New York Sales Tax for Contractors
Understanding your state’s sales tax laws can be overwhelming for many business owners, particularly for contractors providing real property services, and this is especially true when it comes to New York sales tax.
As complicated as New York sales tax laws are, if you are doing business as a contractor in New York, you need to be aware of your responsibilities for collecting and remitting sales taxes to the state.
Contractors and subcontractors must have a valid Certificate of Authority from New York State to perform any of the services described in this bulletin.
Because you are considered a trustee of the tax money collected, your business can be liable for owed taxes and steep penalties, but in addition, you may be held personally responsible, which could result in the seizure of personal property to fulfill your business’s tax obligations.
This article will cover the basic definitions related to New York sales tax laws, specific information and resources for contractors, and how to document tax-exempt services.
New York Sales Tax Real Property Definitions
Real property includes the following:
• Land and vegetation that is growing on the land.
• Buildings and structures erected upon, under, above, or affixed to the land.
• Utility lines, wires, and poles
• Mains, pipes, and tanks for conducting steam, heat, water, oil, gas, and electricity
• Boilers, heating, ventilating, lighting apparatus, and plumbing.
New York Sales Tax Real Property Service Classifications
New York classifies services to real property in two ways:
- As a repair, maintenance, or installation service
- As a capital improvement
New York Sales Tax: Repair, Maintenance, & Installation Services
Any charges for materials and labor that you bill to a customer for any repair, maintenance, & installation services are taxable under New York sales tax law. This includes any expenses or other markups. The exception is if the customer has a tax exemption certificate, which we will cover in the upcoming sections of this article.
Repair and Maintenance
Repair and maintenance services include any work where the purpose is to keep real property safe and in good working order or restore the property to that condition.
Examples of repair and maintenance services to real property include:
• Fixing a staircase
• Replacing gutters
• Replacing a faucet
• Replacing damaged siding
Installation Services
Installation services include the installation of tangible personal property, and these services are taxable.
Tangible personal property means personal property of any nature that has a material existence and perceptibility to the human senses. This definition includes but isn’t limited to materials, tools, equipment, and supplies.
Here are some examples of tangible personal property that you might install:
• Freestanding appliances
• Above-ground swimming pools
• Canvas awnings
• Weatherstripping
New York Sales Tax: Capital Improvements
Capital improvement services, unlike repair, maintenance, and installation services, are not taxable.
A capital improvement is any alteration or addition to real property that:
• substantially adds to the value of or prolongs the useful life of the real property; and
• 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.
To be considered a capital improvement, the purpose of the work must be above and beyond work done to maintain the safety and good working order of a home.
What qualifies as a capital improvement under New York sales tax laws?
What qualifies as a capital improvement and what doesn’t is specifically spelled out here: Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property
Download it and keep it handy as a reference because the information it contains is precise. For example, there are situations where the installation method, rather than the product installed or the service itself, can determine how your work is taxed.
The Bottom Line
Services to real property, including labor and materials, are taxable in New York. As the service provider, you are responsible for collecting the taxes from your customer.
You’ll need to collect taxes for all real property repair, maintenance, and installation service that you provide, except services provided to tax-exempt customers and services provided for capital improvements.
In the case of tax-exempt customers and capital improvements, you must provide proper documentation of tax-exempt status.
How to Document Tax-Exempt Repair, Maintenance, & Installation Services
Documenting Services for Tax Exempt Organizations
Suppose your customer is a church, private school, charitable organization, or governmental entity. In that case, you do not need to charge sales tax as long as your customer provides you with an Exempt Organization Certification or other appropriate documentation.
Documenting Services for Capital Improvements
Suppose you make a sale of services or building materials, and your client claims the work is exempt from tax as a capital improvement. If your customer provides you with a completed Certificate of Capital Improvement, then no tax needs to be collected.
If you do not obtain a Certificate of Capital Improvement from your customer and don’t collect any sales tax, you must obtain a properly completed Contractor Exempt Purchase Certificate within 90 days of rendering the service.
If not, you will be required to collect the tax from the purchaser, who will then need to file a claim with the New York Tax Department to receive a refund. This situation can easily result in a strained relationship with your customer, so it’s best to collect the documentation upfront from your customer.
In some instances, you may be able to use a Contractor Exempt Purchase Certificate to purchase building materials or other tangible personal property without payment of sales tax if you will transfer the tangible property to your tax-exempt customer.
You can find more information about services provided and materials purchased to be installed in real property owned by exempt entities in this publication from the New York State Dept of Revenue: A Guide to Sales Tax in New York State for Exempt Organizations.
New York sales tax laws are notoriously complicated. Please send us a message if you need more information. We will be happy to answer any questions you may have about the information in this article, New York sales tax, or sales tax in general.
Additional Resources:
Learn: How to Register for New York State Sales Tax
Find Out: Do I need to Register for Sales Tax?
Discover: Transactions Not Subject to Sales Tax in New York
References
Contractors – Repair, Maintenance, and Installation …. https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/repair_maintenance.htm
View Document – New York Codes, Rules and Regulations. https://govt.westlaw.com/nycrr/Document/I50f29557cd1711dda432a117e6e0f345?contextData=(sc.Default)
Publication 750:(11/15): A Guide to Sales Tax in New York …. https://www.tax.ny.gov/pdf/publications/sales/pub750.pdf