Mar 16, 2015
From KPMG TaxWatch
The New York Supreme Court, Appellate Division recently addressed whether environmental monitoring and testing services were subject to New York sales tax. The taxpayer owned numerous facilities in New York where petroleum was used. Under New York law, petroleum spills must be investigated and, if necessary, remediated. The taxpayer contracted with third parties to test and monitor areas affected by petroleum spills. These services did not always result in remediation, and it could take years to reveal whether and what type of remediation was required. If remediation was necessary, further monitoring and testing was required to ensure the remediation efforts were successful.
On audit, the Department of Taxation and Finance assessed sales tax on the taxpayer’s purchase of the testing and monitoring services. The taxpayer appealed the assessment unsuccessfully to the Tax Appeals Tribunal, and then the matter went before the court.
Under New York law, sales and use tax is imposed on services related to “maintaining, servicing, or repairing real property,” which is defined by regulation to mean “all activities that relate to keeping real property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition.” There was no dispute that any services rendered to actually remediate petroleum spills were taxable. However, the taxpayer asserted that the monitoring and testing services were not taxable because they were investigative and no remediation occurred. In upholding the assessment, the court noted that deference was due the agency with responsibility for administering the law that the burden was on the taxpayer to show that the Department’s interpretation of the statute was irrational or unreasonable. The court concluded that there was nothing irrational in “finding that the monitoring and testing services constituted an integral part of the taxable remediation efforts, even if they were billed separately.” For more information on Matter of Exxon Mobil Corporation v. State of New York Tax Appeals Tribunal, 2015 NY Slip Op 01840 (N.Y. App. Div. Jan. 12, 2015), please contact Dennis Prestia at (212) 872-6891 or Judy Cheng at (212) 872-3530.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.