Which sales tax exemption documents should a painting contractor obtain when working as a subcontractor for a prime contractor or directly for an owner or tenant?

Plain-English summary

Sharon P. Sheinfeld asked, on behalf of a painting contractor who performs both capital improvements and repairs — sometimes as a subcontractor for a general contractor, sometimes directly for owners or tenants — which sales tax exemption documents the contractor should collect for each situation.

The Department walked through 20 NYCRR § 541.5(b)(4) and matched the document to the job:

• Capital improvement work. The contractor should obtain a copy of the Certificate of Capital Improvement (Form ST-124) that was issued to his prime contractor, or an original ST-124 from the owner or tenant.
• Repair or maintenance work done for a subcontractor or prime contractor. The contractor should obtain a Contractor Exempt Purchase Certificate (Form ST-120.1) from that sub or prime contractor.
• Work for an exempt organization (one described in Tax Law § 1116(a)). The contractor must obtain a copy of the organization's exempt organization certification or a governmental purchase order.

The Department also repeated a key limit from the regulation: a capital improvement certificate may not be issued to a supplier to buy tangible personal property (the underlying materials) tax-free. The certificate governs the contract with the customer, not the contractor's purchase of materials.

What this means for you

Match the certificate to the type of work

For contractors, the paperwork isn't one-size-fits-all. A capital improvement — a permanent addition or alteration that increases the value of real property — is documented with an ST-124. A repair or maintenance job passed down from a prime contractor is documented with an ST-120.1. Collecting the wrong form for the job leaves you exposed if the transaction is later questioned.

As a subcontractor, get the certificate from the party above you

When you work under a prime contractor, you collect the certificate from that prime contractor — a copy of the ST-124 it received for a capital improvement, or an ST-120.1 for a repair. When you work directly for the owner or tenant, you get the original certificate from them.

You still pay tax on your materials

The capital improvement certificate protects the labor/contract side of the deal; it does not let you buy the paint and supplies tax-free from your supplier. A contractor generally pays tax on the materials it buys and incorporates into the job. Don't try to hand an ST-124 to a paint store.

Exempt-organization jobs need different proof

If your customer is a § 1116(a) exempt organization — a charity, school, or government body — the right documentation is the organization's exempt organization certificate or a governmental purchase order, not a capital improvement or resale certificate.

For a companion question from the same petitioner about whether this painting contractor may accept a Resale Certificate (Form ST-120) in good faith when claiming a § 1119(c) credit, see the Department's opinion TSB-A-90(39)S.

Common questions

Q: What document do I collect for a capital improvement job?
A: A Certificate of Capital Improvement (Form ST-124) — a copy of the one issued to your prime contractor, or an original from the owner or tenant.

Q: What about a repair or maintenance job for a prime contractor?
A: A Contractor Exempt Purchase Certificate (Form ST-120.1) from that prime or subcontractor.

Q: Can I use a capital improvement certificate to buy my paint and materials tax-free?
A: No. A capital improvement certificate may not be issued to a supplier for the purchase of tangible personal property. You generally pay tax on your materials.

Q: My customer is a charity or a government agency. What do I collect?
A: A copy of the organization's exempt organization certification, or a governmental purchase order, under § 1116(a).

Citations and references

Statutes and regulations:

• 20 NYCRR § 541.5(b)(4) — documents for capital improvement contracts (ST-124, ST-120.1)
• Tax Law § 1116(a) — exempt organizations (exempt organization certificate / governmental purchase order)

Related Department opinion:

• TSB-A-90(39)S — same petitioner; whether the painting contractor may accept a Resale Certificate (Form ST-120) in good faith for a Tax Law § 1119(c) credit

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(45)S
Sales Tax
August 20, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900417E

On April 17, 1990 a Petition for Advisory Opinion was received from Sharon P. Sheinfeld,
c/o Richard A. Eisner & Company, 575 Madison Avenue, New York, New York 10022.
The issue raised by Petitioner, Sharon P. Sheinfeld, is what sales tax exemption documents
should a painting contractor obtain when he is acting as a subcontractor for a prime contractor or
directly for an owner or tenant.
Petitioners' client is a painting contractor who performs both capital improvements and
repairs. The work is performed directly for tenants and owners as well as subcontractors for general
building contractors.
Section 541.5(b)(4) of the Sales and Use Tax Regulations provide that:
Documents; capital improvement contracts. (i) When a properly
completed certificate of capital improvement has been furnished to
the contractor, the burden of proving the job or transaction is not
taxable and the liability for the tax rests solely upon the customer.
(a) The prime contractor should obtain a certificate of capital
improvement from the customer and retain it as part of his records.
Copies of such certificate must be furnished to all subcontractors on
the job and retained as part of their records.
(b) A certificate of capital improvement may not be issued by a
contractor, subcontractor or any other person to a supplier on the
purchase of tangible personal property.
(ii) Where a contractor does not receive a capital improvement
certificate from a customer, the contract or other records of the transaction
will prevail. In such case:
(a) where the contractor does not receive a capital improvement
certificate, collects tax on the full invoice price and the job is a capital
improvement to real property, the contractor is liable for the tax on the cost
of materials incorporated into the job, plus the tax collected from the
customer. The customer is entitled to a refund of the tax paid to the
contractor; or
TP-9 (9/88)

-2­
TSB-A-90(45)S
Sales Tax
August 20, 1990

(b) where the contractor does not receive a capital improvement
certificate, collects no tax on the charges billed to the customer and the job
is a capital improvement to real property, the contractor is liable for the tax
on the cost of materials incorporated into the job performed.
(iii) If a contract includes the sale of tangible personal property which
remains tangible personal property after installation, the contractor must
collect the appropriate New York State and local taxes from the customer on
the selling price, including any charge for installation, of the tangible
personal property unless a properly completed exemption certificate is issued
by the customer. The contractor may apply for a credit or refund of taxes he
has paid on purchases of the tangible personal property that remain tangible
personal property after installation.
Accordingly, if Petitioner's client is performing a capital improvement contract for a
subcontractor, prime contractor, tenant or owner he should obtain a copy of the Certificate of Capital
Improvement (Form ST-124) which was issued to his prime contractor or an original Certificate of
Capital Improvement from the owner or tenant. If Petitioner's client is performing a repair or
maintenance contract for a subcontractor or a prime contractor, he should obtain a Contractor
Exempt Purchase Certificate (Form ST-120.1) from his subcontractor or prime contractor. It should
be noted that if Petitioner's client is working for an exempt organization described in Section 1116(a)
of the Tax Law, he must obtain a copy of the organization's exempt organization certification or a
governmental purchase order.

DATED: August 20, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.