Is testing underground storage tanks for leaks to comply with environmental law a taxable service to real property or a taxable tank repair in Connecticut?

Note: DRS has since superseded this Ruling in part by Special Notice SN 95-17. It remains useful for understanding how DRS analyzed environmental-assessment services and the "voluntary hazardous-waste" exclusion, but check SN 95-17 and current DRS guidance before relying on it.

Plain-English summary

An environmental services company tested underground storage tanks (USTs) at gas stations — where fuel, waste oil, and heating oil are stored — to detect leaks and contamination, as state and federal law require. It tested a tank by installing a monitoring well and checking it for contaminants, or by filling the tank and watching for volume loss, and it dug test pits (sometimes using subcontractors). DRS was asked whether this work was taxable under either of two categories.

Services to industrial/commercial/income-producing real property — § 12-407(2)(i)(I): excluded. That tax reaches services like management, electrical, plumbing, and carpentry to such property — but expressly excludes services "for the voluntary containing or removing of hazardous waste." DRS's long-standing reading of "voluntary" turns on the source of the obligation:

• Containing or removing hazardous waste to comply with a generally applicable statute or regulation = voluntary → excluded (not taxable).
• Doing so to comply with a party-specific agency order, mandate, or court order = involuntary (a distinct situation).

Because testing a UST to find out whether it is leaking hazardous waste is a way of assessing a site for hazardous waste — done to comply with generally applicable environmental laws — it is a service for the "voluntary containing or removing of hazardous waste," and so is excluded from the § 12-407(2)(i)(I) tax (consistent with prior Ruling Nos. 89-240, 90-33, and 90-47).

Repair or maintenance of tangible personal property — § 12-407(2)(i)(GG): no. DRS applied a true object analysis: the point of testing the tank isn't to inspect or fix the tank itself, but to determine whether hazardous waste is present in the real property and to ensure legal compliance. Checking the tank's integrity is merely the means, so the service isn't taxable repair/maintenance of the tank as personal property.

The exclusion applies whether the Company or its subcontractor does the testing. DRS noted this Ruling supersedes Ruling No. 90-33 — and, as flagged above, it has since been superseded in part by SN 95-17.

What this means for you

Environmental testing and assessment firms

Site assessment work done to comply with generally applicable environmental statutes and regulations — like leak-testing USTs — was treated here as exempt "voluntary" hazardous-waste work, not taxable services to real property, and not taxable tank repair. But because SN 95-17 superseded part of this ruling, confirm the current rule before quoting jobs as exempt.

Gas stations and property owners

Historically, paying an environmental firm to test your tanks for regulatory compliance was not a taxable service under this ruling. Given the later Special Notice, verify the present treatment rather than assuming this outcome still governs.

The "voluntary" vs. "ordered" distinction

The line DRS drew — statute/regulation compliance is "voluntary" (excluded), while a specific agency order or court order is not — is the analytical heart of the § 12-407(2)(i)(I) hazardous-waste exclusion and shows up across DRS's environmental rulings. Document which kind of obligation drove your work.

Common questions

Q: Is testing underground storage tanks taxable in Connecticut?
A: Under this 1994 ruling, no — it was treated as exempt "voluntary" hazardous-waste assessment, not a taxable service to real property or a taxable tank repair. However, SN 95-17 later superseded this ruling in part, so check current guidance.

Q: What does "voluntary" containing or removing of hazardous waste mean?
A: DRS reads it by the source of the duty: complying with a generally applicable statute or regulation is "voluntary" (excluded from tax); complying with a party-specific agency order, mandate, or court order is involuntary.

Q: Why isn't tank testing a taxable tank repair?
A: Because the true object isn't to inspect or fix the tank, but to assess the real property for hazardous waste and ensure legal compliance. The tank check is just the means to that end.

Q: Does it matter if a subcontractor does the testing?
A: No. DRS said the exclusion applies whether the Company or its subcontractor performs the underground-storage-tank testing.

Citations and references

Statutes, regulations, and case law:

• Conn. Gen. Stat. § 12-407(2)(i)(I) (services to industrial/commercial/income-producing real property; excludes voluntary hazardous-waste containment/removal); Conn. Agencies Regs. § 12-407(2)(i)(I)-1
• Conn. Gen. Stat. § 12-407(2)(i)(GG) (repair/maintenance of tangible personal property)
• Robinson v. Unemployment Security Board of Review, 181 Conn. 1, 6, 434 A.2d 293 (1980)

Related guidance (described in prose, not linked):

• Special Notice SN 95-17 (supersedes this Ruling in part)
• Ruling No. 90-33 (superseded by this Ruling); Ruling Nos. 91-5, 92-15 ("voluntary" = not under agency mandate/court order); Ruling Nos. 89-240, 90-47 (site-assessment services excluded as voluntary hazardous-waste work)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 94-5

Original ruling text

Ruling 94-5, Sales and Use Taxes / Environmental Assessment Services / Services to Commercial, Industrial or Income-Producing Real Property / Contractors

Ruling 94-5

Sales and Use Taxes

Environmental Assessment Services

Services to Commercial, Industrial or Income-Producing Real Property Contractors

This Ruling is superseded in part by   SN 95-17

FACTS:

An environmental services company ("the Company") renders what it calls "environmental assessment and remediation services." These services include testing for the existence and degree of soil, air, surface water and ground water pollution, providing for the abatement of such pollution, and evaluating the effectiveness of such pollution abatement measures. Among the services the Company provides is the testing of underground storage tanks at motor fuel service stations, in which materials such as gasoline, diesel fuel, waste oil, and on-site heating oil are generally stored. Because state and federal law require that such underground storage tanks be tested for leaks, service station owners and operators routinely contract with environmental services companies to ensure that the service stations comply with these and other environmental laws.

The Company tests an underground tank either by installing a monitoring well next to the tank and testing the well's contents for contaminants, or by filling the tank and inspecting it for volume reductions. The Company also excavates "test pits" as part of its environmental assessment services. In some cases the Company subcontracts with other firms to install the test pits and monitoring wells.

ISSUES:

Whether testing underground storage tanks to ensure compliance with state and federal environmental laws is a service rendered for the voluntary containing or removing of hazardous waste and therefore not a taxable service to industrial, commercial or income-producing real property, as defined in Conn. Gen. Stat. §12-407(2)(i)(I) and Conn. Agencies Regs. §12-407(2)(i)(I)-1.

Whether testing underground storage tanks is a taxable repair or maintenance service to tangible personal property under Conn. Gen. Stat. §12-407(2)(i)(GG).

DISCUSSION:

Conn. Gen. Stat. §12-407(2)(i)(I) imposes sales and use taxes on "services to industrial, commercial or income-producing real property, including but not limited to, such services as management, electrical, plumbing, painting and carpentry and excluding any such services rendered for the voluntary containing or removing of hazardous waste . .. " (Emphasis added.) The first issue presented turns on the interpretation of this exclusion.

The Connecticut Supreme Court has noted that

a cardinal rule of statutory construction is that statutes are to be construed to give effect to the apparent intention of the lawmaking body ... If the language of the statute is clear, it is assumed that the intention is expressed by the words themselves and therefore there is no need to construe the statute ... for where the wording is plain, courts will not speculate as to any supposed intention because the question before a court then is not what the legislature actually intended but what intention it expressed by the words that it used ...

Robinson v. Unemployment Security Board of Review , 181 Conn. 1, 6, 434 A.2d 293 (1980) (citations omitted).

The Department consistently has construed "voluntary" according to its commonly approved usage and concluded that "[t]he removal or containment of hazardous waste is not 'voluntary' when performed following an order or mandate issued by a federal or state agency or ... court order." Ruling No. 92-15 at 3 (citing Ruling No. 91-5 ). Agency orders and mandates, along with court orders, are distinguishable from statutes and regulations. Whereas agency orders and mandates and court orders apply to a specific party, statutes and regulations are generally applicable. And whereas containing or removing hazardous waste to comply with an agency mandate or court order is involuntary, containing or removing hazardous waste to comply with a statute or regulation is voluntary.

Testing the integrity of an underground storage tank to determine whether it is the origin of hazardous waste is a means of assessing a site for hazardous wastes. The Department has concluded that services rendered to assess a site for the presence of hazardous waste and in connection with removing and monitoring such waste are services rendered for the "voluntary containing or removing of hazardous waste." See Ruling Nos. 89-240 , 90-33 , and 90-47 . As such, they are excluded from the sales and use tax on services to existing industrial, commercial and income-producing property under Conn. Gen. Stat. §12-407(2)(i)(I).

Moreover, the testing of underground storage tanks is not a taxable repair or maintenance service to tangible personal property. The true object of testing underground storage tanks is not merely to inspect the tanks, but to ascertain the presence or absence of hazardous wastes in real property and to ensure compliance with state and federal environmental laws and regulations. Inspecting the integrity of the tank is merely a means to these ends and is not a taxable service to tangible personal property.

RULING:

Whether performed by the Company or by the Company's subcontractor, the testing of underground storage tanks to comply with state and federal environmental laws is a service rendered for the voluntary containing or removing of hazardous waste and therefore not a taxable service to industrial, commercial or income-producing real property, as defined in Conn. Gen. Stat. §12-407(2)(i)(I) and Conn. Agencies Regs. §12-407(2)(i)(I)-1.

The testing of underground storage tanks is not a taxable repair or maintenance service to tangible personal property under Conn. Gen. Stat. §12-407(2)(i)(I). The true object of the transaction is more than merely inspecting the tank's integrity; it is to ensure that the real property is free from hazardous waste.

This Ruling supersedes Ruling No. 90-33 .

LEGAL DIVISION

February 17, 1994