Capital Improvements and New York Sales Tax
Over fifteen years have passed since the Legislature adopted a distinct definition of capital improvement for floor covering installations. Still contractors have questions. A floor covering contractor recently asked the Department whether its installation of carpeting performed as part of an overall interior renovation project to an existing building constituted a capital improvement.
The Department advised the taxpayer that, “The requirements for installations of floor covering (e.g. carpeting) to become a capital improvement are statutorily different than other installations.” The majority of the project may qualify as a capital improvement under one definition, but the carpet installation is treated differently because of the distinct definition of capital improvement applying to floor covering.
This is important to remember because as contractors receive Certificates of Capital Improvement from their customers, the contractors are deemed to be on notice of the fact that different rules apply to floor covering. Those rules are specifically included on the instructions for the Certificate of Capital Improvement. As such, contractors cannot simply handoff a copy to their floor covering contractor as they would do with an electrician or plumber. Likewise, floor covering contractors cannot accept Certificates of Capital Improvement in good faith if the project does not meet the statutorily different definition.
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