NY TSB-A-00(2)C Corporation Tax 2000-01-28

When disregarded single-member LLCs charge their tenants for utility services, which entity files the Form CT-186-A utility services tax return?

Short answer: Each LLC files its own return, not the parent. Where domestic single-member LLCs (S1, S2, S3) -- disregarded for federal income tax but each owning an office building and charging tenants for utility services -- buy utility service free of section 186-a tax for resale, each LLC is itself a utility of the second class and a separate 'person' under section 186-a, owing the tax on its gross operating income and filing its own Form CT-186-A. The parent (P) is not subject to tax or required to file for the LLCs' gross operating income that they report and pay.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Mark H. Levin, CPA asked which entity must file Form CT-186-A (Utility and Services Tax Return -- Gross Operating Income) where a parent ("P") owns three domestic single-member LLCs (S1, S2, S3), each of which owns an office building and charges its tenants for utility services. The LLCs are disregarded as separate entities from P for federal income tax purposes.

The Department held each LLC files its own section 186-a return:

Section 186-a imposes the utility services tax on a "utility of the second class" -- a person not under PSC supervision that sells or furnishes gas, electricity, steam, water, or refrigeration through mains/pipes/wires -- regardless of whether that is its main business.
Sales for resale are not taxed; tax falls on sales for ultimate consumption. So if section 186-a tax was imposed on the sale of utility services to S1/S2/S3, no additional tax applies on their resale to tenants. But if no section 186-a tax was imposed on the sale to S1/S2/S3 (i.e., they bought tax-free for resale), then each of S1, S2 and S3 is a utility of the second class reselling to tenants, subject to section 186-a on its gross operating income, and each must file its own Form CT-186-A.
Although the LLCs are disregarded for federal income tax, each is a separate "person" for section 186-a. P is not subject to tax or required to file for the gross operating income that S1, S2, and S3 report and pay.

What this means for you

"Disregarded" for income tax does not mean disregarded for the utility tax

A single-member LLC that is ignored for federal income tax is still its own "person" for the section 186-a utility services tax. If it resells utility service to tenants, it -- not its parent -- is the taxpayer and files its own Form CT-186-A.

Follow the tax through the chain

Section 186-a is a one-level tax on the sale for ultimate consumption. If the supplier already charged 186-a on the sale to the LLC, the LLC's resale to tenants is not taxed again. If the LLC bought tax-free for resale, the LLC owes 186-a on its gross operating income from the tenants.

The parent stays out of it

The parent is not required to file or pay for the LLCs' utility gross operating income that the LLCs themselves report -- avoiding double filing.

Common questions

Q: Does a disregarded single-member LLC file its own utility services tax return?
A: Yes. For section 186-a, each LLC is its own person and files its own Form CT-186-A if it resells utility service to tenants tax-free of 186-a.

Q: Is the resale to tenants taxed if the supplier already charged 186-a?
A: No. If 186-a was imposed on the sale to the LLC, no additional 186-a applies on the resale to tenants.

Q: Does the parent file for the LLCs?
A: No. The parent is not subject to tax or required to file for the gross operating income the LLCs report and pay.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 186-a (utility services tax; gross operating income; utility of the second class)
- Internal Revenue Code section 7701 (entity classification; disregarded entities)
- Mark H. Levin, CPA, TSB-A-00(2)C (Jan. 28, 2000)

Source

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(2)C
Corporation Tax
January 28, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C991021A

On October 21, 1999, a Petition for Advisory Opinion was received from Mark H. Levin,
CPA, H. J. Behrman & Company, LLP, 215 Lexington Avenue, New York, New York 10016.
The issue raised by Petitioner, Mark H. Levin, CPA, is what entity is responsible for filing
Form CT- 186-A Utility and Services Tax Return – Gross Operating Income where a single member
limited liability company ("LLC") is providing a service that is taxable under section 186-a of the
Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
P, a domestic limited partnership, is the sole member of S1, S2 and S3, newly formed
domestic single member LLCs. S1, S2 and S3 each own an office building in which each will charge
its tenants for utility services.
S1, S2 and S3 do not elect to be treated as separate entities for federal income tax purposes.
Therefore, for federal income tax purposes, they are disregarded as entities separate from P, their
owner.
Discussion
Section 186-a of the Tax Law imposes an excise tax on the furnishing of utility services. The
tax is imposed on a utility which is not subject to the supervision of the New York State Department
of Public Service (a utility of the "second class"), if it "sells gas, electricity, steam, water or
refrigeration, delivered through mains, pipes or wires, or furnishes gas, electric, steam, water or
refrigerator service, by means of mains, pipes, or wires; regardless of whether such activities are the
main business of such person or are only incidental thereto...." The tax is imposed on the utility's
gross operating income.
For purposes of section 186-a of the Tax Law, the word "utility" includes a person. Section
186-a.2(b) of the Tax Law provides that the word "person" means "persons, corporations, companies,
associations, joint-stock companies or associations, partnerships and limited liability companies,
estates, assignee of rents, any person acting in a fiduciary capacity ..."
In El Paso Energy Marketing Company, Adv Op Comm T&F, June 15, 1998, TSB-A-98(8)C,
it was held that a limited partnership selling natural gas was a "person" under section 186-a of the
Tax Law, and the limited partnership was subject to tax on its gross operating income. Further, it
was held that the general partner that was responsible for the management of the limited partnership
was not subject to tax under section 186-a on its pro rata share of the gross receipts from the limited

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TSB-A-00(2)C
Corporation Tax
January 28, 2000

partnership's sales of natural gas for which the limited partnership had paid the tax imposed under
section 186-a of the Tax Law.
For purposes of the section 186-a excise tax under Article 9 of the Tax Law, an LLC, including a
single member LLC, that is providing a utility service is a person pursuant to section 186-a.2(b) of
the Tax Law, and following El Paso, supra, the LLC, itself, is liable for the tax imposed under
section 186-a.
However, effective January 1, 1998, Chapter 536 of the Laws of 1998, amended section 186
a.2 of the Tax Law to provide that sales of electricity, gas, steam, water and refrigeration to a
landlord for resale to the landlord's tenants, where such resales are incidental to the landlord's activity
of renting premises to tenants, are subject to tax although such sales are not for ultimate consumption
by the landlord. That provision also provides that where the tax is imposed on the sale to the
landlord, no additional tax would be imposed on a resale by the landlord to its tenants. However,
if no tax is imposed on the sale to the landlord, a tax is imposed on the landlord's receipts from the
resale of the commodities services, and such receipts are to be equal to the landlord's cost of the
commodities or services.
Accordingly, if on or after January 1, 1998, the resale of utility services by S1, S2 and S3 to
their tenants is incidental to their activity of renting premises to the tenants, and the tax under section
186-a of the Tax Law is imposed on the sale of the utility services to S1, S2 and S3, then no
additional tax will be imposed on the sales of such utility services by S1, S2 and S3 to their tenants.
However, if no tax under section 186-a of the Tax Law is imposed on the sale of the utility
services to S1, S2 and S3, pursuant to section 186-a, S1, S2 and S3 will each be a utility of the
"second class" that will be providing utility services to its tenants which will be consumed by the
tenants in New York. In that case, S1, S2 and S3 will each be subject to the tax imposed under
section 186-a of the Tax Law on its "gross operating income", and each entity will be required to file
a tax return pursuant to section 186-a of the Tax Law, Form 186-A Utility Services Tax Return –
Gross Operating Income, and pay the tax due.
Note that P will not be subject to tax, or required to file a return under section 186-a of the
Tax Law for the gross operating income of S1, S2 and S3 for which S1, S2 and S3 file a return and
pay the tax imposed under section 186-a of the Tax Law.

DATED: January 28, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.