Which interior-design installations — floor coverings, shelving, cabinetry, drapery, blinds, lighting — are tax-free capital improvements, and who pays tax on the materials?

Plain-English summary

Hafner Associates, Inc., an interior designer, asked how sales tax applies to 20 different installations. The core rule: an installation is a tax-free capital improvement only if it meets all three tests in Tax Law § 1101(b)(9) — it (i) substantially adds to the value or useful life of the realty, (ii) becomes part of or is permanently affixed to the realty so that removal would cause material damage, and (iii) is intended to be permanent. Installing tangible personal property that stays tangible personal property is taxable under § 1105(c)(3) and 20 NYCRR § 541.2(g).

Applying that framework:

• Floor coverings — watch the June 1, 1989 change. For installations on or after June 1, 1989, floor coverings (carpet, pad, carpet tile, linoleum, vinyl) installed as the initial finished floor covering in new construction, a new addition, or a total reconstruction are a capital improvement regardless of installation method. Floor covering installed otherwise (for example, a renovation replacement that isn't part of a total reconstruction) is not a capital improvement and its installation is taxable. The amended rule applies to installations on or after June 1, 1989 unless the contract was signed before February 1, 1989 (in which case the old rule applies — carpet over an unfinished sub-floor is a capital improvement; S & Y Floor Covering).
• Custom-built cabinetry — capital improvement if truly permanent. Cabinetry affixed to a finished or newly renovated wall so that removal would cause material damage and that is intended to be permanent is a capital improvement (Matter of Flah's of Syracuse v. Tully). Intent matters: a lease requiring removal at the end of the term evidences a lack of permanent intent (Western Hills Operating Co., TSB-A-86(27)S).
• Taxable installations (not capital improvements): free-standing shelving bolted for safety, removable audio-visual casework, custom window blinds bolted/screwed to the casement, drapery and drapery rods (custom or not), and removable lighting — each fails the "permanent affixation / removal causes material damage" or "intended to be permanent" test (§ 1101(b)(9)(ii)-(iii)). Hafner must collect sales tax on the total charge for those installations (and may claim a refund/credit of tax it paid on the items).
• The ST-124 certificate and materials tax. A properly completed Form ST-124 (Certificate of Capital Improvement) taken within 90 days shifts the burden of proof to the customer — but accepting it does not relieve the contractor of tax. As the ultimate consumer, the contractor must pay sales tax on the materials it buys and incorporates (§ 527.7(b)(5)). When Hafner is the prime contractor buying the materials, it owes that tax even if a subcontractor does the installation.

What this means for you

If you install finishes and fixtures: Don't assume "affixed" means "capital improvement." New York requires permanent affixation whose removal causes material damage and a genuine intent to be permanent. Bolting something to a wall "for safety" (shelving), or hanging drapery, blinds, or removable lighting, is a taxable installation — charge tax on the whole job.

Floor covering has its own rule. Since June 1, 1989, floor covering installed as the initial finished floor in new construction, a new addition, or a total reconstruction is a capital improvement however it's fastened. Replacement flooring in an ordinary renovation is taxable. Check whether your contract predates February 1, 1989, which can preserve the older treatment.

As a contractor, you pay tax on your materials — the ST-124 doesn't change that. A capital-improvement certificate protects you on whether the job is taxable to the customer, but you're the consumer of the materials and owe tax on them. If you're the prime contractor, hiring a subcontractor to install doesn't shift that materials tax off you.

Common questions

Q: We bolted shelving and hung custom drapery — is that a capital improvement?
A: No. Bolted-for-safety shelving, drapery and rods, blinds screwed to the casement, and removable lighting aren't capital improvements. Their installation is taxable, so charge tax on the total.

Q: Is new carpet a capital improvement?
A: If installed as the initial finished floor in new construction, a new addition, or a total reconstruction (on or after June 1, 1989), yes — regardless of how it's fastened. Ordinary replacement carpet in a renovation is taxable.

Q: If the customer gives us an ST-124, do we still owe tax on the materials?
A: Yes. The certificate shifts the burden of proof on the job's taxability, but as the ultimate consumer you must pay sales tax on the materials you buy and install.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1105(c)(3) — tax on installing tangible personal property, except installations that are capital improvements
• Tax Law § 1101(b)(9) — three-part definition of "capital improvement"
• 20 NYCRR § 527.7 — installation; capital improvement; contractor as ultimate consumer (§ 527.7(b)(5))
• 20 NYCRR § 541.2(g) — capital improvement excludes property that remains tangible personal property when installed

Cases and prior opinions cited:

• Matter of Flah's of Syracuse, Inc. v. Tully, 89 AD2d 729
• Re Western Hills Operating Co., TSB-A-86(27)S (lease-removal clause negates permanent intent)
• S & Y Floor Covering, TSB-H-81(50)S (carpet over unfinished sub-floor)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89(15)S
Sales Tax
June 22, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890216A

On February 16, 1989, a Petition for Advisory Opinion was received from Hafner Associates,
Inc., 9 South Goodman Street, Rochester, New York 14607.
The issues raised are:
1.

Are carpet tiles, which are applied directly to an unfinished floor with self-releasing
glue, a capital improvement the first time they are installed in a new building?

2.

Is the replacement of the carpet tiles described in issue 1, for renovation purposes,
a capital improvement?

3.

Is carpet, which is tacked down with pad over an unfinished floor, a capital
improvement the first time it is installed in a new building?

4.

Is the replacement of the carpet described in issue 3, for renovation purposes, a
capital improvement?

5.

Is carpet, which is applied directly to an unfinished floor with glue, a capital
improvement the first time it is installed in a new building?

6.

Is the subsequent replacement of the carpet described in issue 5, for renovation
purposes, a capital improvement?

7.

Is freestanding shelving, that is bolted to a finished wall for safety, a capital
improvement? (The bolts leave sizable holes in the wall when removed. However,
this damage could be repaired.)

8.

Is the shelving, described in issue 7, which is bolted to an unfinished wall, a capital
improvement?

9.

Is freestanding shelving that is custom built for a space, but can be moved, a capital
improvement if it is bolted to a finished wall for safety?

10.

Is the shelving described in issue 9 a capital improvement if it is bolted to an
unfinished wall?

11.

Is audio visual casework that is affixed to a finished wall a capital improvement even
though it could be removed?

TP-9 (9/88)

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12.

Is audio visual casework that is affixed to an unfinished wall a capital improvement?

13.

Are custom made window blinds that are bolted or screwed to the window casement
a capital improvement? (The bolts would leave holes in the casement.)

14.

Is drapery that was custom made for a window (size, color, etc.) a capital
improvement if the user can leave the rod but remove the drapery?

15.

Is drapery that was custom made for a window (size, color, etc.) a capital
improvement if the user can remove both the rod and the drapery?

16.

Is removable lighting that is affixed to a wall or ceiling a capital improvement?
(Removal would leave damage that could be repaired.)

17.

In the event of a dispute with a customer over what constitutes a capital
improvement, is the seller relieved of any sales tax liability if the customer completes
and signs a capital improvement certificate?

18.

If the corporation purchases the materials for a capital improvement job from one
vendor and pays a different vendor for labor and installation, who is liable for the
collection and payment of the sales tax on the materials?

19.

Is custom built cabinetry, that is affixed to a finished wall, a capital improvement?

20.

Is the cabinetry discussed in issue 19 a capital improvement if it is affixed to a new
wall during renovation?

Petitioner performs interior designing and space planning services for clients. Included within
Petitioner's services are the specifying of fabrics and finishes, the providing of space layout
drawings, plans for non-structural partitions, furniture layouts, lighting plans, built-in cabinetry
plans, solutions to acoustical problems, the budgeting of projects, fire code compliance and
management of the project.
Section 1105(a) of the Tax Law imposes a tax on the receipts from every sale of tangible
personal property. Section 1105(c)(3) imposes tax upon the services of installing tangible personal
property, except for installing property which, when installed, will constitute an addition or capital
improvement to real property.
Section 1101(b)(9) of the Tax Law and Section 527.7(a)(3) of the Sales and Use Tax
Regulations define "capital improvement" as an addition to real property which "(i) substantially
adds to the value of the property, or appreciably prolongs the useful life of the real property; and (ii)

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June 22, 1989

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".
The work performed by the contractor must meet all three of the above requirements to be
considered a capital improvement.
Section 541.2 of the Sales and Use Tax Regulations states:
*
(g)

*

*

Capital improvement.
(2)

A capital improvement does not include:
(i)

A contract for the sale and installation of tangible personal property
which when installed remains tangible personal property;. . .

The criteria for determining the tax status of charges for the installation of floor covering has
been changed effective June 1, 1989. On and after June 1, 1989, floor coverings (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, a new addition to an existing building or
structure, or in a total reconstruction of an existing building or structure, constitutes a capital
improvement regardless of the method of installation.
Floor covering installed other than as described above does not qualify as a capital
improvement. The charge for installation of floor covering which does not qualify as a capital
improvement is subject to New York State and local sales tax. Thus floor covering installed other
than (1) in new construction, (2) in an addition to existing construction, or (3) in a total
reconstruction of an existing building or structure is not a capital improvement, and the installation
charge is subject to the sales tax regardless of the manner in which the covering is installed.
The amended rules with respect to floor covering apply to any installations occurring on and
after June 1, 1989, unless the contract for such installation was entered into prior to February 1,
1989.
The following applies to carpet, carpet pad and carpet tiles installed prior to June 1, 1989;
or installed on or after June 1, 1989 provided the contract for such installation was entered into prior
to February 1, 1989:
When carpeting is laid over a sub-floor (unpainted concrete, plywood etc.) which is not
intended for use without additional covering, the installation constitutes a capital improvement to
real property. See S & Y Floor Covering, Advisory OP State Tax Comm., February 19, 1981, TSBH-81(50)S.

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Accordingly, the original installation of self-gluing carpet tiles, or of wall-to-wall carpet by
either being glued or tacked down with pad over an unfinished floor in a new building or structure
will constitute a capital improvement. The installation of these same items over an unfinished floor,
for renovation purposes, will also be considered as a capital improvement.
The following applies to carpet, carpet pad and carpet tiles installed on or after June 1, 1989
unless the contract for such installation was entered into prior to February 1, 1989:
Self-gluing carpet tiles or wall-to-wall carpet which is glued down or which is tacked down
with pad and which is installed as the initial finished floor covering in new construction, a new
addition to an existing building or structure, or in a total reconstruction of an existing building or
structure, constitutes a capital improvement.
The installation of the carpet tiles or the wall-to-wall carpet (glued down or tacked down with
pad) for renovation purposes will be considered a capital improvement only if the installation results
from a total reconstruction of an existing building or structure. In those instances where the
installation of the replacement carpet is not part of a total reconstruction of an existing building or
structure, such installation will not be considered a capital improvement.
The installation of standard sized or custom built free standing shelving by bolting (for safety
purposes) such shelving to a new or an unfinished wall will not be considered a capital improvement.
Such installation will not result in a permanent affixation whereby the shelving is physically
incorporated into the real property nor whereby withdrawal of the bolts, for the purpose of removing
the shelving, causes material damage to either the shelving or the wall, as required under Section
1101(b)(9)ii of the Tax Law. Whereas the shelving is free standing and is fastened to the wall for
safety purposes only, the installation is not intended to be permanent as required under Section
1101(b)(9)(iii) of the Tax Law.
The installation of audio visual casework to a finished or an unfinished wall by a method
which will allow removal of such casework will not qualify as a capital improvement. Such method
of installation will not result in the audio casework being physically incorporated into the real
property nor cause material damage to occur to either the audio visual casework or the wall upon
removal of the audio visual casework, as required under Section 1101(b)(9)(ii) of the Tax Law.
Moreover, as the method of installation will allow removal of the audio visual casework, it is clear
that the installation is not intended to be permanent as required under Section 1101(b)(9)(iii) of the
Tax Law.
The installation of custom made window blinds, whereby the blinds are fastened to the
window casement by bolts or screws does not constitute a capital improvement as such installation
does not fulfill the requirements of Sections 1101(b)(9)(ii) or (iii) of the Tax Law.
The installation of a drapery rod and drapery, whether or not custom made for a particular
window, does not qualify as a capital improvement as such installation does not meet the
requirements of Sections 1101(b)(9)(ii) or (iii) of the Tax Law.

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The installation of removable lighting does not constitute a capital improvement as such
installation is not intended to be permanent as required under Section 1101(b)(9)(iii) of the Tax Law.
In those instances where a contractor is given a properly completed form ST-124 Certificate
of Capital Improvement by the customer within 90 days after rendering services, the burden of
proving the job or transaction was not taxable rests solely on the customer. However, if the
contractor has not been given a properly completed Certificate of Capital Improvement within 90
days, the work performed will be deemed to have been a taxable transaction. In such an instance, if
the contractor fails to pay the appropriate tax on the full amount of the contract, the contractor will
be required to bear the burden of proving the transaction was exempt. It is noted that acceptance of
this certificate by a contractor does not relieve the contractor of the liability for payment of sales tax.
The contractor must pay sales tax on the purchase of building materials or other tangible personal
property incorporated into the real property as a capital improvement.
Section 527.7(b)(5) of the Sales and Use Tax Regulations states:
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.
Accordingly, whenever Petitioner acts as the general or prime contractor on a project and
purchases materials for incorporation into such project, Petitioner will be liable for paying sales tax
on the cost of such materials. The fact that Petitioner hires a subcontractor to perform the installation
of such materials will not relieve Petitioner from being liable for the sales tax due on the purchase
of the materials.
The installation of custom built cabinetry, where the cabinets are fastened to a finished wall
or a new wall resulting from a renovation, will qualify as a capital improvement provided such
installation meets the criteria of Section 1101(b)(9) of the Tax Law.
The pertinent criteria to consider in determining whether the installation constitutes a capital
improvement includes the permanency of the affixation of the improvements to the related realty,
whether the improvements can be readily removed without damage to them or the realty, and
whether the improvements were intended as permanent installations. Matter of Flah's of Syracuse,
Inc. vs Tully, (89 AD2d 729).

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Accordingly, the installation of the custom built cabinetry will qualify as a capital
improvement where such cabinetry is permanently affixed to a finished or newly renovated wall in
such a manner that removal would cause material damage to the cabinetry or the wall and it can be
shown that such installation is intended to be permanent.
The intention of permanence must be determined based upon the circumstances of the
particular installation. For instance, the installation of an improvement in a leasehold where the
provisions of the lease require the lessee to remove the improvement upon termination of the lease
evidences an intent to not make a permanent installation, notwithstanding the affixation of the
installation with a great degree of apparent permanence (RE Western Hills Operating Co., Advisory
OP State Tax Comm., July 21, 1986, TSB-A-86(27)S.
It is noted that the installation of the items mentioned above, with the exception of the
installations of the carpeting items and custom cabinetry when qualifying as a capital improvement,
constitute the installation of tangible personal property which when installed remains tangible
personal property.
Accordingly, Petitioner is liable for collecting sales tax from customers based on the total
charges for those installations. Petitioner is entitled to a refund or credit of any sales tax paid on the
purchase price of such items.

DATED: June 22, 1989

s/FRANK J. PUCCIA
Director
Taxpayer Services Bureau

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