NYCooperative.com Building Materials and the Sales Tax Law

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All too often, owners and managers overpay the sales tax required on capital improvements. Do Not rely on the advice of the contractor, whether or not tax is applicable, as they sometimes do not understand the tax laws relating to the transaction. We have outlined the sales tax laws below so that you will know when, and how much, sales tax is due.

Building materials are always taxable when purchased, unless the purchaser can legally issue one of the exemption certificates listed in the "Exempt Purchases" box below (Each exemption certificate contains information about its proper use.)

Services to real property can generally be classified as capital improvements, taxable repairs and maintenance, or installation services.

A CAPITAL IMPROVEMENT is any addition or alteration to real property that meets all three of the following:

1. It substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property;
and

2. It becomes part of the real property or is permanently affixed to the real property so that the removal would cause material damage to the property or article itself;
and

3. It is intended to become a permanent installation.

REPAIRS AND MAINTENANCE relates to the keeping real property in a condition of fitness, efficiency, readiness or safety, or to restoring it to such condition.

The application of sales tax to capital improvements, repairs and maintenance services, and to the installation of tangible personal property, is outlined below.

CAPITAL IMPROVEMENTS When a property owner purchases: - materials only and performs the labor, te property owner pays the tax to the supplier. - materials and hires a contractor to perform the labor, the property owner pays the tax to the supplier but not to the contractor. - materials and labor from the contractor, the property owner pays no tax. When a contractor purchases: - materials or supplies, the contractor pays tax to the suppliers.

REPAIRS & MAINTENANCE When a property owner purchases: - materials only and performs the labor, the property owner pays the tax to the supplier. - Materials and hires a contractor to perform the labor, the property owner pays tax to the supplier and the contractor. - materials and labor from a contractor, the property owner pays the tax to the contractor on the total charge. When a contractor purchases: - materials the contractor pays tax to the supplier. (The contractor may claim a credit for the tax paid to the supplier.) - supplies, the contractor payes tax to the supplier.

INSTALLATION OF TANGIBLE PERSONAL PROPERTY Charges by a contractor to install items such as washing machines, clothes dryers, dishwashers, refrigerators, furniture, etc., which when installed or placed in real property DO NOT become part of the real property, are taxable. The individual charge for any of these items is also taxable.

EXEMPT PURCHASES Instead of receiving a tax payment, suppliers may accept the following from: Contractors: - Form ST-120.1 Contractor Exempt Purchase Certificate. - Form AU-297, Direct Payment Permit. Exempt Organizations: - Form ST-119.1, Exempt Organization Certificate. Retailers - Form ST-120, Resale Certificate

We hope this knowledge saves you money!

Charter Management Realty Corp.