A recent New York State court ruling offers guidance for construction owners, developers, and contractors on the tax treatment of required site safety services. The New York State lower court’s opinion stated that certain licensed and mandated site safety services are not taxable as “protective and detective services” due to the very nature of site safety services. 

Site safety services are mandated by the New York City Building Code and include monitoring a construction site’s safety plans compliance and notifying contractors or the Department of Buildings of any violations. Site safety services are observational in an advisory capacity – they do not include ceasing work, providing corrective action or having the requisite control to alter or revise the project and related phasing and scheduling. The main purpose of site safety services is to observe construction activity to ensure the safety protocols set forth in the safety plan are being followed.

What does CohnReznick think?

This opinion reverses prior New York Department of Taxation and Finance guidance and offers potential refund opportunities for companies that paid sales tax or accrued use tax on the services. This decision also invites an additional question of whether other types of inspection or testing services mandated by state or local government should be taxable (or not) in New York.