Does a New York company that hauls away food waste / organics for composting have to charge sales tax, and does it owe tax on a roll-off dumpster service it buys?

Plain-English summary

A company collects food waste / "source separated organics" (food scraps) from grocery stores, schools, restaurants, and manufacturers, then trucks the material to compost or anaerobic-digestion facilities where it is turned into soil amendment or fertilizer. It charges per tote or a flat monthly fee. It asked New York whether (1) these food-waste removal services are taxable, and (2) whether it owes tax on a roll-off dumpster service it buys to handle trash at the processing facilities. The Department concluded both are taxable.

New York taxes services of "maintaining, servicing or repairing real property" under Tax Law § 1105(c)(5), and the regulations specifically list "trash and garbage removal" as taxable (20 NYCRR § 527.7(a)(1)). The key question is whether what's being hauled is really trash. Under New York Tax Appeals Tribunal precedent (Matter of Marisol; Matter of Seneca Foods), if the material has value to the customer or the hauler, moving it is a non-taxable transportation service rather than taxable trash removal.

Here the Department found the food waste had no value to anyone in the chain: customers pay to get rid of it (at rates comparable to landfill disposal) and receive nothing for it, and the hauler's processing/disposal fees roughly equal or exceed landfill rates. The fact that the scraps eventually become valuable compost or fertilizer downstream was deemed irrelevant. So the material is trash, and removing it is taxable.

Two more points the Department made: (1) the service is an integrated trash-removal service, so all the charges — including separately stated freight and disposal — are taxable (Matter of Penfold); and (2) the company is the consumer of the roll-off dumpster service it buys, not a reseller, so it owes tax on that purchase and cannot buy it for resale (Matter of XO Communications). Finally, when it works as a subcontractor for a third party, it must still collect tax unless it gets a properly completed exemption certificate within 90 days (20 NYCRR 532.4(b)(2)).

What this means for you

Waste haulers, recyclers, and composting/organics companies

If you remove material the customer wants gone and gets nothing for, New York will likely treat it as taxable trash/garbage removal — even if the material is later recycled, composted, or digested into something valuable. The downstream "green" value does not make the removal a non-taxable transportation service. Charge sales tax on the full bill, including freight and disposal line items.

When removal can be non-taxable

The line turns on value to the customer or hauler at the point of removal. If the customer is being paid for the material, or the material genuinely has value to you (e.g., you buy it as feedstock), hauling it can be non-taxable transportation rather than trash removal. Document that value — it is the deciding fact.

Subcontractors

Doing the work for another contractor doesn't automatically make it tax-free. You must collect tax unless you receive a properly completed exemption certificate, and you have 90 days after rendering the service to obtain it to be relieved of liability.

Accountants and tax professionals

This is a § 1105(c)(5) real-property-service determination resting on the "value of the material" test from Matter of Marisol / Matter of Seneca Foods. Note the two collateral holdings: integrated services are fully taxable including separately stated freight (Matter of Penfold), and the purchased dumpster service is a taxable input the provider consumes, not a resale (Matter of XO Communications).

Common questions

Q: Is garbage and trash removal taxable in New York?
A: Yes. Trash and garbage removal is a taxable service on real property under Tax Law § 1105(c)(5) and 20 NYCRR § 527.7(a)(1).

Q: We compost the food waste into fertilizer — doesn't that make it valuable, not trash?
A: No, per this opinion. What matters is whether the material has value to the customer or hauler at the time of removal. The customers paid to dispose of it and got nothing back, so it was trash; the fact it later became compost/fertilizer was irrelevant.

Q: Can I separately state freight and disposal to avoid tax on those parts?
A: No. The Department treats this as one integrated trash-removal service, so all charges — including separately stated freight and disposal — are taxable.

Q: I hire a dumpster service to do my job — is that taxable to me?
A: Yes. You are the consumer of that service, not a reseller of it, so you owe tax on it and cannot buy it for resale.

Q: I do this as a subcontractor — do I still collect tax?
A: Yes, unless you receive a properly completed exemption certificate from the contractor within 90 days of providing the service.

Q: Can my company rely on this opinion?
A: Not as binding. A TSB-A advisory opinion binds the Department only as to the petitioner who requested it and the exact facts stated. Your facts may differ.

Citations and references

New York Tax Law and regulations:
- Tax Law § 1105(c)(5) — sales tax on maintaining, servicing, or repairing real property
- 20 NYCRR § 527.7(a)(1) — "trash and garbage removal" is a taxable real-property service
- 20 NYCRR 532.4(b)(2) — exemption certificate must be obtained within 90 days

Tax Appeals Tribunal / case law cited:
- Matter of Marisol, Inc. (value-to-customer test for trash vs. transportation)
- Matter of Seneca Foods Corp. (same)
- Matter of Auburn Steel (removal of valueless material is taxable trash removal)
- Matter of Penfold v. State Tax Commn., 114 AD2d 696 (3d Dept. 1985) (all charges taxable, including freight)
- Matter of XO Communications v. Tax Appeals Tribunal, 183 AD3d 717 (3d Dept. 2020) (purchaser is consumer, not reseller)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-3s.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-3s.pdf

Original ruling text

Sales Tax
June 26, 2024
Office of Counsel

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ redacted ] (“Petitioner”), [ redacted ]. Petitioner asks whether its food waste removal services are subject to sales tax. Additionally, Petitioner asks whether its purchase of a roll-off dumpster service is taxable. We conclude both the food waste removal services, and the dumpster service are subject to tax.

Facts

Petitioner provides food waste removal services, primarily to grocery stores, schools, manufacturers, restaurants, and third-party contractors. Petitioner operates specialized trucks to collect Source Separated Organics, essentially food scraps, from its customers. Customers are provided totes that are emptied into the dump body of Petitioner’s trucks. The truck’s contents are then disposed of at a permitted compost or anaerobic digestion facility. Petitioner does not own or operate these facilities. The materials are converted into a high-quality soil amendment, in the case of compost, and fertilizer, in the case of anaerobic digestion. Petitioner charges customers a rate per tote or flat monthly fee for this service. Petitioner provides this service directly to the consumer or as a subcontractor.

Petitioner also offers the transport and disposal of packaged organics from a customer’s distribution warehouse. Petitioner typically hires a third-party transport service to pick up the material and deliver it to a digester or compost facility. Once de-packaged, the organics are disposed of in the same manner as other food scraps. Any other recyclable materials are also recovered, including pallets, cardboard, and plastics, and recycled or upcycled accordingly. For this service, Petitioner typically charges a freight rate and per ton disposal rate for the material. The disposal rate varies depending on the complexity of the de-packaging. Petitioner may provide this service directly or as a subcontractor.

Additionally, Petitioner conducts special projects collection for materials that cannot be processed at a compost or anaerobic digestion facility. This service collects organics that cannot be processed by de-packaging machines. Petitioner may de-package smaller quantities, but usually this variety of waste is delivered to a landfill for solidification. Petitioner charges a freight rate and disposal cost for this service. 

In most cases, Petitioner directly provides the service and bills the customer directly. However, sometimes Petitioner acts as a subcontractor for a third-party who arranges for the removal on behalf of the customer. Petitioner then invoices the third-party for the services. 

Petitioner also inquires whether it must pay sales tax as the consumer of a roll off dumpster service. Petitioner hires a roll off dumpster service to collect the recyclables or trash produced by the food waste it delivers to anaerobic digester and de-packaging facilities. The dumpster service delivers a dumpster to the facility, and the digester facility’s employees place recyclables or trash in the dumpster. After the materials are placed in the dumpster, the dumpster service hauls the materials away and delivers them to a landfill or recycling facility. The dumpster service fees are either absorbed into the cost of Petitioner’s service or sent to the customer for reimbursement. The customer never pays the dumpster service directly.

Analysis

Tax Law § 1105(c)(5) imposes tax on receipts for “maintaining, servicing or repairing real property …whether the services are performed in or outside of a building.” The Sales and Use Tax Regulations specify that “trash and garbage removal” are among the services subject to sales tax under this section. 20 NYCRR § 527.7(a)(1).

The first inquiry is whether the food waste is trash or has value to Petitioner or its customer. See Matter of Marisol, Inc., Tax Appeals Tribunal, January 4, 1996. If the waste has value to petitioner or the customer, the transaction is not trash removal, but rather a non-taxable transportation service. Id.; see Matter of Seneca Foods Corp., Tax Appeals Tribunal, July 6, 1995. 

In this matter, the materials have no value to the customers: they only seek to have it removed from their premises and they receive no compensation for the removal of the waste. To the contrary, the customer is charged for the waste removal in an amount equal to charges for trash disposal in a landfill. In addition, the materials are not sold by and have no value to Petitioner because the fees it pays for processing and disposal are roughly equal to, and sometimes exceed, the landfill disposal rate. As such, neither Petitioner nor its customer receives any pecuniary benefit from the food waste disposal. The fact that the food scraps ultimately will be converted into something of value, e.g., fertilizer or compost, is irrelevant here. Because the food waste does not have value to Petitioner or the customer, it is considered trash, and the service of removing it from the customer’s premises is subject to sales tax. See Matter of Auburn Steel, Tax Appeals Tribunal, September 13, 1990.

Petitioner’s services are integrated trash removal services. Transportation and processing of the materials are both integral parts of these services. All components of Petitioner’s charges for these services, including charges for freight and disposal, are receipts subject to sales tax, regardless of whether the charges are separately stated. See Matter of Penfold v. State Tax Commn., 114 AD2d 696, 697 [3d Dept. 1985].

Further, Petitioner must pay tax when it contracts for a roll-off dumpster service. Petitioner purchases the dumpster service for the collection and removal of recyclables and trash at the processing facilities where de-packaging takes place. This service is a trash removal service and is subject to tax. Tax Law § 1105(c)(5). Petitioner is not reselling a roll-off dumpster service as such to its customers. Rather, it is the consumer of this service, which it uses to provide a different, more comprehensive trash removal services. See Matter of XO Communications v. Tax Appeals Tribunal, 183 AD3d 717 [3d Dept. 2020]. Therefore, Petitioner may not purchase the roll-off dumpster service for resale.

Additionally, when Petitioner acts as a subcontractor to a project on behalf of a third-party, it must still collect and remit sales tax unless Petitioner receives in good faith from the third-party contractor a properly completed exemption certificate. In order to be relieved from liability for collecting sales tax, Petitioner must obtain the exemption certificate within 90 days after the service is rendered. See 20 NYCRR 532.4(b)(2).

DATED: June 26, 2024

Mary Ellen Ladouceur
Principal Attorney

Note: 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. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.