New York Sales Tax for Contractors: Capital Improvements vs. Repairs

In New York a capital improvement is exempt with Form ST-124 while repairs are taxable. The three-part test, the certificate and rates near NYC.

By Seayora Editorial Team · Published October 28, 2026 · Facts checked October 28, 2026 · 3 min read

Key takeaways

• A capital improvement substantially adds value or prolongs useful life, becomes part of the real property and is intended to be permanent: all three must be true.
• Collect Form ST-124 from the customer and keep it; it is what shows why no tax was charged.
• Repairs and maintenance, such as fixing a broken step, are taxable on labor and materials.
• Use the rate for the job site: 8.875% in NYC and Yonkers, 8.75% in Suffolk, 8.625% in Nassau.

What counts as a capital improvement?

Under Tax Law § 1101(b)(9), a capital improvement is an addition or alteration to real property that meets all three conditions: it substantially adds to the value of the property or appreciably prolongs its useful life; it becomes part of the real property or is permanently affixed to it, so that removing it would cause material damage; and it is intended to become a permanent installation. The Tax Department’s examples include building a deck and installing kitchen cabinets (TB-ST-104). Publication 862 lists how hundreds of specific jobs are classified.

Who pays the tax on a capital improvement?

The contractor, on materials. Building materials and other property bought for capital improvement work are taxable to the contractor when it buys them, and the contractor can include that cost in its price. With a properly completed Form ST-124, the contractor should not collect sales tax from the customer for the project. The customer, including an exempt organization, completes the form and gives it to the contractor, who keeps it in its records; a contractor who hires a subcontractor gives the subcontractor a copy. A contractor is not required to accept the form, and a customer who is charged tax on a capital improvement can seek a refund from the Tax Department.

Which jobs are taxable?

Repairs, maintenance and installation that does not meet the three-part test are taxable services under Tax Law § 1105(c)(3) and (c)(5), on both labor and materials. The Tax Department’s examples are repairing a broken step and replacing a thermostat on a hot water heater. The same job can fall on either side depending on the facts, so read Publication 862 and keep a description of the work on every invoice.

Which rate do you charge?

Each rate includes the state’s 4%, the local rate and the 0.375% Metropolitan Commuter Transportation District tax (Publication 718). Real property work is taxed where the work is done, not at the customer’s billing address. Most local rates are authorized for limited periods and renewed by the Legislature, and Suffolk’s rose by an eighth of a point on March 1, 2025, so check Publication 718-A for changes.

What should a contractor keep on file?

• A Certificate of Authority, required before you collect any New York sales tax.
• Every ST-124 you accepted, matched to the job and invoice.
• Purchase records showing tax paid on materials used in capital improvement jobs.
• Invoices that separate taxable from nontaxable work and show the job site address.

For how other states treat contractor work, see sales tax basics for contractors.

Frequently asked questions

Do contractors charge sales tax on a kitchen remodel in New York?

Not if the work is a capital improvement and the customer gives the contractor a completed Form ST-124. The contractor pays sales tax on the materials instead.

Are home repairs taxable in New York?

Yes. Repairs and maintenance of real property are taxable services on labor and materials, for example repairing a broken step.

What is the sales tax rate in Suffolk County?

8.75% since March 1, 2025, including the state’s 4%, Suffolk’s 4.375% and the 0.375% MCTD tax.

Sources

1. N.Y. Tax Law § 1101, Definitions (capital improvement, § 1101(b)(9)), New York State Senate
2. Capital improvements (TB-ST-104), New York State Department of Taxation and Finance
3. Publication 862, Sales and Use Tax Classifications of Capital Improvements and Repairs to Real Property, New York State Department of Taxation and Finance
4. Form ST-124, Certificate of Capital Improvement, New York State Department of Taxation and Finance
5. Publication 718, New York State Sales and Use Tax Rates by Jurisdiction, New York State Department of Taxation and Finance
6. Publication 718-A, Enactment and Effective Dates of Sales and Use Tax Rates, New York State Department of Taxation and Finance

How Seayora helps

Contractor invoicing: Invoices that apply the job-site rate, record the ST-124 and print the tax basis on every line.

This article is general information, not tax advice. Tax rules change and your situation is your own, so confirm the treatment with a CPA or enrolled agent before you file.

How we write and check these guides: editorial standards.

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