Are an asbestos-removal contractor's purchases of plastic disposal bags and plastic wall/floor poly taxable when the work is done for tax-exempt property owners?

Plain-English summary

Johns' Insulation removes asbestos from buildings owned by tax-exempt organizations (Tax Law § 1116(a)). To comply with EPA/DEC/NYC environmental rules, it uses two kinds of plastic: plastic poly to seal off the work area (covering walls and floors), and plastic bags to contain the removed asbestos for disposal in a licensed landfill. The bagged asbestos sits on the customer's property for a week or two; the customer never gives up ownership of (and stays legally responsible for) the asbestos, and independent haulers chosen by the owner take it away. Johns' Insulation asked whether its purchases of the bags and the poly are subject to sales tax.

The Department split the answer:

• Plastic bags — not taxable. Under Tax Law § 1101(b)(4)(i)(B) and Reg. § 526.6(c)(6), property a contractor buys to perform a taxable service is treated as purchased for resale (not taxable when bought) if it is "actually transferred" to the customer with the service. Following the Tax Appeals Tribunal decision in Chem-Nuclear Systems, Inc. (TSB-D-89(2)S) — where contaminated, non-reusable radioactive-waste liners were held "actually transferred" to customers — the Department found the asbestos bags are used the same way: they contain hazardous material, remain on the customer's property, are the customer's legal responsibility, and are not reusable. So the bags are "actually transferred" to the customer, and Johns' Insulation's purchase of them is not a taxable retail sale. (The Department also noted the asbestos-removal service itself is not taxable because it's performed for § 1116(a)-exempt organizations.)
• Plastic poly — taxable. Under Reg. § 526.6(c)(6), Example 9 (the painter's drop cloths and sandpaper), the plastic poly used to seal the walls and floors is an item the contractor consumes in performing the service and does not transfer to the customer. So Johns' Insulation's purchase of the plastic poly is subject to sales tax.

What this means for you

Abatement and hazardous-waste contractors

Draw a line between materials you hand off with the waste and materials you use up doing the job. Disposal containers that leave with the (non-reusable) hazardous material, stay the customer's responsibility, and aren't reused can qualify as "actually transferred" to the customer — so you buy them tax-free for resale. But the sheeting, drop cloths, and other setup/containment materials you consume on site are taxable to you, because they aren't transferred to the customer.

Working for exempt property owners doesn't change the material tax

Even though the removal service here wasn't taxable (the owners were § 1116(a)-exempt), that exemption applied to the service, not automatically to the contractor's own material purchases. The poly stayed taxable to the contractor.

Accountants and tax professionals

The "actually transferred" test of § 1101(b)(4)(i)(B) / Reg. § 526.6(c)(6), as applied in Chem-Nuclear Systems (TSB-D-89(2)S), turns on physical possession/consumption by the customer, the customer's continued legal responsibility, and non-reusability. Watch the modification: TSB-A-92(65.1)S adds that where the asbestos removal results in a capital improvement, both the bags and the poly become taxable because the contractor is then the consumer.

Common questions

Q: Why are the disposal bags not taxable but the poly is?
A: The bags leave with the non-reusable asbestos and stay the customer's legal responsibility, so they're "actually transferred" to the customer and bought for resale. The poly is used up sealing the work area and isn't transferred, so it's taxable to the contractor.

Q: What does "actually transferred" mean here?
A: Under the Chem-Nuclear test, it looks at the customer's physical possession and effective consumption of the item, the customer's continued legal responsibility for it, and the fact that it can't be reused.

Q: Does working for a tax-exempt owner make the materials tax-free?
A: Not by itself. The exemption made the removal service non-taxable, but the contractor's purchase of the plastic poly remained taxable.

Q: Did this opinion change later?
A: Yes. TSB-A-92(65.1)S modified it to add that if the asbestos removal is part of a capital improvement, the contractor consumes both the bags and the poly, so both purchases are taxable.

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)
• Modified by TSB-A-92(65.1)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_65s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (65) S
Sales Tax
August 26, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
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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Sales Tax
August 26, 1992
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, January 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) S
Sales Tax
August 26, 1992

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.
Petitioner would ultimately retake physical possession of the liners only because all

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TSB-A-92 (65) S
Sales Tax
August 26, 1992

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.

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TSB-A-92 (65) S
Sales Tax
August 26, 1992

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.

DATED: August 26, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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