New York Advisory Opinion TSB-A-96(8)S: Is the removal, disposal, and decontamination of waste from tanks at an EPA Superfund cleanup site a taxable real-property maintenance service, or an exempt capital improvement, when the site's overall final remediation plan hasn't been determined yet?

Plain-English summary

Frontier Chemical Royal Avenue Superfund Site is a group of companies designated as "potentially responsible parties" under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("Superfund"). The EPA is requiring Petitioner to clean up a former waste-processing location it has designated a Superfund Site, and Petitioner intends to remediate the property so it can eventually be sold -- potentially for use as a waste treatment facility or as part of a manufacturing operation. The overall remediation happens in phases: Phase I involved removing drums of waste from the site; the subject of this ruling, Phase II, involves a hired contractor pumping waste out of on-site storage tanks (which qualify as "real property" under the Real Property Tax Law) into disposal trucks for transport to various in-state and out-of-state disposal locations, then decontaminating the emptied tanks -- no new tanks, pipes, or systems are installed during Phase II. What happens after Phase II is genuinely uncertain: the EPA will conduct its own investigation into groundwater and soil contamination, require a feasibility study, and only then tell Petitioner what further remediation (and what construction design) is actually required -- a process that can involve significant time lapses between stages. Petitioner believes it's likely the EPA will eventually require soil removal, air-strippers, a groundwater treatment system, or similar work, but nothing is confirmed yet.

The Department ruled the Phase II services are currently taxable. Tax Law § 1105(c)(5) taxes services that maintain, service, or repair real property, and 20 NYCRR § 527.7(b)(2) specifically confirms that trash and hazardous-waste removal/hauling/disposal count as taxable maintenance of real property -- citing prior case law upholding tax on integrated industrial/hazardous-waste removal services (Rochester Gas and Electric, Cecos International, Penfold). By contrast, under the "end result rule" in 20 NYCRR § 527.7(b)(4), a service is exempt if its END RESULT is a capital improvement (an addition that substantially adds value, becomes permanently affixed, and is intended to be permanent, per Tax Law § 1101(b)(9)) rather than mere repair or maintenance. The Department found the Phase II tank-emptying and decontamination work fits the taxable maintenance category on its own terms. Although Petitioner is "almost certain" the EPA will eventually require enough additional work that the OVERALL site remediation qualifies as a capital improvement, the Department held that outcome simply cannot be established at the time Phase II services are performed -- the EPA's remediation requirements are still unknown, and given how broadly the EPA can direct the cleanup, it's not possible to confirm a capital-improvement end result in advance. So Petitioner cannot present a capital improvement certificate now, and must pay tax on the Phase II services; if the ultimate remediation is later confirmed to be a capital improvement, Petitioner may then seek a refund of the tax paid on Phase II under Tax Law § 1139.

What this means for you

Companies conducting phased environmental remediation

Don't assume early cleanup phases (like waste removal or tank decontamination) are automatically tax-exempt just because you expect the overall project will eventually qualify as a capital improvement -- if the final scope and design of the remediation isn't yet determined (e.g., by a regulator like the EPA), each phase is taxed on its own terms as maintenance/repair until a capital-improvement end result can actually be established.

Superfund and other environmental cleanup contractors

Be prepared to collect sales tax on waste removal, hauling, and decontamination services performed during early or uncertain remediation phases, even on sites that will likely see substantial permanent construction (air-strippers, treatment systems) later -- and advise clients that a refund claim under Section 1139 may become available once the ultimate capital-improvement outcome is confirmed.

Businesses planning multi-phase construction or remediation projects

If you want a service to qualify as an exempt capital improvement, you generally need to be able to establish that outcome AT THE TIME the service is performed -- a reasonable expectation that future phases will add up to a capital improvement isn't enough if the specific design and scope aren't yet fixed.

Common questions

Q: Could Petitioner have avoided tax by waiting until the EPA finalizes the remediation plan before doing Phase II?
A: The ruling doesn't suggest that as an option -- Phase II (tank waste removal and decontamination) needed to happen regardless of the EPA's eventual determination about soil/groundwater remediation, and the ruling evaluates Phase II on its own facts as they exist now, not as a preliminary step that can be deferred pending a later capital-improvement designation.

Q: What would Petitioner need to show to get the Section 1139 refund later?
A: The ruling indicates Petitioner would need to establish that the END RESULT of the overall remediation (once the EPA's required design is known and implemented) is in fact a capital improvement to the real property, at which point the tax already paid on the Phase II services could become refundable.

Q: Does the waste being labeled "hazardous" or "industrial" change the tax treatment compared to ordinary trash removal?
A: No -- the ruling treats industrial and hazardous waste removal, hauling, and disposal as an integrated trash removal service under the same regulatory provision (20 NYCRR § 527.7(b)(2)) and case law that applies to ordinary trash removal; the hazardous nature of the waste doesn't change the taxable-maintenance classification.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(9) (definition of capital improvement)
• Tax Law § 1105(c)(5) (maintaining/servicing/repairing real property tax)
• Tax Law § 1132 (tax collection; presumption of taxability)
• Tax Law § 1139 (refund provision)
• 20 NYCRR 527.7(b)(2) (trash/garbage removal taxable)
• 20 NYCRR 527.7(b)(4) (end result rule)

Prior rulings and cases referenced:

• Matter of Rochester Gas and Electric Corporation v. New York State Tax Commission, 128 A.D.2d 238, affd 71 N.Y.2d 931
• Matter of Cecos International, Inc. v. State Tax Commission, 126 A.D.2d 884, affd 71 N.Y.2d 934
• Matter of Richard C. Penfold, Doing Business as C.I.D. Refuse Service v. State Tax Commission, 114 A.D.2d 696
• Matter of Building Contractors Association v. Tully, 87 A.D.2d 909
• Stewarts Ice Cream Co., Inc., Advisory Opinion, Commissioner of Taxation and Finance, May 29, 1990, TSB-A-90(27)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_8s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (8)S
Sales Tax
February 20, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950523A

On May 24, 1995, a Petition for Advisory Opinion was received from Frontier Chemical
Royal Avenue Superfund Site, c/o Nixon, Hargrave, Devans & Doyle, Clinton Square, P.O. Box
1051, Rochester, New York 14603.
The issue raised by the Petitioner, Frontier Chemical Royal Avenue Superfund Site, is
whether New York State sales and compensating use taxes are imposed on certain remediation
services provided at a Superfund Site. Specifically, the issue is whether the services, in conjunction
with the overall remediation, would result in a capital improvement to real property and thus be
exempt from sales tax.
Petitioner makes the following statement of facts.
Petitioner is a group of companies that are potentially responsible parties under the
Comprehensive Environmental Response, Compensation, and Liability Act (commonly known as
"Superfund," 42 USCS §§ 9601 et seq.). Petitioner is being required by the Environmental
Protection Agency (EPA) to do an environmental cleanup at a former waste processing location that
has been designated by the EPA as a Superfund Site (Site). Petitioner plans to remediate the Site in
order to improve the Site for sale. Petitioner believes that a potential buyer could use the Site as a
waste treatment facility or as part of a manufacturing unit.
Remediation of the Site would be broken down into several phases. For example, Phase I
involves the removal of drums containing waste from the Site. Phase II, which is the subject of the
Petition for Advisory Opinion, involves the removal and disposal of waste from tanks on the Site
and the subsequent decontamination of the tanks. The tanks are real property, property or land as
defined in the Real Property Tax Law. Petitioner has hired a contractor to perform these services.
In removing the waste from the tanks, the contractor will bring its waste disposal trucks to the Site
and pump the waste from the tanks into the trucks. The trucks will then transport the waste to
ultimate disposal locations, some of which are in New York State and some of which are out-of­
state. After the tanks are emptied, they will be decontaminated. During Phase II, no new tanks,
pipes or systems will be installed at the Site.
Once Phase II is completed, the EPA will determine if the land at the Site must be remediated
and, if so, what the remediation will consist of. This process involves the EPA making a remedial
investigation in which it will determine the extent of any groundwater and/or soil contamination at
the Site. The EPA will then require that a feasibility study be prepared that outlines the remediation
that must be done. Once the EPA reviews the feasibility study, it will inform Petitioner as to how
the Site must be remediated, and give Petitioner a construction design to use in the remediation.
Petitioner will then remediate the Site in accordance with the EPA's design. Petitioner indicates and

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the EPA confirms that there can be a significant lapse of time between stages of an environmental
remediation.
Petitioner believes that there is groundwater and soil contamination at the Site that will
almost certainly be required to be remediated. Because the EPA has not yet told the Petitioner how
it must remediate the Site, Petitioner is not certain as to what type of remediation will be required.
Petitioner believes it is likely that it will be required to remove soil, install air-strippers, install a
groundwater treatment system and do any other remediation so that the Site is not deemed to be an
imminent threat to human health and the environment.
Section 1101(b)(9) of the Tax Law defines a capital improvement in relevant part as follows:
(9) Capital improvement. (i) An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property; and
(B) Becomes part of the real property or is permanently affixed to the real
property so that removal would cause material damage to the property or article itself;
and
(C) Is intended to become a permanent installation.
Section 1105(c)(5) of the Tax Law imposes tax upon receipts from every sale, except for
resale, of:
(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 chapter, but excluding services rendered by an individual who
is not in a regular trade or business offering his services to the public.
Section 1132 of the Tax Law provides, in part:
(a) Every person required to collect the tax shall collect the tax from the
customer when collecting the price ... to which it applies....

(c) For the purpose of the proper administration of this article and to prevent
evasion of the tax hereby imposed, it shall be presumed that all receipts for property
or services of any type mentioned in subdivisions (a), (b), (c) and (d) of section
eleven hundred five ... are subject to tax until the contrary is established, and the
burden of proving that any receipt ... is not taxable hereunder shall be upon the
person required to collect tax or the customer....

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Section 527.7(b) of the Sales and Use Tax Regulations provides, in part:

(2) All services of trash or garbage removal are taxable, whether from inside
or outside of a building or vacant land.

(4) The imposition of tax on services preformed on real property depends on
the end result of such service. If the end result of the services is the repair or
maintenance of real property, such services are taxable. If the end result of the same
service is a capital improvement to the real property, such services are not taxable.
Tax Law Section 1105(c)(5) imposes tax on the receipts from the service of
maintaining, servicing or repairing real property. Section 527.7(b)(2) of the Sales and Use Tax
Regulations provides that receipts from the sale of a trash removal service are taxable under Section
1105(c). The collection, hauling and disposal of industrial and hazardous waste constitute an
integrated trash removal service the receipts from which are taxable as the maintenance of real
property under Section 1105(c)(5) of the Tax Law. (See: Matter of Rochester Gas and Electric
Corporation v. New York State Tax Commission, 128 A.D.2d 238, affd 71 N.Y.2d 931; Matter of
Cecos International, Inc. v. State Tax Commission, 126 A.D.2d 884, affd 71 N.Y.2d 934; Matter of
Richard C. Penfold, Doing Business as C.I.D. Refuse Service v. State Tax Commission, 114 A.D.2d
696.) Receipts from the sale of the service of decontaminating tanks which qualify as real property
as defined in Section 102(12) of the Real Property Tax Law are also taxable under Section
1105(c)(5) of the Tax Law. The services provided for Petitioner by the contractor during Phase II
of the remediation (i.e., the removal and disposal of waste and the subsequent decontamination of
tanks) constitute, therefore, maintaining, servicing or repairing real property for purposes of Section
1105(c)(5).
However, under the end result rule set forth in Section 527.7(b)(4) of the Sales and Use Tax
Regulations, the services described may, under certain circumstances, be considered to be capital
improvements that are not subject to sales tax. (See: Matter of Building Contractors Association v.
Tully, 87 A.D.2d 909; Stewarts Ice Cream Co., Inc., Adv Op Comm T&F, May 29, 1990, TSB-A­
90(27)S.)
In this case, although the Petitioner is almost certain that the EPA will require the installation
of certain materials in order to fully remediate the Site and that the end result of the remediation
services will be a capital improvement to real property, these events are not determinable at the
present time. Given the wide scope in which the EPA is authorized to act in providing for
remediation of the Site, in conjunction with the technical nature of a capital improvement, it is not
possible for Petitioner to establish that the Phase II services will result in a capital improvement until
the facts regarding the remediation are known. Accordingly, the services provided by the contractor
during Phase II of the remediation cannot be considered a capital improvement to real property at
the time that the services are performed and are subject to tax. Petitioner may not present a
certificate of capital improvement for the services provided by the contractor during Phase II in order
to purchase such services exempt from tax. However, once it can be established that the end result

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of the remediation services is a capital improvement to the real property, Petitioner may be eligible
for a refund of the taxes paid to the Department of Taxation and Finance on the Phase II services in
accordance with Section 1139 of the Tax Law.

DATED: February 20, 1996

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

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