Are a mall landlord's unmetered electricity reimbursement, trash-removal, and CAM charges to tenants subject to New York sales tax?

Plain-English summary

Jeffrey J. Coren CPA asked on behalf of a client landlord who owns a commercial mall in New York. The landlord buys electricity through a single master meter and trash removal from a third-party hauler for the whole property, then bills tenants a FIXED monthly electricity reimbursement based on an engineering survey estimating each tenant's annual usage — actual usage is never metered, and the fixed charge can exceed a tenant's true cost and rise over the lease term. Tenants also pay a fixed monthly trash-removal fee based on square footage (no outside-hauler option) and a fixed monthly CAM charge that folds in an allocated common-area electricity cost, both billed as additional rent under the lease.

The Department's answer, grounded in the Court of Appeals' Empire State Building Company decision, is that a flat charge tied to occupying the premises — not to actual metered usage — is part of the rent, not a separate taxable utility sale. Because none of the landlord's tenant charges here are based on real submeter readings, all three (electricity, trash, CAM) escape tax as charges to tenants. But that favorable treatment doesn't carry through to the landlord's OWN purchases: since the landlord isn't reselling electricity in a discrete, usage-based transaction, its entire purchase from the utility is fully taxable with no resale exemption, its purchase of trash-removal service from the third-party hauler is fully taxable, and any taxable property or services it buys to maintain the common areas are taxable too.

This is the ORIGINAL 2006 opinion establishing this doctrine for Jeffrey J. Coren CPA's landlord clients — the Department later applied the identical reasoning verbatim to a different mall landlord (Interstate Properties) in TSB-A-06(35)S just months later, and the CONTRASTING result for genuinely submetered, usage-based electricity was confirmed the following year in TSB-A-07(8)S.

What this means for you

Mall and commercial landlords using flat, survey-based utility reimbursements

If you bill tenants a fixed reimbursement based on an engineering estimate rather than actual metered readings, that charge is rent, not a taxable utility sale — but you pay tax on 100% of your own electricity purchase with no resale credit, since you're not making a genuine, usage-based utility resale.

Landlords billing flat trash-removal and CAM charges

Keep these labeled as additional rent under the lease to preserve their untaxed status to tenants — but budget for full sales tax on your own purchases from the hauler and on common-area supplies/utilities.

Accountants and tax professionals

This opinion, its near-identical sibling TSB-A-06(35)S, and the contrasting submetered-electricity opinion TSB-A-07(8)S form a complete three-ruling set on landlord utility billing — cite this one as the doctrine's origin point when advising on flat vs. metered tenant utility charges.

Common questions

Q: Is a flat monthly "electricity reimbursement" charge to tenants taxable?
A: No, if it's based on an engineering estimate rather than actual metered usage — courts treat that as part of the rent, not a separate utility sale.

Q: Does the landlord get a refund or credit on its own electricity purchase in that case?
A: No. Because the landlord isn't making a genuine, usage-based resale of electricity, none of its electricity purchase qualifies as a purchase for resale.

Q: Are flat trash-removal and CAM charges to tenants taxable?
A: No, when billed as additional rent under the lease — but the landlord's own purchases from its trash hauler and for common-area maintenance remain taxable.

Q: Can another landlord rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another landlord's billing method (metered vs. estimated) needs to match to reach the same result.

Citations and references

Statutes, regulations, and guidance:

• Tax Law § 1105(b)(1)(A) (tax on electricity and electric service)
• Tax Law § 1105(c)(5) (maintaining, servicing or repairing real property)
• 20 NYCRR 527.7(a)(1)
• TSB-M-84(9)S, Charges By Shopping Mall Operators

Cases referenced:

• Empire State Building Company v New York State Dept. of Taxation & Fin., 81 NY2d 1002
• Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 NY2d 657
• Matter of Mutual Redevelopment Houses, Inc. v Roth, 307 AD2d 422 (3d Dept 2003)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_21s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-06(21)S
Sales Tax
July 26, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S060214A

On February 14, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Jeffrey J. Coren CPA, P.C., 450 Seventh Avenue, Suite 2710,
New York, New York, 10123. Petitioner, Jeffrey J. Coren CPA, P.C., provided additional
information pertaining to the Petition on April 26, 2006.
The issues raised by Petitioner are:

1. Whether charges by a landlord to a tenant for electricity, trash removal and common
   area maintenance are subject to sales tax.
2. Whether purchases by a landlord of trash removal services and electric service are
   subject to sales tax.
   Petitioner submits the following facts as the basis for this Advisory Opinion.
   Petitioner's client (hereinafter “Landlord”) is the lessor of a commercial property (the
   "mall") in New York State. Landlord purchases electricity from a public utility or private
   generating plant measured by a single meter and trash removal service from a third party trash
   removal company for the entire mall.
   Landlord charges tenants a monthly electricity reimbursement charge based on an
   engineering survey used to estimate tenants' annual electrical usage. The tenants’ electricity
   usage is not metered. Landlord's electricity reimbursement charge to tenants is a fixed amount
   each month for the entire year. Monthly charges to tenants for electricity can exceed the actual
   cost of electricity used by the tenant. Landlord may impose annual increases to electricity
   reimbursement charges due to increases in the cost of electricity over the term of the lease.
   Petitioner states that tenants pay this monthly charge as additional rent under Landlord's lease
   agreement. Landlord bills tenants a separate charge for this amount.
   Tenants also pay the landlord a fixed monthly trash removal fee that is calculated on the
   basis of each tenant's leased square footage. Landlord is required under its lease agreement to
   provide trash removal service. Tenants may not hire an outside trash removal service. Petitioner
   states that tenants pay for trash removal as additional rent under Landlord's lease agreement.
   Landlord bills tenants a separate charge for this trash removal fee.
   Landlord charges tenants a monthly common area maintenance charge (CAM
   Reimbursement). This charge is a fixed monthly amount and includes an allocated cost of

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Sales Tax
July 26, 2006

electricity for common areas based on the results of the engineering survey and on each tenant's
leased square footage. Landlord bills tenants a separate charge for this amount.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax On and after June first, nineteen hundred seventy-one,
there is hereby imposed and there shall be paid a tax . . . upon:
*

*

*

(b)(1) The receipts from every sale, other than sales for resale, of the following:
(A) gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam
service of whatever nature; . . .
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(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 capital improvement is defined
in paragraph nine of subdivision (b) of section eleven hundred one of this article . . . .
Section 527.7(a)(1) of the Sales and Use Tax Regulations provides:
Maintaining, servicing and repairing are terms which are used to cover all
activities that relate to keeping real property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition. Among the services included are
services on a building itself such as painting; services to the grounds, such as lawn
services, tree removal and spraying; trash and garbage removal and sewerage service and
snow removal.
Opinion
Landlord is the lessor of a commercial mall in New York State. Landlord purchases
electricity from a public utility or private generating plant measured by a single meter. Landlord
recoups its cost of electricity by charging its tenants a fixed monthly electricity reimbursement

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Sales Tax
July 26, 2006

charge based on an engineering survey used to estimate tenants' annual electricity usage. The
tenants’ electricity usage is not metered.
Section 1105(b) of the Tax Law imposes sales tax on utility services furnished as a
separate identifiable sale of a commodity. The tax applies to separate, identifiable transactions
which have as their primary purpose the furnishing of utilities or utility services. See Matter of
Mutual Redevelopment Houses, Inc. v Arthur J. Roth, 307 AD 2d 422 (3d Dept 2003).
In Empire State Building Company v New York State Department of Taxation and
Finance, 81 NY2d 1002, the Court of Appeals held that:
Plaintiff's tenants' payment of an Electricity Rent Inclusion Factor (ERIF) was for
electric service provided only as an incident to the rental of commercial premises in
plaintiff's building and not as part of "separate transactions which have as their primary
purpose the furnishing of utilities or utility services" (Debevoise & Plimpton v New York
State Dept. of Taxation & Fin., 80 NY2d 657, 661). The taxing of the ERIF payments as
a sale of utility services under Tax Law § 1105(b) was therefore improper.
Based upon the decision in Empire, supra, since Landlord’s charges to its tenants are not
based on meter readings and are, therefore, not based on actual usage, charges by Landlord for
electricity in accordance with the terms of its leases with its tenants are a part of the rental of real
property and not a sale of a utility service. Therefore, charges by Landlord to its tenants for
electricity supplied under its leases are not subject to the sales tax imposed under section 1105(b)
of the Tax Law.
Consequently, purchases of electricity by Landlord are not purchases for resale and are
subject to the sales tax imposed under section 1105(b) of the Tax Law.
Landlord purchases trash removal service for the entire mall from a third party trash
removal company. Landlord charges its tenants a fixed monthly fee for trash removal based on
each tenant's leased square footage. Tenants pay for trash removal as additional rent under
Landlord's lease agreement.
Tenants do not hire an outside contractor for trash removal; rather, payment is made
directly to Landlord. Landlord is required by its lease to provide trash removal for its tenants
and Landlord charges a flat rate that does not vary with the actual amount of a tenant’s garbage.
Accordingly, the trash removal service provided by Landlord is incidental to the lease of real
property and, therefore, Landlord’s charges for trash removal are not subject to sales tax. The
purchase by Landlord of trash removal services from a third party is subject to sales tax under
section 1105(c)(5) of the Tax Law. See section 527.7(a)(1) of the Sales and Use Tax
Regulations.

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Sales Tax
July 26, 2006

Landlord charges tenants a monthly common area maintenance charge (CAM
Reimbursement). This charge is a fixed monthly amount and includes an allocated cost of
electricity for common areas based on the results of an engineering survey and on each tenant's
leased square footage.
Technical Services Bureau Memorandum entitled Charges By Shopping Mall Operators,
May 7, 1984, TSB-M-84(9)S, states the following with regard to common area charges:
Common area charges which are designated as "additional rent" or similarly
provided for by specific provisions in the lease agreement are considered to be receipts
from the rental of real property and are not subject to sales tax when billed to tenants. An
"anchor" store which owns its own building within a mall complex is normally subject to
common area charges which are determined by a method similar to the method used for
tenants, and will receive the same treatment as mall tenants for sales tax purposes.
The mall operator is responsible for paying tax to his supplier on purchases of any
taxable tangible personal property or services used or consumed by him in the operation
of the common area. . . .
Accordingly, Landlord’s CAM reimbursement charges to its tenants are not subject to
sales tax. Tangible personal property, utilities or other services subject to sales tax under section
1105 of the Tax Law that Landlord purchases for use in maintaining such common areas are
subject to sales tax.

DATED: July 26, 2006

NOTE:

/s/
Jonathan Pessen
Tax Regulation Specialist IV
Technical Services Division

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