New York Contractor Taxes and Licensing: What Trades Need to Know

New York taxes the result of the job, not the trade. If the work qualifies as a capital improvement, the customer pays no sales tax and you pay tax on your materials. Repair, maintenance and installation work is taxable to the customer. Home improvement licensing is local, run by New York City and certain counties, not the state.

Why is New York different for contractors?

Two quirks shape almost every New York job. The first is sales tax: the Department of Taxation and Finance looks at what the finished work is, a permanent capital improvement or a repair, and that one call decides whether the customer pays tax on your labor. The second is licensing. Albany doesn't issue a general contractor or home improvement license. The Attorney General's home improvement fact sheet lists New York City and Suffolk, Nassau, Westchester, Putnam and Rockland counties as places where home improvement contractors must be licensed, and it adds that contractors must also follow any other local licensing laws.

So a plumber in Buffalo, a roofer in Hempstead and a remodeler in Brooklyn can face three different rulebooks. Statewide rules still apply everywhere: the Attorney General says home improvement contracts for work over $500 must be written, legible and in plain English, and deposits taken before substantial completion go into an escrow account at a New York bank within five business days, or the contractor posts a bond instead.

Is contractor labor taxable in New York?

It depends on whether the job is a capital improvement. The department's capital improvements bulletin (TB-ST-104) sets a three-part test. The work must substantially add to the property's value or appreciably prolong its useful life, become part of the real property or be permanently affixed so removal would cause damage, and be intended as a permanent installation. If all three are met, the bulletin says "there is no sales tax due on the charge to the customer."

Repairs and upkeep are a different story. The department's contractors page says repair, maintenance and installation work keeps or restores property "in a condition of fitness, efficiency, readiness, or safety," and for those jobs you "must charge your customer sales tax." The bulletin's examples of taxable work include fixing a broken step and painting existing cabinets. A new roof on a house can be a capital improvement; patching the leak usually isn't.

The rate has two layers. The department says the combined rate equals the state rate, "currently 4%," plus the local rate where the sale happens, and an additional 0.375% applies inside the Metropolitan Commuter Transportation District (MCTD). Check the department's jurisdiction lookup for each job address. For how other states draw the line, see sales tax on labor vs. materials.

Who pays tax on materials, and which certificates do you use?

On capital improvement work, you do. The bulletin says building materials bought for capital improvement work "are taxable," and the tax you pay "becomes an expense that can be passed through to the customer" in your price. Contractors generally can't use a resale certificate for building materials.

• Form ST-124, Certificate of Capital Improvement: the customer completes it and gives it to you. The department says a properly completed ST-124 relieves you of liability for tax on the work.
• Form ST-120.1, Contractor Exempt Purchase Certificate: lets you buy certain items tax-free in specific cases. One example from the bulletin: freestanding appliances you supply can be bought exempt, but you must then collect sales tax from the customer on them. You can also use it to buy a subcontractor's taxable services for resale.
• Registration: the department says you must register if you make taxable sales, perform taxable services or want to issue exemption documents like ST-120.1. If you only do capital improvement work, you're not required to register.

Buying out of state? Under the department's use tax bulletin (TB-ST-910), you owe use tax on taxable items you bring into New York when no New York tax was paid, generally at the rate where you take delivery or use the item, whichever is higher. Registered vendors report it on the sales tax return; unregistered sole proprietors can use their income tax return or Form ST-140. More on that in use tax for contractors.

Which New York contractor licenses do you need?

Outside New York City, start with the county consumer affairs office and the town building department, since each sets its own rules and a license from one county doesn't carry into the next. Inside the city, home improvement work on residential property needs a DCWP license, while plumbing and electrical licenses come from the Department of Buildings. Our contractor license guide covers how to research local requirements.

How does New York tax a contracting business's income?

Sole proprietors and owners of LLCs and S corporations pay personal income tax on business profit. The department's 2026 rate schedule (Form IT-2105-I) starts at 3.90% on the first $8,500 of taxable income for single filers and tops out at 10.9% above $25,000,000. New York City residents add city tax of 3.078% to 3.876%.

• Estimated payments: the department says you generally must pay estimated tax if you expect to owe at least $300 of state, city or Yonkers tax after withholding and credits. For 2026, installments are due April 15, June 15 and September 15, 2026, and January 15, 2027.
• MCTMT: self-employed people in the MCTD (NYC plus Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester) owe 0.60% in Zone 1 or 0.34% in Zone 2 on net self-employment earnings allocated to the zone if those earnings exceed $150,000.
• LLC filing fee: for tax year 2025, a single-member LLC disregarded for federal tax with New York-source income pays a $25 fee on Form IT-204-LL. Multi-member LLCs pay $25 to $4,500 based on New York-source gross income.
• PTET election: partnerships and S corporations can opt into the pass-through entity tax each year, online, between January 1 and March 15. Sole proprietorships and single-member LLCs (unless treated as S corporations) aren't eligible.

To plan your quarterly checks, see quarterly estimated taxes for contractors or run the numbers in the quarterly estimated tax calculator.

When do New York contractors need workers' comp?

As soon as you have anyone working for you. The Workers' Compensation Board says "virtually all employers" in the state must cover their employees, and that includes part-time workers, family members and volunteers. A sole proprietor, partnership or LLC with no employees doesn't need coverage. A one- or two-person corporation is exempt only if those people own all the stock, hold all the offices and there are no other employees, subcontractors or unpaid volunteers.

Construction has an extra wrinkle. Under the Construction Industry Fair Play Act, a worker doing services for a contractor is presumed to be the contractor's employee unless a strict independent contractor test is met. The Board also notes that general contractors often require subs to show their own policy, so many one-person shops buy coverage just to get on jobs. See workers' compensation basics.

Working across the river or north of the state line? Compare the rules in New Jersey, Connecticut and Pennsylvania.