A contractor doing a job for a tax-exempt government agency buys sand to sandblast structures before painting, then leaves the used sand on site as fill. Is the sand exempt from sales tax?

Plain-English summary

Sullivan Humes Painting buys sand to sandblast structures before painting them, works under contracts with tax-exempt entities, and leaves the used sand on site as fill after blasting. It asked whether the sand is exempt from sales tax because it ends up left at the construction site.

The Department held the sand is a taxable supply — the contractor owes the tax.

• Contractors are the taxpayers on what they buy. A sale of tangible personal property to a contractor for use in construction is a retail sale (§ 1101(a)(4)) and taxable (§ 1105(a)) — whether or not the item is resold or built into real property as a capital improvement or repair.
• The exempt-entity exemption reaches only "materials." Section 1115(a)(15) and (16) exempts property a contractor buys to improve or repair the real property of exempt entities (which include the State and its subdivisions, § 1116(a)(1)) only when it is intended to become an integral component part of the real property. Regulations split tangible property into "materials" — items that become a physical component part, like lumber, bricks, and steel (541.2(i)) — and "supplies" — items consumed in performing the contract and not incorporated into the property, like lubricating oils and sanding disks (541.2(k)).
• Sand for sandblasting is a supply. It is consumed doing the work, not built into the structure. Like the drop cloths and sandpaper in Example 9 (526.6(c)(6)) that a painter leaves behind, spent blasting sand has not been "purchased for resale" and is not transferred to the customer as part of the service. So it is taxable to the contractor as the ultimate consumer — and leaving it on site as fill "does not relieve the Petitioner of its tax liability."
• Who bears the cost is a private matter. The opinion notes that whether a customer will reimburse the contractor for the tax is a matter of contract between them and "immaterial to the functioning of the Tax Law."
• An agency contract is the exception. If the contractor entered a qualifying agency contract with the exempt entity (541.3(d)(4)), buying the sand on the entity's behalf, those purchases would be exempt.

What this means for you

"Materials" get the exempt-entity break; "supplies" don't. On a government or other exempt-entity job, only tangible property that becomes a permanent, integral part of the finished real property can be bought tax-exempt. Consumables you burn through doing the work — blasting sand, sanding disks, drop cloths, lubricants — are taxable to you no matter who the customer is.

Where the leftover ends up doesn't change its character. Sand doesn't become an exempt "material" just because you leave it behind as fill. If it was bought to do the blasting, it's a taxable supply.

Two ways to avoid eating the tax — know the difference. You can pass the tax to the customer only by agreement (and an exempt entity may refuse). The real exemption path is a proper agency contract where you purchase as the exempt entity's agent — but that only works if it fully meets the regulation's agency requirements.

Common questions

Q: My customer is a tax-exempt government agency. Doesn't that make my purchases exempt?
A: Only for materials that become an integral component of the real property. Supplies you consume doing the job — like sandblasting sand — remain taxable to you.

Q: The sand stays on site as fill. Isn't it then part of the property?
A: No. It was purchased as a supply to perform the blasting. Leaving it behind as fill is incidental and does not turn it into an exempt building material.

Q: Is there any way to buy the sand tax-free for an exempt-entity job?
A: Yes, if you use a qualifying agency contract under 20 NYCRR 541.3(d)(4), so the purchase is made on the exempt entity's behalf. It must fully satisfy the agency requirements.

Citations and references

Statutes and regulations:

• Tax Law § 1101(a)(4) — a sale to a contractor for use in construction is a retail sale
• Tax Law § 1105(a) — imposes sales tax on retail sales
• Tax Law § 1115(a)(15), (16) — exemption for materials becoming an integral component of an exempt entity's real property
• Tax Law § 1116(a)(1) — exempt entities include the State and its agencies and subdivisions
• 20 NYCRR 541.2(i), (k) — "materials" (physical component parts) vs. "supplies" (consumed, not incorporated)
• 20 NYCRR 541.1(b); 541.3(d)(2)(iv) — no exemption for supplies purchased for the contractor's use
• 20 NYCRR 526.6(c)(6), Example 9 — drop cloths and sandpaper left on site are consumed supplies, not resold
• 20 NYCRR 541.3(d)(4) — agency-contract purchases made on behalf of an exempt entity

Department guidance:

• Publication 862 — Classifications of Improvements and Repairs to Real Property for Sales Tax Purposes

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/a87_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(31)S
Sales Tax
August 31, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S870623A

On June 23, 1987, a Petition for Advisory Opinion was received from Sullivan Humes
Painting, 4454 Genesee Street, Buffalo, New York 14225.
The issue raised is whether a contractor's purchases of sand for sandblasting structures
preparatory to painting, pursuant to a contract with a tax exempt entity, are exempt from tax
because the sand, after use, is left at the construction site as fill.
Under the Tax Law the principal distinguishing feature of a sale to a contractor, as compared
to other vendors who purchase tangible personal property for sale, is that the sale of such property
to a contractor for use in construction is deemed a retail sale (§1101[a][4]) and subject to sales tax
(§1105[a]) regardless of whether the tangible personal property is to be resold as such or
incorporated into real property as a capital improvement or repair.
Section 1115 of the Tax Law, however, exempts from such tax the receipts from the purchase
of tangible personal property by a contractor, subcontractor or repairman for use in adding to,
altering or improving real property of certain exempt entities or for use in maintaining, servicing or
repairing real property of such exempt entities where the tangible personal property in question is
intended to become an integral component part of such structure, building or real property. Tax Law,
§1115(a)(15) and (16). The exempt entities here referred to include the State of New York and any
of its agencies, instrumentalities, public corporations, or political subdivisions. Tax Law,
§1116(a)(1).
The painting of new structures, buildings or additions constitutes a capital improvement to
real property; but the painting of existing structures, or parts thereof, is considered repair and
maintenance. See Department of Taxation and Finance Publication 862, Classifications of
Improvements and Repairs to Real Property for Sales Tax Purposes.
The Sales and Use Tax Regulations of the State Tax Commission in Part 541, Contractors,
define "tangible personal property" as "corporeal personal property of any nature . . . including but
not limited to materials, tools, . . . equipment and supplies". Additionally, the Regulations
differentiate between building materials and contractors' supplies:
(i)

The term materials means those items which become a physical component part of
real or personal property such as lumber, bricks and steel .

. . . .
(k)

The term supplies means those items which are consumed by a contractor in the
performance of a contract and which are not incorporated into real property such as
lubricating oils, sanding disks . . . 20 NYCRR 541.2 (i), (k).

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-87(31)S
Sales Tax
August 31, 1987
This distinction is necessary because, notwithstanding the above quoted section 1101(a)(4)
of the Tax Law, materials intended for incorporation into structures of an exempt entity may be
purchased exempt by use of a Contractor's Exempt Purchase Certificate (Form ST-120.1) and tax
paid on materials actually transferred to a customer in the performance of a repair and maintenance
contract may be refunded to the contractor; but no tax exemption applies to supplies purchased for
the contractor's use. 20 NYCRR 541.1(b); 541.3(d)(2)(iv).
Regulation Section 526.6 (c)(6) explains further:
Example 9:

A painter purchases plastic drop cloths and sandpaper and after
painting a customer's premises, leaves the used drop cloths and
sandpaper at the premises. The drop cloths and sandpaper, even
though of limited or no use after the painting, have not been
purchased for resale as they are items used by the painter in
performing a . . . service. The drop cloths and sandpaper are not
actually transferred to the purchaser of the service in conjunction with
the performance of the service. (Emphasis added).

Accordingly, sand for sandblasting - whether used in capital construction or repair and
maintenance projects - is taxable because it is purchased by the Petitioner as a supply necessary for
the performance of its contract. The fact that it may be more expedient, after the sandblasting
operation, to leave the used sand on site as fill rather than dispose of it in any other manner, does not
relieve the Petitioner of its tax liability as the ultimate taxpayer and user in accordance with the
above quoted provisions of the Tax Law and Regulations.
Petitioner complains that some customers will not allow it to charge them for the sales tax
paid on blasting sand. When the contract is with an exempt entity, however, the classification of such
tax as a cost item is entirely a matter of agreement between the Petitioner and its customer and is
immaterial to the functioning of the Tax Law.
It should be noted that, were the Petitioner to enter into an agency contract with an exempt
entity, its purchases of blasting sand would be made on behalf of the customer and therefore would
be exempt from sales tax if the principal/agent relationship fully complies with the requirements set
forth in Regulations Section 541.3 (d)(4).

DATED: August 31, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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