Is installing custom shutters and blinds as original equipment in a new home, before construction is finished, a tax-exempt capital improvement?

Plain-English summary

Douglas A. Skolnick, a New York homeowner, hired a contractor to install custom-made, floor-to-ceiling shutters (resembling louvered doors) and custom wood venetian-style blinds on all doors and windows, along with matching window casings, frames, sills, and aprons -- all as original equipment before construction of his new home was finished. The job cost over $70,000, and Skolnick paid sales tax on the full amount. Given how permanently the woodwork was installed -- drilled and glued into place, with removal risking thousands of dollars in damage -- he asked whether the work qualified as an exempt capital improvement rather than a taxable installation of tangible personal property.

The Department split its answer between the shutters and the blinds. Ordinarily, installing shutters and blinds is just a taxable installation of tangible personal property, not a capital improvement, because they generally don't become part of the building. But this case was different: the custom shutters were installed as part of the original finish carpentry before the house was completed -- literally enclosing the window casings and door frames with molding that would otherwise have left exposed sheetrock and stud framing. Because this work was a necessary step in finishing the capital-improvement construction project itself (similar to built-in shelving installed during original construction, which an earlier ruling had already treated as part of a capital improvement), the shutter installation and related woodwork qualified as excluded from tax, and the contractor's materials that became part of that improvement were exempt too (though the contractor itself still had to pay tax on buying those materials).

The blinds got a different result. Even though they were installed as part of the same original-construction project, blinds simply don't become part of the real property the way built-in woodwork does -- they remain removable window coverings. So the charges for the blinds and their installation stayed fully taxable, regardless of how the rest of the project was treated.

What this means for you

Homeowners building or renovating and installing window treatments

Don't assume all window-treatment work in a new-construction project gets the same tax treatment. Built-in, permanently affixed woodwork installed as part of finishing the structure itself (window casings, sills, aprons, shutters that enclose the frame) can qualify as an exempt capital improvement, while blinds and similar coverings almost always remain taxable regardless of when or how they're installed.

Contractors doing finish carpentry and window-treatment installation in new construction

If your billing lumps together capital-improvement woodwork (exempt to the customer) with blinds or other non-structural window coverings (taxable), separate the charges. You'll still pay tax on your own material purchases for the exempt portion, but your customer shouldn't be charged tax on that piece of the bill.

Accountants and tax professionals

This ruling extends the reasoning from Home Insulation & Supply, Inc., TSB-A-96(32)S (built-in shelving installed during original construction is part of the capital improvement) to custom shutters and finish woodwork performed before construction is complete, while reaffirming The Shutter Shop, TSB-A-93(9)S and Verticals, Inc., TSB-A-86(34)S that shutters and blinds installed as standalone retrofits generally remain taxable installations of tangible personal property.

Common questions

Q: Are shutters installed in a new home always exempt as a capital improvement?
A: No. It depends on whether the installation is genuinely part of the original construction's finish work (enclosing casings/frames) as opposed to a standalone retrofit installation after the home is complete.

Q: Are blinds ever treated as a capital improvement?
A: No. Blinds don't become part of the real property regardless of when or how they're installed, so charges for blinds and their installation are always taxable.

Q: If a homeowner was overcharged sales tax on an exempt capital improvement, what can they do?
A: This particular Advisory Opinion doesn't address a refund claim directly, but a taxpayer who paid tax on an exempt capital-improvement charge would generally need to pursue a refund claim with the Department separately.

Q: Does this ruling apply to my home construction or window-treatment project?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Whether specific woodwork is genuinely part of a capital improvement depends on your own facts.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(9)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970623A

On June 23, 1997, a Petition for Advisory Opinion was received from Douglas
A. Skolnick, 828 Stonewall Court, Franklin Lakes, New Jersey 07417. Petitioner,
Douglas A. Skolnick, submitted additional information pertaining to this petition
on August 15, 1997.
The issue raised by Petitioner is whether the installation of custom
shutters and blinds on all doors and windows as original equipment in a new home
is a capital improvement to real property pursuant to Section 1101(b)(9) of the
Tax Law and is exempt from sales tax.
Petitioner submits the following facts.
Petitioner is a New York homeowner.
Prior to the completion of the
original construction of Petitioner's home, Petitioner hired a contractor to
provide and install original equipment in the new home, consisting primarily of
custom-made shutters and blinds. The shutters may be floor-to-ceiling units
resembling louvered doors. The blinds resemble venetian blinds though custom
fitted and made of wood.
The contractor also provided and installed window
casings, frames, sills and aprons in connection with the shutters and blinds.
The amount charged by the contractor for materials and labor was in excess of
$70,000, and Petitioner paid sales tax on this amount. Given their prevalence
throughout the premises, the shutters, blinds and related woodwork add materially
to its ambiance and would be a significant consideration to any prospective
buyer. The shutters, blinds and related woodwork were installed over a period of
weeks and permanently drilled into place.
Glue was also used to affix the
woodwork to the walls.
Removal of the contractor's work would cost thousands
of dollars in labor, would significantly damage the surrounding woodwork,
resulting in costly repairs, and in many cases, could not be done without
damaging the articles themselves.
The articles have been custom fitted to the
spaces they occupy. There is no intention to remove them.
Applicable Law and Regulations
Section 1101(b)(9) of the Tax Law defines a capital improvement as follows:
Capital improvement. (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
(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.

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TSB-A-98(9)S
Sales Tax

Section 1105(a) of the Tax Law imposes a tax on "The receipts from every
retail sale of tangible personal property, except as otherwise provided in this
article."
Section 1105(c)(3) of the Tax Law imposes a tax on receipts from the
service of "Installing tangible personal property ... except for installing
property, which when installed, will constitute (a) ... capital improvement to
real property...."
Section 1115(a)(17) of the Tax Law provides an exemption from sales tax
for:
Tangible personal property sold by a contractor, subcontractor or
repairman to a person other than an organization described in
subdivision (a) of section eleven hundred sixteen, for whom he is
adding to, or improving real property, property or land by a capital
improvement, or for whom he is about to do any of the foregoing, if
such tangible personal property is to become an integral component
part of such structure, building or real property . . . .
Opinion
The installation of tangible personal property so that it retains its
identity as tangible personal property when installed is subject to sales tax
under Section 1105(c)(3) of the Tax Law. Generally, the installation of shutters
and blinds is subject to sales tax as the installation of tangible personal
property and does not result in a capital improvement. See The Shutter Shop, Adv
Op Comm T&F, January 25, 1993, TSB-A-93(9)S.
However, in this case, Petitioner had custom-made shutters installed as the
original installation in a new home before construction work on the home was
completed. The installation of the custom-made shutters was performed as part
of the finishing carpentry.
The installation involved the enclosing of the
window casing, adding the sill, apron, remaining portions of the enclosure and
the door frame with molding. The original installation of the above items was
necessary to complete the capital improvement project; otherwise, the windows and
door frames would be exposed showing the sheetrock nailed to the stud framing.
In Home Insulation & Supply Inc., Adv Op Comm of T&F, May 23, 1996,
TSB-A-96(32)S, it was determined that permanent, built-in shelving installed in
a new home or commercial building in conjunction with the construction of the
home or commercial building is deemed to be part of the capital improvement
project.
Therefore, the installation of such shelving in a new home or
commercial building is not subject to sales tax, pursuant to Section
1105(c)(3)(iii) of the Tax Law.
Accordingly, the installation of the custom-made shutters and woodwork as
part of the original construction of the new home in the manner described by
Petitioner is excluded from the sales tax under Section 1105(c)(3) of the Tax

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TSB-A-98(9)S
Sales Tax

Law. Charges by the contractor to Petitioner for materials which become part of
the capital improvement are exempt from tax under Section 1115(a)(17) of the Tax
Law. However, the contractor is required to pay tax on its purchase of such
materials.
Installation of the blinds, however, in Petitioner's home does not
constitute a capital improvement.
Blinds do not become part of the real
property. See Publication 862, Sales and Use Tax Classifications of Capital
Improvements and Repairs to Real Property,(4/96), Verticals, Inc., 0Adv Op Comm
T&F, September 3, 1986, TSB-A-86(34)S.
Accordingly, any amounts paid by
Petitioner for the blinds and their installation are subject to sales tax.

DATED: February 26, 1998

NOTE:

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

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