NY TSB-H-80(199)S Sales Tax 1981-03-04

Is roof repair and restoration work — flashing, new drains, remedial repairs, coating, and expansion joints — a tax-exempt capital improvement, or taxable repair and maintenance of real property?

Short answer: It's taxable — the roof work is repair and maintenance of real property, not a capital improvement, so the contractors' charges are subject to sales tax. Fargo Manufacturing Company hired two contractors to work on its plant roof: one did flashing reinforcement, new roof drains, remedial repairs, restoration, and complete coating; the other did preliminary repairs and installed new expansion joints. Fargo asked whether this was an exempt capital improvement. Under Tax Law § 1105(c)(5), the service of maintaining, servicing, or repairing real property is taxable, as distinguished from adding to or improving it by a capital improvement. Under 20 NYCRR 527.7(a)(1), maintaining/servicing/repairing covers all activities that keep real property in a condition of fitness, efficiency, readiness, or safety, or restore it to such condition. Under the three-part capital-improvement test in 20 NYCRR 527.7(a)(3), the work must substantially add value or appreciably prolong the property's useful life, be permanently affixed, and be intended as permanent. The Department found this roof work merely keeps the property in good condition and does not substantially add value or appreciably prolong its life — so it is taxable repair and maintenance under § 1105(c)(5), not a capital improvement.

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This page answers the general question as of 1981. Ezel answers yours, under current New York tax law, with citations.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion, issued by the Technical Services Bureau (identified with the earlier 'TSB-H' numbering prefix used alongside 'TSB-A' in 1980) at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Fargo Manufacturing Company, Inc. (Poughkeepsie, New York) had two contractors work on the roof of its manufacturing plant. One provided flashing reinforcement, new roof drains, remedial roof repairs, restoration, and a complete coating of the roof; the other did preliminary repairs and installed new expansion joints. Fargo asked whether this was a tax-exempt capital improvement.

The answer: no — it's taxable repair and maintenance.

§ 1105(c)(5) taxes the service of maintaining, servicing, or repairing real property — as distinguished from adding to or improving it by a capital improvement.
20 NYCRR 527.7(a)(1) says maintaining/servicing/repairing covers all activities that keep real property in a condition of fitness, efficiency, readiness, or safety, or restore it to such condition.
20 NYCRR 527.7(a)(3) requires a capital improvement to (i) substantially add value or appreciably prolong the property's useful life, (ii) be permanently affixed (removal would cause material damage), and (iii) be intended as permanent.
The Department found the roof work merely keeps the property in good condition and does not substantially add to its value or appreciably prolong its useful life. So it is the taxable service of repairing/maintaining real property under § 1105(c)(5), not a capital improvement — and the contractors' charges are subject to sales tax.

What this means for you

"Restoration" and "coating" usually read as repair, not improvement. Work that returns a roof to good condition — patching, re-coating, replacing drains, reinforcing flashing — keeps the property functional rather than substantially increasing its value or life. New York taxes that as a repair service.

The capital-improvement bar is high. To escape tax, the work must clear all three parts of the 527.7(a)(3) test. Routine roof maintenance, even extensive and expensive, typically doesn't clear the "substantially adds value / appreciably prolongs life" hurdle.

Contractors: charge tax on repair jobs. If the job is maintaining or repairing real property, your labor is taxable under § 1105(c)(5). Don't treat a big repair as a capital improvement just because of its size — look at whether it truly adds value or prolongs the building's life.

Common questions

Q: The roof job was large and costly — doesn't that make it a capital improvement?
A: No. Size and cost don't control. The test is whether the work substantially adds value or appreciably prolongs the property's useful life and is a permanent addition. Restoring a roof to good condition is repair/maintenance.

Q: What roof work could be a capital improvement?
A: Work that meets all three parts of 527.7(a)(3) — for example, a genuinely new structural roof that appreciably prolongs the building's life and is a permanent addition — can qualify. Re-coating and remedial repairs generally don't.

Q: Are both contractors' charges taxable?
A: Yes. Both performed repair/maintenance work (repairs, coating, drains, flashing, expansion joints), so both sets of charges are taxable under § 1105(c)(5).

Citations and references

Statutes, regulations and authority:

Tax Law § 1105(c)(5) — taxes maintaining, servicing, or repairing real property, as distinguished from a capital improvement
20 NYCRR 527.7(a)(1) — maintaining/servicing/repairing covers all activities keeping real property in a condition of fitness, efficiency, readiness, or safety, or restoring it
20 NYCRR 527.7(a)(3) — three-part definition of a capital improvement (adds value/prolongs life; permanently affixed; intended as permanent)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_199s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80(199)S
Sales Tax
March 4,1981

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S80070lA

On August 27, 1980, a Petition for Advisory Opinion was received from Fargo
Manufacturing Company, Inc., 130 Salt Point Road, Poughkeepsie, N.Y. 12603.
The issue raised is whether or not certain work done on Petitioner's real
property resulted in a capital improvement to that real property so as to render
the receipts therefor exempt from the Sales and Compensating Use Taxes imposed
under Article 28 of the Tax Law.
Petitioner had two contractors perform work on the roof of its
manufacturing plant. One contractor provided flashing reinforcement, new roof
drains, remedial roof repairs, restoration and complete coating of the roof. The
second performed preliminary repairs and installed new expansion joints.
Section 1105(c)(5) of the Tax Law imposes a tax on the receipts from sales
of the service of "Maintaining, servicing or repairing real property ... as
distinguished from adding to or improving such real property ... by a capital
improvement...." The Sales and Use Tax Regulations provide 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...." 20NYCRR527.7(a)(1) Such
Regulations define the term capital improvement to mean "...an addition or
alteration to real property (i) which substantially adds to the value of the real
property or appreciably prolongs the useful life of the real property, and (ii)
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 (iii) is intended to become a permanent installation" 20
NYCRR527.7(a)(3)
Work of the type described by Petitioner relates to keeping real property
in a condition of fitness or restoring it to such condition. Such work is
designed merely to maintain the property in good condition, and does not
substantially add to its value nor appreciably prolong its useful life.
Accordingly, the work done on Petitioner's real property constituted the
service of maintaining, servicing and repairing real property, and not the making
of a capital improvement. The charges made by the contractors for the same are
therefore subject to sales tax, pursuant to section 1105(c)(5) of the Tax Law.

DATED: October 27,1980

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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