How is New York sales/use tax applied to an oil- and chemical-spill cleanup company's services, the materials it uses, and its outright sales of cleanup supplies?

Plain-English summary

Marine Pollution Control cleans up oil and chemical spills — offshore and onshore — disposes of contaminated waste, and also sells cleanup chemicals and materials. It posed seven questions about how New York sales and use tax applies to its varied activities. The Department's core conclusion is that the company is a contractor servicing real property, which drives most of the answers.

• 1. It is a contractor. Spill removal is a service of maintaining, servicing, or repairing real property under § 541.2(l), so Marine Pollution Control is a contractor under § 541.1 — a service company performing cleanup and disposal.
• 2. Offshore/onshore cleanup. Cleanup and disposal is taxable as servicing real property under § 1105(c)(5) when performed in New York; not taxable when performed outside New York. Work under a contract with a government agency or exempt organization that is the direct purchaser and payor of record is not taxed. The company is not engaged in interstate/foreign commerce for the § 1115(a)(8) commercial-vessel exemption, because it does not transport persons or property for hire (§ 528.9 definitions).
• 3. Temporary "removal facility." The wells and water-treatment system it builds at a site, then dismantles when the cleanup ends, is not a capital improvement under § 1101(b)(9) (not permanent, not intended to be permanent). Marine Pollution Control is therefore the consumer of the construction materials and owes New York tax on them when purchased/delivered here (with a refund/credit if materials bought in bulk are stored here but shipped out for out-of-state use). Doing the job for an exempt organization does not relieve the company's tax on those materials, and utilities consumed running the facility are taxable to the company as consumer (not resold).
• 4. Monitoring. Monitoring the spill site is part of the taxable cleanup service (or, if standalone, servicing real property) — taxable when performed in New York, not when performed outside; same government/exempt-org carve-out.
• 5. Selling absorbents, chemicals, booms. As a contractor it generally may not use a resale certificate for materials used in its work (§ 532.4(d); § 541.1(b)) and must pay tax on its purchases. But when it sells those items without performing services, the sale can be made tax-free on a proper ST-120 resale certificate, ST-119.1 exempt-organization certificate, or ST-128 out-of-state resale permit (and out-of-state deliveries aren't NY-taxed) — and because it already paid tax on its purchases, it may claim a credit on its return. If the materials are used with a cleanup service, there is no resale and the company remains the consumer.
• 6. Waste removal/transport. Using drums and chemicals to remove/transport waste from one New York site to another is taxable servicing of real property plus waste removal under § 1105(c)(5); selling drums/chemicals alone is a taxable sale of tangible personal property (with exemption-certificate carve-outs and a credit for tax paid). Transport that originates in New York is taxable even if the waste is delivered out of state; transport entirely outside New York is not NY-taxed (with a refund/credit for bulk materials stored here but shipped out).
• 7. Direct-payment permit. If a customer gives Marine Pollution Control a direct-payment permit (§ 532.5(a)), the company is not responsible for collecting tax on that transaction.

What this means for you

Environmental cleanup is "servicing real property" — and where you do it decides the tax

Spill remediation is taxed like other real-property services: taxable when performed in New York, outside the tax when performed elsewhere. The job's location — not where your company is based or where the customer is — controls. And a government or exempt-organization customer only takes the job out of tax if it is the direct purchaser and payor of record on a proper certificate.

As a contractor, you pay tax on what you consume — including "temporary" installations

A remediation contractor is generally the end consumer of the materials, equipment, and utilities it uses on a job, and owes tax on them. Don't assume a built structure escapes tax as a capital improvement: a facility you intend to dismantle at the end of the cleanup is not a capital improvement, so you owe tax on its materials. Working for an exempt organization does not change that — the exemption covers the customer's purchase of your service, not your purchase of your own supplies.

Selling supplies is a separate hat, with resale certificates and a credit for tax you already paid

When you sell absorbents, chemicals, drums, or booms without bundling a service, you're a retailer: you take the buyer's ST-120/ST-119.1/ST-128 where applicable, don't charge tax on qualifying out-of-state or resale/exempt sales, and — because contractors prepay tax on their inventory — you can claim a credit for the tax you paid when you resell. Bundle the same materials into a cleanup job and there's no resale; you're the consumer again.

Two more traps: New York-origin transport, and direct-pay permits

Waste hauling that starts in New York stays taxable even if it ends out of state. And if a customer hands you a direct-payment permit, stop collecting tax on that sale — the permit shifts the remittance duty to the permit holder.

Common questions

Q: Is oil/chemical spill cleanup taxable in New York?
A: Yes, when performed in New York — it is servicing real property under § 1105(c)(5). Cleanup performed outside New York is not subject to New York tax.

Q: Do I owe tax on the materials and the temporary treatment system I build at a spill site?
A: Yes. As a contractor you are the consumer of those materials, and a facility you intend to dismantle when the cleanup ends is not a capital improvement (§ 1101(b)(9)), so tax is due on the materials (and job-site utilities).

Q: Can I buy my cleanup supplies for resale?
A: Generally no while acting as a contractor (§ 532.4(d)); you pay tax on purchases. But when you sell those supplies without performing services, you can sell tax-free on a proper resale/exempt certificate and claim a credit for the tax you already paid.

Q: I haul waste from a New York site to a landfill out of state — is that taxable?
A: Yes. Because the removal and transport originate in New York, it is a taxable service; the out-of-state destination does not change the result.

Q: A customer gave me a direct-payment permit. Do I collect tax?
A: No. Under § 532.5(a), the permit waives your duty to collect; the holder pays the tax directly to the state.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(5) — tax on maintaining, servicing, or repairing real property
• 20 NYCRR § 541.1 and § 541.2(l) — contractor definition; spill cleanup treated as servicing real property; § 541.1(b) (sale to a contractor for use in construction is a taxable retail sale)
• Tax Law § 1101(b)(9) — definition of capital improvement (temporary removal facility does not qualify)
• Tax Law § 1115(a)(8) and 20 NYCRR § 528.9 — commercial-vessel exemption; definitions of commercial vessel and interstate/foreign commerce
• 20 NYCRR § 532.4(d) — a contractor may not use a resale certificate for materials used in real-property repairs; § 532.5(a) (direct-payment permit); § 531.1 (compensating use tax); forms ST-120, ST-128, ST-119.1

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_45s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (45)S
Sales Tax
June 13, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910123A

On January 23, 1991, a Petition for Advisory Opinion was received from Marine Pollution
Control, 460 Edwards Avenue, Calverton, New York 11933.
Petitioner, Marine Pollution Control, is a diversified company deriving its income from the
following sources:
-

Offshore spill removal
Onshore spill removal
Monitoring of offshore and onshore spill removal
Distribution of oil spill materials
Removal of contaminated waste materials

Petitioner sells chemicals and materials to be used in the cleanup of oil and chemical spills
both offshore and onshore. These sales consist of, but are not limited to, sales made to other dealers,
to governmental agencies, to exempt organizations and to the ultimate consumer. The chemicals and
materials may be delivered to locations in and out of the state.
Petitioner may be called upon to perform any one or more of these services and any
combination thereof:
-

Cleanup and disposal of contaminated materials
Providing materials for said cleanup and disposal
Providing labor and materials to clean and dispose of the contaminated waste

Petitioner has set forth various questions concerning the application of New York State and
local sales and use tax to its business activities. The following are the questions presented by
Petitioner and the appropriate answers:
Q.

A.

1. a.

Is Petitioner a contractor as defined in Section 541.1 of the New York State
Sales and Use Tax Regulations?

b.

Is Petitioner a service company that provides cleanup and disposal services
of contaminated materials for its customers.

1. a.

The spill removal services performed by Petitioner are considered to be
maintaining, servicing or repairing real property as defined under Section
541.2(l) of the Sales and Use Tax Regulations. Therefore Petitioner is
considered to be a contractor in accordance with the provisions of Section
541.1 of the Regulations.

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TSB-A-91 (45)S
Sales Tax
June 13, 1991
Petitioner is considered to be a contractor engaged in performing cleanup and
disposal services.

b.

Q.

A.

Q.

2.

Petitioner is retained to remove offshore oil spills.

a.

Is this service taxable when performed in New York State?

b.

Is this service taxable when performed outside New York State?

c.

Is Petitioner engaged in interstate and international commerce when
performing these services?

2. a.

Petitioner's service of cleaning up and disposing of oil spills is considered to
be a service of maintaining, servicing or repairing real property, as defined
under Section 541.2(l) of the Sales and Use Tax Regulations and subject to
the tax imposed under Section 1105(c)(5) of the Tax Law when such services
are performed within New York State. However, in any instance where
Petitioner performs the cleanup and disposal services under the terms of a
contract entered into with a governmental agency or an exempt organization,
the receipts from charges for such services will not be subject to sales tax
provided the governmental agency or exempt organization is the direct
purchaser and payor of record.

b.

When Petitioner performs cleanup and disposal service outside New York
State, the receipts from charges for such services will not be subject to New
York State and local sales or use tax as such services are not being performed
within New York State.

c.

Section 1115(a)(8) of the Tax Law provides an exemption from sales tax for
commercial vessels engaged in interstate or foreign commerce and property
used by or purchased for the use of such vessels for fuel, provisions, supplies,
maintenance and repairs. Section 528.9(a)(3) of the Regulations defines a
commercial vessel as any vessel used or engaged in the transportation for hire
of persons or property on water. Section 528.9(a)(5) of the Regulations
defines interstate or foreign commerce as the transportation of persons or
property between states or countries. Accordingly, as Petitioner provides a
cleanup and disposal service and does not transport passengers or property for
hire, Petitioner is not considered to be engaged in interstate or international
(foreign) commerce for sales tax purposes.

3.

Petitioner is retained to clean up and dispose of an onshore oil spill.
Petitioner constructs a removal facility for such spills at the site of its
customers. The removal facility generally consists of wells and a water
treatment system whereby subsurface water is pumped through the treatment
system and then returned to the subsurface. The removal facility remains in
place for the duration of the cleanup procedure, after which the removal
facility is dismantled by Petitioner and generally salvaged. The well casings
are also removed and the wells are refilled with dirt, etc., by Petitioner.

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A.

TSB-A-91 (45)S
Sales Tax
June 13, 1991

a.

Does the construction meet the requirements of a capital improvement?

b.

What is the taxable status of the materials used in the above construction,
when:

1.

Possession is transferred to the customer in New York State?

2.

Possession is transferred outside New York State?

3.

Construction is for an exempt organization?

4.

Utilities purchased for the job site are resold to the customers?

3.

a.

b.

Petitioner's purchases of materials for use in constructing a removal facility
are subject to New York State and local sales tax at the time purchased by
Petitioner. As such materials will be incorporated into the removal facility
for use by Petitioner in performing the cleanup and disposal service at a spill
site, Petitioner is considered to be the consumer of the materials.

1.

Since Petitioner is considered to be the consumer of the materials, title and
possession of the materials does not transfer to the customer and Petitioner
is liable for the sales tax due on the purchase of such materials.

2.

Where Petitioner constructs a removal facility outside New York State
Petitioner will be liable for New York State and local sales and use tax if the
materials are purchased within New York State and if Petitioner takes
delivery of the materials within New York State. However, if Petitioner
purchases such materials in bulk, and stores any portion of such materials
within New York State and subsequently ships such materials outside New

Section 1101(b)(9) of the Tax Law defines a capital improvement as
an addition or alteration to real property which substantially adds to
the value of the real property, or appreciably prolongs the useful life
of the real property, and becomes part of the real property or is
permanently affixed to the real property so that removal would cause
material damage to the property or article itself, and is intended to
become a permanent installation. Since Petitioner installs the removal
facility only for the purpose of performing a cleanup and disposal
service with the intention of dismantling and removing such facility
upon completion of the cleanup, the construction of the removal
facility is not considered to be a capital improvement as such
installation does not meet the requirements of substantially adding to
the real property, being permanently affixed to the real property or
being intended as a permanent installation.

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TSB-A-91 (45)S
Sales Tax
June 13, 1991

York State for use by Petitioner outside New York State, Petitioner will be
allowed a refund or credit for the New York State and local sales tax paid on
the purchase price of such materials.

Q.

A.

Q.

3.

See 1.) above. The fact that Petitioner is performing the cleanup and disposal
for an exempt organization does not relieve Petitioner from being liable for
sales tax on the purchase of the materials to be used in constructing the
removal facility.

4.

Petitioner's purchase of utilities for use in operating a removal facility during
a cleanup operation will be subject to New York State and local sales tax. As
the utilities are used or consumed in performance of the cleanup operation,
Petitioner is deemed to be the consumer of the utilities and is not considered
to resell the utilities to the customer.

4.

Petitioner is responsible for monitoring the removal sites during the
performance of the cleanup and disposal service at onshore and offshore spill
sites.

a.

Is this service taxable when performed within New York State?

b.

Is this service taxable when performed outside of New York State?

4.

a.

b.

In those instances where Petitioner performs monitoring services outside New
York State, the charges for such services will not be subject to New York
State or local sales tax.

5.

Petitioner purchases absorbants, chemicals and booms for resale. What is the
sales tax status of these materials when,

Petitioner's monitoring service is considered to be part of the cleanup
and disposal service performed by Petitioner and charges for such are
subject to New York State and local sales tax when such services are
performed within New York State. If the only service performed by
Petitioner is the monitoring of a spill site, the charge to the customer
will be considered a charge for the service of maintaining or servicing
real property and will be subject to New York State and local sales
tax provided such service was performed within New York State.
However, when such services are provided in accordance with a
contract between Petitioner and a governmental agency or an exempt
organization, the charges for such services will not be subject to New
York State and local sales tax, provided the governmental agency or
exempt organization is the direct purchaser and payor of record.

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A.

TSB-A-91 (45)S
Sales Tax
June 13, 1991

a.

the materials are resold and Petitioner receives a form ST-120, Resale
Certificate from the customer?

b.

the materials are resold to out of state vendors and delivery takes place
1.

outside New York State?

2.

within New York State?

c.

the materials are resold to exempt organizations?

d.

direct sales are made to customers within New York State in which Petitioner
collects sales tax from the customer?

5.

a.

Section 532.4(d) of the New York State Sales and Use Tax
Regulations prohibits use of a resale certificate by a contractor when
purchasing tangible personal property for use in performing repairs
to real property. Section 541.1(b) of the Regulations provides that the
sale of tangible personal property to a contractor for use or
consumption in construction is a retail sale and subject to sales and
use tax.
Since it has been determined that Petitioner is a contractor under the
provisions of Section 541.1 of the Regulations (see Q. & A.l.a.
above), Petitioner may not make any purchases for resale purposes.
Petitioner must pay the applicable New York State and local sales or
use tax on all purchases where delivery occurs within New York State
and on any out-of-state purchases when the items purchased by
Petitioner are subsequently brought into New York State for use in
the state.
When Petitioner sells absorbants, chemicals and booms to customers,
without performing cleanup and disposal services for such customers,
the sale of such items will not be subject to New York State or local
sales tax provided the customer gives Petitioner a properly completed
form ST-120, Resale Certificate. However, because Petitioner must
pay New York State and local sales tax on Petitioner's purchases of
materials, Petitioner may claim a credit, in the amount of such tax
paid, on the sales tax return filed for the appropriate period in which
Petitioner resells the items to the customer.

b.

When Petitioner sells only materials to out-of-state vendors without
performing any services and delivery occurs,

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TSB-A-91 (45)S
Sales Tax
June 13, 1991

1.

outside New York State, the sale will not be subject to New York State or
local sales tax.

2.

within New York State, the sale will be subject to New York State and local
sales tax unless the out-of-state vendor presents Petitioner a properly
completed form ST-120, Resale Certificate or form ST-128, Out-of-State
Resale Permit.

c.

When Petitioner makes sales of only materials to an exempt organization without
performing any services, the sales will be exempt from New York State and local
sales tax provided the exempt organization gives Petitioner a properly completed
form ST-119.1, Exempt Organization Certificate. However, because Petitioner must
pay New York State and local sales tax on Petitioner's purchases of materials,
Petitioner may claim a credit, in the amount of such tax paid, on the sales tax return
filed for the appropriate period in which Petitioner resells the items to the customer.

d.

When Petitioner makes sales of only materials to customers located within New York
State without performing any services, Petitioner must collect New York State and
local sales tax on such sales unless the customer provides Petitioner a properly
completed exemption certificate. However, because Petitioner must pay New York
State and local sales tax on Petitioner's purchases of materials, Petitioner may claim
a credit, in the amount of such tax paid, on the sales tax return filed for the
appropriate period in which Petitioner resells the items to the customer.
It is noted that if in any of the transactions outlined in situations a, b.2, c or d.
Petitioner also uses the materials in conjunction with performing cleanup and
disposal services, then it will not be considered to have made a sale of the materials.
Instead, Petitioner will be considered to be the ultimate consumer of the materials.
Accordingly, in such instances the materials will not be considered to have been sold
for resale purposes.

Q.

6.

Petitioner is retained to remove contaminated waste and/or supply the material
needed to remove said waste. What is the sales tax status of Petitioner's receipts from
each of the following transactions and what is Petitioner's sales tax liability when
purchasing drums and chemicals for use in such transactions?

a.

Petitioner sells drums and chemicals to its customer for the removal of waste material
by the customer.

b.

Petitioner is hired to remove and transport waste material from a site within New
York State to another site within the state.

c.

Petitioner is hired to remove and transport waste material from a site in New York
State to a site outside the state.

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A.

TSB-A-91 (45)S
Sales Tax
June 13, 1991

d.

Petitioner is hired to remove and transport waste from a site outside New York State
to another site also outside the state.

6.

a.

b.

In a transaction where Petitioner is hired to remove and transport waste material from
a site within New York State to another site within New York State and the drums
and chemicals are used by Petitioner in performing the removal and transport service,
Petitioner is considered to be servicing or maintaining real property, as well as
performing a waste removal service, all of which are considered to be services
subject to the tax imposed under the provisions of Section 1105(c)(5) of the Tax
Law. Accordingly, the receipts from Petitioner's charges to customers for the removal
and transport service will be subject to New York State and local sales tax.

When Petitioner sells only drums and chemicals to its customer, without
performing any service, for the removal of waste material by the customer,
Petitioner will be considered to be selling tangible personal property to the
customer and will be liable for collecting New York State and local sales tax
on the total receipts from the sale of such drums and chemicals. However, in
any instance where the customer is a governmental entity, an exempt
organization or a vendor purchasing such items for resale purposes, Petitioner
will not be liable for collecting sales tax on the transaction provided the
customer provides Petitioner with a governmental purchase order or voucher,
or a properly completed exemption certificate, whichever is applicable.
Because Petitioner must pay sales tax on these items at the time purchased,
Petitioner may claim a credit, in the amount of such tax paid, on the sales tax
return filed for the appropriate period in which Petitioner resells the items to
the customer.

Since Petitioner will be using the drums and chemicals in performing the removal
and transport service, Petitioner is not considered to be reselling the drums and
chemicals to the customers, but is considered to be the ultimate consumer of such
items. Petitioner must pay New York State and local sales tax to the supplier when
purchasing the drums and chemicals or in the alternative, if sales tax is not paid at the
time of such purchase, Petitioner must report such items as purchases subject to use
tax on the sales tax return filed for the applicable period in which such items were
purchased by Petitioner.
c.

When Petitioner is hired to remove and transport waste material from a site within
New York State to a site located outside New York State, Petitioner's tax liability
will be identical to 6. b. above. As the removal and transport originate within New
York State, Petitioner is considered to be performing a taxable service within New
York State. The fact that the waste is transported to a site located outside New York
State does not have any affect on the imposition of tax in this transaction.

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d.

TSB-A-91 (45)S
Sales Tax
June 13, 1991

When Petitioner is hired to remove and transport waste material from a site located
outside New York State to another site located outside New York State, Petitioner's
charges to the customer will be for services performed outside New York State and
will not be subject to New York State or local sales tax. If Petitioner takes delivery
of the drums and chemicals used in this transaction within New York State,
Petitioner will be liable for New York State and local sales tax based on the purchase
price of such items.
However, where Petitioner purchases such items in bulk, and stores any portion of
such items within New York State and subsequently ships such items outside New
York State for use by Petitioner outside New York State, Petitioner will be allowed
a refund or credit for the New York State and local sales tax paid on the purchase
price of such items.

Q.

7.

What are Petitioner's tax liabilities in each of the above transactions when dealing
with a customer who is a holder of a Direct Payment Permit.

A.

7.

Section 532.5(a) of the New York State Sales and Use Tax Regulations states in part:
A direct payment permit is a notice to a vendor that the holder thereof
is authorized to pay directly to the Tax Commission any tax due on
purchases made. The vendor's responsibility for the collection of tax
from the permit holder is waived upon receipt of such permit.

Accordingly, in any of the above transactions, Petitioner will not be responsible for collecting
sales tax where the customer gives Petitioner a copy of the customer's direct pay permit.

DATED: June 13, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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