Quick answer: The customer completes and signs Form ST-124, the contractor countersigns and keeps it, and copies go to every subcontractor on the job. You must hold it within 90 days of finishing the work. It exempts your bill to the customer — it does nothing for the tax on your materials.
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Capital Improvement or Repair? A contractor’s reference sheet
The three-part test, which jobs qualify and which are taxable repairs, the materials trap that costs contractors money, the 90-day rule and the penalty for misuse.
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What is a capital improvement form for?
Form ST-124, the Certificate of Capital Improvement, is what a property owner gives a contractor so the contractor does not charge New York sales tax on the labor for a qualifying capital improvement. It covers the service charge only. It does not let the contractor buy building materials tax-free, and it does not make the job exempt by itself — the work must actually meet the state’s test.
The three-part capital improvement test
New York treats work as a capital improvement only when all three conditions are met. Fail any one and the job is a taxable repair or maintenance.
- It substantially adds to the value of the real property, or appreciably prolongs its useful life. Restoring something to its prior condition is not enough.
- It becomes part of the real property, or is permanently affixed so that removal would cause material damage to the property or to the item itself.
- It is intended to become a permanent installation. Temporary work does not qualify however substantial it is.
What are examples of capital improvements?
Work that generally qualifies, because it adds value and is permanently installed:
- Building a new deck, porch or addition
- Installing new kitchen cabinets or a new bathroom
- Installing a new hot water heater, furnace or central air system
- A complete new roof, as opposed to patching one
- New in-ground pool, driveway paving, or a permanent fence
- New electrical or plumbing systems installed as part of a renovation
Examples of taxable work that does not qualify
Work that keeps property in good condition rather than improving it is a taxable repair or maintenance service, and sales tax applies to the full charge:
- Painting or refinishing existing cabinets, walls or trim
- Repairing or patching a roof rather than replacing it
- Fixing a leaking pipe or a broken fixture
- Servicing or repairing an existing furnace or air conditioner
- Cleaning, sealing, landscaping maintenance and snow removal
- Replacing a broken window pane in an existing frame
The line is genuinely close in places, and the New York State Department of Taxation and Finance publishes a detailed chart of specific jobs. Where a job is borderline, the safer position is to document why it met all three parts of the test at the time the work was done — not after an auditor asks.
Do you need receipts to prove capital improvements?
Yes, and the certificate alone is not the proof. The contractor keeps the completed Form ST-124 to show why sales tax was not collected on the labor, and separately keeps purchase invoices showing sales tax was paid on the materials. The property owner keeps the invoices and the certificate because a capital improvement adds to their cost basis in the property, which matters when they sell. Records supporting a sales tax position should be kept for at least three years, and longer where the basis of the property is involved.
What this means for your bookkeeping
A certificate is only useful if you can produce it. In practice that means one thing: the ST-124 has to be filed against the job, not in a drawer. Match it to the job number, keep it with the contract and the customer invoices, and retain it for the full period below.
The reason this is a bookkeeping problem rather than a filing problem is what happens when the certificate is missing. New York can hold you liable for the tax you should have collected on that job, plus penalty and interest — a cost that lands months or years after the job closed and after you have already reported the margin. Contractors who run a chart of accounts built around job cost can tie each certificate to the job it protects; contractors who do not end up reconstructing two years of paperwork under audit.
The purchasing side of the same problem runs on a completely different document. If you are buying materials for a job for an exempt organization, see which exemption certificate a New York contractor can actually use.
Frequently asked questions
Where do I get Form ST-124, and who fills it out?
The form is published by the New York State Department of Taxation and Finance and is available on its website. The customer — the property owner or tenant — completes and signs the certification; you then sign the contractor attestation and keep the form in your records. You do not send it to the state. It only matters when someone asks to see it.
Form ST-124 is only half of the certificate picture. It governs what you bill the customer; it does nothing for what you buy. The purchasing side runs on a different document entirely, and the rules there catch out even experienced contractors — see why a contractor cannot use Form ST-120 and what Form ST-120.1 actually covers.
How long should I keep sales tax records?
Keep contracts, invoices, and exemption certificates for at least three years, and ideally the full six-year period New York can look back on in an audit. Matching paperwork is your best defense.
This article is general information for New York contractors and is not tax or legal advice. Sales tax treatment depends on the specific facts of each job and current New York State law. Please consult a qualified professional about your situation.
How do you fill out a capital improvement form in New York?
The customer enters the property owner or tenant details, the project address and a description of the work, then signs certifying that the job is a capital improvement. The contractor enters its own name, address and Certificate of Authority number where applicable, and signs. The contractor keeps the original.
ST-124 is only one of four certificates a contractor deals with. Our exemption certificate reference sheet sets out which one applies when.
What is considered a capital improvement in NY?
New York applies a three-part test, and work must satisfy all three. It has to substantially add to the value of the real property or appreciably prolong its useful life, become part of the real property or be permanently affixed so that removal would cause material damage, and be intended as a permanent installation. Fail any one part and the job is a taxable repair.
How do you prove capital improvements?
The contractor proves it by holding a properly completed Form ST-124 signed by the customer, obtained within 90 days of rendering the service. The certificate is the documentary evidence in an audit. Supporting contracts, scope descriptions and invoices that show permanent installation strengthen the position, but the signed certificate is what New York asks for first.
What form does a contractor need to fill out?
On a capital improvement job the contractor does not fill out Form ST-124 at all — the customer completes and signs it, and the contractor receives and retains it. Where a contractor does complete a form is Form ST-120.1, the Contractor Exempt Purchase Certificate, used for qualifying material purchases on specific exempt projects.
Is a plumbing repair a capital improvement?
Usually not. Fixing a leak, clearing a drain or replacing a failed fixture keeps the property in working order rather than adding value or prolonging its life, so it is taxable repair work. Installing new plumbing as part of a new bathroom or a full system replacement can qualify, because that work is permanent and adds value.
Talk to an accountant who works in your industry
Precision Accounting & Consulting works with contractors, law firms, medical practices and property owners across the country. If something on this page raised a question about your own books, send it over and we will give you a straight answer.