NY TSB-H-81(49)S Sales Tax 1981-03-30

Is building a new, independent roof over an existing roof a tax-free capital improvement to real property?

Short answer: Yes — the new roof is a tax-free capital improvement. Orchard Park Veneer and Container Corporation had a new roof built over an existing structure: steel trusses spanning the old roof, supported by steel columns erected outside the building, with the old roof left intact and no common connection between old and new. It asked whether the construction is a capital improvement so the charge is exempt from sales tax. Under Tax Law § 1105(c)(3), installing tangible personal property is taxable except where the installed property becomes an addition or capital improvement to real property. The Sales and Use Tax Regulations, 20 NYCRR 527.7(a)(3), define a capital improvement as an addition or alteration to real property that (i) substantially adds value or appreciably prolongs the property's useful life, (ii) becomes part of or is permanently affixed to the real property so removal would cause material damage, and (iii) is intended to be permanent. Because the steel columns, trusses and new roof appreciably prolong the useful life of the real property, are an integral part of it, and are intended to be a permanent installation, the work is a capital improvement — so the receipts from the installation service are not subject to sales tax.

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This page answers the general question as of 1981. Ezel answers yours, under current New York tax law, with citations.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion, issued by the Technical Services Bureau (identified with the earlier 'TSB-H' numbering prefix used alongside 'TSB-A' in 1981) 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. 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 on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Orchard Park Veneer and Container Corporation of Orchard Park, New York, had a new roof built over its existing building. The work used steel trusses spanning the old roof, supported by steel columns erected outside the present building. The old roof was left intact, with no common connection to the new roof — the new roof is independent of the old one. The company asked whether this construction is a capital improvement, so the charge is exempt from sales tax.

The Department ruled it is a capital improvement — the installation charge is not taxable.

Under Tax Law § 1105(c)(3), installing tangible personal property is a taxable service, except where the installed property becomes an addition or capital improvement to real property.
20 NYCRR 527.7(a)(3) defines a "capital improvement" as an addition or alteration to real property that (i) substantially adds value or appreciably prolongs the useful life of the real property, (ii) becomes part of or is permanently affixed to the real property so removal would cause material damage, and (iii) is intended to be permanent.
The steel columns, trusses and new roof appreciably prolong the useful life of the building, are an integral part of the real property, and are intended to be permanent — so the work is a capital improvement, and the receipts from the installation service are not subject to sales tax.

What this means for you

Major structural additions like a new roof are capital improvements. Work that permanently becomes part of the building and extends its useful life meets the three-part test and isn't a taxable installation service. A new roof — even one built as an independent structure over the old one — clearly qualifies.

A capital improvement doesn't have to replace or attach to what's already there. Here the new roof didn't connect to the old roof at all. What mattered was that the new structure permanently improved the real property, not whether it was tied into the existing roof.

Remember where the tax lands instead. When a job is a capital improvement, the customer isn't charged sales tax on the work. The contractor, as the ultimate consumer of the steel and other materials, pays sales or use tax on those materials.

Common questions

Q: We built a whole new roof over the old one — is the construction charge taxable?
A: No. Building a new roof that permanently prolongs the building's useful life and becomes an integral part of the real property is a capital improvement under § 1105(c)(3), so the installation charge is not subject to sales tax.

Q: Does it matter that the new roof doesn't connect to the old roof?
A: No. The Department found the work a capital improvement even though the new roof was independent of the intact old roof. The test is whether the new structure permanently improves the real property.

Q: Who pays sales tax on a capital-improvement job?
A: The contractor pays sales or use tax on the materials it buys (as the ultimate consumer). The customer is not charged sales tax on the installation itself.

Citations and references

Statutes, regulations and authority:

Tax Law § 1105(c)(3) — taxes the service of installing tangible personal property, except where the installed property becomes an addition or capital improvement to real property
20 NYCRR 527.7(a)(3) — defines "capital improvement" (adds value or appreciably prolongs useful life; becomes part of or permanently affixed so removal causes material damage; intended to be permanent)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_49s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(49)S
Sales Tax
March 30, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S801211B

On December 11, 1980, a Petition for Advisory Opinion was received from
Orchard Park Veneer and Container Corporation, 227 Thorn Avenue, Orchard Park,
New York 14127.
The issue raised is whether the construction of a new roof over an existing
structure constitutes a capital improvement so as to exempt the receipts therefor
from the sales tax imposed under Article 28 of the Tax Law.
A new roof was constructed over an old roof by the use of steel trusses
spanning the old roof and supported by steel columns erected outside the present
building. The old roof remains intact, with no common connection to the new roof.
The new roof is independent of the old roof.
Section 1105(c)(3) of the Tax Law imposes a tax on the 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 Sales and Use Tax Regulations define the
term "capital improvement" as follows:
"(3)
(i)
(ii)
(iii)

A capital improvement is an addition or alteration to real
property
which substantially adds to the value of the real property, or
appreciably prolongs the useful life of the real property, and
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
is intended to become a permanent installation." 20 NYCRR
527.7(a)(3)

Inasmuch as the addition or alteration to real property consisting of the
erection of the steel columns, steel trusses and the new roof appreciably
prolongs the useful life of the real property, is an integral part of the real
property and is intended to be a permanent installation, the same constitutes a
capital improvement to real property within the meaning and intent of section
1105(c)(3) of the Tax Law. Accordingly, the receipts from the sale of the service
of performing such installation are not subject to sales tax.

DATED: February 19,1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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