New Jersey – Taxability of Charges for Water Damage Restoration Services

2/15/2013

SALT Report 2155 – The New Jersey Division of Taxation issued a technical advisory regarding the taxability of charges for water restoration services. Generally, water damage restoration services, such as drying and water extraction,  when performed on a building are subject to tax pursuant to N.J.S.A. 54:32B-3(b)(4) since they are being performed to restore the building to a working condition.

However, if the work includes charges for new construction, it is considered a capital improvement and not subject to tax. For example, charges for the installation of new walls, siding, and a garage door are exempt capital improvements when rebuilding a garage destroyed by water damage.  On the other hand, if the garage is simply being repaired due to damage then the charges are taxable as a repair.

Charges for water damage restoration services when performed on household goods such as furniture, decorative items, and personal items are subject to sales tax as charges for maintaining or servicing tangible personal property under N.J.S.A. 54:32B-3(b)(2).

Charges for mold detection or inspection are not subject to sales tax as they are non-enumerated services. However, when mold removal services involve the maintenance or repair of real property they are subject to sales tax. N.J.S.A. 54:32B-3(b)(4).

Charges for bleaching, deodorizing, or other cleaning services, such as carpet cleaning and sand removal services, are taxable maintenance services under N.J.S.A. 54:32B-3(b)(4).

Charges for the installation of floor coverings and alarm or security systems, and certain landscaping services are subject to tax even though these services may result in a capital improvement to real property under N.J.S.A. 54:32B-3(b)(2).

For Further Information

New Jersey Division of Taxation – Technical Advisory Memorandum TAM-2012-3