SALT Report 2108 – The New York Department of Taxation and Finance issued an advisory opinion regarding the taxability of kitchen remodeling services. For a set fee, the Taxpayer will provide a certain number of cabinet doors, drawer fronts, cabinet hardware, countertops, a new faucet, and new molding. As part of the remodeling project the Taxpayer also provides the following services:
- Cabinet door and hinge removal,
- Painting of the existing kitchen cabinet frames,
- Installation of new cabinet doors and new hidden hinges,
- Painting of the new cabinet doors and drawer fronts,
- New cabinet hardware installation,
- Replacement of old countertops with new countertops,
- Faucet and sink replacement, and
- Painting the old cabinet molding
The Taxpayer requested guidance regarding the taxability of the remodeling services it provides for a flat fee.
In their decision, the Department stated that the taxability of receipts derived from remodeling services depends on whether or not the service is a capital improvement. New York Tax Law §1101(b)(9) defines capital improvements as an addition or alteration to real property which:
- Substantially adds to the value of the real property or appreciably prolongs the useful life of the real property, and
- Becomes a 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
- Is intended to become a permanent installation
Based on the above, the Department determined that the Taxpayer’s charges for kitchen renovations, when sold as a complete package, qualify as capital improvements and are not subject to sales tax. However, any items that are added to the package for an additional cost, such as, a backsplash, flooring, or paint must be provided as an integral part of the original package in order for them to qualify as a capital improvement.
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