Connecticut State Department of Revenue Services

SN 95(17)

Certain Environmental Services Excluded From
Sales and Use Taxes

ALERT: 2011 Conn. Pub. Acts 6 repealed the sales and use tax exclusion for the evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants of air, water or soil effective July 1, 2011

This publication has been cited by PS 2000(4)

PURPOSE: The purpose of this Special Notice is to describe the changes made by 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.) to exclude certain environmental services from services otherwise subject to the sales and use taxes under Conn. Gen. Stat. §12-407(2)(i)(I) and (J).

EFFECTIVE DATE: Effective for all open tax periods commencing on and after July 1, 1989.

BACKGROUND: Before its amendment in 1994, subparagraph (I) of Conn. Gen. Stat. §12-407(2)(i), which includes in the definition of sale and selling services to industrial, commercial or income-producing real property, excluded from tax any such services "rendered in the voluntary containment or removal of hazardous waste." Thus, the exclusion applied only to services rendered to abate the effects of hazardous waste which had been released into the environment. This subparagraph was amended by 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.) to exclude from tax services rendered in the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste, as defined in Conn. Gen. Stat. §22a-115, or other contaminants of air, water or soil. Therefore, the amendment expanded the exclusion to include services rendered to prevent the release of either hazardous waste or other contaminants of air, water or soil, to evaluate such releases, and to treat, contain or remove such releases.

In addition, 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.) amended subparagraph (J) of Conn. Gen. Stat. §12-407(2)(i), which includes in the definition of "sale" and "selling" business analysis, management, management consulting and public relations services, to exclude any environmental consulting services from tax.

STATUTORY AUTHORITY: Conn. Gen. Stat. §12-407(2)(i)(I) and (J), as amended by 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.).

DEFINITION OF "VOLUNTARY" IN CONN. GEN. STAT. §12-407(2)(i)(I): Prior Definition: In the past, the Department has consistently construed "voluntary" according to its commonly approved usage, concluding that the removal or containment of hazardous waste is not "voluntary" when performed following an order or mandate issued by a federal or state agency or court order (see Ruling Nos. 91-5, 92-15 and 94-5). The Department has distinguished between agency orders and mandates and court orders, and statutes and regulations. Whereas agency orders and mandates and court orders apply to a specific party, statutes and regulations are generally applicable. And whereas containing or removing hazardous waste to comply with an agency mandate or court order has been deemed involuntary, containing or removing hazardous waste solely to comply with a statute or regulation has been deemed voluntary.

New Definition: Effective for all open tax periods commencing on and after July 1, 1989, the Department is changing its interpretation of "voluntary." The Connecticut Department of Environmental Protection (the "DEP") has indicated to this agency that a broader interpretation of "voluntary" for purposes of the exclusion from tax for services rendered in the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants of air, water or soil will assist the DEP in its administration of Connecticut environmental laws. Therefore, this agency will expand its definition of voluntary to include any such action that is taken to comply with a statute or regulation, as well as any such action that is taken in accordance with a consent agreement or stipulated judgment which is issued or entered in any administrative or civil action brought by the DEP or the federal Environmental Protection Agency (the "EPA") to compel the evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants prior to the earlier of:

(i) the time when a prehearing conference (described for purposes of the DEP in Conn. Agencies Regs. 22a-3a-6(p)) is held in connection with such action, or

(ii) the time when the hearing or trial in such action commences.

Thus, any action for the evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants of air, water or soil taken with regard to the subject real property will be deemed to be "involuntary," and will not qualify for the exclusion from tax, if it is taken after a prehearing conference is held, or a hearing or trial is held, whichever is earlier.

DEFINITION OF "HAZARDOUS WASTE": Hazardous waste is defined in Conn. Gen. Stat. §22a-115 as:

any waste material, except by-product material, source material or special nuclear material, as defined in [Conn. Gen. Stat.] section 22a-151, which may pose a present or potential hazard to human health or the environment when improperly disposed of, treated, stored, transported, or otherwise managed, including (A) hazardous waste identified in accordance with Section 3001 of the federal Resource Conservation and Recovery Act of 1976 (42 USC 6901 et seq.), (B) hazardous waste identified by regulation by the department of environmental protection and (C) polychlorinated biphenyls in concentrations greater than fifty parts per million.

For assistance in determining whether a specific material is a "hazardous waste" as defined in Conn. Gen. Stat. §22a-115, call the DEP at 860-424-3023, or write to: Waste Management Bureau, Hazardous Waste Division, Department of Environmental Protection, 79 Elm Street, Hartford, CT 06106-5127. Any taxpayer purchasing services under the exclusion for the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste must retain in such taxpayer's records documentation that the material in question is considered such a hazardous waste by the DEP.

DEFINITION OF "OTHER CONTAMINANTS OF AIR, WATER OR SOIL": Other contaminants of air, water or soil include the following:

  1. any substance for which a cleanup standard is established by the DEP or the EPA, whether or not such substance is present in quantities sufficient to require action under Connecticut or federal environmental laws (cleanup standards presently established by the DEP apply to the contamination of water or soil);
  2. any material spontaneously emitting ionizing radiation;
  3. any substance regulated by the DEP pursuant to chapter 446c of the general statutes (Air Pollution Control) or by the EPA pursuant to the Clean Air Act of 1990 (42 U.S.C. §§7401 through 7642); or
  4. any substance listed in the Toxic Chemical Release Inventory (TRI) rule adopted under section 313 of the Emergency Planning and Community Right to Know Act (42 U.S.C. §§11001 through 11050).

For assistance in determining whether a specific material is an "other contaminant" as defined in this Special Notice, call the DEP at 860-424-3705, or write to: Bureau of Water Management, Permitting Enforcement and Remediation Division, Department of Environmental Protection, 79 Elm Street, Hartford, CT 06106-5127. Any taxpayer purchasing services under the exclusion for the voluntary evaluation, prevention, treatment, containment or removal of other contaminants of air, water or soil must retain in such taxpayer's records documentation that the material in question is considered such a contaminant by the DEP or EPA.

EXCLUSION FROM CONN. GEN. STAT. §12-407(2)(i)(J) FOR ENVIRONMENTAL CONSULTING SERVICES: In general, business analysis services, management services, management consulting services and public relations services are taxable under Conn. Gen. Stat. §12-407(2)(i)(J) and Conn. Agencies Regs. §12-407(2)(i)(J)-1 if they relate to a service recipient's core business activities, as defined in subsection (h) of the regulation, or human resource management activities, as defined in subsection (i) of the regulation. With the amendment of Conn. Gen. Stat. §12-407(2)(i)(J) by 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.), effective for all open tax periods commencing on and after July 1, 1989, environmental consulting services are excluded from taxable business management consulting services. Some examples of nontaxable environmental consulting services include designing a remedial plan for a contractor engaged to remove hazardous materials or other contaminants, or providing training to the employees of a manufacturer in ensuring compliance with federal and state environmental laws.

SCOPE OF EXCLUSIONS: Services to industrial, commercial or income-producing real property may be excluded from tax under Conn. Gen. Stat. §12-407(2)(i)(I) as being rendered in the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants of air, water or soil only to the extent that they are necessary to such activities. Thus, services rendered to restore the affected site to its condition prior to the contamination through the use of comparable materials, style and layout may be excluded (provided such services are described in subparagraph (I) of Conn. Gen. Stat. §12-407(2)(i), whereas services rendered to enhance or improve the site beyond its former condition are taxable. For example, services rendered to replace pipes and walls that were removed from a building due to lead or asbestos contamination with comparable pipes and walls installed in a comparable style and layout are not taxable, whereas services rendered to enhance and improve the building beyond its former condition are taxable. In cases where hazardous waste or other contaminants are removed from a site in connection with a renovation that improves or enhances the site, charges for services rendered to remove such waste or contaminants and restore the site to a style and layout comparable to its former condition will be excludable from tax if they are separately stated from charges for services rendered to improve or enhance the site.

In addition, in order for a service relating to real property to be excluded from tax under Conn. Gen. Stat. §12-407(2)(i)(I), the true object of the contract between the purchaser and the service provider must be the evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants of air, water or soil, and not the provision of some other service enumerated under Conn. Gen. Stat. §12-407(2)(i).

EXAMPLE: A property owner purchases "integrated pest management" services, in which the service provider monitors the soil, plants and pests on, as well as the uses of, the subject property in order to apply the least toxic pest control strategies. The true object of the contract is exterminating services, taxable under Conn. Gen. Stat. §12-407(2)(i)(AA), and not the prevention of hazardous waste or other contaminants of air, water or soil.

EXAMPLE: Landscaping and horticultural services are provided to restore a lawn and plantings which were destroyed during the removal of hazardous waste from a site. Because landscaping and horticultural services are taxable under Conn. Gen. Stat. §12-407(2)(i)(W) and are specifically excluded from subparagraph (I) by Conn. Agencies Regs. §12-407(2)(i)(I)-1(g)(2), the exclusion for services rendered in the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants under subparagraph (I) of said section does not apply, and the services rendered to restore the lawn and plantings are taxable.

PURCHASES OF TANGIBLE PERSONAL PROPERTY AND TAXABLE SERVICES BY SERVICE PROVIDERS: The exclusions from tax under Conn. Gen. Stat. §12-407(2)(i)(I) and (J) do not extend to purchases by a service provider of tangible personal property, such as materials, equipment or supplies, that are used in the evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants. The service provider is considered the consumer of such materials, supplies and other tangible personal property, and must pay tax on their purchase (except to the extent that such property qualifies for exemption under either Conn. Gen. Stat. §12-412(21) as property acquired for incorporation into or used in the operation of facilities for the treatment of "industrial waste," as defined in that statute, or Conn. Gen. Stat. §12-412(22) as property acquired for incorporation into or used in the operation of facilities for air pollution control).

In addition, providers of services not enumerated as taxable under Conn. Gen. Stat. §12-407(2)(i) may not purchase taxable services used in rendering their services on a resale basis under Conn. Gen. Stat. §12-410(5) or 12-411(14). Resale treatment for the purchase of services may only be claimed by a service provider who is purchasing the service as an integral, inseparable component part of a service that is itself described in Conn. Gen. Stat. §12-407(2)(i). Because services rendered in the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste, as defined in Conn. Gen. Stat. §22a-115, or other contaminants of air, water or soil, and environmental consulting services are specifically excluded from the services described in Conn. Gen. Stat. §12-407(2)(i), providers of such excluded services are considered the consumers of, and must pay tax on, any taxable services they purchase.

EFFECT ON OTHER DOCUMENTS: Ruling Nos. 89-52, 89-64, 89-218, 89-258 and 92-14 are obsoleted in part by the amendment of Conn. Gen. Stat. §12-407(2)(i)(I) by 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.) to the extent that they discuss services excluded from tax by the amendment. Ruling Nos. 89-230, 89-239, 89-243, 90-33, 90-47 and 91-5 are superseded by this Special Notice. Ruling Nos. 89-187, 89-240, 92-14 and 94-5 are superseded in part by this Special Notice to the extent that they discuss services excluded from tax by 1994 Conn. Pub. Acts 4, §13 (May Spec. Sess.). In addition, any correspondence from the Department that conflicts with this Special Notice may no longer be relied upon for sales occurring on or after the effective date of this Special Notice.

EFFECT OF THIS DOCUMENT: A Special Notice is a document that announces a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions. A Special Notice indicates the Department's informal interpretation of Connecticut tax law and may be referred to for general guidance by taxpayers or tax practitioners.  

SN 95(17)
Sales and use taxes
Issued: 10/12/95