When a waterproofing contractor repoints mortar, recaulks joints, and reroofs a building, which parts are taxable repairs and which are tax-exempt capital improvements?

Plain-English summary

Horn Waterproofing Corporation is a waterproofing contractor. Its jobs include cutting out deteriorated mortar and installing new mortar joints; cutting out deteriorated caulking around windows, construction joints, and expansion joints and replacing it; replacing old roofing with new roofing and insulation; and rebuilding loose and dangerous masonry. It asked whether waterproofing is a capital improvement to real property.

The Department split the work: the mortar, caulking, and masonry work is taxable, but a complete new roof is a tax-exempt capital improvement.

• Two mutually exclusive categories. Under § 1105(c)(5) and § 1101(b)(9), work on real property is either (1) maintaining, servicing, or repairing it, or (2) a capital improvement — never both. If it's a repair, the analysis ends there. That repair category (20 NYCRR 527.7(a)(1)) covers replacing deteriorated parts and cosmetic work alike.
• Mortar, caulking, masonry = taxable repair. Repointing mortar joints, recaulking, and rebuilding masonry keep the buildings in a condition of fitness, so those receipts are taxable under § 1105(c)(5).
• The roof turns on complete vs. partial. Re-covering and insulating a complete roof is a capital improvement — those receipts are not taxable. But re-covering and insulating only a portion of a roof is a taxable repair (Tax Law § 1101(b)(9); 20 NYCRR 527.7(b)(4)).
• Documentation for the exempt part. For the new complete roof, the contractor collects no tax only if the charge is separately stated and it takes a properly completed Certificate of Capital Improvement (Form ST-124) from the customer.

What this means for you

Waterproofing and masonry "repair-in-place" work is generally taxable. Repointing mortar, recaulking, and fixing loose masonry are servicing/repairing real property. The contractor charges sales tax on those receipts.

A whole new roof is the classic capital improvement; a patch is a repair. Re-roofing and insulating an entire roof is exempt as a capital improvement, but re-covering part of a roof is a taxable repair. The line is complete replacement vs. partial fix — a useful, concrete example of where New York draws it.

Separate the exempt work and get Form ST-124. To keep the new-roof charge tax-free, state it separately from the taxable repairs and collect a signed Certificate of Capital Improvement. Otherwise the whole invoice risks being taxed. The same-day companion opinion TSB-A-84(28)S (Nu*Look) applies the identical two-category framework to cabinet reconditioning (taxable).

Common questions

Q: I do masonry repointing and recaulking. Do I charge sales tax?
A: Yes. Cutting out and replacing deteriorated mortar and caulking, and rebuilding masonry, are taxable repairs to real property under § 1105(c)(5).

Q: Is a new roof taxable?
A: Re-covering and insulating a complete roof is a tax-exempt capital improvement. But re-covering only part of a roof is a taxable repair.

Q: How do I keep the new-roof charge tax-free?
A: Separately state that charge and obtain a completed Certificate of Capital Improvement (Form ST-124) from your customer. Without separation and the certificate, the charge can be taxed along with the repair work.

Citations and references

Statutes:

• Tax Law § 1105(c)(5) — tax on maintaining, servicing, or repairing real property, as distinguished from a capital improvement
• Tax Law § 1101(b)(9) — definition of "capital improvement"

Regulations:

• 20 NYCRR 527.7(a)(1) — scope of maintaining/servicing/repairing real property
• 20 NYCRR 527.7(b)(4) — capital improvement vs. repair (complete vs. partial roof)

Form:

• Form ST-124 — Certificate of 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_33s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84 (33) S
Sales Tax
October 15, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830628B

On June 28, 1983 a Petition for Advisory Opinion was received from Horn Waterproofing
Corporation, 32-45 Queens Blvd., Long Island City, New York 11101.
The issue raised is whether the waterproofing of buildings by Petitioner constitutes a
capital improvement to real property.
Petitioner, a waterproofing contractor, describes its waterproofing process is follows:
"Waterproofing consists of cutting out all of the deteriorated mortar from stone and brickwork,
then installing new mortar joints; cutting out all of the deteriorated caulking from window
perimeters, construction and expansion joints, then replacing same with new caulking; replacing
old roofing with new roofing and insulation; . . . rebuilding of loose and dangerous masonry."
Section 1105(c)(5) of the Tax Law imposes a tax on the receipts from every sale, except
for resale, of the service of "Maintaining, servicing or repairing real property..... as distinguished
from adding to or improving such real property . . . by a capital improvement.
Section 527.7(a)(1) of the Sales and Use Tax Regulations states 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.
Among the services included are services on a building itself such as painting; . . . lawn services. .
."
Section 1101(b)(9) of the Tax Law defines the term "capital improvement" to mean an
addition or alteration to real property" which satisfies three specified criteria. Reading sections
1105(c)(5) and 1101(b)(9) of the Tax Law together leads to the conclusion that an operation
performed with respect to real property could fall into, inter alia, one, but not both, of the
categories of (1) maintenance, servicing or repair and (2) the creation of an addition or alteration
to real property (which may or may not satisfy the criteria for capital improvements). If an activity
falls into the first category. thus, an investigation into its status as creating a capital improvement
is concluded. Such category, as is indicated by the quoted provision of the Sales and Use Tax
Regulations, encompasses not only the replacement of deteriorated or otherwise unsatisfactory
parts or portions of unitary functional entities constituting real property, but cosmetic
embellishments as well.

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

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

-2­
TSB-A-84 (33) S
Sales Tax
October 15, 1984

Petitioner's operations with respect to mortar joints, window caulking and masonry falls
within the statutory category of "maintaining, servicing or repairing real property" and the receipts
therefrom are accordingly subject to tax. The re-covering and insulation of a complete roof
constitutes a capital improvement, the receipts from which are not subject to tax, whereas the
recovering and insulation of only a portion of a roof falls within the category of "maintaining,
servicing or repairing real property," the receipts from which are subject to tax. Tax Law, 5
1101(b)(9), 20 NYCRR 527.7(b)(4).
Petitioner, accordingly, must collect sales tax on all of its described services except where it
installs a new roof with insulation which constitutes a capital improvement, as described above.
In such instance no tax need be collected where the charge is separately stated and Petitioner takes
from its customer a properly completed Certificate of Capital Improvement (Form ST-124).

DATED: January 25, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau