Ruling 89-190

Renovations

In your letter of July 27, 1989, you request advice concerning the taxability of services performed by your company in connection with new construction or with renovation of commercial buildings.

In the Department's view, new construction means the construction of new buildings or the construction of new additions to existing buildings, and includes the initial finish-out work to the interior or exterior of a new building (or new addition to an existing building).

In the Department's view, renovation means the making over or rebuilding of an existing building, and includes finish-out work performed after the initial finish-out work has been done, even if the affected portion of a building has not been previously occupied.

In Situation A, a new commercial building is built for ABC Company by your company. The interior space has not been previously occupied and is to be leased for the first time to a tenant or tenants. ABC Company hires your company to perform the initial finish-out work. Your company's services involved in the initial finish-out work to the leased space would be treated as services involved in new construction and would not be subject to sales and use taxes.

In Situation B, an office condominium development is built for a condominium developer by your company. The common areas have been completed, but the other interior space is to be sold for the first time to unit owners. A unit owner hires your company to perform the initial finish-out work. Your company's services involved in the initial finish-out work to the unit would be treated as services involved in new construction and would not be subject to sales and use taxes.

In Situation C, a new tenant leases previously occupied space in an industrial building. The new tenant hires your company to move walls, change wiring and plumbing and change some windows and doors. Your company's services involved in the work performed for the new tenant would be treated as services involved in renovation and would be subject to sales and use taxes.

In Situation D, a previously owned office condominium unit is acquired. The new unit owner hires your company to gut the unit to the bare walls and rebuild to suit its needs. Your company's services involved in the work performed for the new owner would be treated as services involved in renovation and would be subject to sales and use taxes.

LEGAL DIVISION

November 6, 1989