For a hazardous-waste treatment company, what's taxable — its equipment purchases, its charges to customers, and the disposal services it buys?

Plain-English summary

BDT Inc. operates a hazardous-waste treatment facility using incineration and hydrolysis. It is not a disposal facility — all waste and residue (drummed solids or bulk liquids) is sent off-site for disposal or further treatment, and nothing is reclaimed. It raised three questions.

Issue 1 — Are BDT's equipment and supply purchases taxable? Yes.

• The production-machinery exemption (§ 1115(a)(12)) and the parts/tools/supplies exemption (§ 1105-B) require use in the production of tangible personal property for sale by manufacturing. BDT isn't engaged, directly or as a subcontractor, in producing property for sale, so it isn't a manufacturer — and the waste-treatment-equipment rule (20 NYCRR 528.13(d)) also requires a manufacturer-buyer. So its motors, blowers, pumps, conveyors, treatment chemicals, safety gear, and monitoring equipment don't qualify.
• The research-and-development exemption (§ 1115(a)(10)) doesn't apply either: testing waste and residue to determine whether BDT's facility can process a customer's waste is not R&D in the experimental or laboratory sense (20 NYCRR 528.11(b)).

Issue 2 — Are BDT's charges to customers taxable? Yes.

• Treating a customer's hazardous waste is processing tangible personal property under § 1105(c)(2) (Cecos International).
• Hauling a customer's waste to BDT's facility is trash removal — a taxable service on real property under § 1105(c)(5) (20 NYCRR 527.7(b)(2)) — and the transportation component of the charge is part of the taxable receipt (§ 1101(b)(3)).

Issue 3 — Are the off-site disposal services BDT buys taxable to it? No.

• Because BDT sells a taxable § 1105(c)(5) service, the off-site disposal/treatment services it purchases become a component of that service, so BDT may buy them for resale (20 NYCRR 526.6(c)) — those purchases aren't taxed to BDT.

What this means for you

Treating waste is not "manufacturing," so the production exemptions don't reach your equipment. If you don't produce tangible personal property for sale, you aren't a manufacturer for exemption purposes — even sophisticated treatment, monitoring, and lab equipment is taxable when you buy it.

"Can we even process this?" testing isn't R&D. Screening incoming waste to decide acceptability and treatment method is operational testing, not experimental or laboratory research eligible for the § 1115(a)(10) exemption.

Your service charges are taxable, transportation included — but resold disposal isn't. Treatment (processing) and hauling (trash removal) are taxable services, and you can't strip out the transportation portion. But the downstream disposal you buy and pass through as part of your taxable service can be purchased for resale.

Common questions

Q: We treat hazardous waste but sell nothing. Can we buy our equipment tax-free as production machinery?
A: No. The production and waste-treatment exemptions require producing tangible personal property for sale by a manufacturer. A treatment-only operation isn't a manufacturer, so the equipment is taxable.

Q: Is our lab testing of incoming waste exempt research and development?
A: No. Testing to determine whether your facility can process a customer's waste isn't R&D in the experimental or laboratory sense, so it doesn't qualify under § 1115(a)(10).

Q: We charge customers to treat and to haul their waste — and we pay others for off-site disposal. What's taxable?
A: Your treatment charges (processing, § 1105(c)(2)) and hauling charges (trash removal, § 1105(c)(5), transportation included) are taxable. The off-site disposal you buy as a component of your taxable service can be purchased for resale and isn't taxed to you.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(12) — production-machinery exemption (requires production for sale by manufacturing)
• Tax Law § 1105-B — exemption for production parts (≤1-year life), tools, and supplies
• Tax Law § 1115(a)(10) — research-and-development exemption (excludes ordinary testing/inspection)
• Tax Law § 1105(c)(2) — taxes processing a customer's tangible personal property
• Tax Law § 1105(c)(5) — taxes maintaining/servicing real property, including trash removal
• Tax Law § 1101(b)(3) — "receipts" include transportation charges; no deduction for expenses
• 20 NYCRR 528.13(d) — waste-treatment equipment must be purchased by a manufacturer
• 20 NYCRR 527.7(b)(2) — all trash/garbage/debris removal is taxable
• 20 NYCRR 526.6(c) — purchase for resale (property/services resold as a component)

Determination cited:

• Cecos International, Inc., Decision of the State Tax Commission, Jan. 3, 1986, TSB-H-86(16)S — waste treatment as processing; hauling as trash removal

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_47s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(47)S
Sales Tax
December 1, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860722A

On July 22, 1986, a Petition for Advisory Opinion was received from BDT Inc., 4255
Research Parkway, Clarence, New York 14031.
The issues raised are: (1) whether Petitioner is required to pay tax on its purchases of
machinery, equipment and supplies used for processing waste; (2) whether Petitioner's charges to
its customers are subject to tax; and (3) whether charges to Petitioner for waste and residue sent off
site are subject to tax.
Petitioner operates a hazardous waste treatment facility. There are two methods used,
incineration and hydrolysis. Petitioner is not a disposal facility, instead all waste and residue
generated from these processes are either solids in drums or bulk liquids which are sent off for
disposal and or further treatment. Nothing is re-claimed.
Petitioner describes its machinery and equipment as follows:
1.

New motors, blowers, fans, pumps, conveyors etc. used in the treatment process.

2.

Chemicals added to the hydrolysis process to aid in reacting or neutralizing the waste
being treated.

3.

Safety equipment worn by operators such as coveralls, gloves, helmets, glasses, and
respirators.

4.

Safety and monitoring equipment connected to the treatment processes which
measures the presence and amount of dangerous gases, monitors and measures
emissions, sounds alarms and shuts down equipment during high level periods.

5.

Machinery equipment and supplies for research and development in the laboratory
sense. Over the years BDT has expanded from treating batteries exclusively to
approximately 600 compounds presently. The laboratory will accept small
experimental quantities of a new material and perform tests to determine
acceptability, type of treatment process, feed rates, dangers etc. Once accepted,
larger quantities are accepted for treatment. The chemistry laboratory performs this
function (over 50%) and also quality assurance testing on incoming material.

Waste in drums is brought to Petitioner from customers within New York State and outside
New York State. Petitioner will accept waste delivered to it by its customers or Petitioner will
provide transportation.
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

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TSB-A-86(47)S
Sales Tax
December 1, 1986
The services purchased by Petitioner are the hauling of solids in drums, hauling liquid bulk
waste in a vac truck, treatment of waste liquids and landfill charges for drum waste. Petitioner is
provided with these services individually or as a combination of several.
Issue (1)
Section 1115(a)(12) of the Tax Law exempts from sales tax the receipts from the sale of
"Machinery or equipment for use or consumption directly and predominantly in the production of
tangible personal property...for sale, by manufacturing, processing, generating, assembling, refining,
mining or extracting...but not including parts with a useful life of one year or less or tools or supplies
used in connection with such machinery, equipment or apparatus." Section 1105-B of the Tax Law
provides for the elimination of State sales tax on receipts from sales of parts with a useful life of one
year or less, as well as tools and supplies, for use or consumption directly and predominantly in
production, as described above.
The Sales and Use Tax Regulations provide the following definitions, applicable herein:
"'Production' includes the production line of the plant starting with handling and storage of raw
materials at the plant site and continuing through the last step of production where the product is
finished and packaged for sale." 20 NYCRR 528.13(b)(1)(ii). "'Directly' means the machinery or
equipment must, during the production phase of a process, (i) act upon or effect a change in material
to form the product to be sold, or (ii) have an active causal relationship in the production of the
product to be sold, or (iii) be used in the handling storage, or conveyance of materials or the product
to be sold, or (iv) be used to place the product to be sold in the package in which it will enter the
stream of commerce....Usage in activities collateral to the actual production process is not deemed
to be use directly in production." 20 NYCRR 528.13(c).
The Sales and Use Tax Regulations treat the subject of waste treatment equipment as follows:
"Machinery and equipment used for disposing of industrial waste, as a part of a process for
preventing water or air pollution, will be considered as being used directly and predominantly in
production by manufacturing, processing, generating, assembling, refining, mining or extracting if:
(i) the machinery and equipment is purchased by a manufacturer and used predominantly to actually
treat, bury, or store waste materials from a production process, and (ii) over fifty percent of the waste
treated, buried or stored results from the production process." (Emphasis added). 20 NYCRR
528.13(d)(1).
Inasmuch as Petitioner is not engaged, either directly or as a subcontractor, in the production
of tangible personal property for sale it is not a manufacturer within the meaning and intent of 20
NYCRR 528.13(d). Consequently, the machinery, equipment and supplies at issue herein do not
constitute machinery, equipment and supplies used in production, and the receipts from the retail sale
thereof to Petitioner do not qualify for the exemption from sales tax provided under sections
1115(a)(12) and 1105-B of the Tax Law.

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TSB-A-86(47)S
Sales Tax
December 1, 1986
Section 1115(a)(10) of the Tax Law exempts from tax, "Tangible personal property
purchased for use or consumption directly and predominantly in research and development in the
experimental or laboratory sense. Such research and development shall not be deemed to include
the ordinary testing or inspection of materials or products for quality control, efficiency surveys,
management studies, consumer surveys, advertising, promotions, or research in connection with
literary, historical or similar projects."
Section 528.11(b)(1) the sales tax regulations further defines research and development as
follows:
(b)
Research and development. (1) Research and development, in the experimental or
laboratory sense, means research which has as its ultimate goal:
(i)

basic research in a scientific or technical field of endeavor;

(ii)

advancing the technology in a scientific or technical field of
endeavor;

(iii)

the development of new products;

(iv)

the improvement of existing products; and

(v)

the development of new uses for existing products.

Testing waste and residue to determine whether or not Petitioner's waste treatment facility
can process its customers wastes is not one of the purposes for which an exemption is allowed under
1115(a)(10) of the Tax Law.
Issue (2)
Section 1105(c)(2) of the Tax Law imposes a tax upon the receipts from "[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."
Section 1105(c)(5) of the Tax Law imposes a tax upon the receipts from the services of
"maintaining, servicing or repairing real property...." Section 527.7(b)(2) of the Sales and Use Tax
Regulations further explains that: "All services of trash, garbage or debris removal are taxable,
whether from inside or outside of a building, a construction site or vacant land." 20 NYCRR 527.7.
Petitioner's services of treatment of the hazardous waste of its customers constitute the
services of processing tangible personal property, the receipts from which services are subject to tax
pursuant to section 1105(c)(2) of the Tax Law. Cecos International, Inc. Decision of the State Tax
Commission, January 3, 1986, TSB-H-86(16)S.

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TSB-A-86(47)S
Sales Tax
December 1, 1986
Petitioner's services of providing transportation of its customer's hazardous waste to
Petitioner's facility constitute the services of trash removal, the receipts from which service are
subject to tax pursuant to Section 1105(c)(5) of the Tax Law. Cecos International Inc., supra.
The taxable receipts from the service of trash removal include that component denominated
transportation charges, which amount represents Petitioner's cost of arranging for the transportation
of its customers' waste materials. The term "receipt" is defined as "The amount of . . . the charge for
any [taxable] service . . . ." and includes all of the components of such charge, including expenses
for transportation. Tax Law, 1101(b)(3).
Issue (3)
Section 526.6(c) of the Sales Tax Regulations provides:
"Where a person, in the course of his business operations, purchases tangible personal
property or services which he intends to sell, either in the form in which purchased, or as a
component part of other property or services, the property or services which he has purchased will
be considered as purchased for resale, and therefore not subject to tax until he has transferred the
property to his customer."
Since Petitioner is selling a service subject to tax under 1105(c)(5) of the Tax Law, he may
purchase for resale those services (waste sent off-site) which become a component part of that
service. Accordingly, those services purchased for resale are not subject to tax.

DATED: December 1, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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