Is restoration of a building's deteriorated balconies and catwalks a tax-exempt capital improvement or a taxable repair?

Plain-English summary

Park Plaza Owners Corp., a cooperative housing corporation, hired a contractor for a three-phase project to inspect, test, clean, patch, and coat the deteriorated concrete of its buildings' balconies and catwalks -- removing cracked and spalled concrete, repairing cracks and railings, and applying repair mortars and floor coatings. It asked whether this work is a capital improvement (which would be tax-free) for sales tax purposes.

The Department said no -- it's a taxable repair:

• Capital improvement has a strict definition. Under Tax Law 1101(b)(9) (and 20 NYCRR 527.7(a)(3)), an improvement must substantially add to value or appreciably prolong useful life, become a permanent part of the property, and be intended as permanent.
• The end result controls. The regulation taxes work whose end result is repair or maintenance, and exempts work whose end result is a capital improvement (20 NYCRR 527.7(b)(4)). The Department's Publication 862 illustrates the line: patching and coating existing concrete is a repair, while complete replacement or new construction is a capital improvement.
• This was patching, not replacing. Because the job did not build new or completely replace the balconies and catwalks -- it cleaned, removed deteriorated concrete, patched, and coated existing surfaces to keep them fit and safe -- it is repair/maintenance of real property. The contractor's total charges are subject to New York State and local sales tax under Tax Law 1105(c)(5).

What this means for you

Building owners, co-ops, and property managers

Restoration is usually a taxable repair. Fixing, patching, cleaning, and re-coating existing surfaces keeps property in good condition -- that's repair or maintenance, and the contractor's whole charge (labor and materials) is taxable. You generally can't treat a concrete-restoration or facade-repair job as a tax-free capital improvement.

Where the capital-improvement line falls

A capital improvement typically requires new construction or complete replacement that becomes a permanent part of the building and adds value or extends useful life. Reference the Department's Publication 862 for how specific jobs (brickwork, patios, roofs, etc.) are classified.

Contractors: bill tax on repair jobs

If the end result is repair/maintenance, charge sales tax on the total. Only accept a capital improvement certificate (Form ST-124) when the work genuinely qualifies -- mislabeling a repair as a capital improvement creates exposure.

Common questions

Q: We spent a lot restoring the balconies -- doesn't that make it a capital improvement?
A: No. Cost isn't the test. Because the work patched and coated existing concrete rather than completely replacing the balconies, it's a taxable repair.

Q: What would have made it a capital improvement?
A: New construction or complete replacement that becomes a permanent part of the building and substantially adds value or prolongs useful life, per section 1101(b)(9).

Q: Is the labor taxable too, or just materials?
A: For a repair to real property, the contractor's total charge -- labor and materials -- is subject to sales tax under section 1105(c)(5).

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner and the facts described. Treat it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(c)(5) (sales tax on maintaining, servicing, or repairing real property)
• Tax Law section 1101(b)(9) (definition of capital improvement)
• 20 NYCRR 527.7 (repair/maintenance vs. capital improvement of real property)
• NYS Dept. of Taxation and Finance Publication 862 (classification of capital improvements and repairs)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (43)S
Sales Tax
August 10, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930504A

On May 4, 1993 a Petition for Advisory Opinion was received from Park Plaza Owners
Corp., 61-15 & 61-25 97th Street, Rego Park, New York 11374.
The issue raised by Petitioner, Park Plaza Owners Corp., is whether restoration work
performed on balconies and catwalks of the buildings owned by it will qualify as a capital
improvement for sales and use tax purposes.
Petitioner, a cooperative housing corporation, has entered into an agreement with a contractor
which involves the comprehensive inspection, testing, cleaning, replacement and restoration of the
balconies and catwalks of the buildings located at 61-15 and 61-25 97th Street, Rego Park, New
York.
The agreement between Petitioner and the contractor states that the work shall be divided into
the following three phases:
Phase I
Phase I of the Work shall include all mobilization, filing,
security, scaffold rigging, materials and labor for inspection and testing of all balconies and
hallways, removal of all deteriorated and cracked concrete, cleaning of all balcony and hallway
walking surfaces, coating balcony and hallway surfaces, caulking hallway railing post bases, and
clean up for Balcony Row Nos. 1, 2, 3, 4, 18, 19, 20 and 30, as indicated in the Drawings, and
Catwalk Row Nos. 1, 2, 3, 5 and 6 at the Site, as indicated in the Drawings.
Phase II
Phase II of the Work shall include all mobilization, filing,
security, scaffold rigging, materials and labor for inspection and testing of all balconies, removal of
all deteriorated and cracked concrete, cleaning of all balcony walking surfaces, coating balcony
surfaces, and clean up for Balcony Row Nos. 5 through 17 at the Site, as indicated in the Drawings.
Phase III
Phase III of the Work shall include all mobilization, filing,
security, scaffold rigging, materials and labor for inspection and testing of all balconies and
hallways, removal of all deteriorated and cracked concrete, cleaning of all balcony and hallway
walking surfaces, coating balcony and hallway surfaces, caulking hallway railing post bases, and
clean up for all Balcony Row Nos. 21 through 29 and Catwalk Row No. 4 at the Site.
The applications for bid proposals distributed by Petitioner state in part as follows:

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B.

INSPECTION AND TESTING (BASE BID)
The following preparatory work shall be done with respect to each balcony:

1.

Contractor shall test by means of a garden hose under full pressure, the
condition of existing drains. All clogged or improperly functioning drains
shall be reported to the Merritt Engineering Consultants for decision as to
repair procedures. Repairs to, or replacement of drains or parts of the
plumbing system shall be by change order to the contract.

2.

Contractor shall check balcony surfaces for adequate pitch to drain,
preferably not less than one-eighth inch per foot (1/8"/ft.). If ponding persists
or if unable to check field conditions, Contractor shall advise Merritt
Engineering Consultants before proceedings. Any modification to correct
pitch to drain shall be by Change Order to Contract.

3.

Prior to the start of concrete or coating work, drains shall be protected.
Method shall be submitted to Merritt Engineering Consultants for approval.

4.

Contractor shall carefully inspect all surfaces of each balcony and hallway for
cracks and spalls. Repairs to each surface shall be performed in accordance
with the specified procedure stated herein.

5.

Contractor shall examine railings for defects and note all defects in railing by
location. Contractor shall notify Merritt Engineering Consultants of such
defects, and when requested by Owner, Contractor shall furnish a proposal
for the work. If accepted by Owner, the work shall be done by Change Order
to the Contract. All work shall be done by competent iron workers and all
welding by certified welders.

6.

Contractor shall sound the concrete slabs with a 2 lb. hammer, on all surfaces
of the balcony. Loose and spalled concrete shall be removed to firm base and
shall then be cleaned with water under medium pressure and allowed to dry
thoroughly. Contractor shall then repair all concrete surfaces in accordance
with herein specified procedures.

C.

CONCRETE REPAIRS (UNIT PRICES)

1.

Preparation of the Work

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a.

Prior to the start of the work, carefully examine the existing surface and
verify that the work may be completed in strict accordance with the
manufacturer's recommendations and/or specifications. If there are any
discrepancies or questionable matters do not proceed until resolved. Be sure
that loose or disintegrated material which may impair the application of this
work has been removed.

b.

Properly mix material prior to application in accordance with manufacturer's
directions.

c.

Allow sufficient drying time between coats. Do not apply successive coats
until the completed coat has thoroughly dried and has been inspected and
approved by Merritt Engineering Consultants.

d.

Do not apply material during adverse weather conditions which would impair
the work.

e.

Deliver manufacturer's materials to the site in original unopened containers
clearly indicating manufacturer's name, brand name, and other identifying
information.

f.

Materials shall be stored on pallets, off the ground, in a dry location, to
prevent damage or deterioration.

g.

Flammable materials will not be permitted to be stored within the building
premises.

h.

Submit to Merritt Engineering Consultants copies of manufacturer's
specifications, installation instructions data including a sample copy of the
standard guarantee, prior to the start of work (see shop drawing procedures).

2.

Cracks up to 2" Thick and Minor Spalls up to 2" Deep

a.

Contractor shall chip out all loose and spalled concrete around cracks, and
"Vee" out crack minimum width ½-inch.

b.

Thoroughly clean cracks of all loose material with oil-free compressed air or
vacuum.

c.

Contractor shall apply bonding compound of Injection Grout Sikadur 52, to
the surface of the crack followed by a sealer of Polymer Powdered Mortar
using SikaTop 123 on vertical and overhead surfaces and Sikatop 122 on
horizontal surfaces. The mortar must be applied while the bonding
compound is still tacky in accordance with manufacturer's recommendation.

d.

Spall edges shall be cut a minimum 1/4" deep patched using Sikatop 110
Armatec and then Sikatop 123 on vertical and overhead surfaces and Sikatop

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Sales Tax
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122 on horizontal surfaces. There shall be no feather edging of new material
onto existing slab surfaces.
e.

All new repairs to the curbs, and chips to the existing coating caused by
testing the curbs, shall be coated with Thorocoat to match the adjacent
existing coating.

3.

Major Spalls Greater than 2" Deep

a.

Contractor shall remove all loose and broken concrete, and provide a rough,
clean, sound concrete surfaces as previously stated. A minimum of 1 1/2 inch
deep groove shall be provided at all edges to avoid all feather edging.

b.

1/4 inch stainless steep pins shall be pre-drilled into the clean, sound concrete
surface a maximum of 6" on center and a depth of 2" using a 1/2" DIA. hole.
Stainless wire mesh shall then be wrapped between pins. Fill oversized holes
with Dikadur 31 Hi-Mod Gel.

c.

After concrete surface has been prepared an application of bonding
compound Sikatop 110 Armatec shall be thoroughly brushed onto the surface.

d.

The concrete shall then be restored to its original shape with polymer­
powdered mortar of Sikatop 123 on vertical and overhead surfaces and
Sikatop 122 on horizontal surfaces. Where areas need reforming, the forms
shall be faced by on approved method to prevent bonding of the mortar to the
form. Boding agent and mortar, as well as form preparation shall be approved
by Merritt Engineering Consultants.

4.

Reinforcement

a.

The existing reinforcing bars shall be carefully examined, and all reinforcing
covered with disintegrated loose concrete shall be exposed to where the
remaining concrete surface is firm and solid. All exposed reinforcing bars or
mesh shall then be cleaned of rust and prepared as follows:

b.

Where the exposed reinforcing is less than 1 1/2" from surface the concrete
shall be cut around the bar to expose all rust. Ail surfaces shall be brushed
clean to remove all rust. The steel and surrounding concrete shall receive two
coats of the Sikatop 110 Armatec.

c.

Where required, all deteriorated reinforcing shall be replaced with bars of the
same size and spacing. Concrete shall be cut back to sound reinforcing
material, and the new reinforcing bar shall be welded to the existing
reinforcing material, bar 20 DIA. The resulting bar shall then receive two
coats of bonding agent Sikatop 110, Armatec, and the opening sealed per the
preceding specifications. Replacement of existing reinforcing will be by
Change Order to the contract.

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D.

CONCRETE PREPARATION AND REPAIR AT RAILINGS/POSTS (UNIT
PRICE)

1.

Contractor shall remove all loose and spalled concrete from around the
railing posts. Removal shall be to firm surface. All debris shall be washed out
with clean water under pressure. All such areas shall be allowed to dry
thoroughly.

2.

The exposed areas of railing posts shall be cleaned carefully. All rust shall
be removed. Contractor shall apply two coats of a rust inhibiting primer. The
primer shall be compatible with the concrete repairs to the be performed. It
shall be applied in accordance with manufacturer's recommendations.

3.

Exposed steel reinforcement shall be repaired in accordance with Section
III.C.4.

4.

The repair of cracks and/or spalls associated with post sites shall be as per
Section III.C. This shall also include repair of corners where required.

5.

Where the railing posts have lost their stability by the spalling/cracking of the
concrete surrounding the support, the support area shall be rebuilt as per
Section III.C. Additional adjacent areas may have to be removed, even though
the area may be sound, if in the opinion of Nerritt Engineering Consultants
this shall be necessary to provide structurally sound repair.

6.

The openings around the railing post where a depression exists shall be filled
with non-shrink grout, as per Section III.C. provided such depression is at
least one inch deep. Grout filing shall be within one-half inch (1/2") above
the surrounding concrete surface, mounded to slope away from the post in all
directions so as to shed water. Where repairs are done around a railing post
Contractor shall make sure there is a proper seal around the railing posts by
caulking the joint using Tremco Dymeric.

7.

All hallway posts shall be caulked at the base with Tremco Dymeric. (This
work to be included in the Base Bid.)

E.

COATING BALCONY AND HALLWAY FLOOR SURFACES (UNIT PRICE)

1.

The balcony and hallway walking surfaces are to be cleaned free of all loose
paint, existing coatings, adhesives, and debris, and are to be coated with
Sikatop 144. (Base Bid)

Section 1101(b)(9) of the Tax Law defines a capital improvement as follows:
(i) An addition or alteration to real property which:
A. Substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property; and

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(B) 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
(C) Is intended to become a permanent installation.
Section 527.7 of the Sales and Use Tax Regulations states, in part:
Maintaining, servicing or repairing real property. [Tax Law, §1105(c)(5)]
(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 garbsge removal and
sewerage service and snow removal.
(2) Real property, property and land are defined as in subdivision 12 of
section 102 of the Real Property Tax Law. Among the items considered in this
classification are:
(ii) buildings and structures erected upon, under or above
land, or affixed thereto;
(3)(i)

A capital improvement is an addition or alteration to real property:

(a) which substantially adds to the value of the real property; or appreciably
prolongs the useful life of the real property;
(b) which 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
(c) is intended to become a permanent installation.
(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.
Example 1:

The replacement of broken windows is
a repair to real property, which is
taxable.

(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.

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Example 9:

The replacement of some shingles or
patching of a roof is a repair, but a
new asphalt shingle roof is a capital
improvement.

New York State Department of Taxation and Finance Publication 862 (1/90), New York
State and Local Sales and Use Tax Classifications of Capital Improvements and Repairs to Real
Property, states, in part:

Pg. 4
Brickwork

Repair, Maintenance
or Installation of
Tangible Personal
Property

Capital Improvement

Fixing cracks
Replacing damaged
bricks
Repointing
Sandblasting

Construction of new or
complete replacement
of brick:

*
Pg. 10
Patios

• Chimneys
• Exterior Surfaces
• Fireplaces
• Stairs or Steps
• Structures
• Walls
  *

Painting, varnishing
or waterproofing
existing patios
Repair or maintenance
of patios
Repairing and
patching of holes and
cracks
Replacing sections of
concrete patios
Replacement of blocks
and flagstones

*

Complete installation
or replacement of:

• Blacktop Patios
• Concrete patios
• Flagstone, Block or
  Brick Patios
• Patio Roofs
• Wood
  Patios
  Painting, varnishing
  or waterproofing new
  patios

Since the work involved in the instant matter as set forth in the agreement between Petitioner
and the contractor and in the bid proposal forms, does not call for the construction of new or
complete replacement of balconies, catwalks or hallways, but instead calls for the inspection and
testing of balconies and hallways, the removal of all deteriorated and cracked concrete, the cleaning
of walking surfaces, the patching and coating of balcony and hallway surfaces, etc. the job is not

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Sales Tax
August 10, 1993
considered to be an addition or alteration to real property which meets the conditions stated in
Section 1101(b)(9)(i), (A), (B), or (C) of the Tax Law and Section 527.7(a)(3) of the Sales and Use
Tax Regulations and, accordingly, is not considered to be a capital improvement. Based on the nature
of the restoration work, the job activities relate to keeping the property in a condition of fitness,
readiness or safety or restoring it to such condition. Accordingly the restoration work is considered
to be the repair or maintenance of real property. Therefore the total charges to Petitioner by the
contractor will be subject to New York State and local sales tax. (See Section 527.7(b)(4) of the
Sales and Use Tax Regulations. Also, see pgs. 4 and 10 of NYS Department of Taxation and Finance
Publication 862, New York State and Local Sales and Use Tax Classifications of Capital
Improvements and Repairs to Real Property.)

DATED: August 10, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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