Is a company's charge for testing water samples and issuing a results report subject to New York sales tax?

Plain-English summary

Aqua King International, Inc. tests water for bacteria, lead, iron, nitrates, pH, chlorine, organics/inorganics, pesticides, and other contaminants -- work required by federal, state, and local mandates for home sales, new construction, public water suppliers, and lending institutions, as well as work private parties request for their own reasons (like checking a well's potability). New York's Public Health Law requires the actual testing to be done by a state or state-certified laboratory, so Petitioner sometimes performs the tests itself and sometimes hires an outside certified lab. Either way, Petitioner gives its clients a written report of the results, comparing them to established regulatory norms -- but without any independent interpretation or recommendations. Petitioner asked whether its testing charges are taxable, and whether using different testing methods (as instructed by different clients or regulatory schemes) changes the answer.

Tax Law § 1105(c) taxes only a specific enumerated list of services -- anything not on that list simply isn't taxable, no matter how professional or technical the work. The Department found that testing water samples and issuing a factual results report (without interpretation, analysis, or advice beyond comparing numbers to established norms) doesn't match any of the enumerated taxable service categories, citing its own prior guidance on laboratory reports (TSB-M-95(8)S). Because the exemption turns on the SERVICE itself being non-enumerated, the particular testing METHOD used makes no difference to the outcome -- microbiological testing, chemical testing, or any other method Petitioner might use all land in the same untaxed category. The Department also clarified the purchasing side: Petitioner's own payments to outside laboratories for subcontracted testing services aren't taxable to Petitioner either, but Petitioner DOES owe sales and use tax on the chemicals and equipment it buys to perform its own in-house tests -- those are ordinary taxable purchases of tangible personal property, separate from the (untaxed) testing service Petitioner ultimately sells.

What this means for you

Water testing, environmental testing, and similar laboratory-report businesses

If your service is limited to performing tests and reporting factual results (compared against established regulatory norms, without independent interpretation or recommendations), your charges likely fall outside New York's enumerated taxable services regardless of testing method -- following this opinion's reasoning and the Department's TSB-M-95(8)S guidance on laboratory reports generally. Watch the line, though: adding genuine analysis, interpretation, or recommendations to your reports could shift the service into a different (and possibly taxable) category not addressed here.

Testing companies that subcontract to outside certified labs

Payments you make to an outside lab for testing services you resell aren't separately taxable to you -- but remember this doesn't cover your own purchases of testing chemicals and equipment for in-house work, which remain fully taxable purchases.

Homebuyers, sellers, and businesses needing water testing for compliance or transactions

Expect straightforward test-and-report charges (potability checks, contaminant screening, etc.) to come untaxed, consistent with this opinion.

Common questions

Q: Does adding recommendations or interpretation to a testing report change the tax treatment?
A: This opinion is limited to reports that don't include interpretation or recommendations beyond comparing results to established norms -- a report that goes further isn't addressed here and could be analyzed differently.

Q: Are a testing company's payments to an outside certified laboratory taxable?
A: No, per this opinion -- Petitioner's purchases of laboratory testing services from outside labs are not subject to tax.

Q: Does a testing company owe tax on the chemicals and equipment it uses to run its own tests?
A: Yes -- those are ordinary taxable purchases of tangible personal property, separate from the untaxed testing service the company sells to its clients.

Q: Can another testing company rely on this ruling for its own reports?
A: No. This advisory opinion binds the Department only as to Aqua King International, Inc. and the specific facts described; a business whose reports include interpretation or advice should confirm its own facts before assuming the same untaxed treatment.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c) (tax on enumerated services)

Prior rulings and cases referenced:

• Taxability of Certain Laboratory Reports, TSB-M-95(8)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_60s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-96 (60)S
Sales Tax
September 23, 1996

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950118A

On January 18, 1995, a Petition for Advisory Opinion was received from Aqua King
International, Inc., Post Office Box 7, Poughkeepsie, New York 12602-0007.
The issues raised by Petitioner, Aqua King International, Inc. are:
(1)

Whether receipts from charges for performing water testing are subject to sales tax.

(2)
Whether using different methods for conducting water testing, according to specific
instructions received by Petitioner, changes the taxable status of water testing services.
Petitioner submits the following facts.
Petitioner indicates that water testing is required pursuant to various Federal, State and local
mandates. Water testing for bacteria, lead, iron, nitrates, pH, chlorine, organics\inorganics,
pesticides, etc. is required by home buyers or sellers and all public water suppliers. Private parties
may require testing for a variety of reasons. For instance, potability tests may be a condition for sale
of a residence or a homeowner may want to test the potability of his or her well. A bank or lending
institution may also require testing. Tests can range from chlorine testing to microbiological testing,
from aesthetic contaminant testing to hazardous contaminant testing. Petitioner indicates that the
Public Health Law requires the tests to be performed by a State laboratory or a State certified
laboratory and that the Environmental Protection Agency, the State Health Department and
laboratories establish strict guidelines governing the collection of samples.
Petitioner collects the necessary samples and performs the tests described above for its
clients, or in some cases hires an outside laboratory to perform the tests. In general, the testing done
by Petitioner is required by local, State or Federal mandate. After testing is completed, Petitioner will
furnish a written report indicating the test results to its clients. The reports do not include any
interpretation of the test results or recommendations, other than a comparison of the test results to
an established norm.
Section 1105(c) of the Tax Law imposes sales tax on receipts from the sale of certain
enumerated services. If a service is not one of these enumerated services, it is not subject to tax.
In this case, Petitioner tests water for various purposes, such as to determine its potability
from a well for drinking purposes, to fulfill State, local and Federal requirements in order for
individuals or businesses to begin construction of buildings for occupancy, or to confirm that public
water supplies meet pre-determined standards established by the Public Health Law. The results

-2­
TSB-A-96 (60)S
Sales Tax
September 23, 1996

of such tests are given to Petitioner's clients in a report. The report does not include any
interpretation of the test results or recommendations, other than comparisons of the test results with
established norms. The testing of the water samples and the subsequent issuing of reports to
Petitioner's clients are not among the enumerated services subject to sales tax under Section 1105(c)
of the Tax Law. Accordingly, receipts from the sale of the testing services and reports are not subject
to sales tax. This is true regardless of the method used to conduct the tests. See Taxability of Certain
Laboratory Reports, TSB-M-95(8)S.
It should be noted that Petitioner's purchases of laboratory testing services from outside
laboratories are not subject to tax. However, purchases by Petitioner of chemicals and equipment for
use in conducting its tests are subject to sales and compensating use tax.

DATED: September 23, 1996

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

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