Can an asbestos removal contractor get a sales tax refund on the disposable materials and protective equipment it buys, since those items end up contaminated and legally owned by its customer as waste?

Plain-English summary

Frontier Insulation removes asbestos from commercial, industrial, and institutional buildings under strict federal and state regulation. The job requires building a sealed containment enclosure (studs, plywood, polyethylene sheeting, foam sealant, tape), a decontamination chamber tested with smoke tubes, negative-air machines with HEPA filtration, and heavy protective gear for workers (disposable suits, gloves, respirators with HEPA cartridges) — 18 different disposable items in all, from air filters and asbestos bags to disposal drums.

Ordinarily, a contractor's own supplies — bought and consumed while performing a taxable service — are subject to sales tax at purchase, and a contractor generally can't get that tax back even if the customer ends up with the leftover materials (the standard rule, illustrated by a painter's drop cloths, is that leaving materials behind doesn't count as "transferring" them to the customer). But asbestos work has a legal quirk that changes the outcome: federal and state hazardous-waste regulations make the CUSTOMER (the waste generator) the legal owner of all contaminated asbestos waste, by law, regardless of who removes or disposes of it — and that ownership specifically extends to the polyethylene sheeting, protective gear, and disposal bags that get contaminated during the job. Following a Tax Appeals Tribunal precedent about radioactive-waste liners with the identical legal-ownership dynamic, the Department found that once these disposable items become contaminated, they're actually TRANSFERRED to the customer (who now legally owns them as waste) in connection with Frontier's taxable removal service — which is exactly the trigger for a refund under § 1119(c).

So Frontier can get back the sales tax it paid on the 17 disposable/protective items (everything except the asbestos encapsulant, treated separately below) once they become contaminated waste, PROVIDED the removal service itself was actually taxable. The encapsulant sprayed at the end of the job to "lock down" residual fibers is treated the same way for a different reason — it becomes part of the customer's real property and is transferred to the customer regardless of contamination. The refund disappears entirely, though, if the asbestos removal is performed as part of a capital improvement (which is itself nontaxable) — there's no tax to refund if the underlying service was never taxed in the first place.

What this means for you

Asbestos removal and environmental remediation contractors

Because regulatory law (not just practical abandonment) makes your customer the legal owner of contaminated protective gear and containment materials, you're entitled to a refund or credit of the sales tax you paid on those items once they become contaminated waste — as long as your removal service was itself taxable (i.e., not part of a capital improvement). File within the standard three-year window and keep documentation tying the refund claim to specific contaminated, transferred items.

Contractors in other regulated hazardous-materials fields

The key legal hook here — a regulatory scheme that makes the CUSTOMER the legal owner of contaminated materials as waste — is what flips the normal "leftover supplies aren't a taxable transfer" rule. If your industry has a similar waste-ownership regulation (radioactive materials, contaminated soil, biohazard materials), the same refund logic may apply; check whether your regulatory regime actually assigns ownership of the contaminated byproduct to the customer.

Accountants and tax professionals

This ruling extends the Chem-Nuclear Systems radioactive-waste-liner precedent to asbestos remediation — the throughline is that regulatory ownership of contaminated materials (not mere physical abandonment at the job site) is what converts a contractor's own consumable supplies into a taxable transfer eligible for the § 1119(c) refund.

Common questions

Q: Can an asbestos contractor get a sales tax refund on protective gear and containment materials?
A: Yes, once those items become contaminated and are legally transferred to the customer as waste, provided the underlying removal service was itself taxable.

Q: Does this apply if the asbestos removal is part of a capital improvement?
A: No — capital improvement work is nontaxable to begin with, so there's no sales tax to refund on the materials used in it.

Q: What about ordinary supplies a contractor just leaves behind after a job?
A: Generally those aren't considered "transferred" to the customer and don't qualify for a refund — asbestos waste is a special case because regulation makes the customer the legal owner.

Q: Can another environmental remediation contractor rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described here.

Citations and references

Statutes, regulations, and case law:

• Tax Law §§ 1101(b)(4)(i); 1105(a), (c)(5); 1116(a); 1119(c)
• 20 NYCRR 526.6(c)(6)
• Chem-Nuclear Systems, Inc., Tax App Trib, January 12, 1989, DTA Nos. 801549, 801582, 801909, 802046

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_39s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(39)S
Sales Tax
October 26, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S040927A

On September 27, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Frontier Insulation Contractors, Inc., 2101 Kenmore Ave., Buffalo,
New York, 14207.
The issue raised by Petitioner, Frontier Insulation Contractors, Inc., is whether it is
entitled to a refund or credit of sales taxes paid on purchases of the following items of tangible
personal property that are typically used by Petitioner 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. Duct tape
8. Foam sealant
9. Glove bags
10. HEPA filters for negative air machines
11. HEPA vacuum dust bags
12. Polyethylene
13. Reinforced feed bags
14. Respirator cartridges
15. Respirator cleaning wipes
16. Smoke tubes
17. Spray adhesive
18. Disposal drums
    Petitioner submitted the following facts as the basis for this Advisory Opinion.
    Petitioner, a New York State corporation, is a contractor that provides the service of
    asbestos removal. Petitioner removes asbestos-contaminated materials from boilers, piping,
    roofs, floors, walls, ceilings and anywhere else asbestos-contaminated materials are encountered.
    Clients of Petitioner include commercial, industrial and manufacturing facilities; hospitals;
    schools; various New York State agencies and authorities; and county and municipal entities.
    Petitioner does not provide asbestos removal for residential customers.

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During the course of removing asbestos materials, Petitioner must comply with
regulations of the New York State Department of Labor (Asbestos, 12 NYCRR Part 56), the
United States Environmental Protection Agency (National Emissions Standards for Hazardous
Air Pollutants, 40 CFR Part 61), the New York State Department of Environmental
Conservation, the United States Department of Transportation and the Occupational Safety and
Health Administration.
The sequence of removing asbestos begins with isolation of the work area. Petitioner is
required to erect an enclosure isolating the asbestos from surrounding areas. Such an enclosure
is constructed of either metal or wood studs (16 inches on-center) with plywood or aspenite
sheathing (minimum thickness of 5/8 inch) applied to the work side of the studs. On the work
side of the plywood or sheathing, Petitioner is required to install at least two layers of fire
retardant polyethylene (minimum thickness of 6 mils). These layers are installed one at a time
and must overlap at the seams by 6 feet. The floors and ceiling areas inside the barrier are
covered with polyethylene in the same manner as are the walls. There are two additional layers
of polyethylene required to cover windows, electrical outlets, HVAC diffusers, grills and any
other protrusions to the work area. Foam sealant is also used to seal protrusions. The
polyethylene sheeting is generally held in place with spray adhesive, duct tape and staples.
A decontamination system is erected at the entrance to the work area through which all
persons entering or exiting the work area must pass. This decontamination system is erected and
enclosed in the same manner as the work area described above. When the barrier and
decontamination system are completed, they are tested using smoke delivered through smoke
tubes.
The work area must remain under constant negative air pressure. This is accomplished
by installing portable negative air machines that are equipped with a three-stage filtration system
including a prefilter, secondary filter and a HEPA (High Efficient Particulate Air) filter. Special
vacuum cleaners equipped with disposable dust bags and HEPA filters must also be used. In
addition, disposable rags, towels and sponges are used to wipe down the work area.
Once the decontamination system and barrier are completed and tested, workers begin the
actual asbestos removal process. The asbestos-contaminated materials are removed and placed
into asbestos burial bags. These bags must also be 6 mils thick and preprinted with "Asbestos
Danger" verbiage as required by regulation. Nonpermeable disposal drums may be used in lieu
of these bags. Glove bags (i.e., bags with gloves incorporated into them) are used to remove
asbestos and to seal objects, such as pipes. Heavy or sharp debris, such as floor tiles, may be
placed in reinforced feed bags before being placed in the asbestos burial bags. After the
asbestos-contaminated materials are removed and the work area is wiped and vacuumed clean,
an asbestos encapsulant is sprayed on the work area surface to "lock down" any residual asbestos
fibers that may be present.

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The workers performing the removal process must wear personal protective equipment
that is required by regulation. These items include disposable suits, respirators (complete with
disposable HEPA filter cartridges) and disposable rubber gloves. Each time upon exiting the
enclosure, the workers are required to remove the personal protective items in the "dirty"
chamber of the decontamination system and to take a shower. The removed items are placed in
asbestos disposal bags and are required to be disposed of as asbestos waste, together with the
towels used after the workers’ showers. This process is continued until the asbestos has been
removed and bagged and air samples confirm that there is no asbestos present in the air.
At the end of the project, the polyethylene sheeting placed on the walls, floors and
ceilings must be removed and placed into asbestos disposal bags and disposed of as asbestos
waste. At this time, the studs and plywood or sheathing are removed and the project is complete.
Petitioner collects and remits sales tax on the asbestos removal service it provides to its
clients. On certain projects, Petitioner also receives Certificates of Capital Improvement or
copies of Direct Payment Permits from its clients.
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 waste includes all materials provided by Petitioner that
are required to be buried 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.
Applicable law and regulations
Section 1101(b)(4)(i) of the Tax Law provides, in part:
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. . . .

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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 . . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
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(c) The receipts from every sale, except for resale, of the following services:
*

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(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 article, but
excluding (i) services rendered by an individual who is not in a regular trade or business
offering his services to the public, (ii) services rendered directly with respect to real
property, property or land used or consumed directly and predominantly in the production
for sale of gas or oil by manufacturing, processing, generating, assembling, refining,
mining, or extracting and (iii) services rendered with respect to real property, property or
land used or consumed predominantly either in the production of tangible personal
property, for sale, by farming or in a commercial horse boarding operation, or in both.
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 that have received New York State
exempt organization status.
Section 1119(c) of the Tax Law provides:
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

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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.
Section 526.6(c)(6) of the Sales and Use Tax Regulations provides, in part:
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.
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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
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.
Title 40, section 61.141 of the Code of Federal Regulations provides, in part:
Definitions.
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Asbestos-containing waste materials . . . includes filters from control devices,
friable asbestos waste material, and bags or other similar packaging contaminated with
commercial asbestos. As applied to demolition and renovation operations, this term also
includes regulated asbestos-containing material waste and materials contaminated with
asbestos including disposable equipment and clothing.

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Asbestos waste from control devices means any waste material that contains
asbestos and is collected by a pollution control device.
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Owner or operator of a demolition or renovation activity means any person who
owns, leases, operates, controls, or supervises the facility being demolished or renovated
or any person who owns, leases, operates, controls, or supervises the demolition or
renovation operation, or both.
*

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Renovation means altering a facility or one or more facility components in any
way, including the stripping or removal of [asbestos containing material] from a facility
component. Operations in which load-supporting structural members are wrecked or
taken out are demolitions.
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Waste generator means any owner or operator of a source covered by this subpart
whose act or process produces asbestos-containing waste material.
Waste shipment record means the shipping document, required to be originated
and signed by the waste generator, used to track and substantiate the disposition of
asbestos-containing waste material.
Title 40, section 61.150 of the Code of Federal Regulations provides, in part:
Standard for waste disposal for manufacturing, fabricating, demolition,
renovation, and spraying operations.
Each owner or operator of any source covered under the provisions of §§ 61.144,
61.145, 61.146, and 61.147 shall comply with the following provisions:
(a) Discharge no visible emissions to the outside air during the collection,
processing (including incineration), packaging, or transporting of any asbestos-containing
waste material generated by the source, or use one of the emission control and waste
treatment methods specified in paragraphs (a) (1) through (4) of this section.

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(1)(v) For asbestos-containing waste material to be transported off the facility site,
label containers or wrapped materials with the name of the waste generator and the
location at which the waste was generated.
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(b) All asbestos-containing waste material shall be deposited as soon as is
practical by the waste generator at:
(1) A waste disposal site operated in accordance with the provisions of §
61.154, or
(2) An EPA-approved site that converts RACM [regulated asbestos­
containing material] and asbestos-containing waste material into nonasbestos
(asbestos-free) material according to the provisions of § 61.155.
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(d) For all asbestos-containing waste material transported off the facility site:
(1) Maintain waste shipment records, using a form similar to that shown in Figure
4, and include the following information:
The name, address, and telephone number of the waste generator.
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(2) Provide a copy of the waste shipment record, described in paragraph (d)(1) of
this section, to the disposal site owners or operators at the same time as the asbestos­
containing waste material is delivered to the disposal site.
(3) For waste shipments where a copy of the waste shipment record, signed by the
owner or operator of the designated disposal site, is not received by the waste generator
within 35 days of the date the waste was accepted by the initial transporter, contact the
transporter and/or the owner or operator of the designated disposal site to determine the
status of the waste shipment.
(4) Report in writing to the local, State, or EPA Regional office responsible for
administering the asbestos NESHAP program for the waste generator if a copy of the
waste shipment record, signed by the owner or operator of the designated waste disposal
site, is not received by the waste generator within 45 days of the date the waste was
accepted by the initial transporter. Include in the report the following information:

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A copy of the waste shipment record for which a confirmation of delivery was not
received, and a cover letter signed by the waste generator explaining the efforts taken to
locate the asbestos waste shipment and the results of those efforts.
Section 360-1.3 of the New York State Department of Environmental Conservation
Regulations provides, in part:
References. (a) Federal. The following documents are incorporated by reference
and are on file with the New York State, Department of State. The documents are
available from the Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402 and for inspection and copying at the department's offices at 625
Broadway, Albany, NY 12233-4010 in the office of the Division of Solid Waste.
*

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(2) Code of Federal Regulations (CFR):
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(ii) 40 CFR - title 40 of the Code of Federal Regulations (Protection of
Environment):
(a) parts 53 through 80, revised as of July 1, 1985;
Opinion
The service of asbestos removal 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. Whether Petitioner performs its service in conjunction
with a capital improvement or for a client that qualifies as an exempt organization, although
relevant, is not directly at issue in this Advisory Opinion.
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.
See section 1101(b)(4)(i) of the Tax Law. However, Petitioner may be entitled to a refund or
credit equal to the amount of tax paid on these sales if Petitioner purchases the tangible personal
property for use in performing a taxable service and the property becomes a physical component
part of the property upon which the service is performed or is transferred to the purchaser in
conjunction with the service, or if Petitioner makes a retail sale of the property to its customer.
See section 1119(c) of the Tax Law.

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Supplies, meaning those items that are used or consumed by a contractor in the
performance of a contract and that are not incorporated into real property, are generally subject
to sales tax when purchased by the contractor. The credit for tax paid on items transferred to the
customer is not applicable to items used or consumed by the contractor in the performance of its
service. This is true regardless of whether the contractor leaves such materials behind at the
completion of the job, in effect transferring such materials to the customer. See section
526.6(c)(6), Example 9 of the Sales and Use Tax Regulations.
In Chem-Nuclear Systems, Inc., Tax App Trib, January 12, 1989, DTA Nos. 801549,
801582, 801909, 802046, the Tax Appeals Tribunal discussed liners used in the processing of
radioactive waste. Once exposed to the radioactive waste and contaminated, the liners were no
longer usable by the petitioner, but were effectively consumed in the processing of the waste.
More importantly, under State and federal law, the customers had a continuing legal
responsibility for the radioactive waste which, by law, now also included the liners encapsulating
the customer's waste. The Tribunal determined that under these circumstances the liners were
actually transferred to customers in conjunction with the performance of a taxable service. In
essence, the liners were considered sold at retail to these customers. See also Waste
Management of New York, Inc., Tax App Trib, March 21, 1991, DTA No. 805791.
With the exception of the asbestos encapsulant, the items of tangible personal property
listed in this Opinion and typically used by Petitioner in performing its asbestos removal service
are considered to be taxable supplies. However, when exposed to asbestos these items become
contaminated and thereafter become a part of the asbestos waste. Though Petitioner is required
to properly dispose of the waste pursuant to applicable federal and State laws and regulations,
Petitioner's customers are responsible for the waste itself. See 40 CFR 61.150 and 6 NYCRR
360-1.3(a)(2)(ii). These items are no longer usable by Petitioner and are transferred from
Petitioner to its customers. Assuming that, as Petitioner states, New York State and federal
regulations dictate that Petitioner's customers own the asbestos waste, the items of tangible
personal property used by Petitioner which become contaminated during the cleaning process are
considered actually transferred or sold at retail by Petitioner to its customers. See Modern
Management Group, Inc., d/b/a Modern Environmental Service, Adv Op Comm T&F,
November 13, 1998, TSB-A-98(78)S.
The asbestos encapsulant that is sprayed on the customers' properties to "lock down"
residual asbestos fibers does not necessarily become part of the disposable asbestos waste.
Rather, the encapsulant becomes part of Petitioner's customers' properties and is also actually
transferred to the customers.
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 the items that are considered to be contaminated
waste as well as the encapsulant, provided such items are transferred by Petitioner to its customer
in connection with the 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

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property, property or land, Petitioner would not be entitled to a refund or credit of the sales tax
paid on the disposal materials or encapsulant. See Modern Management Group, Inc., d/b/a
Modern Environmental Service, supra; Certified Asbestos Corp., Adv Op Comm T & F, June 24,
1999 TSB-A-99(33)S; Trade-Winds Environmental Restoration Inc., Adv Op Comm T & F,
September 7, 2000, TSB-A-00(36)S.
It is noted that if Petitioner performs its asbestos removal service for an exempt
organization described in section 1116(a) of the Tax Law and the service is not part of a capital
improvement, Petitioner is eligible for the refund or credit of sales tax paid on items actually
transferred to the customer (i.e., disposable materials or encapsulant). However, if the asbestos
removal service is part of a capital improvement project for an exempt organization, Petitioner is
not eligible for the refund or credit. It is further noted, where a copy of a Direct Payment Permit
is properly issued to Petitioner by a client, in order to claim the subject 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: October 26, 2005

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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