Is chemically cleaning and waterproofing a building's exterior a tax-exempt capital improvement or a taxable repair service?

Plain-English summary

Empire Restoration Services is a contractor that chemically cleans and restores building exteriors — applying a chemical, rinsing with water, then applying a protective chemical bonding agent that waterproofs the surface — to return the exterior to its original condition. It asked whether this is a capital improvement (not taxable) or a taxable service.

The Department held it is a taxable repair/maintenance service, not a capital improvement.

• Repair vs. capital improvement. Section § 1105(c)(5) taxes "maintaining, servicing or repairing" real property, as distinguished from adding to or improving it by a capital improvement (§ 1101(b)(9)).
• Cleaning/restoring is maintenance. "Maintaining, servicing and repairing" covers all activities that keep real property in a condition of fitness or restore it to such condition (20 NYCRR 527.7(a)(1)). This exterior work is much like periodic repainting, which the regulation says is not a capital improvement (20 NYCRR 527.7(a)(3) Ex. 6).
• Result: taxable. The receipts from the service are subject to sales tax.
• But the contractor can recover tax on the sealant. A contractor pays tax on tangible personal property it uses in real-property services (§ 1101(b)(4)(i)), but gets a refund or credit under § 1119(c) for property that becomes a physical component part of the serviced property — here, the protective chemical bonding agent.

What this means for you

Cleaning, restoring, or resealing a building is generally a taxable service, not a capital improvement. The capital-improvement exemption is for work that adds to or permanently improves real property. Restoring an exterior to its original condition — like repainting — keeps the property in shape rather than improving it, so it's taxable.

"Restoration" language doesn't control. What matters is whether the work maintains/restores (taxable) or genuinely adds a permanent improvement (exempt). Calling a job "restoration and preservation" doesn't make it a capital improvement.

Contractors: recover tax on materials that stay in the building. When you pay sales tax on a material that becomes a physical component of the property you service — like a bonding/sealant agent — you can claim a § 1119(c) refund or credit, so you're not taxed twice on that component.

Common questions

Q: Is chemically cleaning and waterproofing my building's exterior a capital improvement?
A: No. On these facts it's a taxable maintaining/servicing/repairing service under § 1105(c)(5) — analogous to periodic repainting — not a capital improvement, so the charge is taxable.

Q: We're the contractor. Can we recover the sales tax we paid on the sealant?
A: Yes. Because the protective bonding agent becomes a physical component part of the property you service, you're entitled to a refund or credit under § 1119(c) for the tax paid on it.

Q: When would exterior work be a nontaxable capital improvement?
A: When it adds to or permanently improves the real property (meeting the § 1101(b)(9) capital-improvement test), rather than merely cleaning, restoring, or maintaining what's already there.

Citations and references

Statutes:

• Tax Law § 1105(c)(5) — tax on maintaining, servicing or repairing real property
• Tax Law § 1101(b)(9) — definition of "capital improvement"
• Tax Law § 1101(b)(4)(i) — contractor pays tax on property used in real-property services
• Tax Law § 1119(c) — refund/credit for property that becomes a component of the serviced property

Regulations:

• 20 NYCRR 527.7(a)(1) — definition of "maintaining, servicing and repairing"
• 20 NYCRR 527.7(a)(3) Ex. 6 — periodic repainting is not a capital improvement

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84(2)S
Sales Tax
February 16, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830815A

On August 15, 1983 a Petition for Advisory Opinion was received from Empire Restoration
Services, Inc., 112 Adler Street, Yonkers, New York 10705.
The issue raised is whether the process of "exterior restoration and preservation of buildings"
performed by Petitioner constitutes a capital improvement exempt from sales tax.
Petitioner, a contractor, is in the business of chemically cleaning and restoring the exterior
surfaces of buildings, "for the purpose of restoring to their original condition entire building
exteriors." The process employed involves first the application of the appropriate chemical, followed
by a water rinse, followed in turn by the application of a "protective chemical bonding agent" which
protects and waterproofs the surface.
Section 1105(c)(5) of the Tax Law imposes a tax on the receipts from the service of
"maintaining, servicing or repairing real property. . . as distinguished from adding to or improving
such real property. . . by a capital improvement." Section 1101(b)(9) of the Tax Law defines the term
"capital improvement" as an "addition or alteration to real property" which meets certain specified
criteria. Section 527.7(a)(1) of the Sales and Use Tax Regulations provides that "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."
Section 527.7(a)(3) ex. 6 indicates that the "periodic repainting of a building is not a capital
improvement." The service performed by Petitioner falls squarely within the definition contained in
section 527.7(a)(1), and is sufficiently similar to the service described in section 527.7(a)(3) ex. 6,
as to warrant a finding that the same constitutes the service of "maintaining, servicing or repairing
real property." The receipts from such service are, accordingly, subject to sales tax.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84(2)S
Sales Tax
February 16, 1984

It is to be noted that while contractors, such as Petitioner, are required to pay sales tax on
tangible personal property purchased for use or consumption in maintaining, servicing or repairing
real property (Tax Law, §1101(b)(4)(i)), a refund or credit of such tax is due with respect to such
tangible personal property where it becomes "a physical component part of the property upon which
the service is performed." (Tax Law, §1119(c)). Petitioner would therefore be entitled to a refund
or credit of the tax paid on its purchase of the protective chemical bonding agent.

DATED: January 24, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau