New York – Exempt Capital Improvements

SALT Report 1148 – Niche walls, wall fittings, and paneling that are installed during the initial build-out of a retail store leased by a taxpayer are considered capital improvements and are not subject to New York sales and use taxes as tangible personal property.

New York Tax Law §1105(c) excludes from tax the installation of property that when installed would be a capital improvement to real property, as defined by Tax Law §1101(b)(9).

  • The term “capital improvement” is defined as 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;
  • Are intended to become a permanent installation

Even if a lease states that prior to the expiration of a lease, the lessor can decide that the alterations must be removed, TSB-M-83(17)S states that “granting the lessor the right to require removal of the improvement will not negate this demonstration of intention of permanence.”

For Further Information:

New York Commissioner of Taxation and Finance Advisory Opinion