Is charging to irradiate a core sample — making it radioactive so it can be tested — a taxable service in New York?

Plain-English summary

A core-sample analysis business (called Company X in the opinion) receives samples from its customers and, to run its tests, first needs each sample made radioactive. It sends the sample to Company Y, which performs the irradiation and returns the now-radioactive sample together with a written report of the dose and how long it was applied. Company X then analyzes the radioactive core and sells its customers, for a fee, an information report on the core's contents — and it does not charge sales tax on that report (treating it as a § 1105(c) service).

The petitioner asked only about one link in the chain: is the amount Company Y bills Company X for the irradiation subject to sales tax?

The Department held the irradiation charge is taxable.

• Irradiation is "processing." Tax Law § 1105(c)(2) taxes the service of producing, fabricating, or processing tangible personal property that the customer furnishes and did not buy for resale. Under 20 NYCRR 527.4(d), "processing" is any service that changes the nature, shape, or form of property — and irradiation changes the substance of the core sample.
• The resale escape doesn't apply. The regulation exempts these services only when they are performed on property held for resale (20 NYCRR 527.4(f)). Here the radioactive sample is not intended for sale — Company X uses it to analyze the core — so the exemption is unavailable.
• Result: the amounts Company Y bills Company X for irradiating core samples are charges for taxable processing services under § 1105(c)(2).

What this means for you

A service that physically alters someone's property is likely a taxable "processing" service. If you perform a step that changes the nature, shape, or form of a customer's tangible property — irradiating it, treating it, altering it — § 1105(c)(2) treats your charge as taxable processing, not a non-taxable professional service.

The resale escape is about the property, not the paperwork. Processing is spared tax only when the item being worked on is held for resale. If your customer will use the processed item (here, to run an analysis) rather than sell it, you should collect tax on your processing charge.

A later step being non-taxable doesn't make an earlier step non-taxable. Company X's information report to its own customers was treated as a non-taxable service, but that had no bearing on the taxability of the irradiation Company Y sold to Company X. Each transaction in a chain is judged on its own.

Common questions

Q: We alter a customer's material as one step in a larger service. Is our charge taxable?
A: If the step changes the nature, shape, or form of tangible personal property the customer furnished and didn't buy for resale, it is taxable processing under § 1105(c)(2) — regardless of what the customer does next.

Q: Our customer resells what we work on. Does that change things?
A: Yes. Services performed on property held for resale are not taxable (20 NYCRR 527.4(f)). The key is whether the worked-on item is for sale, not whether your customer is a business.

Q: Company X didn't charge tax on its report — why is the irradiation taxable?
A: They are separate transactions. The report Company X sells is analyzed under different rules; the irradiation Company Y sells to Company X is a processing service and stands on its own.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(2) — taxes producing, fabricating, or processing services performed on tangible personal property the customer furnishes and did not buy for resale
• Tax Law § 1101(3) — defines "receipt" as the sale price of property and the charge for any service, valued in money
• 20 NYCRR 527.4(d) — "processing" is any service that changes the nature, shape, or form of property
• 20 NYCRR 527.4(f) — services rendered on property held for resale are not taxable

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(43)S
Sales Tax
October 24, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860730A

On July 30, 1986, a Petition for Advisory Opinion was received from Nancy E. Brayley,
C.P.A., c/o Coopers & Lybrand, Two State Street, Suite 1000, Rochester, New York 14614.
The issue raised is whether the service of irradiating a core sample, thereby making it
radioactive, is subject to sales tax.
In a transaction typical of the one at issue, Company X, who is in the business of analyzing
core samples, after receiving a customer's sample requires that it be made radioactive to facilitate
testing. Company Y performs the irradiation service, returning to Company X the radioactive
sample accompanied by a written report stating date and duration of the radiation applied.
Company X then performs an analysis of the radioactive core and provides to its customers,
for a fee, an information report describing the contents of the core sample. In accordance with Tax
Law 1105(c) Company X does not collect sales tax from its customer on the charge for this report.
Petitioner inquires whether sales tax is due on the amounts billed by Company Y to Company
X for the irradiation service.
Section 1101(3) of the Tax Law defines "receipt" as "[t]he amount of the sale price of any
property and the charge for any service under this article, valued in money."
Section 1105(c)(2) of the Tax Law imposes a tax on the receipts from every sale, except for
resale, of the services of "[p]roducing, fabricating, processing, printing or imprinting tangible
personal property, performed for a person who directly or indirectly furnishes the tangible personal
property, not purchased by him for resale, upon which such services are performed."
Sales and Use Tax Regulation 527.4 explains further:
(d) "Processing is the performance of any service on tangible personal property . . . which effects a
change in the nature, shape or form of the property."
(f) "When services enumerated in this section are rendered on property held for resale, the services
are not taxable."

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86(43)S
Sales Tax
October 24, 1986

Irradiation causes a change in the substance of the core sample, and therefore meets the
definition of processing contained in the foregoing regulation section. Moreover, the radioactive
sample is not intended for sale but for use by Company X in analyzing the contents of the core
material.
Consequently, amounts billed by Company Y to Company X for irradiation of core samples
are charges for processing services taxable under Section 1105(c)(2) of the Tax Law.

DATED: October 24, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR