New York has a unique contractor tax framework centered on the distinction between capital improvements and repair/maintenance services. Getting this wrong can result in significant tax liability.

Capital Improvement vs. Repair: The Critical Distinction
Capital Improvement — A permanent improvement to real property that:

Adds to the value of the property

Prolongs the useful life of the property

Becomes part of the real property

Examples: installing a new HVAC system, new electrical panel upgrade, re-roofing a house, adding a new room.

Tax treatment: The contractor pays tax on materials at purchase. The customer is NOT charged sales tax. The customer must provide Form ST-124 (Certificate of Capital Improvement).

Repair/Maintenance — Services that keep existing property in working condition without adding value. Examples: fixing a leak, repairing a broken outlet, repainting existing walls.

Tax treatment: Both labor AND materials are taxable. Charge the customer sales tax on the full invoice amount.

Form ST-124: What You Need to Know

If your job qualifies as a capital improvement, you MUST obtain a completed Form ST-124 from the property owner before omitting sales tax. Without it, you are liable for the uncollected tax even if the job genuinely qualifies.

New York City vs. Rest of State

Upstate New York (typical): Combined rate ~8% (4% state + county)

New York City: Combined rate 8.875% (4% state + 4.875% NYC)

Always verify the combined rate for the specific borough or county.

Invoice Requirements for New York Contractors

Every New York contractor invoice should include: 1. Contractor name, address, and certificate of authority number 2. Customer name and job site address 3. Job classification (capital improvement or repair/maintenance) 4. Separately itemized labor and materials 5. Applicable tax (or note "Capital Improvement — ST-124 on file") 6. Sequential invoice number and date