Is asbestos removal taxable in New York when it is done as part of a capital improvement, such as reinsulating pipes and boilers?

Plain-English summary

Park Plaza Owners Corp., a Rego Park (Queens) cooperative, hired The Asbestos Management Group, Ltd. to remove and dispose of all asbestos-containing material from the basement and garage areas of its buildings and to completely reinstall code-compliant insulation on the basement/garage pipes and on the boilers and related components (including breeching). It asked whether that work is subject to New York State and local sales and use tax.

The Department's answer turns on why the asbestos was removed:

• Asbestos removal on its own is taxable. Removing asbestos, standing alone, is a taxable service of "maintaining, servicing or repairing real property" under Tax Law § 1105(c)(5).
• But not when it is part of a capital improvement. Whether a service to real property is taxable "depends on the end result" (20 NYCRR § 527.7(b)(4)). Here the end result was a capital improvement — the pipes and boilers were completely reinsulated with new, code-compliant materials. Publication 862 treats the complete insulation of garages, of heating and hot-water-system pipes, and of heating duct systems and walls as capital improvements.
• The removal is a "constituent part" of that improvement. Just as a subcontractor's charge to repair a wall opened up to install a door/window is not taxable (20 NYCRR § 541.2(g)(1), Example 3), the asbestos-removal charge is a constituent part of the capital improvement and is not taxable. This follows the earlier opinion Oscar S. Rothans, TSB-A-89(10)S, where asbestos removal tied to installing a boiler-type furnace was not taxable.

So on these facts the charge for the asbestos removal is not subject to sales or use tax.

What this means for you

The "end result" test decides real-property work

New York doesn't tax every service performed on a building. If the end result is repair or maintenance, the charge is taxable; if the end result is a capital improvement, it isn't. A capital improvement is an addition/alteration that substantially adds value or prolongs useful life, becomes permanently affixed, and is intended to be permanent (Tax Law § 1101(b)(9)).

Removal that precedes a permanent installation can ride along untaxed

Demolition, stripping, or hazardous-material removal that is a constituent part of a larger capital-improvement job takes the tax character of the whole job. Asbestos removal followed by complete reinsulation of pipes and boilers is a capital improvement, so the removal is not separately taxed.

Get the capital-improvement paper right

The exclusion depends on the work actually being a capital improvement. A property owner should have the contractor document the job and, where appropriate, use a properly completed capital improvement certificate (Form ST-124). Asbestos removal that is not paired with a qualifying permanent installation — e.g., pure abatement with no reinsulation — would remain a taxable repair/maintenance service.

Common questions

Q: Is asbestos removal taxable in New York?
A: By itself, yes — it's a taxable service of maintaining/repairing real property under § 1105(c)(5). It becomes non-taxable only when it is a constituent part of a capital improvement.

Q: What made this job a capital improvement?
A: The asbestos was stripped and the basement/garage pipes and the boilers were completely reinsulated with code-compliant materials. Complete reinsulation of pipes, garages, and heating systems is a capital improvement under Publication 862.

Q: If I only pay to have asbestos removed, is that taxable?
A: Generally yes. Removal that is not part of a qualifying permanent installation is treated as a taxable repair/maintenance service.

Q: Does it matter that a subcontractor did the removal?
A: No. A subcontractor's charge that is a constituent part of a capital improvement is not taxable (20 NYCRR § 541.2(g)(1), Example 3).

Citations and references

Statutes, regulations, and authorities:

• 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 — adds value/prolongs life, permanently affixed, intended permanent)
• 20 NYCRR § 527.7(b)(4) (taxability depends on the end result of the service)
• 20 NYCRR § 541.2(g)(1), Example 3 (subcontractor charge that is a constituent part of a capital improvement is not taxable)
• Publication 862, NYS and Local Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property (1/90) (complete insulation of garages, pipes, heating systems is a capital improvement)
• Oscar S. Rothans, TSB-A-89(10)S (asbestos removal as a constituent part of a capital improvement is not taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (4)S
Sales Tax
January 30, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911008B

On October 8, 1991, a Petition for Advisory Opinion was received from Park Plaza Owners
Corp., 61-15 and 61-25 97th Street, Rego Park, New York 11374.
The issue raised by Petitioner, Park Plaza Owners Corp., is whether the removal and disposal
of asbestos containing material and the reinstallation of all abated areas with non-asbestos containing
material is subject to State and local sales and use taxes.
Petitioner contracted with The Asbestos Management Group, Ltd. for the removal and
subsequent disposal of all asbestos containing materials from all basement and garage areas of the
buildings located at 61-15 and 61-25 97th Street, Rego Park, NY and the complete reinstallation with
materials complying with applicable law of (a) pipes in the basement and garage areas of the
aforesaid buildings; and (b) boilers and related components (including breeching) at the location.
The Asbestos Management Group, Ltd. hired as subcontractor, the firm of Envirosafe, Inc., for the
execution of the work.
Section 1105(c)(5) of the Tax Law imposes a sales tax upon receipts from the services of
"[m]aintaining, servicing or repairing real property. . .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. . . ."
Section 1101 (b)(9) of the Tax Law defines capital improvement as follows:
(9) Capital improvement. (3) "An addition or alteration to real property which:
(i) Substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property; and
(ii) 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
(iii) Is intended to become a permanent installation.
Section 527.7(b)(4) of the Sales and Use Tax Regulation provides that:
(4) The imposition of tax on services performed on real property depends on the end
result of such service. If the end result of the services is the repair or maintenance
of real property, such services are taxable. If the end result of the same service is a
capital improvement to the real property, such services are not taxable.

-2­
TSB-A-92 (4)S
Sales Tax
January 30, 1992
Example "3" of Section 541.2(g)(1) of the Sales and Use Tax Regulation provides:
Example 3:

A homeowner hires a general contractor to remove a portion of a masonry
wall for the purpose of installing a door and window. The general contractor
hires a masonry contractor (subcontractor) to repair the wall.
The charge to the contractor by the subcontractor represents a constituent part
of the services performed in adding to or improving real property by a capital
improvement and therefore is not subject to tax in accordance with section
527.7(b)(4) of this Title.

Moreover, New York State and Local Sales and Use Tax Classifications of Capital
Improvements and Repairs to Real Property, Publication 862 (1/90) at pages 6, 8, 9 and 13 provides
that the complete insulations of garages, pipes of heating and hot water systems, heating duct
systems, and walls constitute capital improvements.
In Oscar S. Rothans, Adv. Op Comm T&F, March 28, 1989, TSB-A-89(10)S the
Commissioner advised that the removal of asbestos in connection with the removal and installation
of a boiler type furnace was not subject to sales tax since the service of asbestos removal was
performed as a constituent part of a capital improvement.
Accordingly, the service of asbestos removal by itself is a service subject to tax under Section
1105(c)(5) of the Tax Law. However, when the service of asbestos removal is performed as a
constituent part of a capital improvement, as is true in the instant case where the pipes and boilers
are completely reinsulated after the asbestos insulation is removed, the charge for such removal is
not subject to sales and use tax in accordance with the provisions of the sections of the law and
regulations cited above, Oscar S. Rothans, supra, and Publication 862.

DATED: January 30, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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