For a $1.3 billion JFK Airport terminal rebuild, is an airline's purchase of construction materials, furniture, computers, and equipment exempt from sales tax through the Port Authority/City of New York's exempt status or through an Industrial Development Agency agency arrangement?

Plain-English summary

American Airlines leases terminals 8 and 9 at JFK International Airport from the Port Authority of New York and New Jersey, which in turn leases the underlying land from its actual owner, the City of New York. American Airlines undertook an eighty-four-month, roughly $1.3 billion project (the "JFK Project") to demolish the old terminals and build a single new roughly two-million-square-foot passenger terminal, roadway system, parking contribution, and all the fixtures, computers, communications equipment, and gates that go with it. The City of New York Industrial Development Agency (IDA) authorized tax-exempt bonds to help finance the project, and under a negotiated agreement, American Airlines could act as the IDA's agent to acquire and install capital equipment free of sales tax, subject to certain reporting conditions. American Airlines asked three linked questions: (1) are its construction materials exempt because of the Port Authority's or City's own exempt status, separate from the IDA arrangement; (2) are its personal-property purchases (furniture, computers, equipment) exempt when it acts as the IDA's agent and the IDA holds a fee or leasehold interest; and (3) what paperwork keeps everything properly documented.

The Department answered all three. First, American Airlines doesn't have to use the IDA's exemption at all if another one applies — and one does. Under its existing lease (and an amended version being finalized for the new project), title to every real-property improvement American Airlines builds passes to the City of New York immediately as it's erected, constructed, or installed. Because the City is a tax-exempt government entity, construction materials that become an integral, permanent part of the new terminal are exempt from sales and use tax on that basis alone — the IDA's own leasehold interest in the finished property, standing alone, wouldn't have been enough, but the City's ownership is. Second, for the "personal property" side of the project — furniture, computers, equipment, and similar items that aren't part of the real property — the IDA agency arrangement is what matters: those purchases are exempt only if the IDA is the actual owner, lessor, or lessee of the property, the vendor's invoices and contracts identify the IDA (not American Airlines) as the purchaser/lessor/lessee, and American Airlines is disclosed as the IDA's agent on the transaction. The same conditions extend the exemption to installation, maintenance, and repair services (and replacement parts) for that IDA-owned equipment — but NOT to consumable supplies that get used up and replaced (like toner cartridges), general services like janitorial work, or utilities/fuel, all of which stay taxable even within an otherwise-exempt IDA arrangement, following the Wegmans line of cases. Third, the Department laid out the paperwork: a Contractor Exempt Purchase Certificate (Form ST-120.1) for capital-improvement materials, keeping a copy of the Port Authority lease on file to substantiate the real-property exemption, signed documents identifying the project/location/exempt owner between prime contractors and subcontractors, and an annual Form ST-340 report (plus Part 542 recordkeeping) since American Airlines is acting as the IDA's agent/project operator.

What this means for you

Companies building on leased government-owned land (airports, ports, public facilities)

If your lease terms have title to construction improvements passing automatically to a government landowner as they're built, you may get a capital-improvement sales tax exemption on that basis alone — independent of, and not requiring, any separate IDA bond financing or agency arrangement. Check who actually holds title to the finished improvement, not just who's financing the project.

Companies using IDA bond financing with an agency arrangement

The exemption for equipment, furniture, and similar personal property bought through an IDA program is not automatic just because the project has IDA financing. You need all three pieces lined up: the IDA must actually hold an ownership/leasehold interest in the specific property, the purchase paperwork must name the IDA (not you) as the buyer, and you must be clearly disclosed as the IDA's agent on each transaction. Get this structure wrong on the invoices and the exemption can fail even though the underlying financing is legitimate.

Businesses maintaining IDA-exempt equipment

Watch the maintenance carve-out: repair and maintenance services on exempt IDA equipment stay exempt, but the portion of any repair bill covering consumable parts/materials that get used up in daily operation (not just replacement parts for the equipment itself), general services like janitorial work, and utilities/fuel remain taxable regardless of the IDA structure. Get those charges separately stated, or the whole invoice risks being pulled into tax.

Accountants and tax professionals

This opinion is a comprehensive template for large government-adjacent construction/IDA-financed projects, cross-referencing both Wegmans decisions (distinguishing IDA ownership of financed property, which supports exemption, from ordinary business operating expenses, which don't) and the full recordkeeping chain: Form ST-120.1 at the contractor level, Form ST-340 annual reporting at the agent/project-operator level, and Part 542 documentation throughout.

Common questions

Q: Does construction material for the new terminal need the IDA exemption to be tax-free?
A: No — because title to the finished improvements passes immediately to the City of New York (an exempt government entity), the materials are exempt on that basis alone, independent of the IDA arrangement.

Q: Are furniture, computers, and equipment purchased for the terminal automatically exempt because the project has IDA bond financing?
A: No — that exemption requires the IDA to actually hold an ownership/leasehold interest in the specific property, the purchase documents to name the IDA as buyer, and the airline to be disclosed as the IDA's agent on the transaction.

Q: Are maintenance and repair services on IDA-owned equipment exempt?
A: Generally yes, under the same conditions as the underlying equipment purchase — but charges for consumable parts/materials replaced during daily operation, general services like janitorial work, and utilities/fuel remain taxable.

Q: What paperwork does the contractor need for the exempt construction materials?
A: A properly completed Contractor Exempt Purchase Certificate (Form ST-120.1), plus a copy of the underlying lease on file to substantiate the government-entity exemption, and signed documents identifying the project/location/exempt owner between prime contractors and subcontractors.

Q: What ongoing reporting does an IDA agent/project operator have to file?
A: An annual Form ST-340 reporting the value of all sales and use tax exemptions claimed by the agent and its consultants, contractors, and subcontractors, plus the recordkeeping required under Part 542 of the regulations.

Q: Can another company undertaking a similar airport or government-facility project rely on this exact structure?
A: No. This opinion binds the Department only for this petitioner's specific facts (the exact lease terms, IDA agreement, and title-transfer provisions), though its two-track framework (real-property title exemption vs. IDA-agency personal-property exemption) illustrates the Department's general approach to similar large capital projects.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(i), (5), (9)(i) (retail sale; sale/purchase; capital improvement)
• Tax Law § 1105(a), (c)(3), (c)(5) (retail sales; installation/maintenance services)
• Tax Law § 1107, § 1109, § 1110 (municipal assistance corporation tax; MCTD surcharge; use tax)
• Tax Law § 1115(a)(15), (16) (exempt-organization real property materials)
• Tax Law § 1116(a)(1) (government entities exemption)
• 20 NYCRR § 526.6(c); § 526.7(a); § 526.8(c); § 529.2(a); § 541.3; § 533.2(c); § 542.1(b)(5)
• General Municipal Law § 854, § 858, § 862(2), § 874, § 917(c)

Case law and prior opinions cited:

• Wegmans Food Markets v. Dep't of Taxation & Fin., 126 Misc. 2d 144, aff'd 115 A.D.2d 962 ("Wegmans I")
• Wegmans Food Markets v. Dep't of Taxation & Fin. (Sup. Ct., Monroe County, Jan. 10, 1992) ("Wegmans II")
• TSB-A-82(5)S, Olympia & York Battery Park Co., Jan. 29, 1982
• TSB-A-89(8)S, 450 Lexington Venture, Mar. 7, 1989
• TSB-A-98(72)S, MCI Telecommunications Corporation, Oct. 15, 1998
• TSB-A-96(36)S, Viacom Inc., June 28, 1996
• TSB-A-96(35)S, The Depository Trust Company, et al, June 5, 1996
• TSB-A-92(57)S, Beechcraft East, Inc., July 29, 1992

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a01_24s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(24)S
Sales Tax
October 26, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S001002B

On October 2, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from American Airlines, Inc., P.O. Box 619616, Dallas/Fort Worth Airport, Texas
75261-9616. Petitioner, American Airlines, Inc., submitted additional information pertaining to the
Petition on November 29, 2000.
Petitioner presents the following issues (the italicized terms are defined in Petitioner’s
statement of facts):
(1) Whether its purchases of building materials and services, including those purchases made
through Petitioner’s primary general contractor, other contractors, and subcontractors, that are used
to construct capital improvements for the JFK Project will be exempt from sales and compensating
use tax by virtue of the exempt status of the Port Authority or the City of New York.
(2) Whether its purchases of certain tangible personal property and services purchased in
connection with the JFK Project will be exempt from sales and compensating use tax when
Petitioner contractually acts on behalf of and as agent for the IDA and the IDA has a fee simple or
leasehold interest in the tangible personal property.
(3) What procedures should Petitioner or its primary general contractor employ to ensure that,
where applicable, Petitioner, its primary general contractor, other contractors, or subcontractors may
purchase building materials and services subject to the exemptions contained in Sections 1115(a)(15)
and 1105(c)(3)(iii) of the Tax Law rather than those offered under its Preliminary Project Agreement
and Preliminary Sales Tax Letter with the IDA?
Petitioner presents the following facts. This Petition for advisory opinion concerns the
demolition of two existing airline passenger terminals and new construction of an approximately two
million square foot airline passenger terminal, adjacent parking facility and roadway system at
John F. Kennedy International Airport (the “JFK Project” and “JFK,” respectively). Based on an
application submitted by Petitioner, the City of New York Industrial Development Authority (the
“IDA”) adopted a resolution, dated January 11, 2000, authorizing the issuance of tax-exempt bonds
(the “IDA Bonds”) to finance the JFK Project.
The JFK Project is a multi-phase, eighty-four month capital improvement project in which
Petitioner proposes to invest approximately $1.3 billion. The JFK Project will entail (1) the
demolition of existing terminals 8 and 9; (2) the design and construction of a single, approximately
two million square foot American Airlines passenger terminal (the “New Terminal”); (3) the

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construction of a New Terminal roadway system; (4) the installation of a centralized ticketing,
baggage and security system; (5) the financial contribution (one-third of total cost) toward a
passenger parking facility to be constructed by the Port Authority adjacent to the New Terminal; (6)
the construction of a passenger tunnel connecting concourse B to the main terminal; and (7) the
purchase and installation of related personal property fixtures, computers, communication equipment
and infrastructure, furniture, gates, New Terminal office and New Terminal equipment, including
passenger loading bridges. Among other features, the New Terminal will contain 55 or more gates,
expanded retail space (subject to tenant build-out), and a new customs and immigration facility.
Petitioner currently leases, among other land, structures, buildings and real property
improvements at JFK, all of terminals 8 and 9 from the Port Authority of New York and New Jersey
(the “Port Authority”) pursuant to Lease No. AYB-085 (the “Port Authority Lease”). The City of
New York owns the underlying land and real property improvements at JFK, which is leased to the
Port Authority. The Port Authority Lease commenced August 1, 1976 and is scheduled to expire
November 30, 2015. Under the terms of the existing Port Authority Lease, title to all construction
work by Petitioner at JFK passes to the City of New York as such items are erected, constructed, or
installed and become part of the premises. In addition, the Port Authority Lease provides significant
use limitations on Petitioner with respect to the leased premises. In connection with the JFK Project,
Petitioner and the Port Authority are currently finalizing modifications to the Port Authority Lease
related to the JFK Project (the “Amended Lease”). It is contemplated that title to all real property
improvements made by Petitioner in connection with the JFK Project will be transferred by
Petitioner to the City of New York in the manner currently provided in the Port Authority Lease, and
such real property improvements will be leased by the City of New York to the Port Authority, which
will then become subject to the Amended Lease.
Petitioner has obtained bids and entered into binding commitments with architectural,
engineering, and construction firms to undertake the design, development, construction and
implementation of the JFK Project on a multi-phase basis. Petitioner, acting as the project operator
of the JFK Project, has engaged a primary general contractor (the “Master GC”) to oversee the
development, construction, and implementation of the JFK Project, as well as directly purchase
related material for the Project. The Master GC will hire various subcontractors and originate,
review and approve purchase orders, material and equipment deliveries, and invoices under
procedures, terms and conditions imposed by Petitioner, and as further governed by the Amended
Lease. Petitioner may also contract directly with suppliers outside of its relationship with the Master
GC to procure goods and services in connection with the JFK Project where it is feasible, and in its
interest, to do so.
The IDA has negotiated an agreement with Petitioner, whereby Petitioner may act as the
IDA’s agent, to acquire, construct, install, use, replace, maintain and repair construction materials,
fixtures, machinery and equipment, furniture, and certain other tangible property that are capital in
nature and which are incorporated into or installed or used in connection with the JFK Project free

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of New York State and New York City sales and use taxes (the “Preliminary Project Agreement”
and the “Preliminary Sales Tax Letter”) subject to certain reporting and documentation conditions.
Petitioner contemplates issuing the Preliminary Sales Tax Letter to its respective suppliers. In
instances where Petitioner will purchase taxable items directly from a vendor of goods and services,
it may provide the vendor with the Preliminary Sales Tax Letter and then will implement certain
contract and invoice processes and account segregation procedures to comply with the requirements
imposed by the IDA under the Preliminary Project Agreement and the Preliminary Sales Tax Letter.
Petitioner asserts that the sales and use tax exemption extended to Petitioner under the Preliminary
Sales Tax Letter was intended to be effective on or after the execution date of the Preliminary Sales
Tax Letter, regardless of the date on which Petitioner entered into contractual commitments with
suppliers to procure goods and services so long as Petitioner has not remitted payment.
Petitioner, however, is not obligated to utilize the IDA’s sales and use tax exemption if
another contractual or statutory exemption is otherwise available. For such purposes, Petitioner will
not be subject to the terms and conditions of the Preliminary Project Agreement and the Preliminary
Sales Tax Letter. Petitioner contemplates segregating the accounting records for exempt purchases
made pursuant to the Preliminary Sales Tax Letter from those made tax-exempt on some other basis.
Accordingly, in some instances, Petitioner or its Master GC, contractors, or subcontractors may issue
a completed Form ST-120.1, Contractor Exempt Purchase Certificate, to vendors for purchases of
tangible personal property which will be attached to the New Terminal.
In connection with its use of IDA Bonds to design, construct and implement the JFK Project,
Petitioner contemplates assigning its leasehold interest in the Amended Lease to the IDA for items
purchased with IDA Bond proceeds. Initially, however, in advance of the issuance of IDA Bonds,
Petitioner may pay for JFK Project goods and services from its own funds, and subsequently seek
reimbursement from the IDA Bond proceeds. In turn, the IDA will lease the JFK Project leasehold
interests back to Petitioner. In instances where the City of New York does not hold title to particular
property acquired, constructed, installed, or used in connection with the JFK Project, and property
which is financed through the IDA Bonds, Petitioner will transfer title to such property to the IDA,
which, in turn, will lease such property back to Petitioner.
Applicable Law and Regulations
Section 1101(b)(4)(i) of the Tax Law defines "retail sale," in part, as:
. . . a sale of any tangible personal property to a contractor, subcontractor or
repairman for use or consumption in erecting structures or buildings, or building on,
or otherwise adding to, altering, improving, maintaining, servicing or repairing real
property, property or land . . . regardless of whether the tangible personal property is
to be resold as such before it is so used or consumed. . . .

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Section 1101(b)(5) of the Tax Law defines “sale, selling or purchase” as:
Any transfer of title or possession or both, exchange or barter, rental, lease
or license to use or consume (including, with respect to computer software, merely
the right to reproduce), conditional or otherwise, in any manner or by any means
whatsoever for a consideration, or any agreement therefor, including the rendering
of any service, taxable under this article, for a consideration or any agreement
therefor.
Section 1101(b)(9)(i) of the Tax Law defines “capital improvement” as:
An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably
prolongs the useful life of the real property; and
(B) Becomes part of the real property or is permanently affixed to the real
property so that removal would cause material damage to the property or article itself;
and
(C) Is intended to become a permanent installation.
Section 1105 of the Tax Law provides, in relevant part:
. . . there is hereby imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
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(c) The receipts from every sale, except for resale, of the following services:
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(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . not held for sale in the regular course of
business, whether or not the services are performed directly . . . or by any other
means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:

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(iii) for installing property which, when installed, will constitute an addition
or capital improvement to real property, property or land, as the terms real property,
property or land are defined in the real property tax law as such term capital
improvement is defined in paragraph nine of subdivision (b) of section
eleven hundred one of this chapter. . . .
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(5) Maintaining, servicing or repairing real property, property or land, as such
terms are defined in the real property tax law, whether the services are performed in
or outside of a building, as distinguished from adding to or improving such real
property, property or land, by a capital improvement as such term . . . is defined in
paragraph nine of subdivision (b) of section eleven hundred one of this article. . . .
Section 1107(a) of the Tax Law provides, in relevant part:
. . . On the first day of the first month following the month in which a
municipal assistance corporation is created under article ten of the public authorities
law for a city of one million or more, in addition to the taxes imposed by sections
eleven hundred five and eleven hundred ten, there is hereby imposed . . . within the
territorial limits of such city, and there shall be paid, additional taxes, at the rate of
four percent, which except as provided in subdivisions (b) and (d) of this section,
shall be identical to the taxes imposed by sections eleven hundred five and
eleven hundred ten. Such sections and the other sections of this article, including the
definition and exemption provisions, shall apply for purposes of the taxes imposed
by this section in the same manner and with the same force and effect as if the
language of those sections had been incorporated in full into this section and had
expressly referred to the taxes imposed by this section.
Section 1109(a) of the Tax Law provides, in relevant part:
. . . In addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten of this article, there is hereby imposed within . . . the metropolitan
commuter transportation district . . . and there shall be paid, additional taxes, at the
rate of one-quarter of one percent, which shall be identical to the taxes imposed by
sections eleven hundred five and eleven hundred ten of this article. . . .
Section 1110 of the Tax Law provides, in relevant part:

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(a) Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state . . . except as otherwise exempted under this
article, (A) of any tangible personal property purchased at retail, (B) of any tangible
personal property (other than computer software used by the author or other creator)
manufactured, processed or assembled by the user, (i) if items of the same kind of
tangible personal property are offered for sale by him in the regular course of
business or (ii) if items are used as such or incorporated into a structure, building or
real property by a contractor, subcontractor, or repairman in erecting structures or
buildings, or building on, or otherwise adding to, altering, improving, maintaining,
servicing or repairing real property, property or land, as the terms real property,
property or land are defined in the real property tax law, if items of the same kind are
not offered for sale as such by such contractor, subcontractor or repairman or other
user in the regular course of business, (C) of any of the services described in
paragraphs (1), (7) and (8) of subdivision (c) of section eleven hundred five, (D) of
any tangible personal property . . . not acquired for purposes of resale, upon which
any of the services described in paragraphs (2), (3) and (7) of subdivision (c) of
section eleven hundred five have been performed. . . .
Section 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
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(15) Tangible personal property sold to a contractor, subcontractor or
repairman for use in erecting a structure or building of an organization described in
subdivision (a) of section eleven hundred sixteen, or adding to, altering or improving
real property, property or land of such an organization, as the terms real property,
property or land are defined in the real property tax law; provided, however, no
exemption shall exist under this paragraph unless such tangible personal property is
to become an integral component part of such structure, building or real property.
(16) Tangible personal property sold to a contractor, subcontractor or
repairman for use in maintaining, servicing or repairing real property, property or
land of an organization described in subdivision (a) of section eleven hundred
sixteen, as the terms real property, property or land are defined in the real property
tax law; provided, however, no exemption shall exist under this paragraph unless

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such tangible personal property is to become an integral component part of such
structure, building or real property.
Section 1116(a) of the Tax Law provides, in relevant part:
. . . any sale . . . by or to any of the following or any use . . . by any of the
following shall not be subject to the sales and compensating use taxes imposed under
this article:
(1) The State of New York, or any of its agencies, instrumentalities, public
corporations . . . or political subdivisions where it is the purchaser, user or consumer,
or where it is a vendor of services or property of a kind not ordinarily sold by private
persons. . . .
Section 526.6(c) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(1) Where a person, in the course of his business operations, purchases
tangible personal property or services which he intends to sell . . . the property or
services which he has purchased will be considered as purchased for resale, and
therefore not subject to tax until he has transferred the property to his customer. . . .
(2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate. . . .
(3) Receipts from the sale of property purchased under a resale certificate are
not subject to tax at the time of purchase by the person who will resell the property.
The receipts are subject to tax at the time of the retail sale.
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(8) The resale exclusion also applies to a sale of service.
Example 12: A jeweler sends a customer’s watch to
a repairman for servicing. The charge
by the jeweler to the customer is
taxable. The charge to the jeweler by
the repairman is not taxable because
the service was purchased for resale by
the jeweler.

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Section 526.7(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(1) The words sale, selling or purchase mean any transaction in which there
is a transfer of title or possession, or both, of tangible personal property for a
consideration.
(2) Among the transactions included in the words sale, selling, or purchase
are exchanges, barters, rentals, leases or licenses to use or consume tangible personal
property.
Section 526.8(c) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
Tangible personal property does not include:
(1) real property. . . .
Section 529.2(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
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(2) A public corporation as used in this section means any corporation
created by an act of the Legislature for a public purpose. . . .
Example:

. . . Industrial Development Agencies
are public corporations and may
purchase tangible personal property
exempt from the sales and use taxes.

Section 541.3 of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(a) . . . When a contractor’s customer is a governmental entity described in
section 1116(a)(1) . . . of the Tax Law, the contract signed by the government
representative and the prime contractor is sufficient proof of the exempt status of
purchases made for such contract.
(1) Such governmental entities include:

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(i) Pursuant to section 1116(a)(1) of the Tax Law the State of New York, or
any of its agencies, instrumentalities, public corporations (including a public
corporation created pursuant to agreement or compact with another state or Canada),
or political subdivisions. This group includes, but is not limited to:
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(c) industrial development authorities;
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(g) villages, towns, cities and counties. . . .
(h) any authority, commission or independent board created by act of the
Legislature for a public purpose.
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(d) . . . (1) Tangible personal property incorporated into real property owned
by a governmental entity . . . is exempt. . . .
(2) Purchase for contracts (other than agency contracts).
(i) Tangible personal property sold to a contractor, subcontractor, or
repairman for use in erecting, repairing, adding to, or altering a structure or building
owned by an exempt organization, described in section 1116(a) of the Tax Law, is
exempt when it is to become an integral component part of such structure or building.
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(ii) Purchases of tangible personal property incorporated into the real property
of an exempt organization by subcontractors and repairmen are accorded the same
treatment as purchases by the prime contractor.
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(iv) Except for agency contracts, contractors’ purchases of construction
supplies which do not become part of an exempt organization’s real property and are
used or consumed by the contractor, as well as purchases of taxable services, such
as electricity used by the contractor, are subject to tax.

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Section 533.2(c) of the Sales and Use Tax Regulations provides:
Purchase records. Every purchaser must maintain documentation to
substantiate any exemption, exclusion or exception claimed on the purchase of any
tangible personal property or service. The purchase records must provide sufficient
detail to independently determine the taxable status of each purchase and the amount
of tax due, paid or remitted thereon. Purchase documents should be categorized as
follows:
(1) purchases that are subject to all taxes;
(2) purchases exempt from all taxes because for resale (inventory and raw
materials);
(3) purchases that are exempt from all taxes for reasons other than for
resale . . .
(4) purchases that are subject only to the statewide sales tax or the New York
City sales tax, or a local tax. . . . (Emphasis added)
Section 542.1(b)(5) of the Sales and Use Tax Regulations provides:
In addition to the records required to be kept by Part 533 of this Title and
section 1135 of the Tax Law, every agent or project operator of an industrial
development agency or authority must maintain the following records and
information for each project on which it is the agent or project operator:
(i) the name, address, and employer identification number of any general
contractor, subcontractor, consultant or other agent on the project;
(ii) the total amounts of New York State and local sales and compensating use
taxes exempted on purchases and uses of tangible personal property and/or services
(whether at the time of purchase or use or by refund or credit) by or on behalf of the
general contractor with respect to such project, and each subcontractor, consultant or
other agent on the project, respectively, as a result of such project’s tax exempt status
pursuant to section 874 of the General Municipal Law or section 1963 or 2326 of the
Public Authorities Law, as the case may be; and
(iii) such other records and information as is necessary to substantiate the
information required to be included on any report required to be filed pursuant to this
Part.

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Section 854 of the General Municipal Law provides, in relevant part:
Definitions.
As used in this act, unless the context otherwise requires:
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(4) “Project” - shall mean any land, any building or other improvement, and
all real and personal properties located within the state of New York and within or
partially within and partially outside the municipality for whose benefit the agency
was created, . . . provided, however, no agency shall provide financial assistance in
respect of any project partially outside the municipality for whose benefit the agency
was created without the prior consent thereto by the governing body or bodies of all
the other municipalities in which any part of the project is, or is to be, located.
Where a project is located partially within and partially outside the municipality for
whose benefit the agency was created, the portion of the project outside the
municipality must be contiguous with the portion of the project inside the
municipality. Provided further, that no agency shall provide financial assistance for
any project where the project applicant has any agreement to subsequently contract
with a municipality for the lease or purchase of such project or project facility.
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(14) “Financial assistance” - shall mean the proceeds of bonds issued by an
agency, straight-leases, or exemptions from taxation claimed by a project occupant
as a result of an agency taking title, possession or control (by lease, license or
otherwise) to the property or equipment of such project occupant or of such project
occupant acting as an agent of an agency.
(15) “Straight-lease transaction” - shall mean a transaction in which an
agency takes title, possession or control (by lease, license or otherwise) to the
property or equipment of a project occupant, entitling such property or equipment
to be exempt from taxation according to the provisions of section eight hundred
seventy-four of this article, and no financial assistance in the form of the proceeds of
bonds issued by the agency is provided to the project occupant.
Section 858 of the General Municipal Law provides, in relevant part:
. . . [E]ach agency shall have the following powers:

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*

*

*

(3) To acquire, hold and dispose of personal property for its corporate
purposes;
*

*

*

(10) To acquire, construct, reconstruct, lease, improve, maintain, equip or
furnish one or more projects. . . .
Section 862(2) of the General Municipal Law provides, in part, as follows:
(a) Except as provided in paragraph (b) of this subdivision, no financial
assistance of the agency shall be provided in respect of any project where facilities
or property that are primarily used in making retail sales to customers who personally
visit such facilities constitute more than one-third of the total project cost. For the
purposes of this article, retail sales shall mean: (i) sales by a registered vendor under
article twenty-eight of the tax law primarily engaged in the retail sale of tangible
personal property, as defined in subparagraph (i) of paragraph four of subdivision (b)
of section eleven hundred one of the tax law; or (ii) sales of a service to such
customers. Except, however, that tourism destination projects and projects operated
by not-for-profit corporations shall not be prohibited by this subdivision. For the
purpose of this paragraph, “tourism destination” shall mean a location or facility
which is likely to attract a significant number of visitors from outside the economic
development region as established by section two hundred thirty of the economic
development law, in which the project is located.
(b) Notwithstanding the provisions of paragraph (a) of this subdivision,
financial assistance may, however, be provided to a project where facilities or
property that are primarily used in making retail sales of goods or services to
customers who personally visit such facilities to obtain such goods or services
constitute more than one-third of the total project cost, where (i) the project occupant
would, but for the assistance provided by the agency, locate the related jobs outside
the state, or (ii) the predominant purpose of the project would be to make available
goods or services which would not, but for the project, be reasonably accessible to
the residents of the city, town, or village within which the proposed project would be
located because of a lack of reasonably accessible retail trade facilities offering such
goods or services, or (iii) the project is located in a highly distressed area.
(c) With respect to projects authorized pursuant to paragraph (b) of this
subdivision, no project shall be approved unless the agency shall find after the public

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hearing required by section eight hundred fifty-nine of this chapter that undertaking
the project will serve the public purposes of this article by preserving permanent,
private sector jobs or increasing the overall number of permanent, private sector jobs
in the state. Where the agency makes such a finding, prior to providing financial
assistance to the project by the agency, the chief executive officer of the municipality
for whose benefit the agency was created shall confirm the proposed action of the
agency.
Section 874 of the General Municipal Law provides, in part:
(1) It is hereby determined that the creation of the agency and the carrying out
of its corporate purposes is in all respects for the benefit of the people of the state of
New York and is a public purpose, and the agency shall be regarded as performing
a governmental function in the exercise of the powers conferred upon it by this title
and shall be required to pay no taxes or assessments upon any of the property
acquired by it or under its jurisdiction or control or supervision or upon its activities.
(2) Any bonds or notes issued pursuant to this title, together with the income
therefrom, as well as the property of the agency, shall be exempt from taxation,
except for transfer and estate taxes.
*

*

*

(8) Agents of an agency and project operators shall annually file a statement
with the state department of taxation and finance, on a form and in such a manner as
is prescribed by the commissioner of taxation and finance, of the value of all sales
and use tax exemptions claimed by such agents or agents of such agents or project
operators, including, but not limited to, consultants or subcontractors of such agents
or project operators, under the authority granted pursuant to this section. The penalty
for failure to file such statement shall be the removal of authority to act as an agent
of an agency or a project operator.
(9) Within thirty days of the date that the agency designates a project operator
or other person to act as agent of the agency for purposes of extending a sales tax
exemption to such person, the agency shall file a statement with the department of
taxation and finance relating thereto, on a form and in such manner as is prescribed
by the commissioner of taxation and finance, identifying each such agent so named
by the agency, setting forth the taxpayer identification number of each such agent,
giving a brief description of the goods and/or services intended to be exempted from
sales taxes as a result of such appointment as agent, indicating the agency’s rough
estimate of the value of the goods and/or services to which such appointment as agent

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relates, indicating the date when such designation as agent became effective and
indicating the date upon which such designation as agent shall cease.
Section 917(c) of the General Municipal Law establishes the New York City Industrial
Development Agency as an industrial development agency in general having the powers of industrial
development agencies under Article 18-A of the General Municipal Law.
In Wegmans Food Markets v. The Department of Taxation and Finance of the State of N.Y.,
(Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J.) (“Wegmans II”), the issues presented
concerned generally the scope and applicability of the tax exemption established by section 874
of the General Municipal Law, and more specifically, whether that tax exemption applied to
operational expenses incurred by plaintiff in the day-to-day operation of several projects in western
New York State developed as its supermarkets. Those markets were constructed and equipped under
agreements made with various industrial development agencies (“IDAs”) pursuant to Article 18-A
of the General Municipal Law, and accordingly their construction was financed by industrial
development bonds (“IDBs”) issued by the various IDAs. The projects were technically owned by
the respective IDAs as security for the bonds, but were under “lease back” arrangements with the
plaintiff. In an earlier action, Wegmans Food Markets v. Department of Tax & Finance of the State
of N.Y., 126 Misc. 2d 144, affd 115 AD2d 962, lv to app den 67 NY2d 606, (“Wegmans I”) the
section 874 tax exemption was held to be broader than the exemption provided by section 1116 of
the Tax Law. The court in Wegmans II stated in part:
The IDAs are not authorized to engage in supermarket businesses, or any other businesses
per se. Their functions are limited to the acquisition, construction, reconstruction, leasing,
improving, maintaining, equipping, and furnishing of projects as security for the repayment of
industrial development bonds, in the nature of a mortgage. Although there is a project lease
arrangement between an IDA and the private developer, it is a financing lease with the “rent” paid
thereunder consisting only of amortized costs and expenses related to the project financing and the
IDBs. The IDAs do not pay the costs of utilities or other operational expenses; nor do the leases
suggest that the “rent” has been adjusted so as to account for the developer’s payment of operational
expenses. The lease is simply a financing tool, designed to secure tax-exempt IDBs, which are part
of an overall plan benefitting, financially, the private developer and IDB purchasers. Of course, if
IDAs are not authorized to operate a business then it [sic] would have no authority to designate
agents to do that which they could not do themselves.
Although some of the numerous expenses listed by plaintiff in their [sic] complaint may be
exempt (such as expenses necessary to preserve or repair project property), not all of the claimed
expenses would be exempt. Many of these expenses bear no relationship to the purchase, repair or
replacement of project property per se but instead represent costs of supermarket business
operations. . . .

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Because all the expenses involved in this action do not have the same relationship to the
IDA’s ownership of the project and authorized functions under the financing scheme, the expenses
must be individually examined to determine what, if any, relationship each bears to the authorized
and lawful functions of an IDA, particularly the “maintenance” function. The exemption shall be
applicable only to those expenses properly within such function and authority. In this regard, it
should be noted that tax-exempt maintenance would be that needed to maintain the structural
integrity of the structures constructed or rehabilitated to house the various supermarkets, or to repair
equipment used as part of the project.
The use of utilities and washing of windows and other such operating expenses have nothing
to do with the underlying financial scheme and should not be tax-exempt under the law. If one
business is able to operate indefinitely without paying taxes on its operating expenses simply because
at one time its structures were financed with IDBs, that business would have an apparently
unintended, open-ended economic advantage over competitors, thereby flying in the face of the
fundamental purpose of the law--i.e., the development of economically sound commerce.
This decision is not inconsistent with (“Wegmans I”) (supra), where the tax exemption of
Section 874 was held applicable to the purchase of tangible personal property acquired and owned
by the IDA as security for the IDBs. Ownership of property, real and personal--as distinguished from
operation of the business--was clearly within the express, contemplated function and authority of
IDAs under the General Municipal Law.
In (“Wegmans I”), the Court stated:
The Legislature very carefully included all revenues received by an IDA
within the purposes of article 18-A. The definition of “revenues” in subdivision (7)
of section 854 of the General Municipal Law is all inclusive: “All rents, revenues,
fees, charges and other sources of income derived by the agency from the leasing,
sale or other disposition of a project or projects.”
The term “projects” was also made all-embracing. Subdivision (4) of section
854 of the General Municipal Law defines “Project[s]” as “any land, and building[s]
or other improvement, and all real and personal properties located within the state of
New York. . . .
Opinion
With regard to Issue (1), Petitioner is not obligated to utilize the IDA’s sales and use tax
exemption if another contractual or statutory exemption is otherwise available. Sections 1115(a)(15)
and 1115(a)(16) of the Tax Law provide exemptions from sales and use taxes for tangible personal
property sold to contractors, subcontractors or repairmen for use or consumption as described in

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Section 1101(b)(4) of the Tax Law, provided that the tangible personal property is to become an
integral component part of a structure, building, or real property of an exempt organization described
in Section 1116(a) of the Tax Law. The IDA, as tenant of the improvements to real property
constructed under the JFK Project, is not the owner of the property. The leasehold interest of the
IDA, by itself, does not provide a basis for the exemption for construction materials incorporated
into the property of an exempt entity to apply in this case. However, both the Port Authority and the
City of New York are exempt organizations described in Section 1116(a)(1) of the Tax Law.
According to the terms of the Port Authority Lease and the Amended Lease, title to all real property
improvements made by Petitioner in connection with the JFK Project will be transferred by
Petitioner to the City of New York “as such items are erected, constructed or installed and become
part of the premises.” Where title to a capital improvement constructed or installed by Petitioner,
its general contractor, other contractors, or subcontractors, vests with the Port Authority or the City
of New York immediately upon completion of its installation, the purchase of tangible personal
property for incorporation in such capital improvement are not subject to sales and use taxes (see
Trans World Airlines, Inc., supra; Olympia & York Battery Park Co., Adv Op Comm T&F,
January 29, 1982, TSB-A-82(5)S; 450 Lexington Venture, Adv Op Comm T&F, March 7, 1989,
TSB-A-89(8)S).
Petitioner’s payments for the installation or construction of capital improvements are not
subject to the sales and use taxes imposed under Sections 1105, 1107, 1109, and 1110 of the Tax
Law, whether or not Petitioner is an agent of the IDA. See Section 1105(c)(3)(iii) of the Tax Law.
Concerning Issue (2), Petitioner’s purchases of tangible personal property and services in
connection with the JFK Project as agent for the IDA, will be subject to sales and compensating use
tax, or exempt from tax, as discussed below. The following discussion is based on the facts
presented in the Petition, and on the sections of law and regulations cited above and the decisions
in Wegmans Food Markets v. Department of Taxation and Finance (126 Misc 2d 144, aff’d 115
AD2d 962, 1v to app den 67 NY2d 606) and Wegmans Food Markets v. The Department of Taxation
and Finance of the State of N.Y. (Sup Ct, Monroe County, Jan. 10, 1992, Galloway, J.), supra. It is
assumed for purposes of this discussion that all the terms and conditions of the relevant documents
are complied with, and that these terms and conditions are consistent with Petitioner’s description
of them as set forth above, in the instant matter.
Purchases of furniture, computers, equipment and other personalty for use at the New
Terminal by Petitioner pursuant to the Preliminary Project Agreement and Preliminary Sales Tax
Letter will be exempt from the taxes imposed under Sections 1105, 1107,1109, and 1110 of the Tax
Law, provided that (i) the IDA is the owner, lessor or lessee of such property, (ii) the purchase
invoices, statements and contracts with vendors and suppliers provide that the IDA is the purchaser,
lessor or lessee and (iii) Petitioner is the disclosed agent of the IDA (see MCI Telecommunications
Corporation, Adv Op Comm T&F, October 15, 1998, TSB-A-98(72)S; Viacom Inc., Adv Op Comm

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T&F, June 28, 1996, TSB-A-96(36)S; The Depository Trust Company, et al, Adv Op Comm T&F,
June 5, 1996, TSB-A-96(35)S).
Petitioner’s purchases, made as agent for and on behalf of the IDA, of the services of
installation, maintenance and repair of equipment and other personalty, with a useful life of one year
or more, which is in use at the JFK Project, including replacement parts, will be exempt from the
sales and compensating use taxes if the conditions described below are met. The services and parts,
with respect to equipment and other personalty, must be necessary to maintain, repair or service such
equipment and other personalty, used as part of the JFK Project, and the IDA must be the owner,
lessor or lessee of such equipment and other personalty. Additionally, the purchase invoices,
statements and contracts with vendors and suppliers for services described in this paragraph must
provide that the IDA is the purchaser, lessor or lessee with respect to such services and such
equipment and other personalty. Petitioner’s purchases, made as agent of the IDA, of parts that
contain materials or substances consumed in operating the property and that are replaced when the
part, material or substance is consumed (e.g., a toner cartridge), or of contracts for general services
(e.g., janitorial services), are not exempt from tax. (MCI Telecommunications Corporation, supra;
Viacom Inc., supra).
However, in any instance where Petitioner purchases a service of maintaining, repairing or
servicing exempt equipment and other personalty which results in the replacement of parts, materials
or supplies that are consumed in the daily ongoing operation of equipment or other personalty, where
such parts, materials or supplies must be replaced when consumed, the portion of the charges
applicable to such parts, materials or supplies will be subject to sales and compensating use taxes,
as indicated in Wegmans Food Markets v. The Department of Taxation and Finance of the State of
N.Y. (Sup. Ct., Monroe County, Jan.10, 1992, Galloway, J.), supra. The purchase and use of fuels
and energy and utility services are not tax-exempt. Id.
Therefore, when the language of Petitioner’s contract with the IDA reflects a) the IDA’s fee
simple or leasehold interest in the tangible personal property and b) Petitioner’s relationship as
disclosed agent of the IDA, Petitioner’s purchases of tangible personal property and services covered
by the contract will be exempt from sales and compensating use tax as provided above.
It is noted that in a transaction where the charge is for both taxable services and qualifying
exempt services, the total charge will be subject to sales and compensating use taxes, unless the
portion of the charge applicable to the qualifying exempt services is separately stated from the other
charges and is reasonable.
With respect to Issue (3), Petitioner, its contractors and subcontractors may purchase
materials which will be incorporated as integral components of the real property owned by the City
of New York tax exempt provided they furnish the building material supplier with a properly
completed Form ST-120.1, Contractor Exempt Purchase Certificate. Petitioner and its contractors

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should keep on file a copy of the lease between Petitioner and the Port Authority in order to
substantiate that the construction performed is exempt from sales and use tax under Section
1115(a)(15) of the Tax Law (see Beechcraft East, Inc., Adv Op Comm T&F, July 29, 1992,
TSB-A-92(57)S; 450 Lexington Venture, supra). With respect to the documents required between
a prime contractor and the subcontractors, a signed document between them which identifies the
project, location and the exempt owner will form the basis for tax exemption of tangible personal
property purchased for incorporation into the exempt project. See Section 541.3(d)(2)(v) of the Sales
and Use Tax Regulations.
In addition to the records required to be kept by Section 1135 of the Tax Law and Section
533.2(c) of the Sales and Use Tax Regulations, Petitioner, as the agent/project operator of an IDA,
is required to file an annual report, Form ST-340, with the New York State Department of Taxation
and Finance to report the value of all sales and compensating use tax exemptions claimed by
Petitioner, as well as by Petitioner’s agents, consultants, contractors and subcontractors associated
with the project. See Section 542.1 of the Sales and Use Tax Regulations for information on the
filing and record keeping requirements pertaining to this annual report. The account segregation
procedures Petitioner intends to implement should establish a separate accountability sufficient to
satisfy the agent/project operator obligations set forth in Part 542 of the Sales and Use Tax
Regulations, and to provide a clear indication of which purchases are exempt from taxes pursuant
to the agreement between Petitioner and the IDA and the Preliminary Sales Tax Letter issued by the
IDA, and of the nature and use of the property with respect to which the transaction occurs.

DATED: October 26, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

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