State of New York

Supreme Court, Appellate Division

Third Judicial Department

Decided and Entered: March 5, 2015 517504 

________________________________

In the Matter of EXXON MOBIL 

CORPORATION,

Petitioner,

v MEMORANDUM AND JUDGMENT

STATE OF NEW YORK TAX APPEALS 

TRIBUNAL et al.,

Respondents.

________________________________

Calendar Date: January 12, 2015

Before: McCarthy, J.P., Lynch, Devine and Clark, JJ.

__________

McCarter & English, LLP, New York City (David J. Shipley of

counsel), for petitioner.

Eric T. Schneiderman, Attorney General, Albany (Robert M.

Goldfarb of counsel), for Commissioner of Taxation and Finance,

respondent.

__________

Clark, J.

Proceeding pursuant to CPLR article 78 (initiated in this

Court pursuant to Tax Law § 2016) to review a determination of

respondent Tax Appeals Tribunal which, among other things,

sustained a sales and use tax assessment imposed under Tax Law

articles 28 and 29.

At all relevant times, petitioner owned, operated or was

responsible for environmental concerns at numerous facilities in

New York where petroleum was used. The Department of Taxation

and Finance conducted an audit of petitioner, after which it

issued a notice of determination finding that petitioner owed
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approximately $500,000 in sales tax on payments made to

contractors from 2000 through 2004. Specifically, those payments

were made for required testing and monitoring on properties

affected by petroleum spills. Petitioner challenged the notice

of determination and, following a hearing, an Administrative Law

Judge upheld it. Respondent Tax Appeals Tribunal thereafter

affirmed. Petitioner commenced this CPLR article 78 proceeding

seeking review of the Tribunal's determination, and we now

confirm.

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 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" (Lorillard

Tobacco Co. v Roth, 99 NY2d 316, 322 [2003] [internal quotation

marks and citation omitted]; accord Matter of Xerox Corp. v New

York State Tax Appeals Trib., 110 AD3d 1262, 1264 [2013]; Matter

of Island Waste Servs., Ltd. v Tax Appeals Trib. of the State of

N.Y., 77 AD3d 1080, 1082 [2010], lv denied 16 NY3d 712 [2011]). 

Petitioner points out that no deference will generally be

afforded to administrative agencies in matters of pure statutory

interpretation (see Matter of O'Brien v Spitzer, 7 NY3d 239, 242

[2006]; Matter of Xerox Corp. v New York State Tax Appeals Trib.,

110 AD3d at 1264). 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 (see Matter of Xerox Corp. v New York

State Tax Appeals Trib., 110 AD3d at 1264; Matter of Island Waste

Servs., Ltd. v Tax Appeals Trib. of the State of N.Y., 77 AD3d at
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1082; compare Matter of Michael A. Goldstein No. 1 Trust v Tax

Appeals Trib. of the State of N.Y., 101 AD3d 1496, 1497 [2012],

lv denied 21 NY3d 860 [2013]). 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]; Matter of Cecos Intl. v State Tax Commn., 71 NY2d 934,

937 [1988]; compare Matter of Building Contrs. Assn. v Tully, 87

AD2d 909, 910 [1982] [challenge to regulatory provision imposing

sales tax on specified sales of services]). 

As this Court and the Court of Appeals have "noted, both

the statute and regulation contain broad language" (Matter of

Island Waste Servs., Ltd. v Tax Appeals Trib. of State of N.Y.,

77 AD3d at 1082; see Matter of Rochester Gas & Elec. Corp. v New

York State Tax Commn., 71 NY2d 931, 933-934 [1988]). 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 (see Matter of Island Waste Servs., Ltd. v

Tax Appeals Trib. of State of N.Y., 77 AD3d at 1082; Matter of

Tonawanda Tank Transp. Serv. v Tax Appeals Trib. of State of

N.Y., 168 AD2d 748, 750 [1990]). 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
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were billed separately (Matter of Tonawanda Tank Transp. Serv. v

Tax Appeals Trib. of State of N.Y., 168 AD2d at 750; see Matter

of Cecos Intl. v State Tax Commn., 71 NY2d at 936; Matter of

Penfold v State Tax Commn. of State of N.Y., 114 AD2d 696, 697

[1985]). As a result, the Tribunal properly found them to be

taxable services under Tax Law § 1105 (c) (5), to wit,

"activities that relate to keeping real property in a condition

of fitness, efficiency, readiness or safety or restoring it to

such condition" (20 NYCRR 527.7 [a] [1]; see Matter of Island

Waste Servs. v Tax Appeals Trib. of State of N.Y., 77 AD3d at

1083; Matter of Tonawanda Tank Transp. Serv. v Tax Appeals Trib.

of State of N.Y., 168 AD2d at 750).1

Petitioner's remaining arguments have been considered and

found to be lacking in merit.

McCarthy, J.P., Lynch and Devine, JJ., concur.

ADJUDGED that the determination is confirmed, without

costs, and petition dismissed.

ENTER:

Robert D. Mayberger

Clerk of the Court

1 The Tribunal noted its belief that all services related

to "cleanup" of a petroleum spill, as that term is used in the

Navigation Law, were taxable under Tax Law § 1105 (c) (5) (see

Navigation Law §§ 172 [4], [5]; 176; State of New York v Neill,

17 AD3d 802, 803 [2005], appeal dismissed 5 NY3d 823 [2005]). We

need not, and do not, resolve that broader question because the

Tribunal found that the specific activities here were taxable

under Tax Law § 1105 (c) (5), even without reference to the

Navigation Law.