Sales Tax State Activity Update - January 2004

New York Lacks Nexus To Tax Interstate Transactions

State of New York Tax Appeals Tribunal has ruled that the state lacked nexus to tax a hazardous waste disposal service where the waste is removed from an out of state location, transported into the state, processed and disposed within the state.

The Division of Taxation conducted an audit of the Taxpayer, CWM Chemical Services, Inc., and assessed sales tax on receipts from out of state customers where the taxpayer had picked up waste at the clients out-of-state property and transported it to New York for treatment and disposal. The Division asserted that sales tax, pursuant to Tax Law § 1105(c)(5),was due on the in-State portion of the receipts from such transactions, and the Division determined that the receipts for treatment and disposal would fairly represent that portion of the revenues attributable to New York activity. Alternatively, the Division argued that sales tax can also be imposed under Tax Law § 1105(c)(2) on the portion of petitioners' sales receipts derived from the New York segments of the activities performed (processing/treatment and disposal).

The Taxpayer (CWN) disagreed and argued that the interstate transactions in question were not subject to sales tax.

The Administrative Law Judge agreed with the taxpayer concluding that the state may not, by apportionment of receipts or otherwise, impose a sales tax on petitioners' out-of-state customers who purchased from petitioners an integrated real property maintenance service to be performed on their out-of-state real property as it lacked sufficient jurisdiction and granted the petitioners' motion for summary determination.

The Tax Appeals Tribunal agreed with the ALJ and stated that New York may not tax the receipts from the transactions at issue. The integrated service herein is a real property maintenance service sold and initially performed on real property located outside of New York State. The sale and delivery of the service commences by pick-up of the waste product from the out-of-state real property and with its removal and transportation thereof. The sale transaction is thus consummated and the performance of the service is initiated outside of New York State. Nexus for imposition of the sales tax on such transactions lies in the state where the real property is located, the sale is consummated and performance of the service is initiated (Oklahoma Tax Commn. v. Jefferson Lines, supra). Under the facts of this case, New York lacks the requisite nexus to impose sales tax on these interstate transactions.

(Tax Appeals Tribunal, In the Matter of the Petition of {CWM CHEMICAL SERVICES, INC.} DTA NO. 818757, December 11, 2003) 01/04

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