Does a contractor running a village's waste facilities owe sales tax on the waste-disposal services it buys?

Plain-English summary

The petitioner is a contractor that operates and maintains a New York village's waste-treatment facilities and must dispose of the residual waste. It hires waste-hauling firms to do so. Its contract calls it an independent contractor generally, but says it disposes of "Process Residue" "as an agent for the Municipality." The contractor must absorb hauling costs unless they exceed a "Baseline Tip Fee" (11.5 cents/gallon plus tax), the haulers invoice the contractor, and the contractor contracts for disposal in its own name. It asked whether its purchases of waste-disposal services are taxable.

The Office of Counsel concluded the purchases are taxable.

• Not a purchasing agent for the village. A valid agency to buy tax-free on behalf of an exempt government requires real indicia of agency -- the agent must be able to bind the government's credit, act within granted authority, have a written appointment, be subject to the government's control, leave risk of loss on the government, and disclose the agency with invoices in the government's name (West Valley, Hooper Holmes, Rome Research, Northrop Grumman). Here the contractor buys in its own name, never tells haulers it's the village's agent, doesn't bind the village, and bears economic risk (absorbing costs below the baseline). The "agent for disposal" label isn't enough.
• No resale exclusion. Operating and maintaining the treatment facilities isn't a service to real property under Tax Law 1105(c)(5), so the contractor isn't reselling the hauling service "as such."
• Result: the contractor's purchases of waste-disposal services are subject to sales tax (1105(c)(5)).

What this means for you

Contractors serving governments and exempt organizations

A contract clause calling you an "agent" doesn't make your purchases tax-exempt. To buy tax-free for an exempt principal you must hit the whole agency checklist -- bind the principal's credit, disclose the agency to vendors, put invoices in the principal's name, and leave the risk of loss with the principal. Buying in your own name and absorbing cost risk means you're the taxable purchaser.

Structuring pass-through service purchases

If you want true agency treatment, set it up in writing, disclose it on every purchase, and make the principal contractually liable to the vendor. Otherwise, expect to owe tax on services like waste hauling -- and don't rely on the resale exclusion unless you're actually reselling the same taxable service.

Common questions

Q: Our contract says we're the village's agent -- why is this taxable?
A: The label isn't enough. You bought in your own name, didn't disclose the agency to the haulers, didn't bind the village's credit, and bore cost risk -- so you're the taxable purchaser, not an agent.

Q: Can't we treat it as resale to the village?
A: No. Operating and maintaining the facilities isn't a 1105(c)(5) service to real property, so you aren't reselling the hauling service as such.

Q: Compare this to the waste-management opinion 09(51)S?
A: There the firm met the agency test (disclosed agency, invoiced as agent, no markup, client funds in trust) and owed no tax. The difference is whether a genuine purchasing agency exists.

Citations and references

• Tax Law section 1105(c)(5) (services to real property; trash/garbage removal)
• Matter of Hooper Holmes v Wetzler, 152 AD2d 871 (agency requires manifestation/control)
• Matter of West Valley Nuclear Services, Tax Appeals Tribunal (agency factors)
• TSB-A-00(47)S (Rome Research) and TSB-A-00(11)S (Northrop Grumman; agent-of-exempt-org factors)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a09_49s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(49)S
Sales Tax
November 3, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090811A

On August 12, 2009, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether its purchases of waste disposal services
are subject to sales and use tax. We conclude that the purchases are subject to tax.
Facts
Petitioner has a contract with a village in New York to operate and maintain the village’s waste
treatment facilities. It is required under the contract to dispose of residual waste processed at the village’s
treatment facilities. Petitioner hires waste hauling firms to dispose of the waste. Article 2 of Petitioner’s
contract with the village provides that “Municipality agrees to engage the Operator [Petitioner] as an
independent contractor to operate and maintain” waste treatment facilities. Section 12.1 of the agreement
provides that the relationship of Petitioner to the village is that of independent contractor for all purposes
under this agreement except as provided in Section 4.10(a). Section 4.10(a) provides that Petitioner shall
dispose of “Process Residue” (i.e., waste generated by the operation of the facilities) “[a]s an agent for the
Municipality.” Petitioner is required to absorb the cost of hauling waste unless the hauling fee is greater than
the Baseline Tip Fee, which is defined in the contract as the sum of eleven and one half cents a gallon plus
sales tax.
The village pays Petitioner a base fee for its services. This fee includes the cost of waste hauling
unless Petitioner has paid a waste hauler more than 11.5 cents a ton, in which case the village is responsible
for the portion of the fee above that amount. In either case, the waste hauling firm directly invoices
Petitioner for the waste hauling services.
Petitioner contracts for waste disposal services in its own name.
Analysis
The application of sales tax to Petitioner's purchases depends on whether (1) Petitioner acts in a
representative capacity as agent for the village in purchasing waste disposal services and (2) assuming that
Petitioner is not the village’s purchasing agent, whether Petitioner resells the waste disposal services to the
village. Since Petitioner neither acts in a representative capacity in purchasing the waste disposal services
nor resells the services as such, its purchases of the services are subject to sales tax under Tax Law section
1105(c)(5).
To establish an agency relationship, there must be a “manifestation” that Petitioner consents to act on
behalf of the client, subject to its control, and that the client authorizes the fiduciary relationship. (See,
Matter of Hooper Holmes v Wetzler, 152 AD2d 871, lv den, 75 NY2d 706; Matter of Swet, Dec Tax App
Trib, February 22, 1991). Creating a valid agency relationship requires more than a pro forma appointment.
Based on the principles of the common law of agency, the Department looks at the following factors in
determining whether a purchase is exempt as the purchase of an agent of an exempt organization: (1) the
agent must have the authority to legally bind the credit of the exempt organization at the time of the

-2-

TSB-A-09(49)S
Sales Tax
November 3, 2009

purchase, such that the vendor can proceed against the exempt organization if the agent fails to pay; (2) the
purchase must be within the authority granted by the exempt organization and the exempt organization must
not grant more authority than it has (e.g., if a government entity would need to bid out the purchase of goods
or services, so must its agent); (3) the agency appointment must be in writing and be in effect at the time of
purchase; (4) the exempt organization must exercise the requisite amount of control over the agent; (5) the
risk of loss of the item must be on the principal; and (6) the agent must disclose to the vendor that it is
making the purchases as agent of the exempt organization and invoices must be made out in the exempt
organization’s name or the invoice must indicate that the purchase is being made by an agent of the exempt
organization on behalf of the exempt organization (see, Matter of West Valley Nuclear Services Co., Inc.,
Tax Appeals Tribunal, November 13, 1998, confirmed 264 AD2d 101, lv denied 95 NY2d 760; Matter of
MGK Constructors, Tax Appeals Tribunal, March 5, 1992; Matter of 7 World Trade Center, Tax Appeals
Tribunal, April 3, 2003; Matter of Fagliarone, Grimaldi & Assocs., Tax Appeals Tribunal, May 4, 1989,
confirmed 167 AD2d 767; Rome Research Corporation, Adv Op Comm T & F, TSB-A-00(47)S, November
20, 2000; and Northrop Grumman Corporation, Adv Op Comm T & F, TSB-A-00(11)S, February 29, 2000).
Petitioner is not acting as agent on behalf of its clients in regard to the purchase of waste disposal
services. While its agreement with the village states that Petitioner acts as agent of the village in regard to
the disposal of waste, Petitioner does not act as agent in the purchase of waste disposal service. Petitioner
never identifies itself as agent of the village when purchasing waste disposal service and the sales invoice is
made out to Petitioner. Thus, Petitioner never contractually binds the village to pay for the services provided
by the waste disposal companies. In addition, Petitioner incurs economic risk in purchasing waste disposal
services. It must absorb the cost of the service if the fee for the service is less than eleven and a half cents a
gallon. In sum, Petitioner does not purchase waste removal services as agent of the village whether or not
the fee for waste disposal services exceeds eleven and a half cents a gallon.
Petitioner’s purchases of waste disposal services do not qualify for the resale exclusion because
Petitioner is not providing a service to real property covered by Tax Law section 1105(c)(5). The village
pays Petitioner to operate and maintain the village’s waste treatment facilities. The operation and
management of these facilities do not constitute the servicing or maintaining of real property for purposes of
section 1105(c)(5). Therefore, Petitioner is not reselling as such the waste disposal services it purchases.
Accordingly, Petitioner’s purchases of waste disposal services are subject to sales tax.

DATED: November 3, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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.