Can a tire retailer buy tire-disposal service tax-free for resale when it charges customers a separate disposal fee for their old tires?

Plain-English summary

Kost Tire Distributors sells new tires and, as part of mounting them, removes customers' old tires. Customers can either keep their old tires or pay Kost a disposal fee to have them hauled away; if they choose disposal, Kost turns the tires over to a certified scrap tire processor, which removes them from Kost's premises and charges Kost for the service. Kost asked whether it could treat its payment to the scrap tire processor as a tax-free purchase for resale, since it was, in effect, passing that service through to its own customers via the disposal fee.

The Department said no. The scrap tire processor's hauling and disposal work is a taxable trash-removal service under Tax Law § 1105(c)(5) (maintaining/servicing real property, which the regulations specifically list as including trash and garbage removal). But the resale exemption only applies when the buyer is reselling an enumerated taxable service to its own customer. Kost's disposal fee to its customers isn't itself a charge for trash removal or any other enumerated taxable service -- it's just a fee the retailer charges as part of its tire business. Because Kost isn't reselling a taxable service to its customers (it's charging its own separate fee for a service that, from the customer's perspective, isn't one of the enumerated taxable categories), Kost cannot buy the scrap tire processor's service tax-free for resale. Kost must pay sales tax itself on what it pays the scrap tire processor.

What this means for you

Tire retailers and auto shops offering old-tire disposal

You can't treat your payment to a waste hauler or scrap processor as a tax-free resale purchase just because you separately charge your customer a disposal fee. Unless your customer-facing charge is itself for an enumerated taxable service, your purchase from the hauler is a taxable cost of doing business -- budget for sales tax on that expense rather than assuming you can pass it through tax-free.

Waste haulers and scrap-material processors

Your trash/scrap removal services remain taxable real-property maintenance services regardless of how your customer (here, the tire retailer) structures its own billing to its end customers.

Accountants and tax professionals

This is a clean illustration that the resale exemption requires a true "service in, service out" match -- the buyer must be reselling the same taxable service category to its own customer, not just recovering a cost through a differently characterized fee. Contrast with this corpus's other resale-exemption rulings where the underlying service or property genuinely passes through unchanged to the end customer.

Common questions

Q: Can a retailer buy waste-disposal services tax-free if it charges customers a separate disposal fee?
A: Not unless the retailer's charge to its customer is itself for the same enumerated taxable service (like trash removal). A generic disposal fee that isn't framed as an enumerated taxable service doesn't qualify the retailer's own purchase for the resale exemption.

Q: Is hauling scrap tires away from a retailer's premises a taxable service?
A: Yes, it's ordinary taxable trash removal under Tax Law § 1105(c)(5), the same as any other real-property maintenance service.

Q: Who ultimately pays the sales tax in this scenario?
A: The retailer (Kost) pays sales tax on what it's charged by the scrap tire processor, since it can't buy that service tax-free for resale.

Q: Can another tire retailer or similar business rely on this ruling directly?
A: Not automatically. This advisory opinion binds the Department only as to the petitioner and the specific facts (a disposal fee not framed as an enumerated taxable service) described.

Citations and references

Statutes and rules:

• Tax Law § 1105(c)(5) (tax on maintaining, servicing, or repairing real property, including trash removal)
• 20 NYCRR § 527.7(a)(1) (maintaining, servicing, repairing real property; trash and garbage removal listed as an example)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_64s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(64)S
Sales Tax
September 9, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S971017A

On October 17, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Kost Tire Distributors, Inc., 335 Court
Street, Binghamton, New York 13904.
The issue raised by Petitioner, Kost Tire Distributors, Inc., is whether
tire disposal services may be purchased by it for resale.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
When customers purchase new tires from Petitioner, they bring their
vehicles to Petitioner. Petitioner removes the old tires from their vehicles and
mounts new tires. Petitioner’s customers then have the option of keeping their
old tires or paying to have them disposed of. If a customer decides to dispose
of the tires, they turn the tires over to Petitioner who then charges the
customer a disposal fee and disposes of the tires. Petitioner disposes of the
tires through a certified scrap tire processor, which removes the tires from
Petitioner’s premises.
Applicable Law and Regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax.---On and after June first, nineteen hundred
seventy-one, there is hereby imposed and there shall be paid a tax of four
percent upon:
*

*

*

(c)
The receipts from every sale, except for resale, of the
following services:
*

*

*

(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 527.7(a)(1) of the Sales and Use Tax Regulations provides:

-2­
TSB-A-98(64)S
Sales Tax
September 9, 1998

Maintaining, servicing and repairing are terms which are used to
cover all activities that relate to keeping real property in a
condition of fitness, efficiency, readiness or safety or restoring
it to such condition. Among the services included are services on
a building itself such as painting; services to the grounds, such as
lawn services, tree removal and spraying; trash and garbage removal
and sewerage service and snow removal.
Opinion
Petitioner is charging its customers a fee for disposing of their tires.
Petitioner then hires a certified scrap tire processor to remove the tires from
its property and process and dispose of them. The certified scrap tire processor
performs a trash removal service for Petitioner that is subject to tax under
Section 1105(c)(5) of the Tax Law. Petitioner does not purchase this service for
resale. The disposal fee that Petitioner charges its customers is not for the
performance of a trash removal service or any other enumerated taxable service
under Section 1105(c) of the Tax Law. Petitioner, therefore, must pay sales tax
on its purchase of the services described above from the scrap tire processor.

DATED:

September 9, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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