Testing and Monitoring Costs Associated with Remediation of a Petroleum Spill Are Taxable/Deference Is Accorded an Agency’s Interpretation of a Broadly-Worded Statute

The Third Department determined that the costs of monitoring and testing done as part of a remediation effort at the site of a petroleum spill are taxable pursuant to Tax Law 1105(c)(5).  The Third Department explained the courts’ review powers where an agency has interpreted a statute that is broadly worded:

Tax Law § 1105 (c) (5) imposes a sales tax on purchases of 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) further defines “[m]aintaining, servicing and repairing” as “all activities that relate to keeping real property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition.” Petitioner [Exxon Mobil] asserts that the monitoring and testing services paid for here were not taxable, as they were only intended to ascertain the condition of the affected property and not to remediate the petroleum spills. We disagree.

Under well-established principles of law, “an agency’s interpretation of the statutes it administers must be upheld absent demonstrated irrationality or unreasonableness” … . Petitioner points out that no deference will generally be afforded to administrative agencies in matters of pure statutory interpretation … . Inasmuch as the present case involves the specific application of broad statutory language, however, deference to the agency that is charged with administering the statute is appropriate … . Contrary to petitioner’s further assertion, the burden rested upon it to establish that the specific sales at issue here were not taxable (see Tax Law § 1132 [c] [1]…).

As this Court and the Court of Appeals have “noted, both the statute and regulation contain broad language” … . The removal of hazardous waste from a property constitutes a taxable maintenance service and, indeed, petitioner does not dispute that a purchase of services related to the remediation of spilled petroleum is taxable … . Petitioner claims that the services at issue here are not related to the improvement of property affected by a petroleum spill, but that claim is not borne out by the record. Petroleum discharges are prohibited in New York and, when a spill occurs, petitioner is obliged to notify the Department of Environmental Conservation and may coordinate with that Department to remediate the spill (see Navigation Law §§ 173, 175, 176 [7]). Petitioner is required to conduct an environmental investigation of the spill area, including the monitoring and testing services at issue here, as part of its remediation effort. While an active cleanup of a spill site is not required in every case, the same monitoring and testing procedures are always employed, and it may take years for those procedures to reveal what type of remediation is required. Moreover, if active remediation is conducted, further monitoring and testing is required to ensure that the remedial system may be safely removed. Under these circumstances, there was nothing irrational in the finding that the monitoring and testing services at issue constituted an “integral part of the” taxable remediation efforts, even if they were billed separately … .  Matter of Exxon Mobil Corp. v State of New York Tax Appeals Trib.. 2015 NY Slip Op 01840, 3rd Dept 3-5-15