Is a general contractor's purchase of construction debris removal and dumpster services on a capital-improvement project subject to New York sales tax?

Plain-English summary

An attorney representing general contractors and subcontractors on New York City-area capital-improvement projects (office renovations and new construction) asked how sales tax applies to the various ways contracts handle construction debris. On every project described, the general contractor's own contract requires it to remove trash and debris from the site, and the general contractor typically subcontracts that work out. The subcontract can take several forms: the subcontractor supplies dumpsters AND the labor to fill them and haul them away; the general contractor's own crew fills the dumpsters and the subcontractor just supplies, empties, and hauls the containers; or the contract separately itemizes a "rental" charge for the dumpsters apart from the debris-removal service charge.

The Department applied a settled line of authority (starting with Building Contractors Ass'n v. Tully) holding that removing debris from a capital-improvement job site isn't ordinary "maintaining, servicing or repairing" real property — it's part of building the capital improvement itself, so it can be purchased exempt from sales tax when the contractor gets a properly completed Certificate of Capital Improvement from its own customer and passes a copy through the subcontract chain. That same exemption extends to the "cleanup" work of gathering debris into containers on-site (treated like a cleaning service), as long as it's likewise performed in conjunction with the capital improvement. But a subcontractor's separately stated dumpster rental — charged whether or not the customer also buys debris-removal services from the same subcontractor — is a taxable rental of tangible personal property at the tax rate where the construction site sits, unless the container is only ever bundled with the removal service and never rented on its own. And critically, the exemption is site-specific: if a contractor hauls debris away from the actual job site to its own yard and then has a third party haul it from there, that later removal is ordinary taxable trash removal, not part of the capital improvement.

What this means for you

General contractors managing debris/cleanup subcontracts

Structure your subcontracts so the Certificate of Capital Improvement flows from your customer to you and then to your debris-removal/cleanup subcontractor — that paperwork is what keeps the whole chain exempt. If you also rent dumpsters separately, keep that charge separately stated and make sure it's a genuine, reasonably priced rental (available even to customers who don't buy removal services) to avoid it being swept into the removal service's tax treatment (or vice versa).

Subcontractors who remove debris or rent dumpsters

Whether you owe tax on your charges depends entirely on whether your work is tied to a capital improvement at the site where the debris originated. Moving debris off-site to your own premises for later disposal is not exempt, even if the original job was a capital improvement — that's ordinary taxable trash removal from your own property.

Accountants and tax professionals

This opinion is a clean three-way map: (1) debris removal + on-site cleanup in conjunction with a capital improvement — exempt with a Certificate of Capital Improvement (§ 541.7(b); TSB-A-02(60)S on cleanup); (2) separately stated, genuinely independent dumpster rental — taxable under § 1105(a) regardless of the removal service's status; (3) debris moved away from the actual improvement site before final removal — fully taxable ordinary trash/garbage service under § 1105(c)(5) and § 527.7(b)(2) (TSB-A-03(2)S).

Common questions

Q: Is construction debris removal exempt from sales tax?
A: Yes, when it's purchased by a contractor in conjunction with a capital-improvement project and the contractor obtains and passes along a properly completed Certificate of Capital Improvement.

Q: What about a subcontractor's separate dumpster rental charge?
A: That's generally a taxable rental of tangible personal property, taxed at the rate where the job site is located — unless the dumpster is never rented separately from the removal service, in which case it's treated as part of the (potentially exempt) removal service.

Q: Does the exemption cover debris hauled to the contractor's own yard first?
A: No. The exemption only covers debris removed from the actual site where the capital improvement is being performed. Removing debris from the contractor's own premises afterward is ordinary taxable trash removal.

Q: Are on-site cleanup services (collecting debris into containers) treated the same as hauling it away?
A: Yes, when performed by a subcontractor in conjunction with a capital-improvement project, on-site cleanup is treated the same as debris removal and can be exempt with the same Certificate of Capital Improvement paperwork.

Q: Can any contractor rely on this general opinion for their own debris-removal contracts?
A: No. It's binding only on the specific facts described here and can't be relied on by any other taxpayer, though it does describe the Department's general framework for this recurring fact pattern.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a), (c)(5) (retail sales/rentals; maintaining, servicing or repairing real property)
• 20 NYCRR § 527.7 (trash/garbage removal)
• 20 NYCRR § 541.5(b)(2) (capital improvement charges)
• 20 NYCRR § 541.7 (contractor's purchase of debris removal for resale or capital improvement)

Case law and prior opinions cited:

• Building Contractors Ass'n, Inc. v Tully, 87 A.D.2d 909
• Matter of C.I.D. Refuse Service, Dec Tax App Trib, Aug. 31, 1995, DTA No. 809934
• TSB-A-02(60)S, Imowitz Koenig & Co., LLP, Dec. 13, 2002
• TSB-A-03(2)S, Ronald Webb Builder and Contractor Inc., Jan. 24, 2003

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_31s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(31)S
Sales Tax
July 21, 2008

Office of Tax Policy Analysis
Taxpayer Guidance Division

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S070823A

On August 23, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Brian G. Cunningham, Esq., Cunningham & Cunningham LLP, 451
Park Avenue South, New York, New York 10016.
The issue raised by Petitioner, Brian G. Cunningham, Esq., is whether purchases by a
general contractor of the services described below are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner represents general contractors and subcontractors in the New York City
metropolitan area. The majority of projects performed by Petitioner's clients are either office
renovations or the construction of new buildings. Projects are performed for either private
clients or tax exempt organizations. It is presumed for purposes of this Advisory Opinion that all
projects performed are capital improvements to real property.
On all of these capital improvement projects, the general or prime contractor is required
by contract to remove trash and debris from the project site. The general contractor enters into a
subcontract agreement with a subcontractor to perform this portion of the work. These contracts
require the subcontractor to provide containers and dumpsters. The contracts also require the
subcontractor to remove the debris from the construction site. This is performed either by
emptying the containers into a garbage truck or removing the full dumpsters from the job site.
Some contracts require the subcontractor to provide labor to pick up construction debris
on the site and place it in the containers or dumpsters on a daily basis. In other cases, the general
contractor will supply the labor to fill the containers and dumpsters. In those cases, the
subcontractor’s only responsibilities are to supply the containers and dumpsters, empty them into
a garbage truck or remove the full dumpsters from the job site, and haul the trash or debris from
the project site.
In some cases the contract with the subcontractor indicates that the containers and
dumpsters are being rented on a monthly basis to the general contractor, and there is a separate
charge by the subcontractor for the actual debris removal service.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:

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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.
*

*

*

(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 article . . . .
Section 527.7 of the Sales and Use Tax Regulations provides, in part:
Maintaining, servicing or repairing real property.
(a) Definitions. (1)
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.
*

*

*

(b)(2) All services of trash or garbage removal are taxable, whether from inside or
outside of a building or vacant land.
Example 3: A carting firm picks up trash and garbage at its customers’
premises and dumps the materials at sites away from its customers’
premises. Receipts from the sale of this service are taxable.
Example 4: A contractor who is erecting a building engages a carter to
haul away the debris resulting from the construction activities. The
amounts paid to the carter are not taxable.

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Example 5: A contractor enters into an agreement with a farmer to
demolish an old farm structure and haul away the resulting debris. The
charge for demolition and debris removal is not subject to the tax.
Section 541.5(b)(2) of the Sales and Use Tax Regulations provides:
Labor and material charges. All charges by a contractor to the customer
for adding to or improving real property by a capital improvement are not subject
to tax provided the customer supplies the contractor with a properly completed
certificate of capital improvement.
Section 541.7 of the Sales and Use Tax Regulations provides:
(a) Services to real property. A contractor may purchase the service of
trash or debris removal without payment of tax as a purchase for resale provided
that:
(1) the contractor generated the trash or debris being removed from real
property, property or land as a result of the contractor's performance of the service
of maintaining, servicing or repairing such real property, property or land;
(2) the contractor's agreement with the owner or authorized occupant of
such real property, property or land for whom the contractor performed such
service provides that the contractor is responsible to have such trash or debris
removed; and
(3) the contractor furnishes to the person performing such trash or debris
removal service a properly completed contractor's exempt purchase certificate.
In such circumstances, the contractor's total charges to such owner or
authorized occupant for such service of maintaining, servicing or repairing such
property and for such trash or debris removal service are subject to tax. However,
if the purchaser is an exempt organization described in section 1116(a) of the Tax
Law and gives the contractor a properly completed exempt organization
certification, then such service would be exempt.
(b) Capital improvements. A contractor may purchase the service of trash
or debris removal without payment of tax where:
(1) the contractor performs work which constitutes a capital
improvement, to real property, property or land;

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(2) the contractor generated the trash or debris to be removed from
such real property, property or land as a result of such work;
(3) the contractor obtains a properly completed certificate of
capital improvement from the contractor's customer; and
(4) the contractor or such customer furnishes a copy of such
certificate to the person performing such trash or debris removal service.
Since the contractor's purchase of the trash or debris removal service is in
conjunction with the performance of a capital improvement, the contractor's total
charge to its customer for the capital improvement is not subject to tax.
Opinion
Petitioner's clients are general contractors who perform capital improvement projects in
the New York City metropolitan area. In the course of their capital improvement contracts, these
general contractors generate construction debris that must be collected and removed from the
construction site in order to allow construction to proceed. In Building Contractors Ass'n, Inc. v
Tully, (87 AD2d 909), demolition and construction debris removal services in connection with
capital improvement projects were determined not to fit within the definition of "maintaining,
servicing or repairing real property" because such services did not keep real property in a
condition of fitness, efficiency, readiness or safety or restore it to such condition. Rather, such
services related to the preparation of a work site for future construction of a capital improvement.
Section 541.7(b) of the Sales and Use Tax Regulations states, in part, that contractors
performing capital improvements may purchase the service of trash or debris removal without
payment of State and local sales taxes when:
• the contractor performs work which constitutes a capital improvement to real property,
property, or land;
• the contractor generated the trash or debris to be removed from the real property,
property, or land as a result of the work;
• the contractor obtains a properly completed Certificate of Capital Improvement from
the contractor’s customer; and,
• the contractor or the customer furnishes a copy of the Certificate of Capital
Improvement to the person performing the trash or debris removal service.

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In the present case, the contractor’s purchase of the trash or debris removal service is in
conjunction with the performance of a capital improvement. Accordingly, where a subcontractor
is hired to remove debris from a construction site upon which a capital improvement to real
property is being performed, such services are considered part of the overall capital improvement
service being performed on the real property and receipts from the sale of such services are
exempt from sales tax. See section 541.7(b) of the Sales and Use Tax Regulations.
Services which involve collecting the construction debris on the site and placing the
debris in containers or dumpsters are not trash or debris removal services. These services are
akin to cleaning services. However, when such cleaning services are performed by a
subcontractor in conjunction with a capital improvement project, such services are likewise
considered as having been performed in conjunction with the capital improvement and are
similarly not subject to sales tax. See Imowitz Koenig & Co., LLP, Adv Op Comm T & F,
December 13, 2002, TSB-A-02(60)S. The general or prime contractor should provide the
subcontractor with a photocopy of the Certificate of Capital Improvement (Form ST-124)
provided to it by the property owner to purchase such cleaning services without payment of sales
tax.
Subcontractors may also be engaged in the rental and leasing of dumpsters and other
trash receptacles, and separately charge for such rentals. In this case, the dumpsters may remain
at the construction site for an extended period and the subcontractor who rented the dumpsters to
the general contractor or another subcontractor hired by the general contractor will periodically
empty or swap the dumpsters. Receipts from the rental of a dumpster are subject to the sales tax
imposed by section 1105(a) of the Tax Law at the rate in effect in the locality where the
construction site is located. When a dumpster is provided to the general contractor in
conjunction with debris removal services, the dumpster will not be considered to be rented
separately to the contractor unless the dumpster may be rented to customers who do not purchase
the debris removal services, and there is a specified charge to the customer for the rental of the
container and such charge is reasonable. Otherwise, the dumpster will be considered to be
provided as part of the debris removal services. If the dumpster is separately rented to the
general contractor and the general contractor also purchases debris removal services from the
same subcontractor who provides the containers or dumpsters, a separately stated and reasonable
charge for debris removal from the construction site in connection with a capital improvement
project will not be subject to sales tax. See Matter of C.I.D. Refuse Service, Dec Tax App Trib,
August 31, 1995, DTA No. 809934.
It should be emphasized that the exemption for debris removal applies only to
construction debris removed from the construction site on which it was generated. Otherwise,
the removal of debris from another location would not be considered part of the capital
improvement project. For example, assume a contractor removes construction debris from
construction sites to a dumpster on its own premises, and then has the trash and debris removed
by a third party from its premises rather than having it removed from the property upon which

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the contractor was performing the capital improvement. The contractor in this case is not
purchasing the service of trash or debris removal service in conjunction with the performance of
a capital improvement. Rather, it is purchasing trash and debris removal services which result in
the maintenance of the contractor’s own property. These services are subject to sales tax as
provided for in section 1105(c)(5) of the Tax Law and section 527.7(b)(2) of the Sales and Use
Tax Regulations. See Ronald Webb Builder and Contractor Inc., Adv Op Comm T&F,
January 24, 2003, TSB-A-03(2)S.

DATED: July 21, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.