST-124?
A: Yes. Without a timely, properly completed Form ST-124 accepted in good faith, you must collect and remit sales tax on the installed property and the installation charges.

Q: Will the materials be taxed twice?
A: No. You paid tax on the materials at purchase; you can claim a credit under § 1119(c) for that tax against your sales tax liability for the period you did the work.

Q: Are improvements I make for a tenant capital improvements?
A: Usually not automatically. Tenant alterations on leased premises are presumed temporary, and if the lease requires removal at the end of the term they can't be capital improvements.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. It states the Department's general approach, but confirm your specific facts and certificates.

Citations and references

Statutes and regulations:
- Tax Law § 1105(c), (c)(3), (c)(5) (taxable services; installing TPP; real-property work)
- Tax Law § 1105(c)(3)(iii) (capital-improvement exception)
- Tax Law § 1101(b)(9) (definition of capital improvement)
- Tax Law § 1119(c) (credit for tax paid on materials)
- 20 NYCRR 527.7(a)(1), (a)(3)(i); 541.1(c); 541.2(g); 541.5(d)

Decisions and guidance cited:
- Matter of Manufacturers and Traders Trust Company (Tax Appeals Tribunal, Sept. 23, 2004); Matter of Flah's of Syracuse v. Tully, 89 AD2d 729 (3d Dept. 1982)
- TSB-A-09(10)S; TSB-A-11(26)S; TSB-A-15(32)S; TSB-A-15(48)S; TSB-A-16(28); TB-ST-130; Publication 862

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-54s.htm
Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-54s.pdf

Original ruling text

TSB-A-24(54)S
Sales Tax
November 12, 2024

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ REDACTED ] (Petitioner). Petitioner asks whether its labor is taxable when the customer refuses to provide a capital improvement certificate. We conclude that, if the customer fails or refuses to provide a capital improvement certificate, Petitioner should collect and remit tax on the charges for the installations.

Facts

Petitioner, a contractor, was hired to renovate a retail store. Petitioner installed new track lighting, new circuits and data cables for checkouts, and other items within a retail store. Petitioner also disconnected replaced equipment and connected new circuits and equipment within the store. Finally, Petitioner made additions to the existing fire alarm system to ensure code compliance. Petitioner asserts ninety percent of the labor performed was new installations. The remainder of the labor was replacement of existing equipment connected to either new or existing circuits. The customer did not provide a capital improvement or other exemption certificates to Petitioner, but instead requested that Petitioner charge sales tax.

Analysis

Tax Law § 1105(c) imposes sales tax on receipts from every sale, except for resale, of certain enumerated services. Tax Law § 1105(c)(3) imposes sales tax on receipts from the installation of tangible personal property, and Tax Law § 1105(c)(5) imposes tax on sales receipts for “maintaining, servicing or repairing” real property. Such services include all activities related to keeping property in a condition of fitness, efficiency, readiness or safety, or restoring it to such condition. Tax Law § 1105(c)(5); 20 NYCRR 527.7(a)(1), 541.5(d); see TSB-A-15(32)S.

However, Tax Law § 1105(c)(3)(iii) carves out an exception when the property installed constitutes a capital improvement to real property. Tax Law § 1105(c)(3)(iii); 20 NYCRR 541.1(c). A capital improvement is an addition or alteration of real property that (a) substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property; (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; and (c) is intended to be a permanent part of the real property. Tax Law § 1101(b)(9); 20 NYCRR 527.7(a)(3)(i), 541.2(g).

It should be noted that, as a general rule, additions or alterations to real property for or by a tenant with respect to leased premises are presumed to be temporary in nature and do not qualify as capital improvements. Permanence may be contingent on whether the installation premises is leased or owned by the customer. Matter of Manufacturers and Traders Trust Company, Tax Appeals Tribunal (September 23, 2004); see Matter of Flah’s of Syracuse, Inc. v. Tully et al., 89 AD2d 729, 730 (3d Dept. 1982). Moreover, the lease terms may dictate whether the installation of tangible personal property is intended to be permanent. Id. For example, the lease may require removal of installations upon termination of the tenancy. Those installations cannot be capital improvements, because they are not intended to be permanent. However, if the lease does not require removal of an otherwise qualified capital improvement installation, the threshold for permanence may be met. TSB-A-09(10)S; TSB-A-11(26)S.

A contractor cannot purchase materials and supplies for resale and must pay sales tax to the supplier on the receipt for those materials and supplies at the time of purchase. In the case of a capital improvement, the customer should sign and provide a properly completed capital improvement certificate (Form ST-124) to the contractor. If the contractor accepts the certificate in good faith, the contractor is relieved of the duty to collect sales tax. TSB-A-16(28); TSB-A-15(32)S. The contractor does not collect sales tax for those materials and supplies from the customer. TSB-A-15(32)S; see Publication 862, p. 8.

In the absence of a timely and properly completed exemption certificate, the contractor must collect and remit sales tax for the installed property and the installation service from the customer. If the customer fails to provide an exemption certificate or the project is not a capital improvement, the contractor may claim a credit against its existing sales tax liabilities in certain circumstances. Tax Law § 1119(c); TB-ST-130; TSB-A-15(48)S. The credit represents the tax the contractor paid upon the initial purchase of the materials for a project. To qualify for the credit, the contractor must have paid tax for the materials. Id. The credit applies to the contractor’s sales tax liability for the period when the work was performed. TB-ST-130.

Here, Petitioner’s customer did not provide a capital improvement certificate and instead requested that Petitioner collect sales tax on the installed property and the installation charges. Under these circumstances, Petitioner should collect sales tax on the tangible personal property installed and the installation charges and may take a credit for the sales tax it paid on the purchase of those materials.

DATED: November 12, 2024

MARY ELLEN LADOUCEUR
Principal Attorney

Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.