For sales tax purposes, a capital improvement is an addition or alteration to real property that meets all three of the following conditions: 1.) substantially adds to the value of the real property or appreciably prolongs the useful life of the real property; and 2.) becomes part of the real property or is permanently attached so that its removal would cause material damage to the real property or the article itself; and 3.) is intended to become a permanent installation.

To be considered a capital improvement, the work must include installation. Purchasing building materials without installation by a contractor or other person is not a capital improvement for sales tax purposes, but is the purchase of tangible personal property subject to tax.

Practical examples of a capital improvement include original construction of a building or additions, replacement of an entire roof or an entire section of a roof, upgrading of windows, enlarging doorways, heating and air conditioning installation.