How does New York sales tax apply to a company that thermally treats and recycles contaminated soil -- on the processing charge, on transportation, on the treatment equipment and fuel, and on any reclaimed soil it later sells?

Plain-English summary

Environmental Soil Management of New York, L.L.C. runs a thermal treatment facility in Fort Edward, New York, that decontaminates petroleum- and nonpetroleum-hydrocarbon-contaminated soil and other materials. It heats the material in a rotary dryer (350-1000 degrees Fahrenheit), destroys the contaminants in an oxidizer, and filters the remaining flue gases. The cleaned material either goes back to the customer or stays with the company for future sale. The company asked the Department a long list of questions covering how sales tax applies to its whole operation -- the processing charge itself, transportation, tax rate sourcing, capital-improvement and exempt-purchase certificates, its own equipment and fuel purchases, and sales of reclaimed material.

The core holding: treating contaminated soil is a taxable processing service under Tax Law § 1105(c)(2), whether the material comes back to the customer or the company keeps it for its own future sale -- and it is not an exempt waste-removal service, since the company is producing a usable decontaminated product, not just hauling away waste. A few key threads run through the rest of the answer:

• Tax rate and sourcing: Tax applies to the entire contract price (including any charge for shipping the treated material back), at the combined state/local rate where the material is delivered to the customer -- Fort Edward/Washington County rate if the customer picks up there or the company delivers within that county, or the rate of wherever else in New York the material is actually delivered. Where the contract was signed doesn't matter.
• Out-of-state delivery: If the treated material is delivered outside New York for use outside New York, the entire charge -- including transportation -- is exempt under Tax Law § 1115(d).
• Transportation, standing alone, isn't taxed. But if the company itself hires a trucker to bring contaminated material to its facility and then processes it, the trucking cost the company pays becomes part of its own taxable receipts for the processing service (since it's now bundled into one taxable transaction) -- whereas if the customer separately hires its own trucker for pickup and delivery, that trucking charge is not taxable at all.
• Certificates: Because processing under § 1105(c)2) has no capital-improvement carve-out, a Certificate of Capital Improvement from a customer does not excuse the company from charging tax. A Contractor Exempt Purchase Certificate is valid only if the contractor checks the "services for resale" box (3f), not the tangible-property box (3a), since this is a service, not a sale of goods. A vendor who accepts any certificate in good faith is protected from liability even if the certificate later turns out to be wrong, as long as it isn't obviously false and there's no actual knowledge of fraud.
• Its own equipment and fuel: The rotary dryer, oxidizer and filtration equipment qualify for the production machinery exemption, and the propane/natural gas used to run them qualifies for the production fuel exemption -- but only to the extent the equipment is used predominantly (over 50%) to produce material that will actually be sold (by the company or its customer), not material that's simply being cleaned up for the customer's own reuse.
• Sales of reclaimed material: If the company later sells the decontaminated soil itself, that sale is an ordinary taxable retail sale of tangible personal property, sourced to wherever it's delivered to the buyer.

What this means for you

Environmental remediation, recycling and materials-processing businesses

If your business changes the condition of a customer's material and either returns it or keeps it for resale, you're very likely providing a taxable "processing" service under § 1105(c)(2), regardless of whether you call it recycling, treatment, or reclamation -- and a "waste removal" label won't save you if you're actually producing a usable decontaminated or reclaimed product rather than just hauling waste away. Don't assume a Certificate of Capital Improvement gets your customer (or you) out of tax on a processing charge; that certificate has no application here.

Contractors and site owners hiring a remediation company

If you hire a processor to treat contaminated soil and separately hire your own trucking company to move the material, the transportation charge itself escapes tax -- but if your processor arranges the transportation as part of its own service, that transportation cost gets folded into the processor's taxable charge. Structuring who hires the trucker can matter for your total tax bill.

Businesses buying production equipment used for mixed purposes

The production machinery and fuel exemptions here turn on a strict "predominant use" (equipment) and "exclusive use" (fuel/energy) test tied to whether the output is ultimately sold. If your equipment sometimes produces material that's simply reused (not sold) by the customer, track that usage carefully -- the exemption can be lost or only partially available depending on how the majority of the equipment's use breaks down.

Accountants and tax professionals

This ruling is a good template for any multi-question processing-service fact pattern: work through (1) whether the service is processing vs. an exempt/excluded category like waste removal, (2) sourcing/rate rules based on delivery location, (3) the out-of-state-delivery exemption under § 1115(d), (4) which certificates actually apply (capital improvement doesn't; resale-of-services does), and (5) production machinery/fuel exemptions turning on predominant/exclusive use tied to an eventual sale.

Common questions

Q: Is treating contaminated soil the same as a nontaxable waste-removal service?
A: No. Because the company produces a usable decontaminated product (whether returned to the customer or kept for resale), the Department treated this as a taxable processing service, not waste removal.

Q: Does a Certificate of Capital Improvement let a customer avoid tax on the processing charge?
A: No. Processing services under § 1105(c)(2) have no capital-improvement exemption, so that certificate doesn't apply here, even if the underlying job also involves real property.

Q: What if the treated soil is shipped out of state?
A: If the company delivers the decontaminated material outside New York for use outside New York, the entire charge -- including any transportation -- is exempt under § 1115(d).

Q: Are the company's dryer, oxidizer and filtration equipment automatically tax-exempt?
A: Only if they're used more than 50% of the time to produce material that will actually be sold (by the company or the customer); if predominantly used just to clean material for the customer's own reuse, the exemption doesn't apply.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3), (4), (5), (6) (definitions of receipt, retail sale, sale, tangible personal property)
• Tax Law § 1105(a), (b) (tax on retail sales; gas/electricity/refrigeration/steam)
• Tax Law § 1105(c)(2) (tax on producing, fabricating or processing tangible personal property for others)
• Tax Law § 1115(a)(12) (production machinery and equipment exemption)
• Tax Law § 1115(c) (production fuel and energy exemption)
• Tax Law § 1115(d) (exemption for services on property delivered out of state for use out of state)
• Tax Law § 1132(c)(1) (presumption of taxability; resale/exemption certificate burden shift)
• Tax Law §§ 1107, 1109 and Article 29 (county and city sales tax)
• 20 NYCRR § 528.13 (production machinery, equipment and phases)
• 20 NYCRR § 528.22(c) (directly and exclusively; production fuel/energy exemption)
• 20 NYCRR § 532.4(b) (vendor's good-faith reliance on exemption certificates)

Prior rulings and cases referenced:

• Matter of Cecos Intl. v State Tax Comm, 71 NY2d 934
• Matter of Penfold v State Tax Comm, 114 AD2d 696
• Matter of Saf-Tee Plumbing v Tully, 77 AD2d 1
• Matter of Robert Bruce McLane Associates v Urbach, -- AD2d --, 649 NYS2d 487
• Matter of Midland Asphalt v Chu, 136 AD2d 851, lv denied 72 NY2d 806
• Lindemann Recycling Equipment, Inc., Adv Op Comm T&F, January 31, 1989, TSB-A-89(3)S
• Vigliotti Recycling Corp., Adv Op Comm T&F, December 24, 1990, TSB-A-90(58)S
• Harron's Electric Service, Inc., Adv Op Comm T&F, October 14, 1981, TSB-A-81(44)
• Sharon P. Sheinfeld, Adv Op Comm T&F, August 7, 1990, TSB-A-90(39)S
• Copelco Leasing Corporation, Adv Op Comm T&F, May 18, 1995, TSB-A-95(15)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_25s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(25)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S960116C

On January 16, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Environmental Soil Management of New York,
L.L.C., 304 Towpath Road, Fort Edward, New York 12828. Petitioner, Environmental
Soil Management of New York, L.L.C., submitted additional information pertaining
to the Petition on November 5, 1996.
Petitioner raised the following questions regarding the proper application
of sales tax to its business activities.
1.

For contracts entered into entirely within New York State:

a. Should New York State and local sales tax be charged on
the total contractual amount to process contaminated materials?
Should sales tax be charged on transportation costs,
b.
whether or not the processed materials are returned to the customer?
c. Should the rate of sales tax be imposed based upon the
location of the Fort Edward treatment facility in Washington County
or at the rate imposed in the area from which the materials are
removed?
2.

For contracts entered into outside of New York State:

a.
Should sales tax be charged on the total contractual
amount to process contaminated materials at the Fort Edward
treatment facility based upon the rate in effect at that location?
b. Should sales tax be charged on the total transportation
cost or that portion of the cost applicable to travel within New
York State, whether or not the processed materials are returned to
the customer?

3. Under what circumstances would the service rendered by
   Petitioner be considered a waste removal service?
   4.
   Does Petitioner’s receipt of a Certificate of Capital
   Improvement (Form ST-124) preclude the imposition of sales tax on
   the service provided by Petitioner?
   5.
   May Petitioner rely upon a Contractor Exempt Purchase
   Certificate (Form ST-120.1) issued by a contractor who has checked
   either box 3a or 3f on the certificate?

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6.

With regard to the Fort Edward treatment facility:

a. Should sales and use taxes be paid on the cost of the
energy (natural and propane gases) to operate the thermal equipment
involved in the treatment of contaminated materials?
b. Are the treatment facility’s components such as the rotary
dryer, oxidizer, filtration systems, etc., exempt from sales tax as
production machinery and equipment?

7. If reclaimed materials are sold after processing, should
   sales tax be charged on the sale price?
   Petitioner submitted the following facts as the basis for this Advisory
   Opinion.
   Petitioner owns and operates a thermal treatment facility in Fort Edward,
   New York, for the treatment and recycling of petroleum and nonpetroleum
   hydrocarbon contaminated soil and other materials. Contaminants contained in
   materials that are accepted by Petitioner are treated and removed by thermal
   desorption technology. This process entails heating contaminated materials in
   a rotary dryer at temperatures between 350 and 1000 degrees Fahrenheit. The
   contaminants are driven from the materials and destroyed in an oxidizer. After
   exiting the oxidizer, the remaining flue gases are cooled and passed through a
   dust filtration process that removes any remaining contaminants.
   The
   decontaminated materials are returned to the customer (i.e., the site owner, or
   a contractor hired by the site owner) or remain in the possession of Petitioner
   for future sale.
   Petitioner is not involved in the clearing and stockpiling of contaminated
   materials at the job site. Petitioner may be retained by the customer to process
   contaminated materials that have been transported to its Fort Edward treatment
   facility. Or Petitioner may contract with the customer to remove, transport and
   process the contaminated materials; in which case, Petitioner enters into a
   contractual arrangement with an independent trucking contractor to transport the
   materials to Fort Edward. Petitioner provides the customer with a certification
   of contaminant removal as prescribed by the New York State Department of
   Environmental Conservation.
   In cases where Petitioner transports, or arranges to transport, the
   materials for a site owner and these materials are not returned to the job site
   after processing, the site owner on occasion issues Petitioner a Certificate of
   Capital Improvement indicating that the described work results in a capital
   improvement to the real property within the guidelines indicated on the back of
   the certificate.
   In cases where Petitioner performs the same service for a
   contractor, the contractor on occasion issues a Contractor Exempt Purchase
   Certificate to Petitioner indicating that the purchase of Petitioner’s service
   is exempt from tax by checking either box 3a (i.e., tangible personal property
   incorporated into a project for an exempt organization under Section 1116(a) of
   the Tax Law) or box 3f (i.e., services for a project that will be resold).

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Applicable Law and Regulations
Section 1101(b) of the Tax Law provides in part:
When used in this article for the purposes of the taxes
imposed by subdivisions (a), (b), (c) and (d) of section eleven
hundred five and by section eleven hundred ten, the following terms
shall mean:
*
*
*
(3) Receipt. The amount of the sale price of any property and
the charge for any service taxable under this article, valued in
money, whether received in money or otherwise, including any amount
for which credit is allowed by the vendor to the purchaser, without
any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or
delivery regardless of whether such charges are separately stated in
the written contract, if any, or on the bill rendered to such
purchaser and regardless of whether such shipping or delivery is
provided by such vendor or a third party, but excluding any credit
for tangible personal property accepted in part payment and intended
for resale ....
(4) Retail sale. (i) A sale of tangible personal property to
any person for any purpose, other than (A) for resale as such or as
a physical component part of tangible personal property ....
Any transfer of title or
(5) Sale, selling or purchase.
possession or both, exchange or barter, rental, lease or license to
use or consume ... conditional or otherwise, in any manner or by any
means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article,
for a consideration or any agreement therefor.
(6) Tangible personal property.
of any nature ....

Corporeal personal property

Section 1105(a) of the Tax Law imposes tax upon, "[t]he receipts from every
retail sale of tangible personal property, except as otherwise provided in this
article."
Section 1105(b) of the Tax Law imposes tax, in part, upon "[t]he receipts
from every sale, other than sales for resale, of gas, electricity, refrigeration
and steam, and gas, electric, refrigeration and steam service of whatever nature
...."
Section 1105(c)(2) of the Tax Law imposes tax upon receipts from every
sale, except for resale, of the following services:
Producing, 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 services are performed.

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Section 1115(a) of the Tax Law provides in part:
Receipts from the following shall be exempt from the tax on
retail sales imposed under subdivision (a) of section eleven hundred
five and the compensating use tax imposed under section eleven
hundred ten:
*
*
*
(12) 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 ....
Section 1115(c) of the Tax Law provides in part:
Fuel, gas, electricity, refrigeration and steam, and gas,
electric, refrigeration and steam service of whatever nature for use
or consumption directly and exclusively in the production of
tangible personal property ... for sale, by manufacturing,
processing, assembling, generating, refining, mining, extracting,
farming, agriculture, horticulture or floriculture, shall be exempt
from the taxes imposed under subdivisions (a) and (b) of section
eleven hundred five and the compensating use tax imposed under
section eleven hundred ten.
Section 1115(d) of the Tax Law provides:
Services otherwise taxable under paragraph (1), (2), (3), (7)
or (8) of subdivision (c) of section eleven hundred five shall be
exempt from tax under this article if the tangible property upon
which the services were performed is delivered to the purchaser
outside this state for use outside this state.
Section 1132(c)(1) of the Tax Law provides in part:
For the purpose of the proper administration of this article
and to prevent evasion of the tax hereby imposed, it shall be
presumed that all receipts for property or services of any type
mentioned in subdivisions (a), (b), (c) and (d) of section eleven
hundred five ... are subject to tax until the contrary is
established, and the burden of proving that any receipt ... is not
taxable hereunder shall be upon the person required to collect tax
or the customer. Except as provided in subdivision (h) or (k) of
this section, unless (i) a vendor, not later than ninety days after
delivery of the property or the rendition of the service, shall have
taken from the purchaser a resale or exemption certificate in such
form as the commissioner may prescribe ... to the effect that the
property or service was purchased for resale or for some use by
reason of which the sale is exempt from tax under the provisions of
section eleven hundred fifteen ... the sale shall be deemed a
taxable sale at retail ....
Where such a resale or exemption
certificate ... has been furnished to the vendor, the burden of
proving that the receipt ... is not taxable hereunder shall be

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solely upon the customer.
The vendor shall not be required to
collect tax from purchasers who furnish a resale or exemption
certificate ... in proper form ....
Section 528.13 of the Sales and Use Tax Regulations provides, in part:
(b) Production. (1) The activities listed in paragraph (a)(1)
of this section are classified as administration, production or
distribution.
(i) Administration includes activities such as sales
promotion, general office work, credit and collection, purchasing,
maintenance, transporting, receiving and testing of raw materials
and clerical work in production such as preparation of work,
production and time records.
(ii) Production includes the production line of the plant
starting with the 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.
(iii) Distribution includes all operations subsequent to
production, such as storing, displaying, selling, loading and
shipping finished products.
(2) The exemption applies only to machinery and equipment used
directly and predominantly in the production phase. Machinery and
equipment partly used in the administration and distribution phases
does not qualify for the exemption, unless it is used directly and
predominantly in the production phase.
(3) The determination of when production begins is dependent
upon the procedure used in a plant. If on receiving raw materials,
the purchaser weighs, inspects, measures or tests the material prior
to placement into storage, production begins with placement into
storage, and the prior activities are administrative.
If the
materials are unloaded and placed in storage for production without
such activities, the unloading is the beginning of production.
*

*

*

(4) Production ends when the product is ready to be sold.
*

*

*

(1) Directly means the
(c) Directly and predominantly.
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

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(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.
(2) Usage in activities collateral to the actual production
process is not deemed to be used directly in production.
*
*
*
(4) Machinery or equipment is used predominantly in
production, if over 50 percent of its use is directly in the
production phase of a process.
Section 528.22(c) of the regulations provides, in part:
Directly and exclusively. (1) Directly means the fuel, gas,
electricity, refrigeration and steam and like services, and must
during the production phase of a process, either:
(i) operate exempt production machinery or equipment; or
(ii) create conditions necessary for production; or
(iii) perform an actual part of the production process.
(2) Usage in activities collateral to the actual production
process is not deemed to be use directly in production.
*

*

*

(3)(i) Exclusively means that the fuel, gas, electricity,
refrigeration and steam and like services are used in total (100%)
in the production process.
(ii) Because fuel, gas, electricity, refrigeration and steam
when purchased by the user are normally received in bulk or in a
continuous flow and a portion thereof is used for purposes which
would make the exemption inapplicable to such purchases, the user
may claim a refund or credit for the tax paid only on that portion
used or consumed directly and exclusively in production.
(iii) In the alternative, an exempt use certificate (Form
ST-121) may be used, providing full liability is assumed for any
State and local tax due on any part of purchases used for other than
the exempt purposes described in subdivision (a) of this section.
The taxable portion of these purchases is to be reported as a
‘purchase subject to use tax’ on a sales and use tax return required
to be filed with the Department of Taxation and Finance.

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(iv) The user must maintain adequate records with respect to
the allocation of fuel, gas, electricity, refrigeration and steam
used directly and exclusively in production and for nonexempt
purposes.
(v) For the purpose of substantiating the allocation of fuel,
gas, electricity, refrigeration and steam and like services used
directly and exclusively in production from that used for nonexempt
purposes, the user must, when claiming a refund or credit, submit an
engineering survey or the formulae used in arriving at the amounts
used in an exempt manner.
Section 532.4(b) of the regulations provides in part:
Burden of proof. (1) The burden of proving that any receipt
... is not taxable shall be upon the person required to collect the
tax and the customer.
(2) A vendor who in good faith accepts from a purchaser a
properly completed exemption certificate or, as authorized by the
Department, other documentation evidencing exemption from tax not
later than 90 days after delivery of the property or the rendition
of the service is relieved of liability for failure to collect the
sales tax with respect to that transaction. The timely receipt of
the certificate or documentation itself will satisfy the vendor’s
burden of proving the nontaxability of the transaction and relieve
the vendor of responsibility for collecting tax from the customer.
(i) A certificate or other document is "accepted in good
faith" when a vendor has no knowledge that the exemption certificate
or other document issued by the purchaser is false or is
fraudulently presented.
If reasonable ordinary due care is
exercised, knowledge will not be imputed to the seller required to
collect the tax.
Opinion
When Petitioner is retained by a site owner, or by a contractor hired by
the site owner, to treat and recycle contaminated materials that have been
transported by the site owner or contractor to Petitioner’s Fort Edward treatment
facility, Petitioner is processing tangible personal property regardless of
whether the processed materials are returned to the customer or remain in the
possession of Petitioner for future sale. (See, Matter of Cecos Intl. v State
Tax Comm, 71 NY2d 934.) Except as otherwise provided below, receipts from the
sale of this service are subject to New York State and local sales tax under
Section 1105(c)(2) of the Tax Law and pursuant to the authority of Article 29 of
the Tax Law, provided the site owner or contractor does not retain the processed
materials for resale. Processing services rendered by Petitioner on property
held for resale by the purchaser of the services are not taxable. If Petitioner

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charges its customer for shipping or delivering the processed materials back to
the customer in New York State, Petitioner’s taxable receipts for the processing
service would include any amount charged for such shipping or delivery and the
entire amount would be subject to tax.
Accordingly, the tax is imposed on the total contractual amount at the
combined New York State and local sales tax rate in effect in the taxing
jurisdiction where the service is delivered to the customer or where the
materials upon which the service is performed are delivered to the customer. In
those instances where Petitioner retains possession of the processed materials
for future sale or where the customer picks up the processed materials at
Petitioner’s Fort Edward treatment facility or where Petitioner delivers the
processed materials to the customer elsewhere in Washington County, the tax is
imposed at the combined State and local 7% sales tax rate in effect in Washington
County.
Where Petitioner delivers the processed materials to the customer
elsewhere in New York State, tax is imposed at the combined State and local rate
in effect in the jurisdiction where delivery takes place. As indicated, the
taxable receipts for the service include any charge by Petitioner for shipping
or delivering the processed materials back to the customer, even if Petitioner
separately states such charge.
The entire amount charged for the service,
including any separately stated shipping or delivery charge, is exempt from tax
under Section 1115(d) of the Tax Law if delivery of the materials occurs outside
New York State for use outside the State. (The location where the contract is
entered into has no effect on whether the transaction is subject to tax or on the
rate of sales tax to be imposed.)
When Petitioner enters into a contractual arrangement with an independent
trucking contractor to transport the materials from Petitioner’s customer’s site
to Petitioner’s Fort Edward treatment facility and Petitioner processes the
materials, Petitioner is also considered to be performing a processing service
under Section 1105(c)(2) of the Tax Law regardless of whether the processed
materials are returned to the customer or remain in the possession of Petitioner
for future sale.
As indicated, the tax is imposed on the total contractual
amount at the combined New York State and local sales tax rate in effect in the
taxing jurisdiction where the service is delivered to the customer or where any
materials upon which the service is performed are delivered to the customer. In
these cases, Petitioner’s taxable receipts for the service include any such
transportation costs incurred by Petitioner to have the materials transported to
Petitioner’s facility, as well as any charge by Petitioner for shipping or
delivering the materials back to the customer. (See, Matter of Penfold v State
Tax Comm, 114 AD2d 696.) However, if delivery of the materials occurs outside
New York State for use outside the State, the entire amount charged for the
service is exempt from tax under Section 1115(d) of the Tax Law.
Transportation, per se, is not a service subject to sales or use tax.
Thus, if Petitioner’s customer hires a trucking contractor to transport the
customer’s contaminated materials to Petitioner’s Fort Edward facility for
processing, and to return them to the customer after they are processed, the
transportation charge, per se, to transport the materials to and from
Petitioner’s Fort Edward facility would not be subject to tax. Likewise, if

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Petitioner hires a trucking contractor to transport contaminated materials to or
from Petitioner’s Fort Edward facility for processing, the transportation charge
paid by Petitioner is also not subject to tax.
As described in the facts submitted, Petitioner is in the business of
treating and recycling petroleum and nonpetroleum hydrocarbon contaminated soil
and other materials in New York State in accordance with Department of
Environmental Conservation guidelines. The decontaminated materials are returned
to the customer or remain in the possession of Petitioner for future sale. This
is not a waste removal service.
In accordance with Section 1132(c) of the Tax Law and Section 532.4 of the
regulations, the burden of proving that Petitioner’s receipts from the sale of
its processing service are not subject to sales tax is upon Petitioner and its
customers. If Petitioner, in good faith, timely accepts a properly completed
resale or exemption certificate, Petitioner is relieved of its liability to
collect the sales tax with respect to the applicable sale, and the burden of
proving whether the sale is taxable rests solely upon the customer. Petitioner
is not relieved of this duty to collect tax if Petitioner has actual knowledge
(i.e., more than a mere suspicion or belief) that the resale or exemption
certificate is false or fraudulent. Where Petitioner accepts the certificate in
good faith, it is under no duty to investigate or police the customer or to
debate the taxability of the sale with the customer. (See, Matter of Saf-Tee
Plumbing v Tully, 77 AD2d 1; Harron’s Electric Service, Inc., Adv Op Comm T&F,
October 14, 1981, TSB-A-81(44); Sharon P. Sheinfeld, Adv Op Comm T&F, August 7,
1990, TSB-A-90(39)S.)
The question of whether a resale or exemption certificate is accepted in
good faith is a factual matter that cannot be determined in an Advisory Opinion
(see, Copelco Leasing Corporation, Adv Op Comm T&F, May 18, 1995, TSB-A-95(15)S).
However, given the fact that Petitioner performs a processing service, the
receipts from which are taxable under Section 1105(c)(2) of the Tax Law and that
this section of the Tax Law contains no provision for a capital improvement
exemption, Petitioner may not accept a Certificate of Capital Improvement from
a customer in good faith.
(See, Matter of Robert Bruce McLane Associates v
Urbach, -- AD2d --, 649 NYS2d 487.) Accordingly, Petitioner’s receipt from a
customer of a Certificate of Capital Improvement (or a copy thereof) indicating
that the described work results in a capital improvement to the real property as
indicated on the back of the certificate does not preclude the imposition of
sales tax on the service provided by Petitioner.
Petitioner may accept in good faith and rely upon a Contractor Exempt
Purchase Certificate issued by a contractor who checks box 3f on the certificate
(i.e., services for resale). Petitioner’s processing service may be purchased
for resale in appropriate circumstances. However, in the situations presented
by Petitioner, box 3a is not applicable because this box pertains to the sale of
tangible personal property and not to the performance of a service. Petitioner
may also accept in good faith and rely upon a Resale Certificate (Form ST-120)
issued by someone other than a contractor who purchases Petitioner’s service for
resale (including the servicing of tangible personal property held for sale by
the purchaser of such service).
Where Petitioner accepts either of these
certificates in good faith, Petitioner is not responsible for collecting sales

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tax from its customer on its service. Rather, the customer is responsible either
for the tax or for proving that its purchase of Petitioner’s service is not
taxable.
The rotary dryer, oxidizer, filtration systems, etc. that are located at
Petitioner’s Fort Edward treatment facility and the energy (natural and propane
gases) used to operate the thermal equipment involved in the treatment of
materials are exempt from tax pursuant to Sections 1115(a)(12) and 1115(c),
respectively, of the Tax Law only if the machinery and equipment and the energy
are used or consumed "in the production of tangible personal property ... for
sale," as follows.
In the case of machinery or equipment, this use or
consumption must be "directly and predominantly" as defined in the sales tax
regulations; in the case of energy, the use or consumption must be "directly and
exclusively" as so defined.
Petitioner’s rotary dryer, oxidizer, filtration systems, etc. are used, and
the energy used to operate the thermal equipment is consumed, in the production
phase. However, Petitioner has indicated that after decontamination, materials
are either returned to the customer or remain in the possession of Petitioner for
future sale. Accordingly, if the machinery and equipment are used by Petitioner
predominantly (over 50 percent) to produce decontaminated materials for sale, by
either Petitioner or Petitioner’s customers, the machinery and equipment are
eligible for the exemption from tax provided in Section 1115(a)(12) of the Tax
Law. (See, Lindemann Recycling Equipment, Inc., Adv Op Comm T&F, January 31,
1989, TSB-A-89(3)S; Vigliotti Recycling Corp., Adv Op Comm T&F, December 24,
1990, TSB-A-90(58)S.) However, if the machinery and equipment are predominantly
used to treat materials that will be reused by the customer, or otherwise not
sold, the machinery and equipment would be subject to tax. Any energy used or
consumed exclusively to operate the machinery and equipment in the production of
decontaminated materials for sale is eligible for the exemption from tax provided
in Section 1115(c) of the Tax Law and administered in accordance with Section
528.22 of the regulations. Petitioner is required to pay sales or compensating
use tax on its purchases of energy, except to the extent that Petitioner can
substantiate that a portion of the energy is used exclusively to operate the
machinery and equipment while producing materials for sale. (See, Matter of
Midland Asphalt v Chu, 136 AD2d 851, lv denied 72 NY2d 806.)
Petitioner’s sales of reclaimed soil and other decontaminated materials are
sales of tangible personal property subject to tax under Section 1105(a), 1107
and 1109 of the Tax Law and county and city sales taxes enacted pursuant to the
authority of Article 29 of the Tax Law. Tax is imposed on the receipt from the
retail sale of the materials at the combined New York State and local tax rate
in effect in the taxing jurisdiction where the materials are delivered to the
purchaser. It is noted that if Petitioner sells this tangible personal property

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TSB-A-97(25)S
Sales Tax

to a contractor for incorporation into a project for an organization that is
exempt from tax under Section 1116(a) of the Tax Law, Petitioner may accept a
Contractor Exempt Purchase Certificate with box 3a checked.

DATED:

April 24, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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