Question on New York State Capital improvement project and sales tax.

JohnDS

Senior Member
Hello, I was hoping someone with experience in New York State can maybe help clear things up as NYS website is kind of confusing and seems contradicting on this subject.:slaphead:

I am doing a project for a homeowner. It is a studio apartment all new construction because it previously went up in flames. It is listed through the town as a commercial residence but it is a wood structure, all 2x4s. My electrical inspector said I can install in Romex even though it is listed as commercial, because it is a wood structure.

When it comes to charging nys sales tax to customers, in the past I just added sales tax of total bill not realizing that projects like this were considered a capital improvement.

1)So what is the correct way to do this and what form do I have the customer fill out?
2)Do I just charge sales tax on material and labor, material only, or nothing at all?
3) If you need to charge sales tax on material and/or labor only, isn't that showing the customer a little too much as far as how much you are profiting off job?
4) I am an honest contractor, but if you were the customer, wouldn't you be wondering if the contractor is really telling you the correct amount he spent on material/labor?

Thanks guys.
 
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Sierrasparky

Senior Member
You have to charge the customer tax for construction. Even lumps sum contracts where you pay tax for material at the supply house?

What a mess.

Gee I thought CA was screwed up.
 

ceknight

Senior Member
Hello, I was hoping someone with experience in New York State can maybe help clear things up as NYS website is kind of confusing and seems contradicting on this subject.:slaphead:

1)So what is the correct way to do this and what form do I have the customer fill out?
2)Do I just charge sales tax on material and labor, material only, or nothing at all?

https://www.tax.ny.gov/pdf/current_forms/st/st124_fill_in.pdf

Sales tax on materials as always, it's only labor that doesn't get assessed sales tax.

Your internal accounting has to deal with it, however you best see fit. The customer need only get a bill.
 

hbiss

EC, Westchester, New York NEC: 2014
I'm in NY. :(

Anyway, a Capital Improvement is anything you add to a structure that can't be removed without damage to it or the structure. With certain exceptions:

1- You pay sales tax on all material at the time you purchase it at the supply house. So the material cost plus sales tax is your actual material cost that you mark up or however you do it. If you itemize materials you do not show what you paid for sales tax, only the total.

2- Customer gives you a completed Certificate of Capital Improvement ST-124 which you retain with the customer's invoices. This allows you to not charge the customer sales tax. (The instructions for the ST-124 are pretty self explanatory as to what a Capital Improvement is.) http://www.tax.ny.gov/pdf/current_forms/st/st124_fill_in.pdf

3- You invoice the customer as usual but you do not show or add any sales tax. When you file your quarterly sales tax return this amount would be a non-taxable sale.

-Hal
 
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peter d

Senior Member
So much could be said about this but this is just one of countless reason why NY is one of the most business unfriendly states in the country.
 

hbiss

EC, Westchester, New York NEC: 2014
Not that I disagree with you but how is any of the above unfriendly to business? It's just the way NY taxes new construction which is not unlike many other states.

-Hal
 

hbiss

EC, Westchester, New York NEC: 2014
So you never do repairs? Repairs are the replacing of switches, receptacles, breakers, fixtures- anything that was there and needed to be replaced for whatever reason.

Do you ever provide and/or install any items like light fixtures that can be removed without damage and installed elsewhere?

For this work you DO NOT pay tax when you purchase the materials at the supply house. The supply house should have a ST-120, resale tax certificate, on file from you.

Now I agree that paying sales tax and not paying sales tax on your materials depending on what they will be used for is a bookkeeping nightmare. So unless you do a big service business making the purpose of materials purchased easy to determine, I suggest just paying the tax on all materials and increasing the price of repair materials by that amount. That way nobody at the Sales Tax office can complain. If they did they would actually owe you a credit.

But the big difference here from a Capital Improvement is that the customer pays sales tax on the bottom line of your invoice- that would be your total charges for materials and labor. That amount gets reported under taxable sales and services on your quarterly return.

-Hal
 

hbiss

EC, Westchester, New York NEC: 2014
I have not once filled out/collected the sales tax exemption form. All my work is capital improvement.
Re-reading your statement. If indeed the work is a Capital Improvement and you do not get a ST-124 completed and signed by the customer and you do not collect sales tax, if audited it is you who will be assessed the tax plus interest plus penalties. You really don't want to go that route, it's easy enough to provide the form to the customer with the information filled in at the time of contract signing.

Then again I know of ECs who never even bothered to get a tax ID saying "all the work I do is a Capital Improvement" and really, that's no excuse for not getting a tax ID. Thing is they don't know the difference between repair and service work and Capital Improvement. Some of these guys have been in business for decades. I shudder to think what will happen if the Department of Taxation and Finance gets them in their sights looking for back taxes.

-Hal
 

ceknight

Senior Member
Re-reading your statement. If indeed the work is a Capital Improvement and you do not get a ST-124 completed and signed by the customer and you do not collect sales tax, if audited it is you who will be assessed the tax plus interest plus penalties.
That is absolutely correct, you're the one on the hook if you don't get the signed document from your clients. It's easy enough to cover your butt on this one, and safer than just hoping you never get audited.


Thing is they don't know the difference between repair and service work and Capital Improvement.
NYS does at least publish guidance: https://www.tax.ny.gov/pdf/publications/sales/pub862.pdf

I've pointed that publication out to a couple of contractors over the years and got a "Huh? Really?"
 

hbiss

EC, Westchester, New York NEC: 2014
And if you don't think you will get caught: at one time many years ago I didn't collect Connecticut sales tax because I am in NY and didn't think I had to. What happened was the only customer I had there and which I maybe serviced once a year got audited. The auditors apparently went through all their paid invoices and noticed mine with no sales tax. So I got a letter from the Connecticut Department of Revenue "suggesting" that I get a Connecticut sales tax number and file back yearly returns for the last three years. Fortunately I got off easy with only about $600 having to be paid. So now every January I efile with Connecticut even if it is zero.

So it's not necessarily that you come up for an audit, think about the number of people you do work for and what the chances are of one of them being audited and your invoices being looked at.

-Hal
 
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