November 30, 2021

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Monitoring and Testing (and Taxing): New York Appellate Court Imposes Sales Tax on Environmental Remediation Work

Keeping with a growing trend, a New York appellate court in Exxon Mobil Corp. v. State of New York Tax Appeals recently upheld a ruling applying a sales and use tax assessment to environmental remediation work.

New York law has a provision imposing a sales tax on services related to “[m]aintaining, servicing or repairing real property, property or land…as distinguished from adding to or improving such real property, property or land, by a capital improvement.” 20 NYCRR 527.7(a)(1). The court held that this language was broad enough to extend to environmental remediation work. Exxon Mobil Corp. v. State of New York Tax Appeals Tribunal, No. 517504, 2015 WL 919788, at *2 (N.Y. App. Div. Mar. 5, 2015).

After an audit of Exxon, the New York Department of Taxation and Finance found that Exxon owed $500,000 in unpaid sales taxes on testing and monitoring of properties affected by petroleum spills. Exxon asserted that its monitoring and testing programs were not taxable because they were “intended to ascertain the condition of the affected property and not to remediate the petroleum spills.” Exxon Mobil Corp., 2015 WL 919788, at *2.

The court, however, found that the testing and monitoring were part of remediation efforts insomuch as they may lead directly to active remediation or the cessation of remediation. Testing and monitoring were therefore found to be an “integral part” of such remediation efforts and subject to a sales and use tax. Id.

© 2021 Schiff Hardin LLPNational Law Review, Volume V, Number 79

About this Author

Robert A. Middleton, Schiff Hardin, Chicago, Energy Lawyer, Litigation

Robert Middleton is taking advantage of the opportunity for new associates to work in several practice groups for broadened experience and expanded legal counseling perspectives.

Prior to joining Schiff Hardin, Mr. Middleton was with Northwestern University’s Center on Wrongful Convictions, first as a 711 student, and, after graduation, as a Public Interest Law Initiative Fellow. He also gained valuable experience as a Schiff Hardin summer associate in 2013. Earlier, Mr. Middleton was a legal intern with Equality Illinois.