I'm not sure if I'd trust PSI on that issue--lots of people are told things that aren't true.
However, if the tank owner had signed a contract giving you permission, it's legal. I'm 100% certain of that.
If no contract was signed, the person could sue you for the value of the tank.
Heck, there have been people who have had their tanks rendered unusable by a hydro facility even when technically the tanks were good--the numbers worked out to "this tank passes!" but the hydro guy says "I wanted you to be safe so I failed it since it is old" and the guy demanded that the hydro place replace his tanks. (I read this on TDS, I want to say)
If a shop rendered a tank unusable and I thought it was ok, and I had not signed anything or agreed verbally that they could destroy it if it failed vip, I would sue them. If I agreed with them that the tank was unusable, I would sell it for scrap. I had an aluminum tank fail because of a small crack and they showed me the crack, but they did nothing to render the tank unusable.
Because there can be things that make a tank fail a vip that can be cleaned up, such as internal surface rust.
[edit] changed my wording around to be more specific. You can condemn a tank, but I do not believe a PSI inspector is allowed to render a tank unusable unless the owner of the tank signs a contract, as PSI is not a federal agency.