Is replacing a corroded metal chimney chase cover with a new stainless steel one a taxable repair, or does it qualify as an exempt capital improvement to real property?

Plain-English summary

A chimney chase is the boxed structure built around a prefabricated metal chimney to support, protect, and weatherproof it, usually clad to match the rest of the building. The top of that structure — the chimney chase cover — is often made of galvanized sheet metal or aluminum, materials that corrode over time. Pro Line Group Inc.'s business is removing those worn covers and replacing them with stainless steel covers that won't corrode, sometimes also replacing the chimney cap or parts of the chase itself, all attached with screws and caulking.

The Department treated this as a straightforward repair/maintenance question, not a capital-improvement one. Replacing a deteriorated part with a more durable version of essentially the same component — keeping the chimney chase in "a condition of fitness, efficiency, readiness or safety" — is exactly what repair and maintenance services do, even though the new stainless steel material is objectively better and longer-lasting than what it replaces. The Department drew a direct comparison to its own published guidance treating chimney cap and chimney flashing replacement as taxable repairs, and concluded chase cover replacement is "similar in nature."

Because this is a taxable repair service under § 1105(c)(5), Pro Line Group must charge its customers sales tax on the full charge for the replacement. And because it's acting as a construction contractor performing services to real property, Pro Line Group itself must pay sales tax on the building materials (the stainless steel covers, etc.) when it buys them — it can't buy those materials tax-free. To avoid double taxation, the contractor can take a credit on its own sales tax return for the tax it paid on those materials, offsetting it against the tax it collects from customers for the repair.

What this means for you

Contractors performing similar "upgrade" replacements

Swapping a worn or corroded building component for a more durable, better-quality version of essentially the same part is still a taxable repair, not an exempt capital improvement — durability or quality improvements alone don't change the character of the work from "restoring/maintaining" to "adding value/prolonging life" in the way the three-part capital-improvement test requires. Charge sales tax on your full invoice and remember you owe tax on your own material purchases too.

Contractors who both pay tax on materials and collect tax from customers

Don't forget the credit mechanism: if you're paying sales tax on the materials you buy to perform a taxable repair, you can credit that tax against what you collect from your customer on the same job, avoiding a double hit — file the credit on your periodic sales tax return.

Homeowners and property managers

Chimney chase cover replacement (like chimney cap and flashing work) will show up as a taxed line item on your contractor's invoice — that's standard and expected under New York's repair/maintenance rules, distinct from genuine capital improvements like a full roof replacement, which can be exempt if you give the contractor a properly completed Certificate of Capital Improvement.

Common questions

Q: Is replacing a chimney chase cover ever treated as a capital improvement?
A: Under the facts of this opinion, no — it's treated the same as chimney cap and flashing replacement, both classified as taxable repairs, because they restore rather than improve or extend the life of the underlying real property.

Q: Does using better/longer-lasting materials (like stainless steel instead of galvanized metal) change the tax treatment?
A: No. The Department focused on the function of the work — restoring a worn component to good condition — not on whether the replacement material is objectively superior.

Q: If I'm a contractor doing this work, do I pay tax twice — once on materials and once when I bill my customer?
A: You pay sales tax on your material purchases, and you separately collect sales tax from your customer on your labor-and-materials charge, but you can credit the tax you paid on materials against the tax you collect from your customer, so you're not out-of-pocket for both.

Q: Does this ruling apply to any similar exterior-component replacement job?
A: This is a fact-specific Advisory Opinion binding only on Pro Line Group Inc. It's a strong analogy for other "worn component, more durable replacement" repair jobs, but the precise facts of your installation could change the analysis.

Citations and references

• Tax Law § 1101(b)(4)(i) (retail sale; contractor purchases)
• Tax Law § 1105(a), (c)(3), (c)(5) (imposition of sales tax; installation services capital-improvement exception; real property repair/maintenance)
• Tax Law § 1119(c) (contractor credit for tax paid on materials)
• 20 NYCRR § 527.7 (maintaining, servicing, repairing real property)
• 20 NYCRR § 541.2(d) (construction contractor definition)
• Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property, Publication 862 (4/01)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_15s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(15)S
Sales Tax
March 19, 2008

Office of Tax Policy Analysis
Taxpayer Guidance Division

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S070702A

On July 2, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Pro Line Group Inc, P. O. Box 264, Mastic Beach, New York 11951.
The issue raised by Petitioner, Pro Line Group Inc, is whether the installation of its
“chimney chase covers” are subject to New York State sales tax or if such installation qualifies
as a capital improvement to real property for sales tax purposes.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
A chimney chase is a structure, generally constructed of the same building materials as
the rest of the building to which it is attached, that encloses a prefabricated, metal chimney and is
tied into the structural elements (e.g., roof trusses or rafters) of a building, sealed as needed at the
roof/chase junction, and covered with appropriate exterior cladding materials to make the chase
weather tight and to complement the building’s appearance. The purpose of a chimney chase is
to support, protect, insulate, and weatherproof a prefabricated, metal chimney and to keep out
pests. A chimney chase serves to increase the chimney’s efficiency, and improve its appearance.
The sides of the chase are often clad with the same or similar materials as the rest of the building.
The top of the chimney chase is called the chimney chase cover. The chimney chase
cover is often made of galvanized sheet metal or aluminum. The galvanized sheet metal and
aluminum covers are prone to corrosion or other damage and may need to be replaced over the
lifetime of the building. Petitioner completely removes the galvanized sheet metal or aluminum
covers and replaces them with stainless steel covers that will not corrode. Petitioner completely
replaces the chase cover and, if necessary, may also replace the chimney cap, part of the
prefabricated chimney, and parts of the chase. The new stainless steel chase cover is affixed to
the chimney chase by screws and caulking.
Applicable law and regulations
Section 1101(b)(4)(i) of the Tax Law provides, in part, as follows:
a sale of any tangible personal property to a contractor, subcontractor or
repairman for use or consumption in erecting structures or buildings, or building on, or
otherwise adding to, altering, improving, maintaining, servicing or repairing real
property, property or land, as the terms real property, property or land are defined in the

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real property tax law, is deemed to be a retail sale regardless of whether the tangible
personal property is to be resold as such before it is so used or consumed, . . .
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax . . . upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(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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*

*

(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 land 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 article , . . .
Section 1119(c) of the Tax Law provides:

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A refund or credit equal to the amount of sales or compensating use tax imposed
by this article and pursuant to the authority of article twenty-nine, and paid on the sale or
use of tangible personal property, shall be allowed the purchaser where such property is
later used by the purchaser in performing a service subject to tax under paragraph (1),
(2), (3), (5), (7) or (8) of subdivision (c) of section eleven hundred five or under section
eleven hundred ten and such property has become a physical component part of the
property upon which the service is performed or has been transferred to the
purchaser of the service in conjunction with the performance of the service subject to tax
or if a contractor, subcontractor or repairman purchases tangible personal property and
later makes a retail sale of such tangible personal property, the acquisition of which
would not have been a sale at retail to him but for the second to last sentence of
subparagraph (i) of paragraph (4) of subdivision (b) of section eleven hundred one. An
application for the refund or credit provided for herein must be filed with the
commissioner of taxation and finance within the time provided by subdivision (a) of
section eleven hundred thirty-nine. Such application shall be in such form as the
commissioner may prescribe. Where an application for credit has been filed, the
applicant may immediately take such credit on the return which is due coincident with or
immediately subsequent to the time that he files his application for credit. However, the
taking of the credit on the return shall be deemed to be part of the application for credit.
The procedure for granting or denying such applications for refund or credit and review
of such determinations shall be as provided in subdivision (e) of section eleven hundred
thirty-nine.
Section 527.7 of the Sales and Use Tax Regulations provides, in part:
Maintaining, servicing or repairing real property. (a) Definitions. (1)
Maintaining, servicing and repairing are terms which are used to cover all
activities that relate to keeping real property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition. Among the services included
are services on a building itself such as painting; services to the grounds, such as
lawn services, tree removal and spraying; trash and garbage removal and
sewerage service and snow removal.
*

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(b) Imposition. (1) The tax is imposed on receipts from every sale of the
services of maintaining, servicing or repairing real property, whether inside or
outside of a building.
*

*

*

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(3) When the service of maintaining, servicing or repairing real property is
performed in conjunction with the transfer of title to tangible personal property,
the price of the tangible personal property is also subject to tax.
Section 541.2 of the Sales and Use Tax Regulations provides, in part:
Definitions. The words, terms and phrases used in this Part have the following
definitions except when the context clearly indicates a different meaning:
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(d) A construction contractor means any person who engages in erecting,
constructing, adding to, altering, improving, repairing, servicing, maintaining,
demolishing or excavating any building or other structure, property, development, or
other improvement on or to real property, property or land.
Opinion
When Petitioner performs a service for a real property owner that results in keeping real
property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition,
Petitioner has performed a repair or maintenance service to the real property. Repair or
maintenance services to real property are subject to sales tax under section 1105(c)(5) of the Tax
Law.
Replacement of a chimney chase cover is similar in nature to the replacement of a
chimney cap and chimney flashings. Replacement of these latter items is described in Sales and
Use Tax Classifications of Capital Improvements and Repairs to Real Property, Publication 862
(4/01), as a taxable repair or maintenance to real property. See section 1105(c)(5) of the Tax
Law and section 527.7 of the Sales and Use Tax Regulations.
Accordingly, Petitioner's replacement of a chimney chase cover is considered to be a
repair or maintenance to real property, and, as such, charges for such replacement are subject to
sales tax under section 1105(c)(5) of the Tax Law.
Petitioner is considered to be a construction contractor for sales tax purposes since it is
performing services to its customers’ real property. See section 541.2(d) of the Sales and Use
Tax Regulations. Therefore, Petitioner's purchases of building materials for use in replacing
chimney chase covers are purchases at retail, and Petitioner is required to pay sales tax on such
purchases pursuant to section 1105(a) of the Tax Law. See section 1101(b)(4)(i) of the Tax Law.
Petitioner may take a credit on its periodic sales tax return for the tax it has paid on its purchases

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of such building materials used to perform its taxable repair services against the tax that it
collects from its customers for such repairs. See section 1119(c) of the Tax Law.

DATED: March 19, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.