Can an asbestos-removal contractor get a refund of the sales tax it paid on the disposable supplies (bags, suits, filters, encapsulant, etc.) it uses on each job, since those items end up contaminated and legally become the client's waste?

Plain-English summary

An asbestos removal company buys a long list of disposable supplies for each job -- air filters, asbestos bags, encapsulant, disposable gloves and suits, duct tape, glove bags, HEPA filters and dust bags, polyethylene sheeting, respirator cartridges and cleaning wipes, and more. Federal and state environmental law makes the client (the "generator" of the asbestos waste) the legal owner of that waste and all the materials that get disposed of with it, no matter who physically removes or transports it. The contractor asked whether it can get a refund of the sales tax it originally paid on these supplies.

Ordinarily, asbestos removal is itself a taxable service (maintaining/servicing real property), and supplies a contractor buys just to use in performing its own work are taxable retail purchases with no special break. But New York has a specific refund mechanism for exactly this scenario: if a contractor buys tangible personal property, pays tax on it, and later actually transfers that property to the client in connection with performing a taxable service (rather than just consuming it internally), the contractor can apply for a refund or credit of the tax it already paid on those items.

The Department applied that rule here by analogy to an earlier ruling involving liners used to process radioactive waste, which -- once contaminated -- were no longer usable by the contractor and were treated as "actually transferred" to the customer, who bore ongoing legal responsibility for them. The same logic applies to nearly everything on Trade-Winds' list: once exposed to asbestos, these items become part of the contaminated waste, are no longer usable by the contractor, and are effectively handed off to the client along with the waste itself. Even the asbestos encapsulant -- which is sprayed onto the client's property to "lock down" fibers rather than discarded as waste -- still counts as transferred, because it physically remains part of the client's property afterward. So the contractor can claim the refund on all of these items, provided the underlying removal job was actually subject to sales tax. If the job was instead part of a tax-exempt capital improvement, or performed under a client's Direct Payment Permit, different rules apply and the contractor needs to be able to show the service really was taxable to claim this particular refund.

What this means for you

Asbestos and environmental remediation contractors

You may be paying sales tax up front on disposable supplies that later legally transfer to your client as contaminated waste -- track which jobs are subject to sales tax (versus exempt capital improvements or exempt-client work) and file for the Tax Law § 1119(c) refund or credit on the supplies used in the taxable jobs, within the statutory filing deadline.

General contractors handling regulated waste or contaminated materials

The "actually transferred" refund theory isn't unique to asbestos -- it traces back to a radioactive-waste-liner ruling and applies generally wherever consumable materials become unusable to the contractor and pass, along with ongoing legal responsibility, to the client as part of a taxable service.

Accountants and tax professionals

The refund mechanism under Tax Law § 1119(c) requires a timely application under § 1139(a), and the contractor must be able to show the underlying service was genuinely taxable (not part of an exempt capital improvement, and not performed such that the client's own exemption defeats the refund path differently). Note the nuance at the end of the opinion: even when the client itself is tax-exempt, the contractor can still separately be eligible for this refund on its own purchases, though if the client issues a Direct Payment Permit, the contractor must be able to establish the service was taxable and not a capital improvement to claim it.

Common questions

Q: Can a contractor get a refund on sales tax paid for supplies it uses on a job?
A: Only in the specific situation where the supplies are actually transferred to the client (title and responsibility passing to them) in connection with performing a taxable service — ordinary supplies the contractor consumes for its own use don't qualify.

Q: Does the asbestos encapsulant qualify for the refund even though it isn't discarded as waste?
A: Yes. Even though the encapsulant stays on the client's property (rather than being hauled away), it's considered transferred to the client, so it qualifies the same as the disposable waste materials.

Q: Does this refund apply if the asbestos removal was part of a capital improvement?
A: No. If the removal service is performed as part of a capital improvement to real property, the service itself isn't taxable, and the contractor wouldn't be entitled to this particular refund on the transferred supplies.

Q: Can another environmental remediation contractor use this exact refund analysis?
A: No. This advisory opinion binds the Department only for the petitioner on the facts described, though it applies the same refund framework and radioactive-waste-liner precedent that would likely extend to similar contaminated-materials situations.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i) (definition of "retail sale")
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(5) (tax on maintaining, servicing, or repairing real property; capital-improvement distinction)
• Tax Law § 1116(a) (exemption for governmental and nonprofit exempt organizations)
• Tax Law § 1119(c) (refund or credit for property later transferred in conjunction with a taxable service)
• 20 NYCRR § 532.5, Part 541 (Direct Payment Permits)

Prior rulings referenced:

• Modern Management Group, Inc., d/b/a Modern Environmental Service, Adv Comm T&F, Nov. 13, 1998, TSB-A-98(78)S
• Matter of Chem-Nuclear Systems, Inc., Dec Tax App Trib, Jan. 12, 1989, TSB-D-89(2)S
• Waste Management of New York, Inc., Dec Tax App Trib, March 21, 1991, TSB-D-91(19)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_36s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(36)S
Sales Tax
September 7, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000601A

On June 1, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Trade-Winds Environmental Restoration Inc., 100 Sweeneydale Avenue, Bay Shore,
New York, 11706. Petitioner, Trade-Winds Environmental Restoration Inc., submitted additional
information with respect to the Petition on July 7, 2000.
The issue raised by Petitioner is whether Petitioner is entitled to a refund or credit of sales
taxes paid on certain purchases of items of tangible personal property.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner performs the service of asbestos removal. Petitioner purchases the following items
of tangible personal property for use in performing its asbestos removal service.

.

1. Air filters for negative air machines
2. Asbestos bags
3. Asbestos encapsulant
4. Disposable towels
5. Disposable gloves
6. Disposable suits
7. Smoke tubes
8. Spray adhesive
9. Duct tape
10. Foam sealant
11. Glove bags
12. Hepa filters for negative air machine
13. Hepa Vacuum dust bags
14. Polyethylene
15. Reinforced feed bags
16. Respirator cleaning wipes
17. Respirator cartridges

Petitioner states that federal and state regulations dictate that the generators of asbestos waste
(i.e., Petitioner’s clients) will always own the waste regardless of where it is buried or who removes
or transports this waste. This includes all materials required to be disposed of with the asbestos,
such as the polyethylene sheeting, personal protective equipment, bags or drums used for disposal
and all filtering devices for water and air that are used to complete the project. During each project
ownership of these consumable, contaminated materials is transferred from Petitioner to the
generators of the asbestos waste.

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Sales Tax
September 7, 2000
Applicable Law
Section 1101(b)(4)(i) of the Tax Law defines a “retail sale,” in part as follows:
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. Notwithstanding the preceding provisions of this
subparagraph, a sale of any tangible personal property to a contractor, subcontractor
or repairman for use or consumption in erecting structures or buildings, or building
on, or otherwise adding to, altering, improving, maintaining, servicing or repairing
real property, property or land, as the terms real property, property or land are defined
in the real property tax law, is deemed to be a retail sale regardless of whether the
tangible personal property is to be resold as such before it is so used or consumed....
Section 1105(a) of the Tax Law imposes sales tax upon receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c)(5) of the Tax Law imposes sales tax upon receipts from every sale, except
for resale, of the following services:
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, but excluding services rendered by an individual who is
not in a regular trade or business offering his services to the public....
Section 1116(a) of the Tax Law provides for exemption from the sales and compensating use
taxes with respect to New York State governmental entities, United States governmental entities,
certain nonprofit organizations and other entities who have received New York State exempt
organization status.
Section 1119(c) of the Tax Law provides:

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TSB-A-00(36)S
Sales Tax
September 7, 2000

A refund or credit equal to the amount of sales or compensating use tax
imposed by this article and pursuant to the authority of article twenty-nine, and paid
on the sale or use of tangible personal property, shall be allowed the purchaser where
such property is later used by the purchaser in performing a service subject to tax
under paragraph (1), (2), (3), (5), (7) or (8) of subdivision (c) of section eleven
hundred five or under section eleven hundred ten and such property has become a
physical component part of the property upon which the service is performed or has
been transferred to the purchaser of the service in conjunction with the performance
of the service subject to tax or if a contractor, subcontractor or repairman purchases
tangible personal property and later makes a retail sale of such tangible personal
property, the acquisition of which would not have been a sale at retail to him but for
the second to last sentence of subparagraph (i) of paragraph (4) of subdivision (b) of
section eleven hundred one. An application for the refund or credit provided for
herein must be filed with the commissioner of taxation and finance within the time
provided by subdivision (a) of section eleven hundred thirty-nine. Such application
shall be in such form as the commissioner may prescribe. Where an application for
credit has been filed, the applicant may immediately take such credit on the return
which is due coincident with or immediately subsequent to the time that he files his
application for credit. However, the taking of the credit on the return shall be
deemed to be part of the application for credit. The procedure for granting or
denying such applications for refund or credit and review of such determinations
shall be as provided in subdivision (e) of section eleven hundred thirty-nine.
Opinion
The asbestos removal service performed by Petitioner is subject to tax under Section
1105(c)(5) of the Tax Law, unless the service is performed as a constituent part of a capital
improvement to real property, property or land. Where an asbestos removal service is performed for
an organization that is exempt from tax under Section 1116(a) of the Tax Law, receipts from the sale
of such service to the exempt organization are not taxable. (See Modern Management Group, Inc.,
d/b/a Modern Environmental Service, Adv Comm T& F, November 13, 1998, TSB-A-98(78)S.)
Sales of tangible personal property to Petitioner, as a contractor, for use in performing its
asbestos removal service are retail sales subject to tax under Section 1105(a) of the Tax Law.
However, Petitioner may be entitled to a refund or credit equal to the amount of tax paid on these
sales where Petitioner purchases the tangible personal property and later transfers the property to a
client in conjunction with performing a service subject to tax under Section 1105(c) of the Tax Law
for such client, or makes a retail sale of the property to a client (Tax Law, §1119(c)).
In Chem-Nuclear Systems, Inc., Dec Tax App Trib, January 12, 1989, TSB-D-89(2)S, the
Tax Appeals Tribunal determined that liners used in the processing of radioactive waste were
“actually transferred” to customers in conjunction with the performance of a taxable service. Once
exposed to the radioactive waste and contaminated, the liners were no longer usable by Chem­

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Sales Tax
September 7, 2000

Nuclear, but were effectively consumed in the processing of the waste. In addition, under state and
federal law, the customers had a continued legal responsibility for the liners as well as the radioactive
waste. (See, also, Waste Management of New York, Inc., Dec Tax App Trib, March 21, 1991, TSBD-91(19)S.)
Except for the asbestos encapsulant, the items of tangible personal property typically used
by Petitioner in performing its asbestos removal service, and listed in this Opinion, when exposed
to asbestos become contaminated and therefor part of the asbestos waste. These items are no longer
usable by Petitioner, but are transferred from Petitioner to its clients in the same manner as were the
liners in Chem-Nuclear. As in Modern Management Group, Inc., d/b/a Modern Environmental
Service, supra, it is assumed for purposes of this Petition that Petitioner and its clients are
responsible for the proper disposal of the waste, including the items in question, pursuant to
applicable federal and state laws and regulations. Accordingly, all of these items are considered
actually transferred by Petitioner to its clients. As described in Modern Management Group, Inc.,
d/b/a Modern Environmental Service, supra, the asbestos encapulant is sprayed on a clients’
properties to “lock down” residual asbestos fibers and does not necessarily become part of the
disposable asbestos waste. However, the encapsulant remains part of the clients’ properties and is
also actually transferred to the clients. Consequently, Petitioner is eligible for a refund or credit
under Section 1119(c) of the Tax Law equal to the amount of sales tax paid on these items, including
the encapsulant, provided such items are transferred by Petitioner in connection with performance
of a service that is subject to sales tax. If, however, the asbestos removal service is performed in
conjunction with a capital improvement to real property, property or land, and thus is not subject to
tax, Petitioner would not be entitled to this refund or credit. (See Modern Management Group, Inc.,
d/b/a/ Modern Environmental Service, supra.)
If Petitioner performs its asbestos removal service (other than as part of a capital
improvement) for an exempt organization under Section 1116(a) of the Tax Law, although the
purchaser of the service is exempt from tax, Petitioner will still be eligible for the refund or credit.
In a case where a copy of a Direct Payment Permit is properly issued to Petitioner by a client (see
20 NYCRR 532.5 and Part 541), in order to claim the refund or credit Petitioner must be able to
establish that the service was ultimately subject to tax and was not part of a capital improvement.

DATED: September 7, 2000

NOTE:

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

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