NY State Sales and Use Tax may Now Be Applied to Environmental Testing

In the recent trial of Exxon Mobil Corp. v. State of New York Tax Appeals Tribunal, 2015 WL 919788, 2015 N.Y. Slip Op. 01840 (3d Dep’t March 5, 2015), the appellate court ruled that environmental testing services are a large part of taxable remediation activities and cannot be listed as a tax exempt service by clients in need of environmental services. The tax law currently differentiates between services that are providing a capital improvement to a commercial property and services that repair or maintain a property. The trial of Exxon Mobil Corp. v. State of New York Tax Appeals Tribunal found that ascertaining the current environmental condition of a site via testing and monitoring was a major part of taxable aspects of a site’s remediation.

The sales tax in question was approximately $500,000 owed to the state for environmental monitoring services used from 2000 through 2004 and were deemed as “activities that relate to keeping real property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition”. To understand whether or not a service provided is taxable or not, one would have to consider many factors about the service; is the site testing performed as an integral part of a capital improvement program; or is a part of the environmental work tax exempt while other parts are not? These questions can be answered by considering what type of project it is, the time between the completion of environmental work at a site and the completion of the capital gains work, and how the environmental services are referred to in contracts, work orders, and other paperwork relating to the project.