Is the permanent installation of mirrors in homes a nontaxable capital improvement?

Plain-English summary

Robert Otto Inc. permanently installs mirrors in bathrooms, dining rooms, bedrooms, halls, and other spaces of new and renovated homes. The mirrors are affixed to the walls with a special mastic glue (and metal fasteners for large mirrors) so they won't fall. To remove one, it must be broken — it can't come off in one piece — and removal causes extensive damage to the wall, which then has to be re-sheetrocked, replastered, sanded, and refinished, or (for a wood panel) completely replaced. The company asked whether this installation is a capital improvement exempt from sales tax.

The Department said yes.

• The capital-improvement test. Under § 1101(b)(9) and § 527.7, a capital improvement is an addition or alteration that (i) substantially adds to the value or prolongs the useful life of the real property, (ii) becomes part of or is permanently affixed to the real property so that removal would cause material damage, and (iii) is intended to be permanent.
• The mirrors meet it. Glued so they must be broken to remove, causing extensive wall damage, and intended to stay, the installation is like installing tile walls — which the Department already treats as a capital improvement (Publication 862).
• Result. The permanent mirror installation is a capital improvement, so the charges to customers for the installation are not subject to sales tax under § 1105(c)(3).

What this means for you

Permanence and removal damage are what make an installation a capital improvement

The label on the job ("installation") doesn't decide the tax — the physical facts do. If what you install becomes part of the building, is meant to stay, and can't be removed without materially damaging the property, the labor is a nontaxable capital improvement. Mirrors glued so hard they must be shattered to remove clearly qualify; a mirror simply hung on clips would not.

The customer doesn't pay sales tax on a capital-improvement installation charge

When a job is a capital improvement, you do not charge the customer sales tax on the installation. The customer should give you a Certificate of Capital Improvement (Form ST-124) to document it. (For which certificate a contractor collects for capital-improvement versus repair work, see the Department's opinion TSB-A-90(45)S.)

You still pay tax on the materials

A capital improvement is tax-free to the customer on the labor/contract side, but the contractor is generally the consumer of the mirrors and mastic it buys and incorporates into the job, and pays sales or use tax on those materials. Capital-improvement treatment doesn't let you buy the materials tax-free.

Common questions

Q: Is installing mirrors in a home a taxable service?
A: Not when they're permanently affixed so removal causes material damage. That's a capital improvement, and the installation charge to the customer is not taxable.

Q: What makes it a capital improvement instead of a taxable installation?
A: The three-part test in § 1101(b)(9): it adds value or prolongs the property's life, is permanently affixed so removal causes material damage, and is intended to be permanent.

Q: Would loosely mounted, easily removable mirrors qualify?
A: No. If a mirror can be removed without materially damaging the property, the installation is generally a taxable service, not a capital improvement.

Q: Do I still pay tax on the mirrors and glue?
A: Yes. The contractor is the consumer of the materials and pays sales or use tax on them; only the customer's installation charge is exempt.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(9) — definition of capital improvement
• Tax Law § 1105(c)(3) — tax on installing tangible personal property, excluding installation that is a capital improvement
• 20 NYCRR § 527.7 — capital improvements

Guidance cited:

• NYS Dept. of Taxation and Finance, Publication 862, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property (1/90), at 13 (tile walls)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_29s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (29)S
Sales Tax
May 29, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900425B

On April 25, 1990 a Petition for Advisory Opinion was received from Robert Otto Inc., Box
500, Wainscott, New York 11875.
The issue raised by Petitioner, Robert Otto Inc., is whether the installation of mirrors in
newly constructed and renovated homes are considered to be capital improvements exempt from the
imposition of sales tax.
Petitioner permanently installs mirrors in new and renovated homes. The mirrors are installed
in bathrooms, dining rooms, living rooms, bedrooms, halls, etc. The mirrors are permanently affixed
to the walls with a mastic glue made especially for the purpose of affixing them permanently so they
will not fall or come off. In addition, metal fasteners are used when the mirrors are of a large
dimension. When the mirrors are removed, they must be broken as they cannot be removed in one
piece because of the glue. The surface from which they are removed must be replaced with new sheet
rock, replastered, sanded and a finish applied in the case of a plaster wall. If the mirrors were applied
to a wooden panel, the panel must be completely removed and replaced. The removal of the mirrors
causes extensive damage to the surface to which they had been attached.
Section 1101(b)(9) of the Tax Law and Section 527.7 of the Sales and Use Tax Regulations
define the term capital improvement as an addition or alteration to real property (i) which
substantially adds to the value of the real property, or appreciably prolongs the useful life of the real
property, and (ii) 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 (iii) is
intended to become a permanent installation.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 1105(c)(3) of the Tax Law imposes a tax on receipts from the service of "Installing
tangible personal property. . . except for. . .installing property which, when installed, will constitute
an addition or capital improvement to real property. . ."
The Department has previously determined that the installation or replacement of tile walls
constitutes capital improvements within the meaning and intent of Section 1101(b)(9) of the Tax
Law. See New York State Department of Taxation and Finance, New York State and Local Sales
and Use Tax Classifications of Capital Improvements and Repairs to Real Property, Publication 862
(1/90), at 13.
TP-9 (9/88)

-2­
TSB-A-90 (29)S
Sales Tax
May 29, 1990

The permanent installation of mirrors in new and renovated homes is similar to the
installation of tile walls in such homes and thus such installation constitutes a capital improvement
in accordance with Section 1101(b)(9). Therefore charges to the Petitioner's customers for such
installation would not be subject to the imposition of sales tax in accordance with the meaning and
intent of Section 1105(c)(3) of the Tax Law.

DATED: May 29, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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