Sales Tax Articles
Sales Tax State Activity Update - September 2008
"Tanks for the Exemption", Said the Environmental Clean-Up Service to Pennsylvania
In a Sales and Use Tax Ruling the Pennsylvania's Office of Chief Counsel ruled that a consultant fee for use of its equipment and its fees for labor to investigate and eventually clean up a contaminated underground storage tank site were not subject to sales and use tax.
Background
An Underground Storage Tank Indemnification Fund claimant and its consultant, a tank service company, are working on the investigation and eventual clean up of a contaminated underground storage tank site in Pennsylvania. Among other expenses, the consultant seeks reimbursement for sales tax on labor fees and the daily/hourly fee for its use of various pieces of field screening equipment that it owns. The Taxpayer, the claims administrator, believes that sales tax does not apply to reimbursement for use of the consultant's own equipment, and it does not apply to the charge for the consultant's laborers.
Ruling
Pennsylvania's Tax Reform Code imposes a sales tax of six percent of the purchase price on each separate sale at retail, including rentals, of tangible personal property or taxable services within Pennsylvania. 72 P.S. § 7202(a). The essence of the transaction between the consultant and the claimant is the performance of environmental clean-up services. This service is not taxable under the Tax Reform Code of 1971, as amended.
Environmental clean-up services are treated as if they were construction services for purposes of sales and use tax. A contractor does not collect tax on its services because those services are not a "sale at retail"; instead, the contractor pays sales tax on the materials it acquires or the equipment it purchases or rents in the performance of the contract. 61 Pa. Code § 31.13. Those transactions are "sales at retail." A contractor normally recoups its expenses, including the sales tax it paid, by building such costs into its bid or estimate.
The reimbursement of the consultant by the Taxpayer for its expenses in itself is not a "sale at retail" subject to sales tax and there should be no new sales tax added at this level.
This ruling may be viewed on the Pennsylvania Department of Revenue Web site.
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