In the modified opinion, are an asbestos contractor's plastic bags and poly taxable, and what changes when the removal is part of a capital improvement?

Plain-English summary

This is a Modified Advisory Opinion to Johns' Insulation that reissues and expands the Department's earlier opinion TSB-A-92(65)S. The facts are the same: an asbestos-removal contractor working for tax-exempt property owners (Tax Law § 1116(a)) buys plastic bags to contain the removed asbestos for disposal and plastic poly to seal off the work area (walls and floors).

The core holdings are unchanged:

• Plastic bags — not taxable. Because the bags contain the non-reusable asbestos, remain on the customer's property, and stay the customer's legal responsibility, they are "actually transferred" to the customer (following Chem-Nuclear Systems, Inc., TSB-D-89(2)S), so the contractor's purchase of them is not a taxable retail sale under Tax Law § 1101(b)(4)(i)(B). The removal service is also not taxable because it's performed for § 1116(a)-exempt organizations.
• Plastic poly — taxable. Under Reg. § 526.6(c)(6), Example 9, the poly is consumed by the contractor in performing the service and isn't transferred to the customer, so its purchase is taxable.

What this modified opinion adds: the Department expressly notes that where the asbestos removal results in a capital improvement, the purchase of both the plastic bags and the plastic poly is subject to sales tax, because the contractor is then the consumer of that tangible personal property.

What this means for you

Abatement and hazardous-waste contractors

The bag-versus-poly line from the original opinion still holds for straight removal/disposal jobs: disposal bags handed off with the non-reusable waste are bought tax-free for resale, while containment poly you consume is taxable. But this modified opinion flags a key exception — if the asbestos work is part of a capital improvement to the property, you are the consumer of all the materials, and both the bags and the poly become taxable to you. Classify the job (pure removal vs. capital improvement) before deciding how to treat the materials.

Why a capital improvement flips the bags

In a pure removal/disposal job, the bags travel to the customer with the waste (resale treatment). When the job is a capital improvement, the contractor consumes the materials as part of improving the real property, so the resale/"actually transferred" theory no longer applies and the bags are taxable like ordinary contractor supplies.

Accountants and tax professionals

Same authorities as TSB-A-92(65)S — § 1101(b)(4)(i)(B), Reg. § 526.6(c)(6) Example 9, and Chem-Nuclear Systems (TSB-D-89(2)S) — plus the added capital-improvement rule: capital-improvement work makes the contractor the consumer of both the bags and the poly, so both are taxable. This opinion modifies TSB-A-92(65)S.

Common questions

Q: What's different from the original TSB-A-92(65)S?
A: The core results are the same (bags not taxable, poly taxable). This modified opinion adds that if the removal is part of a capital improvement, the contractor consumes both materials, so both the bags and the poly are taxable.

Q: When are the disposal bags taxable to the contractor?
A: When the asbestos removal is part of a capital improvement. In a pure removal/disposal job, the bags are "actually transferred" to the customer and are not taxable.

Q: Is the plastic poly ever non-taxable?
A: No — in either scenario the poly is taxable, because the contractor consumes it rather than transferring it to the customer.

Q: Can another taxpayer rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1101(b)(4)(i)(B) (property used in performing taxable services that becomes a component part of, or is actually transferred to the purchaser of, the service)
• Sales and Use Tax Regulations § 526.6(c)(6), Example 9 (painter's drop cloths and sandpaper consumed in a taxable service)
• Tax Law § 1116(a) (exempt organizations)
• Chem-Nuclear Systems, Inc., Dec Tax App Trib, January 12, 1989, TSB-D-89(2)S (contaminated, non-reusable liners "actually transferred" to customers)
• Modifies TSB-A-92(65)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_65_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (65.1) S
Sales Tax
January 8, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. S920505A

On May 5, 1992, a Petition for Advisory Opinion was received from Johns' Insulation, Inc.,
38-38 43rd Street, Long Island City, New York 11101.
The issue raised by Petitioner, Johns' Insulation, Inc., is whether its purchase of plastic bags
and plastic poly used by it to contain asbestos material removed for disposal from real property
owned by exempt organizations is subject to sales tax.
Petitioner is engaged in the business of removing asbestos containing material from real
property owned by organizations exempt under Section 1116(a) of the Tax Law. In addition, in a
particular project Petitioner may be required to reinsulate the area from where the asbestos was
removed.
Due to regulatory requirements of the Environmental Protection Agency, the New York State
Department of Environmental Conservation and the New York City Department of Environmental
Protection regarding the removal and disposal of asbestos materials, plastic bags and plastic poly
must be used as follows:
1)

Designated areas must be fully contained so as not to allow contamination of other areas of
the facility from the asbestos removal operation. This is done by covering all walls and floors
with plastic poly.

2)

All asbestos must then be removed in accordance with regulatory requirements of federal,
State and local agencies and placed in plastic bags.

3)

All contaminated plastic from the work area must be placed in plastic bags and disposed of
in a landfill licensed to accept asbestos waste.

4)

The bags remain on the facility site generally for 1 or 2 weeks and then are transported by
independent haulers licensed and insured to perform this service.

Petitioner never assumes ownership of the asbestos. Its customers are legally responsible and
remain owners of the asbestos even though it is removed from the job site and buried in a landfill.
All plastic is labeled as to the location and origin of the asbestos being disposed of.
The hauling of the asbestos to the landfill is performed by a subcontractor. Petitioner submits
a list of haulers to the owners or the owners' representatives for approval. Once the approval is
granted, Petitioner contacts the hauler to dispose of the asbestos. Petitioner does not participate in
the approval process. The subcontractor is paid by Petitioner from the requisition presented to the
owners for its work.
TP-9 (9/88)

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TSB-A-92 (65.1) S
Sales Tax
January 8, 1993

Section 1101(b)(4)(i)(B) of the Tax Law defines a retail sale in part as:
(i)

A sale of tangible personal property to any person for any
purpose, other than ... (B) for use by that person in performing
the services subject to tax under paragraphs (1), (2),(3) and
(5) 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 526.6(c)(6) of the Sales and Use Tax Regulations provides, in part, as follows:
(6) Tangible personal property purchased for use in performing services
which are taxable under section 1105(c)(1), (2), (3) and (5) of the Tax Law is
purchased for resale and not subject to tax at the time of purchase, where the property
so sold (i) becomes a physical component part of the property upon which the
services are performed, or (ii) is later actually transferred to the purchaser of the
service in conjunction with the performance of the service subject to tax.
*

*
*
Example 9:
A painter purchases plastic drop cloths and sandpaper and
after painting a customer's premises, leaves the used drop cloths and sandpaper at the
premises. The drop cloths, and sandpaper even though of limited or no use after the
painting, have not been purchased for resale as they are items used by the painter in
performing a taxable service. The drop cloths and sandpaper are not actually
transferred to the purchaser of the service in conjunction with the performance of the
service.
In a similar situation, the Tax Appeals Tribunal held in Chem-Nuclear Systems, Inc., Dec
Tax App Trib, 3anuary 12, 1989, TSB-D-89(2)S that liners purchased by Chem-Nuclear Systems,
Inc. were not subject to sales tax since Chem-Nuclear actually transferred the liners to its customer
in connection with a taxable service.
The decision set forth, in part, that:
. . . said business involves the sale of a radioactive waste management
services which include consulting services and waste processing, packaging,
transportation and disposal. Chem-Nuclear provides such services primarily to
nuclear utilities, however, it also performs services for other commercial nuclear
businesses and governmental agencies.

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TSB-A-92 (65.1) S
Sales Tax
January 8, 1993

*
*
*
Petitioner's only customers located within the State of New York during the
period at issue were Niagara Mohawk Power Corporation, Consolidated Edison of
New York and the Power Authority of the State of New York. Said customers
employed Chem-Nuclear to process and dispose of the nuclear waste generated by
their power plants. In performing its processing and disposal services, petitioner
provided, from its headquarters in South Carolina, personnel, equipment, technology
and liners either on a full-time or demand basis, depending upon the customer's
needs.
*
*
*
After being filled with nuclear waste, the liners at issue herein were
transported by petitioner to its disposal site for burial. In some instances, the liners
remained on the job site for as little as eight hours or as long as two to three months
if the customer elected to store said liners for multiple shipment. Petitioner's
customers were not obligated to use its transportation and burial services, as they
could elect to have said services provided by other vendors. However, all three of
petitioner's customers located in New York State utilized petitioner to process the
nuclear waste and to transport and bury the liners in its Barnwell, South Carolina
disposal site.
Once the radioactive waste is introduced into the liners, the inside surfaces
of said liners are contaminated and, for all practical purposes, they cannot be, and are
not, reused. Chem-Nuclear charges its customers separately for the processing of
nuclear waste and the disposal of said processed waste.
*
*
*
A "retail sale" is generally "the sale of tangible personal property to any
person for any purpose" (Tax Law §1101[b][4]). Unless excluded or exempted from
this general definition, petitioner's purchase of the liners in South Carolina would
have been at retail subjecting petitioner to use tax upon the subsequent use of the
liners in New York. One exclusion from a retail sale is the "use by that person in
performing the services subject to tax under paragraphs (1), (2), (3), and (5) of [Tax
Law §1105(c)] where the property so sold becomes 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" (Tax Law 1101[b][4][i][B]).
The facts before us reveal that physical possession of the liners was
transferred to petitioner's customers. The liners would remain on the customer's
premises for varying periods of time ranging from eight hours to three months.

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TSB-A-92 (65.1) S
Sales Tax
January 8, 1993

Petitioner would ultimately retake physical possession of the liners only because all
three of its New York customers elected to have petitioner transport the radioactive
waste. Petitioner's retaking of the liners was only for the purpose of transporting
them for disposal. The liners were not reused in any manner by Chem-Nuclear since
they were for all practicle purposes not reusable after the processing phase. The
customer's charge for the processing service reflected the number of liners utilized.
*

*

*

We conclude that these facts - the actual physical possession of the liners by
the customers, the effective consumption of the liners in processing the customer's
waste and the customer's continued legal responsibility for the liners together indicate
that the liners were "actually transferred" by petitioner to its customers. (emphasis
added)
In the instant case Petitioner uses the plastic bags in a similar manner to the way that the
liners were used in Chem-Nuclear Systems, Inc., supra. First, like the liners, the plastic bags are used
to contain hazardous material for disposal. Second, that once asbestos is removed, the plastic bags
remain on the customers property for a period of time before their disposal. Third, while the bagged
asbestos is on the customers property awaiting disposal, the customer assumes liability for its safe
storage. Fourth, the plastic bags are not reusable. Lastly, the customer has the discretion as to what
vendor to hire to carry out the transportation and burial of the asbestos material removed.
Accordingly, pursuant to Chem-Nuclear System, Inc., supra, since Petitioner's customers take
possession of the plastic bags through their consumption and the continued legal responsibility
assumed for their proper disposal, the plastic bags are deemed to be actually transferred to the
customer as part of the service of removing the asbestos. Therefore, Petitioner's purchases of plastic
bags do not constitute retail sales subject to sales tax in accordance with the meaning and intent of
Section 1101(b)(4)(i)(B) of the Tax Law. It is further noted that since the services of removing
asbestos are being performed for organizations exempt under Section 1116(a) of the Tax Law, such
services are not subject to sales tax.
However, pursuant to Section 526.6(c)(6) Example 9 of the Sales and Use Tax Regulations
Petitioner's purchase of plastic poly is subject to sales tax since the plastic poly is an item used by
Petitioner in performing the service of asbestos removal which is not considered to be transferred
to the purchaser in conjuction with the performance of the service.

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TSB-A-92 (65.1) S
Sales Tax
January 8, 1993

It is noted that in situations where the removal of the asbestos results in the performance of
a capital improvement, the purchase of plastic bags and plastic poly will be subject to sales tax since
Petitioner will be the consumer of the tangible personal property.

DATED: January 8, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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