Is installing a new solid epoxy floor over an existing concrete floor a taxable service or an exempt capital improvement?

Plain-English summary

Whirlwind Music Distributors bought a vacant former injection-molding building and spent over $350,000 renovating it for use as an electronics manufacturing facility. Among many other renovations, the company replaced the old, cracked, contaminated concrete floor with a new solid epoxy floor: rather than remove the old concrete, contractors prepared its surface (vacuum shot-blasting, scarification, diamond grinding) and applied two coats of 100% solids epoxy directly on top, creating a seamless, fire-resistant, heavy-load-capacity floor. Whirlwind asked the Department whether installing this new floor was subject to sales tax.

The Department said installing the epoxy floor is not taxable, because it's a capital improvement. New York taxes the installation of "floor covering" (carpet, vinyl tile, linoleum, and similar products) differently than true "flooring" (wood, ceramic tile, terrazzo, marble, concrete, and similar materials) -- floor covering installation is generally taxable regardless of the circumstances, while flooring installation follows the ordinary capital-improvement-vs-repair test. Because the solid epoxy floor is a monolithic, built-in-place surface similar to poured concrete or terrazzo, not a pre-manufactured covering laid over a floor, the Department classified it as flooring, not floor covering. And because it substantially increased the building's value, was permanently affixed (removal would damage the surface), and was intended as a permanent installation, it met all three elements of a capital improvement under Tax Law § 1101(b)(9). Capital improvements to real property are exempt from sales tax, so Whirlwind owed no sales tax on the floor's installation.

What this means for you

Manufacturers and building owners renovating industrial space

The material and installation method of a new floor matters a lot for tax purposes. A built-up, poured, or bonded surface (like epoxy, terrazzo, or poured concrete) is generally treated as "flooring" subject to the ordinary capital-improvement test, while manufactured floor coverings (carpet, vinyl tile, linoleum) are taxed on installation regardless of whether they'd otherwise qualify as a capital improvement -- know which category your project falls into before assuming either way.

Flooring and industrial-coating contractors

If you install a monolithic epoxy, terrazzo, or similar poured or bonded floor system that substantially increases the property's value, is permanently affixed, and is meant to last, you likely don't need to charge your customer sales tax on the installation -- but confirm the specific product and method aren't closer to a manufactured "floor covering," which is taxed differently.

Accountants and tax professionals

This ruling is a clean worked example distinguishing "flooring" from "floor covering" under 20 NYCRR § 541.14(a), and then applying the ordinary three-part capital-improvement test (value added, permanent affixation, intent to be permanent) once that threshold question is resolved.

Common questions

Q: Is installing new flooring in a commercial building always exempt from sales tax?
A: No. It depends on both the type of flooring and whether it qualifies as a capital improvement. Manufactured "floor covering" (carpet, vinyl tile, linoleum) is generally taxable on installation. True "flooring" (wood, ceramic tile, terrazzo, poured or bonded systems like epoxy) follows the ordinary capital-improvement-vs-repair test.

Q: What makes a floor installation a capital improvement rather than a taxable repair?
A: It must substantially add value or prolong the property's useful life, become part of the real property or be permanently affixed so removal would cause material damage, and be intended as a permanent installation.

Q: Does replacing an old, damaged floor still count as a capital improvement?
A: Yes, if the new floor meets the three-part test above -- here, replacing a cracked, contaminated concrete floor with a new bonded epoxy surface qualified, even though it was a replacement rather than new construction.

Q: Can another business rely on this ruling for its own flooring project?
A: No. It's an Advisory Opinion binding the Department only as to Whirlwind Music Distributors and the specific floor system, materials, and installation method it described.

Citations and references

• Tax Law § 1101(b)(9) (definition of capital improvement)
• Tax Law § 1105(c)(3)(iii) (capital improvement installation exception)
• Tax Law § 1105(c)(5) (maintaining/repairing real property)
• 20 NYCRR § 527.7(b)(4) (end-result test for real property services)
• 20 NYCRR § 541.14(a) (floor covering vs. flooring distinction)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_50s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(50)S
Sales Tax
July 31, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE

ADVISORY OPINION

PETITION NO.S971231B

On December 31, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Whirlwind Music Distributors, Inc., 99 Ling
Road, Rochester New York, 14626. Petitioner, Whirlwind Music Distributors, Inc.,
provided additional information pertaining to the Petition on February 9, 1998.
The issue raised by Petitioner is whether the installation of a new floor
as described below is subject to sales tax.
Petitioner submits the following facts as the basis for this advisory
opinion.
Petitioner acquired a building for its manufacturing facilities and
offices. The building was constructed in 1966. Its last use was as an injection
molding shop.
It had been vacant for one and one-half years prior to its
acquisition by Petitioner.
Petitioner planned on using the building in its
business of manufacturing electrical components for the music broadcast and
entertainment industries. Therefore, the building required major renovations
costing over $350,000 to prepare it for use by Petitioner.
The renovation or reconstruction consisted of stripping, power washing and
painting the cement walls. A new roof was installed. A new loading dock was
installed along with new plumbing and new electrical wiring. Insulation was
added to all walls and masons were hired to plug the cracks. Asbestos tiles and
pipe coating had to be removed.
The office area was gutted and completely
reconstructed. Several new rooms were added and a new floor was installed.
The existing floor had cracks and contained grease and other contaminants.
Since it was impractical to remove a concrete floor from an existing building,
Petitioner elected to use the existing floor as a foundation for a new solid
epoxy floor.
The existing floor was prepared by means of vacuum shot-blasting,
scarification and diamond grinding.
After completing the preparation, two
distinct coats of 100% solids epoxy were applied.
These two coats together
comprise a new floor.
The new floor is a wall to wall seamless floor (monolithic) which is easily
cleaned and fire resistant. It is USDA approved and has a heavy load capacity
which is 2 to 4 times greater than concrete.

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TSB-A-98(50)S
Sales Tax
July 31, 1998

Applicable Law and Regulations
Section 1101(b)(9) of the Tax Law provides, in part:
Capital improvement.
which:

(i) An addition or alteration to real property

(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.
*

*

*

(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 subparagraph
shall not constitute an addition or capital improvement to real
property, property or land.
Section 1105 of the Tax Law provides, in part:
Sec. 1105. Imposition of sales tax.--... there is hereby
imposed and there shall be paid a tax ... upon:
*

*

*

(c) The receipts from every sale, except for resale, of the
following services:
*

*

*

(3) Installing tangible personal property . . .or maintaining,
servicing or repairing tangible personal property, . . . except:
*

*

*

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TSB-A-98(50)S
Sales Tax
July 31, 1998

(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 lands 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,
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 chapter . . . .
Section 527.7(b)(4) of the Sales and Use Tax Regulations provides, in part:
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.
Section 541.14(a) of the Sales and Use Tax Regulations provides, in part:
(l) The installation of floor covering is subject to sales tax,
regardless of the method of installation or the surface over which
the floor covering is installed, unless the installation qualifies
for exemption under subdivision (b) of this section.
(2)(i) 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 but not area rugs and
the like.
(ii) The term floor covering does not include flooring such as wood
flooring, ceramic tile, terrazzo, marble, concrete or other similar
flooring.
Accordingly, the provisions of this section do not apply
to the installation of flooring. See section 527.7 of this Title for
the rules to determine whether such flooring qualifies as a capital
improvement.

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TSB-A-98(50)S
Sales Tax
July 31, 1998

Opinion
The description of the installation, along with the nature and composition
of the new solid epoxy floor, indicates that the solid epoxy floor is similar to
the flooring described in Section 541.14(a)(2)(ii) of the Sales and Use Tax
Regulations. Therefore, the solid epoxy floor constitutes flooring and not floor
covering.
The installation of the solid epoxy floor constitutes a capital improvement
within the meaning of Section 1101(b)(9) of the Tax Law.
Therefore, its
installation is not subject to sales tax pursuant to Section 1105(c)(3)(iii) of
the Tax Law.

DATED: July 31, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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