Is a hazardous-waste broker's fee for arranging removal, transportation, and treatment/disposal of waste taxable when the waste is actually treated or disposed of outside New York State?

Plain-English summary

Waste Technology Services, Inc. is a registered sales tax vendor that acts as a middleman between hazardous-waste generators and the transportation and treatment/disposal companies that actually handle the waste. It never takes possession of the waste itself. Instead, it identifies properly permitted transporters and treatment/disposal facilities, subcontracts with them on the generator's behalf, marks up their prices, and bills the generator, with transportation and treatment/disposal charges separately stated. Many of its subcontracted disposal facilities are located outside New York, so much of the actual transportation and treatment happens out of state. The company asked two things: is its markup income taxable, and can it buy the underlying transportation and disposal services tax-free as purchases for resale?

The answer turns heavily on one factual question: is Waste Technology Services acting as the generator's agent, or is it itself the service provider (with the transporter and disposal facility as its subcontractors)? If it's a true agent -- meaning the generator authorized it to act on the generator's behalf and controls it accordingly -- then the transporter and disposal facility are legally selling their services directly to the generator, and Waste Technology Services is just earning a separately stated, nontaxable commission. If it's not acting as an agent, then Waste Technology Services itself is treated as providing the whole waste-removal service to the generator, subcontracting the pieces out, and its own charge to the generator is the one that gets taxed.

Either way, the location rules are the same: transportation (removing waste from a New York location) is always taxable as maintaining real property, regardless of how far the waste travels once it leaves the state. Treatment or disposal, by contrast, is only taxable if it's a "processing" service (like actual treatment, not simple burial) and if that processing happens inside New York -- treatment/disposal performed entirely outside New York isn't subject to New York sales tax. If a single combined charge doesn't separately state the out-of-state processing portion, a reasonable allocation has to be made, with only the allocated New York portion taxed. Finally, if Waste Technology Services is not the generator's agent, it can still buy the transportation and disposal services tax-free from its subcontractors as purchases for resale, as long as it gives them a properly completed resale certificate.

What this means for you

Waste brokers and environmental-services middlemen

Whether you're a taxable "agent earning a commission" or the taxable "principal reselling a service" depends on real agency-relationship facts -- who authorizes and controls whom -- not just how your contracts are labeled. Get this right, because it changes both whether your own fee is taxable and whether you can buy the underlying services tax-free with a resale certificate.

Companies generating hazardous or industrial waste that gets shipped out of state

Your transportation charge for removing waste from your New York facility is taxable regardless of the ultimate destination. But if treatment or disposal genuinely happens outside New York, ask your vendor to separately state that portion on your invoice -- it shouldn't be taxed, and an unstated lump sum risks being taxed in full or apportioned unfavorably.

Accountants and tax professionals

This ruling and its companion, TSB-A-98(16)S, both apply the Tax Appeals Tribunal's Olin Corporation decision on the Commerce Clause limits of taxing an "integrated waste removal service" where processing occurs entirely outside New York -- apportionment (by mileage or by the transportation-charge percentage) is required only when the vendor can show a portion of the receipt is genuinely attributable to out-of-state processing.

Common questions

Q: Is a waste broker's markup or commission taxable?
A: If the broker is a true agent of the waste generator (not the actual service provider), its separately stated commission is not taxable. If it's not acting as an agent, its own charge for the whole waste-removal service is taxable, subject to the location-of-processing rules below.

Q: Is transportation of hazardous waste out of New York State taxable?
A: Yes. Removing and transporting waste from a New York location is taxable as maintaining real property, regardless of where the waste ultimately goes.

Q: Is treatment or disposal that happens entirely outside New York taxable?
A: No, as long as it's genuinely performed outside the state and that portion of the charge is separately stated or reasonably allocated. Mere burial or disposal without treatment isn't a taxable "processing" service at all, wherever it happens.

Q: Does this ruling apply to my waste brokerage or disposal arrangement?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Whether you're acting as an agent is a fact-specific question that depends on your own contracts and conduct.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(15)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950221B

On February 21, 1995, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Waste Technology Services, Inc., c/o
Christopher L. Doyle, Esq., Hodgson, Russ, Andrews, Woods & Goodyear, 1800 One
M&T Plaza, Buffalo, New York 14203-2391.
Petitioner, Waste Technology Services, Inc., raised the following issues:

1. Whether the Tax Law imposes sales tax on Petitioner’s receipts for the
   services of removal, transportation and treatment or disposal of hazardous
   waste generated in New York State and transported outside New York State
   for treatment or disposal or both.
   2.
   Whether certain of Petitioner’s purchases of hazardous waste
   treatment/disposal and transportation services are exempt from sales tax
   because the services are purchased for resale.
   Petitioner submitted the following facts as the basis for this Advisory
   Opinion.
   Petitioner, a registered sales tax vendor, is engaged in the business of
   hazardous waste disposal. Petitioner acts as a liaison between hazardous waste
   generators, treatment/disposal facilities and transporters.
   Typically, a waste generator will contract with Petitioner to provide
   certain services related to the disposal of hazardous waste. These services may
   include transportation (including removing the waste from the generator’s
   property), and treatment or disposal or both.
   Petitioner identifies
   treatment/disposal facilities that are properly permitted to accept the
   generator’s waste. Based on cost and reputation for quality of work, Petitioner
   determines which treatment/disposal facility is best suited to accept the
   generator’s waste. Petitioner then enters into a subcontract with the selected
   treatment/disposal facility to treat and dispose or merely dispose of the
   generator’s waste.
   If requested, Petitioner also identifies properly permitted transportation
   firms to transport the waste from the generator’s facility to the selected
   treatment/disposal facility. Petitioner determines the best transporter based
   on a reputation and cost analysis. Petitioner then enters into a subcontract
   with the selected transporter to ship the generator’s waste to the proper
   treatment/disposal facility.

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State.

Many of the treatment/disposal facilities are located outside New York
Therefore, much of the transportation occurs outside New York State.

Petitioner never takes possession of the waste, nor does Petitioner
directly handle, transport or dispose of any generator’s waste. Petitioner marks
up the prices that Petitioner is required to pay to the subcontracted
treatment/disposal facilities and transporters.
Petitioner sends periodic
invoices to generators, including markup charges for waste treatment/disposal and
any transportation (including pickup). These invoices separately state charges
related to treatment/disposal and transportation expenses.
The following hypothetical situations demonstrate typical arrangements:
HYPOTHETICAL SITUATION I
Company G is a hazardous waste generator that is located in New York State.
As part of its efforts to comply with relevant environmental regulations, Company
G contracts with Petitioner to provide waste transportation services and
treatment/disposal. Petitioner subcontracts with Company T, a hazardous waste
transporter, to transport G’s waste to Company D’s treatment/disposal facility
that is located in Detroit, Michigan. Petitioner also enters into a subcontract
with Company D to dispose or treat and dispose of Company G’s waste at D’s
Michigan facility.
Petitioner pays Company T $2,000 to transport 20 cubic yards of toxic
sludge and hazardous construction debris from Buffalo, New York, to Detroit,
Michigan. Of the 300-mile trip to Detroit, 75 miles (or 25 percent) are in New
York State and the remaining 225 miles (75 percent) are outside New York State.
Petitioner charges Company G $2,200 for transportation (reflecting a 10 percent
markup).
Petitioner pays Company D $5,000 for treatment or disposal of the
waste. Petitioner charges Company G $5,500 for treatment or disposal (again
reflecting a 10 percent markup). Petitioner’s invoice to Company G separately
states the costs and fees for transportation and treatment/disposal services
provided to Company G.
HYPOTHETICAL SITUATION II
This hypothetical situation assumes the same facts as Hypothetical
Situation I, except all of Company D’s treatment/disposal services are performed
in New York State and all of Company T’s transportation services are performed
in New York State.
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:

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*

*

*

(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. For special rules governing computation of receipts,
see section eleven hundred eleven.
(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, or (B) for
use by that person in performing the services subject to tax under
paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of
section eleven hundred five where the property so sold becomes a
physical component part of the property upon which the services are
performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax.
Notwithstanding the
preceding provisions of this subparagraph, a sale of any tangible
personal property to a contractor, subcontractor or repairman for
use or consumption in erecting structures or buildings, or building
on, or otherwise adding to, altering, improving, maintaining,
servicing or repairing real property, property or land, as the terms
real property, property or land are defined in the real property tax
law, is deemed to be a retail sale regardless of whether the
tangible personal property is to be resold as such before it is so
used or consumed, except that a sale of a new mobile home to a
contractor, subcontractor or repairman who, in such capacity,
installs such property is not a retail sale....
Section 1105(c) of the Tax Law imposes tax upon receipts from every sale,
except for resale, of the following services:
*

*

*

(2) 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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(5) Maintaining, servicing or repairing real property,
property or land, as such terms are defined in the real property tax
law, whether the services are performed in or outside of a building,
as distinguished from adding to or improving such real property,
property or land, by a capital improvement as such term capital
improvement is defined in paragraph nine of subdivision (b) of
section eleven hundred one of this chapter, but excluding services
rendered by an individual who is not in a regular trade or business
offering his services to the public.
Section 527.7(a) of the Sales and Use Tax Regulations provides, in part:
(1) Maintaining, servicing and repairing are
Definitions.
terms which are used to cover all activities that relate to keeping
real property in a condition of fitness, efficiency, readiness or
safety or restoring it to such condition.
Among the services
included are services on a building itself such as painting;
services to the grounds, such as lawn services, tree removal and
spraying; trash and garbage removal and sewerage service and snow
removal.
Section 527.7(b)(2) of the regulations provides:
All services of trash or garbage removal are taxable, whether
from inside or outside of a building or vacant land.
Opinion
The application of sales tax to Petitioner’s receipts from the sale of the
services of removal, transportation and treatment or disposal (or both) of
hazardous waste depends, among other things, upon whether Petitioner acts in a
representative capacity as agent for the waste generator. To establish an agency
relationship there must be a “manifestation” that Petitioner consents to act on
behalf of the waste generator, subject to its control, and that the waste
generator authorizes the fiduciary relationship. (See, Matter of Hooper Holmes
v Wetzler, 152 AD2d 871, lv den, 75 NY2d 706; Matter of Swet, Dec Tax App Trib,
February 22, 1991, TSB-D-91(10)S.) Whether Petitioner acts as an agent of the
waste generator is a question of fact that must be resolved based upon the
circumstances in each case. See also Section 541.5(c) of the Sales and Use Tax
Regulations for guidelines on agency contracts.
If, in the hypothetical situations presented by Petitioner, Petitioner acts
as the agent of Company G (the waste generator), then Company G is purchasing
separate services from Company D and Company T. Company D performs the service
of treatment and disposal of hazardous waste for $5,000. By itself, this would
constitute the service of processing tangible personal property for purposes of
Section 1105(c)(2) of the Tax Law.
(See, Matter of Cecos Int. v State Tax
Commn., 126 AD2d 884, affd 71 NY2d 934.) New York State sales tax is imposed on
the $5,000 receipt from the sale of the service of treatment and disposal of
hazardous waste when the waste is treated and disposed of in New York State. (See
Hypothetical Situation II.)
No New York State sales tax is imposed on the

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receipts from the sale of the services of treatment and disposal of hazardous
waste when the waste is treated and disposed of outside New York State. (See
Hypothetical Situation I.) In some cases, Company D may only perform the service
of disposal of hazardous waste, without treating the waste. No New York State
sales tax is imposed on receipts solely from the sale of the disposal service,
regardless of whether the waste is disposed of within or outside New York State,
where no processing service is performed on the waste in conjunction with the
disposal.
The mere disposal of hazardous waste is not one of the services
enumerated under Section 1105(c) of the Tax Law and therefore is not subject to
tax.
As indicated, if Petitioner acts as the agent of Company G, then Company
G is purchasing a separate service from Company T. Company T picks up Company
G’s waste and transports it to Company D’s treatment/disposal facility for
$2,000. The removal and transportation of hazardous waste from real property
located in New York is taxable under Section 1105(c)(5) of the Tax Law as
maintaining, servicing or repairing real property, regardless of whether the
waste is transported to a point outside of New York. (See, Matter of Tonawanda
Tank Transport Service v Tax Appeals Tribunal of State of N.Y., 168 AD2d 748.)
If Petitioner acts as the agent of Company G, then Petitioner does not
purchase the services of Company D and Company T for resale. In this case,
Company D and Company T are deemed to sell their services to Company G, with
Petitioner acting as Company G’s agent. Petitioner is merely earning a $700
commission ($500 + $200) which is not subject to sales tax if separately stated
on Petitioner’s bill to Company G.
If in the hypothetical situations described above Petitioner does not act
as the agent of Company G, then Petitioner itself is deemed to provide the
services in question to Company G.
In this case, Company G contracts with
Petitioner to remove, transport and dispose, or remove, transport, treat and
dispose, of Company G’s waste. Petitioner subcontracts out to Company T the
pickup and transportation, and to Company D the disposal or treatment and
disposal functions that Petitioner contracts to perform for Company G. These
services are taxable. If the waste is merely disposed of, i.e. not processed,
by Company D, the entire charge by Petitioner is subject to tax under Section
1105(c)(5) of the Tax Law as an integrated waste removal service (see, Michael
Gross, Adv Op Comm T&F, September 23, 1996, TSB-A-96(57)S). If, however, Company
D processes and disposes of the waste outside New York, as may occur in the case
of Hypothetical Situation I, the charge for processing the waste is not subject
to sales tax. If the out-of-state processing charge is not separately stated,
then a reasonable allocation should be made of the total charge, and the portion
reasonably allocated to out-of-state processing would not be subject to tax. The
balance allocated to remove and transport the waste would be subject to tax. If,
as may occur in Hypothetical Situation II, treatment and disposal occur in New
York, then the total charge is subject to tax.
It is noted that the above conclusions stated in this Advisory Opinion are
not inconsistent with the Tax Appeals Tribunal decision in Olin Corporation, Dec
Tax App Trib, September 11, 1997, TSB-D-97(34)S. In Olin, the Tribunal held that
the imposition of New York State sales tax on the entire receipt from the sale

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of an integrated waste removal service where the waste processing occurs outside
New York violates the Commerce Clause.
In affirming the Administrative Law
Judge’s method of apportioning receipts based on mileage in the circumstances of
the case, the Tribunal referred to two possible methods of apportionment:
apportionment based on miles traveled within this State and apportionment based
on the charge for the transportation portion of the entire receipt. The Tribunal
noted, “we do not hold that in every case such as this an apportionment based on
miles traveled within New York State is necessary in order to find a
constitutional application of Tax Law §1105(c)(5).”
As indicated, if Petitioner does not act as the agent of Company G, then
Petitioner is deemed to be purchasing services from Company D and Company T. The
pickup and transportation service and any disposal service that Petitioner
purchases from Company T constitutes the enumerated taxable service of
maintaining, servicing or repairing real property under Section 1105(c)(5) of the
Tax Law and the waste treatment service provided by Company D is a processing
service taxable under Section 1105(c)(2) of the Tax Law. Petitioner may purchase
these services exempt from tax as purchases for resale, provided Petitioner
timely furnishes Company T and Company D with properly completed Resale
Certificates, Form ST-120.

DATED: March 3, 1998

NOTE:

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

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