Sales Tax Slice: Should Soil Decontamination Services be Treated as Taxable “Processing”?


In total, 45 U.S. states tax retail sales of tangible personal property. To put typical retail sales in which tangible personal property is sold in its final useable form on equal footing with transactions involving tangible personal property processing, the majority of these states also tax processing or similar services. For instance, California defines taxable tangible personal property sales to include processing and similar services performed on a purchaser’s materials. While this and similar provisions were initially enacted to preserve the sales tax base, their application has in some instances expanded it.     

In a provision substantially identical to California’s, Wisconsin lists “processing” and several other similar services as taxable when provided to a purchaser that furnishes the materials. In a recently released decision, the Wisconsin Tax Appeals Commission ruled that sediment decontamination services purchased to comply with a U.S. Environmental Protection Agency (“EPA”) order are taxable under this provision.  

Under the facts of the case, the EPA ordered several paper companies to remediate riverbed pollution resulting from their manufacturing activities. To comply with this order, an LLC formed by the companies engaged a general contractor to perform the required remediation.  The contractor, in turn, engaged subcontractors to perform different aspects of this work. One of these subcontractors was engaged to remove sand and water from contaminated sediment dredged by a separate subcontractor.  

The commission focused in its analysis on the contract between the general contractor and this subcontractor.  Emphasizing the production of useable sand as an object of this contract, the commission determined that the portion of the remediation services allocable to this contract were taxable as “processing.” Based on this, the commission upheld a use tax assessment of approximately $362,000 on these services.  

by Ernst Hunter

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is the commission’s decision consistent with a policy of preserving the tax base by treating the sale of tangible personal property processing the same as the sale of tangible personal property already processed?  

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