Does an environmental drilling company owe sales tax on its hydrogeologic site reports and the temporary groundwater monitoring wells it installs to prepare them?

Plain-English summary

An environmental drilling company ("XYZ") produces confidential hydrogeologic site-characterization reports — water table depth, bedrock depth, groundwater flow direction, soil conditions, water quality — for customers evaluating a property. To gather this data, XYZ drills and installs TEMPORARY groundwater monitoring wells using hollow-stem auger or rotary drilling, takes an initial water sample, then removes the wells entirely, leaving no permanent trace.

The Department broke this into two pieces. First, the REPORT itself: writing up hydrogeologic findings is a professional service, and it isn't listed anywhere among the Tax Law's enumerated taxable services (it's not construction, design, or interior decorating, and XYZ isn't buying or selling tangible personal property on the customer's behalf) — so the report-writing charge isn't taxable at all.

Second, the WELLS: because XYZ is the sole user of the temporary wells (it installs them purely to gather its own data, then removes them, and isn't selling well-drilling services to the customer as a separate product), the well installation cost is just baked into XYZ's own business expenses for producing its nontaxable report — the customer isn't separately taxed on that cost whether or not it's itemized on the invoice. However, XYZ itself is NOT off the hook: as the "consumer" of the materials and equipment it uses to install and remove the wells, XYZ owes sales or use tax on those purchases, the same way any contractor owes tax on materials it uses to perform its own (even nontaxable) work.

The Department flagged two scenarios where this would flip: (1) if XYZ instead installed wells FOR the customer's own long-term monitoring use (rather than XYZ's own one-time sampling), that would look like a taxable sale/installation of tangible personal property instead; and (2) if the hydrogeologic work were performed as part of actual contamination remediation (rather than a standalone site assessment), it could become taxable as a real-property maintenance/repair service instead.

What this means for you

Environmental consulting and drilling companies

A report-only, single-use-well business model — where you're the sole user of temporary equipment purely to gather your own data — keeps your report charges untaxed and your customer's invoice untaxed on the well cost, but leaves YOU on the hook for sales/use tax on your own materials and equipment. Watch for mission creep: installing wells for the CUSTOMER's ongoing use, or doing remediation-adjacent work, both change the analysis.

Accountants and tax professionals

This ruling is a useful three-way fork for environmental services: (1) pure information/consulting service using your own temporary equipment (nontaxable service, but taxable on your own material purchases), (2) installing equipment for the customer's own long-term use (taxable sale/installation), and (3) remediation-connected work (potentially taxable real-property service) — the same underlying facts can land in any of the three depending on who ultimately uses the equipment and why.

Common questions

Q: Is a hydrogeologic site report taxable in New York?
A: No — report preparation isn't an enumerated taxable service under the Tax Law.

Q: Does the customer pay tax on the cost of installing temporary monitoring wells?
A: No, when the wells are used solely by the drilling company to gather its own data and are removed afterward — that cost is just baked into the company's nontaxable service.

Q: Does the drilling company owe any tax itself?
A: Yes — it owes sales or use tax on its own materials and equipment purchased to install and remove the wells, as the consumer of those items.

Q: Would the analysis change if the wells were for the customer's own ongoing monitoring?
A: Yes — that could make the well installation a taxable sale/installation of tangible personal property instead.

Q: Can another environmental consulting firm rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described here.

Citations and references

Statutes:

• Tax Law §§ 1101(b)(3), (4)(i); 1105(a), (c)(3)(iii), (c)(5)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_44s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(44)S
Sales Tax
December 27, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020412A

On April 12, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Woods Oviatt Gilman LLP, 2 State Street, 700 Crossroads Building,
Rochester, New York, 14614.
The issue raised by Petitioner, Woods Oviatt Gilman LLP, is whether charges to provide
hydrogeologic site condition information, including charges for the installation of temporary
groundwater monitoring wells, are subject to sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
XYZ, a New York corporation, is an environmental drilling company whose primary
function is providing geologic site characterization reports to its customers. Geologic site
characterization includes obtaining information pertaining to the depth of the water table from
the land surface, the depth to bedrock from the land surface, the direction of flow of subsurface
water, soil conditions, and underground water quality and quantity. XYZ performs this service
by drilling and installing wells, providing both materials and labor. Various techniques are used
to obtain site information including the use of direct push sampling and groundwater monitoring
wells. The information obtained is used to define hydrogeologic conditions in a report that is
XYZ’s end product to its customers.
The installation of groundwater monitoring wells involves hollow stem auger drilling or
rotary drilling techniques. Such wells are normally installed to depths determined in the field
based on site conditions and the information being sought. XYZ’s purpose in installing
groundwater monitoring wells is to obtain information over time regarding the site conditions
with respect to water quality and quantity and other hydrogeologic properties and to provide this
information to the person requesting it. The resultant information is confidential and provided in
written reports, which include, but are not limited to, diagrams showing the hydrogeologic
conditions.
The groundwater monitoring wells are temporary in nature and are removed after the
initial water sample is taken. No permanent evidence of a well’s existence remains once it is
removed.
Applicable law
Section 1101(b) of the Tax Law provides, in part:

-2­
TSB-A-05(44)S
Sales Tax
December 27, 2005

When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(3) Receipt. The amount of the sale price of any property and the charge for any
service taxable under this article . . . valued in money, whether received in money or
otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or delivery . . .
regardless of whether such charges are separately stated in the written contract, if any, or
on the bill rendered to such purchaser . . . .
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. . . .
Section 1105(a) of the Tax Law imposes sales tax on “The receipts from every retail sale
of tangible personal property, except as otherwise provided in this article.”
Section 1105(c) of the Tax Law imposes sales tax upon the receipts from every sale,
except for resale, of certain enumerated services, including, in part, the following:
(3) Installing tangible personal property, excluding a mobile home, or
maintaining, servicing or repairing tangible personal property, including a mobile home,
not held for sale in the regular course of business, whether or not the services are
performed directly or by means of coin-operated equipment or by any other means, and
whether or not any tangible personal property is transferred in conjunction therewith,
except:
*

*

*

(iii) for installing property which, when installed, will constitute an addition or
capital improvement to real property, property or land, as the terms real property,
property or land are defined in the real property tax law as such term capital improvement
is defined in paragraph nine of subdivision (b) of section eleven hundred one of this
chapter. . . .

-3­
TSB-A-05(44)S
Sales Tax
December 27, 2005

*

*

*

(5) Maintaining, servicing or repairing real property, property or land, as such
terms are defined in the real property tax law, whether the services are performed in or
outside of a building, as distinguished from adding to or improving such real property,
property or land, by a capital improvement as such term capital improvement is defined
in paragraph nine of subdivision (b) of section eleven hundred one of this article. . . .
Opinion
XYZ charges its customers for performing services to determine the hydrogeologic
condition of a real property site. XYZ determines the depth of the water table from the land
surface, depth to bedrock from land surface, direction of flow of subsurface water, soil
conditions, and underground water quality and quantity. XYZ is engaged in investigating,
evaluating, measuring and plotting the subsurface characteristics of land, particularly with
respect to subsurface water and its depth from the surface, amount, direction of flow, etc.
The confidential hydrogeologic site condition report prepared by XYZ constitutes the
provision of a nontaxable service for XYZ’s customer. XYZ is not providing any construction,
design, or interior decorating services. XYZ is not making purchases of tangible personal
property for or on behalf of customers or sales of tangible personal property to customers.
XYZ's services as described above, including the furnishing of hydrogeologic site condition
reports, are not services subject to sales tax under section 1105(c) of the Tax Law. Accordingly,
XYZ is not required to collect sales tax on charges for its services.
In order for XYZ to obtain the data required for reports to its customers, XYZ has
monitoring wells installed on the property that is to be evaluated. Such wells are used solely by
XYZ to obtain data and do not appear to be used in remediation or other services to the real
property. The wells are not intended to be permanent and are removed once XYZ has obtained
the needed information.
XYZ is the sole user and consumer of the monitoring wells it installs as a prerequisite to
performing its hydrogeologic services for its customers. XYZ is not engaged in the business of
selling monitoring wells or well drilling services to its customers. Thus, the costs for the wells
are a part of XYZ’s expenses incurred in performing its services. The costs for the wells,
whether or not itemized within the contracts and on the invoices provided to XYZ’s customers,
represent a component of XYZ’s expenses. XYZ’s charges for the installation of the monitoring
wells, therefore, are included in XYZ’s nontaxable charges for the sale of its services to its
customers. XYZ’s purchases of tangible personal property for use in installing the wells are not
purchases for resale. See section 1101(b)(4)(i) of the Tax Law. All purchases by XYZ of
tangible personal property, including all materials and equipment used to install and remove the

-4­
TSB-A-05(44)S
Sales Tax
December 27, 2005

temporary monitoring wells, are subject to sales and use tax pursuant to section 1105(a) of the
Tax Law.
Were XYZ contracted by its customers for the purpose of installing monitoring wells for
use by its customers or other service providers to perform long term monitoring or other services
with respect to the customer’s real property, the conclusions in this Opinion as to the taxability
of XYZ’s sales and purchases might be different. In such case, XYZ might be considered to be
making taxable sales and installations of the monitoring wells under sections 1105(a) and
1105(c)(3) of the Tax Law.
It should also be noted that if XYZ performed the hydrogeologic services described in
this Opinion in connection with the remediation of real property by XYZ for the purpose of
mitigating soil or water contamination, or if XYZ’s hydrogeologic services were performed for a
contractor engaged in the remediation of real property, XYZ’s hydrogeologic services might be
subject to sales tax under section 1105(c)(5) of the Tax Law. See KPMG Peat Marwick, LLP,
Adv Op Comm T & F, September 12, 1996, TSB-A-96(54)S; Hall & Dettor, LLP, Adv Op
Comm T & F, November 30, 1999, TSB-A-99(53)S.

DATED: December 27, 2005

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.