NY TSB-H-81(50)S Sales Tax 1981-03-30

Is installing linoleum with adhesive, or carpeting on a stairway, a tax-free capital improvement to real property?

Short answer: Linoleum cemented down is always a capital improvement; carpet depends on the subfloor. S & Y Floor Covering asked whether installing linoleum with adhesive, and installing carpeting on a stairway trimmed to fit around spindles, are subject to 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, defined in 20 NYCRR 527.7 by a three-part test (adds value or prolongs useful life; becomes part of or is permanently affixed so removal causes material damage; intended to be permanent). Installing carpeting on a subfloor that is not usable without a floor covering (such as unpainted concrete or plywood) is a capital improvement, but installing it over a finished floor (like existing hardwood) is not — and this applies to stairways and is unaffected by any custom fitting around spindles. Installing linoleum by means of cement is a capital improvement regardless of the floor beneath it. Where the installation is a capital improvement, the charge for it is not subject to sales tax; but the contractor must pay sales or use tax on the materials it uses, because it is the ultimate consumer of the property incorporated into the job.

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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

S & Y Floor Covering of Brooklyn, New York, asked two questions:

Is the charge for installing linoleum with an adhesive subject to sales tax?
Is the charge for installing carpeting on a stairway, where the carpet is trimmed to fit around the spindles or sides of the stairs, subject to sales tax?

The Department drew a line based on whether the installation is a capital improvement to real property.

Under Tax Law § 1105(c)(3), installing tangible personal property is a taxable service — except where the property, once installed, becomes an addition or capital improvement to real property.
20 NYCRR 527.7 defines a "capital improvement" by the familiar three-part test: it (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.
Carpeting: installing carpet on a subfloor that isn't usable without a covering (such as unpainted concrete or plywood) is a capital improvement. Installing carpet over a finished floor (like existing hardwood) is not. This applies to stairways, and is unaffected by any custom fitting around spindles.
Linoleum: installing linoleum by means of cement is a capital improvement regardless of the type of floor beneath it.
Where the installation is a capital improvement, the charge is not taxable — but the contractor must pay sales or use tax on the materials it uses, because it is the ultimate consumer of the property built into the job.

What this means for you

"Capital improvement" for floor covering turns on the surface underneath. Cement-down linoleum is treated as a permanent, tax-free capital improvement no matter what's below it. Carpet is more fact-specific: over a raw, unusable subfloor it's a capital improvement (the room isn't finished without it); laid over an already-finished floor, it's a taxable installation.

Custom fitting doesn't change the answer. Trimming carpet around stair spindles — however skilled — doesn't convert a taxable installation into a capital improvement. The test is about permanence and the surface beneath, not the craftsmanship.

Capital-improvement work shifts the tax to the contractor's materials. When the job qualifies as a capital improvement, you don't charge the customer tax on the installation. Instead, you (the contractor) pay sales or use tax when you buy the linoleum, carpet, adhesive and other materials, because you're treated as their final consumer.

Common questions

Q: Is cemented-down linoleum ever taxable to install?
A: No. The Department treats installing linoleum by cement as a capital improvement regardless of the floor beneath, so the installation charge is not subject to sales tax.

Q: Is installing carpet always a capital improvement?
A: No. Carpet over an unusable subfloor (unpainted concrete, plywood) is a capital improvement; carpet over a finished floor (existing hardwood) is not. The same rule applies on stairways.

Q: Does trimming carpet around the stair spindles make it a capital improvement?
A: No. Custom fitting doesn't affect the analysis — what matters is whether the carpet is going over an unusable subfloor or a finished floor.

Q: If it's a capital improvement, does anyone pay tax?
A: Yes — the contractor. The installation charge to the customer is tax-free, but the contractor pays sales or use tax on the materials it uses, as the ultimate consumer.

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 — defines "capital improvement" (adds value or 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_50s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(50)S
Sales Tax
March 30, 1981

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

PETITION NO. S810123B

On January 23, 1981 a Petition for Advisory Opinion was received from S &
Y Floor Covering, 240 Broadway, Brooklyn, N.Y. 11211.
The issues raised are: (1) whether receipts from the service of the
installation of linoleum, where the linoleum is installed by means of an
adhesive, are subject to sales tax; and (2) whether receipts from the service of
the installation of carpeting on a stairway, where the carpeting is trimmed to
fit around the spindles or the sides of the stairs, is subject to sales tax.
Section 1105(c)(3) of the Tax Law imposes a tax on the receipts from every
sale of the service of "Installing tangible personal property...except for
installing property which, when installed, will constitute an addition or capital
improvement to real property, property or land...."
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." 20 NYCRR 527.7.
The installation of carpeting on a sub-floor which is not usable without
adding hardwood flooring or some other type of floor covering, as where carpeting
is installed over unpainted concrete, plywood or the like, constitutes a capital
improvement. However, if the carpeting is installed over a finished floor, such
as an existing hardwood floor, such installation would not constitute a capital
improvement. The foregoing is applicable to stairways and is in no way affected
by any custom fitting which may be involved.
The installation of linoleum by means of a cement constitutes a capital
improvement to real property regardless of the type of floor over which it is
installed.
Where carpeting or linoleum is installed in such a manner that it
constitutes a capital improvement to real property the charge for such
installation is not subject to sales tax. It is to be noted that a contractor
performing a capital improvement to real property must pay sales or use tax with
respect to the materials used by him, inasmuch as he is the ultimate consumer of
the tangible personal property incorporated into the project.

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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