Monday, November 03, 2008

Sales tax and construction

By Sharon St. John, The Mohawk Valley Small Business Development Center, SUNY Institute of Technology, Utica, NY

One of my colleagues posed a question about a New York State for-profit business that would contract with banks so that after a foreclosure, the contractors would come in to clean, change locks, mow the lawn, and keep the property maintained until the bank sells it again. Should they be registered as sales tax vendors since what they're doing seems to fall into maintenance and repair?

I noted that there are two NYS publications that I recommend for all my clients who are in any kind of construction business. Publication 750, A Guide To Sales Tax in New York State (PDF), notes on page 20 under Specifically Enumerated Services: "maintaining, servicing or repairing real property both inside and outside of buildings (for example, cleaning, painting, gardening, snow plowing, trash removal and general repairs)" are subject to sales tax. My conclusion is that the company hired as contractors to perform this service would charge sales tax for its services.

Publication 862, SALES AND USE TAX CLASSIFICATIONS OF CAPITAL IMPROVEMENTS (PDF), compares the Capital Improvements to Repairs, Maintenance or Installation and gives guidelines on what is tax exempt and what is not. A capital improvement is "an addition or alteration to real property that substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property; 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 is intended to become a permanent installation."

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