Is a condominium board of managers' resale of submetered electricity and steam to unit owners subject to sales tax, and may a utility include the section 186-a gross receipts tax in its transmission charges?
Plain-English summary
The Board of Managers of the Time Warner Center Condominium buys utilities from the utility company through master meters, then redistributes electricity, steam, and water to the building's nine major condominium units (residential and nonresidential), which in turn submeter to their own tenants. The Board asked (1) whether its sales of utilities to the unit owners are subject to sales tax, and (2) whether the utility company's charge for electric transmission may include the section 186-a gross receipts tax.
Sales-tax treatment (Issue 1):
- Water delivered through mains or pipes is exempt (§ 1115(a)(2)).
- Electricity and steam that the Board submeters and resells to unit owners are taxable sales under § 1105(b) (Matter of Mutual Redevelopment Houses). Because the Board is making these utility sales, it must register as a vendor and collect and remit the tax (§§ 1101, 1105(b), 1132, 1134).
- Nonresidential units pay full state and local sales tax on metered electricity and steam — unless the unit owner is an exempt organization under § 1116(a)(4) furnishing an exempt-purchase certificate.
- Residential units get the § 1105-A exemption: residential energy is exempt from the state sales tax but still subject to local sales tax (with a Certification of Residential Use).
- Common charges the unit owners pay the Board for shared common-element utilities are not the purchase of a taxable utility service — they are contributions to common costs — so they are not subject to sales tax.
Gross-receipts-tax pass-through (Issue 2): The Board (and possibly TWI) is itself a "utility" for § 186-a because it makes submetered utility sales, but the § 186-a rate has been 0% since 2005, and as of 2005 receipts from electric transmission are not taxed to them. Separately, the § 186-a tax imposed on the actual utility company is an expense of the utility that it may build into its transmission price — including a separately stated recovery amount under § 186-a.6. That recovery in the Board's, TWI's, and Jazz's bill is not a direct tax on them; it is part of the utility's charge.
What this means for you
Condominium and co-op boards, and submetering building owners
If you resell submetered electricity or steam to unit owners or tenants, you are making taxable utility sales and must register as a vendor and collect sales tax — except residential energy (state-exempt, local-taxable) and water through mains (exempt). Pure pass-through common charges for shared utilities are not taxable utility sales.
Tenants and unit owners
Watch the residential-vs-nonresidential line: residential energy escapes the state sales tax but not the local tax; nonresidential energy is fully taxed unless you qualify as an exempt organization. A separately stated "gross receipts tax" recovery on your bill is the utility recovering its own § 186-a expense, not a tax newly imposed on you.
Accountants and tax professionals
Track the chain: master-metered purchase, board-level resale (taxable vendor), unit-level resale, and common-charge allocation (not a sale). Apply § 1115(a)(2) for water, § 1105-A for residential energy (state-only exemption), § 1116(a)(4) for exempt units, and treat the § 186-a recovery as part of the utility's price under § 186-a.6.
Common questions
Q: Does a condo board owe sales tax when it resells submetered electricity?
A: Yes. Submetered electricity and steam resold to unit owners are taxable sales under section 1105(b), and the board must register as a vendor to collect and remit the tax.
Q: Is residential energy exempt?
A: From the state sales tax, yes (section 1105-A), with a Certification of Residential Use - but it remains subject to local sales tax. Water through mains or pipes is fully exempt.
Q: Can the utility add the section 186-a tax to its transmission charge?
A: Yes. The section 186-a tax is the utility's own expense, which it may include in its transmission price and separately state under section 186-a.6; that is not a tax imposed on the purchaser.
Citations and references
Statutes, regulations, and authorities:
- Tax Law § 1105(b) (sales tax on utilities and utility services)
- Tax Law § 1115(a)(2) (exemption for water through mains/pipes)
- Tax Law § 1105-A (residential energy exempt from state but not local sales tax)
- Tax Law § 186-a (gross receipts tax on utilities); § 186-a.6 (separately stated recovery)
- Tax Law § 1116(a)(4) (exempt-organization purchases); § 1132, § 1134 (vendor registration)
- Matter of Mutual Redevelopment Houses, Inc. v. Roth, 307 A.D.2d 422 (3d Dept 2003)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2006.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a06_6c_23s.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. Z050426A
On April 26, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from the Board of Managers of the Time Warner Center Condominium and
the Unit Owners, 10 Columbus Circle, Suite 310, New York, New York, 10019.
The issues raised by Petitioners, the Board of Managers of the Time Warner Center
Condominium and the Unit Owners, are:
1. Whether utilities purchased by the Board of Managers for its consumption in the
operation of Time Warner Center Condominium and for consumption by the Unit Owners (or
their tenants) and by the residential unit boards are subject to sales tax.
2. Whether, commencing in 2005, the amount charged to the Board of Managers and two
of the Unit Owners, Time Warner Inc. and Jazz @ Lincoln Center, Inc., for electric transmission
services provided by a utility company subject to the supervision of the New York State Public
Service Commission may include an amount for gross receipts tax that is imposed under section
186-a of the Tax Law.
Petitioners submit the following facts as the basis for this Advisory Opinion.
The Time Warner Center Condominium is located at Columbus Circle in New York City.
The Time Warner Center Condominium is comprised of the following condominium units:
1.
Time Warner Inc.'s Unit - TWI Unit;
2.
Time Warner Inc.'s Unit - North Office Unit;
3.
The Hotel Unit;
4.
The North Residential Unit;
5.
The South Residential Unit;
6.
The Office Unit;
7.
The Retail Unit;
8.
The Parking Unit; and
-2
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
9.
The Jazz Unit.
The Time Warner Center Condominium is managed by a board (hereinafter the "Board of
Managers") on behalf of the owners of the condominium units listed above (the “Unit Owners”).
The Board of Managers is an unincorporated association composed of representatives of each of
the Unit Owners and, in the case of the residential units, representatives selected by each
residential unit’s condominium board. Though currently operating as an unincorporated
association, the Board of Managers may determine to incorporate at some future date. The Board
of Managers’ sole function is the management of Time Warner Center Condominium.
Appurtenant to each condominium unit is an interest in Time Warner Center
Condominium’s common elements. Each of the units in Time Warner Center Condominium,
together with its appurtenant common elements interest, is referred to herein as a "major unit,"
and collectively these constitute the "major units." The owners of the major units other than the
residential units are referred to as the "Unit Owners." The persons occupying space in all the
major units except the residential units are either the Unit Owners or their tenants.
The North and South Residential units, which are composed of residential subunits
(condominium apartments), are operated by their own condominium boards (hereinafter the
residential unit board or boards), which function as the management of the North and South
Residential units, respectively. The other major units are operated by their respective Unit
Owners.
Each major unit shares common elements in Time Warner Center Condominium and
maintains common elements within itself. The common elements operated by the Board of
Managers include a central HVAC plant (the "Central Plant"), in which chilled water is produced
and HVAC services are provided for the major units1 and common areas shared by the entire
condominium.
The major units vary in both form and function. Time Warner Inc. (“TWI”) owns two
units. The first unit (the “TWI Unit”) includes corporate offices and broadcast studio space for
TWI and its affiliates. The second unit (the "North Office Unit") comprises approximately
100,000 feet of office space. Currently TWI intends to occupy both the TWI Unit and the entire
North Office Unit. However, in the future it is possible that some part or all of the North Office
Unit could be leased to third-party tenants.
1
Unit.
Other than the TWI Unit. TWI also has its own HVAC plant within the TWI Unit, which provides HVAC to the TWI
-3
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Each other unit (listed in three through eight above) is used primarily for the purposes
described in its name. The two residential units are subdivided into numerous individual resident
apartments, each one owned, together with an interest in the common areas within that particular
residential unit, as a condominium subunit by an individual owner. The Hotel Unit is owned and
occupied by a single hotel operator. The Jazz Unit consists of an auditorium and related
facilities and is used by Jazz @ Lincoln Center Inc. ("Jazz"), a not-for-profit organization
affiliated with Lincoln Center.
The Board of Managers, TWI and Jazz each have separate direct meters through which a
utility company provides electricity or electric service and steam. In addition, New York City
charges the Board of Managers for water used by it in the operation of Time Warner Center
Condominium. The electricity or electric service and steam purchased by the Board of Managers
from the utility company are consumed in the operation of the Central Plant, consumed in the
operation of Time Warner Center Condominium’s common areas, or distributed to the major
units for consumption within the particular units.
The Board of Managers charges each of the Unit Owners and the residential unit boards
for electricity, steam and water used in that major unit (in the case of the TWI and Jazz Units, the
Board of Managers charges for the portion of these utilities not provided directly by the utility
company). Currently and until all units’ specific submeters are fully operational, some charges
are being estimated. Even after the submeters are fully operational, the Board of Managers may
charge the Unit Owners and the residential unit boards for certain utilities based on allocations
rather than submeters.
The Board of Managers charges each of the Unit Owners and the residential unit boards
for each unit’s share of the Board of Managers’ total costs of the Central Plant based on the "AC
Factor." The AC Factor charges include the cost of electricity, steam and water consumed in
producing chilled water and providing HVAC services, as well as the costs of central plant labor,
equipment and supplies. Each major unit’s AC Factor charge is determined based upon a
combination of the actual design capacity for the particular major unit (for fixed costs) and actual
usage as measured by BTU meters for the particular major unit (for variable costs).
The Board of Managers charges each of the Unit Owners and the residential unit boards
for its agreed-upon share of the costs for utilities, including electricity, steam (if any) and water,
used in Time Warner Center Condominium’s common areas based upon the agreed-upon
common areas percentages. These common charges are computed using factors such as square
footage of the particular unit and percentage of space occupied and are not based on actual
metered usage.
Each of the Office, Retail, and Parking Unit Owners and the board of each residential
unit bills the occupants of its unit for such occupants' actual electric usage, measured by
-4
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
submeters. The Unit Owners and residential unit boards may also recoup some part of the cost
of their electric usage through general common or rental charges, some of which may be based
on allocations. Thus, the boards of the residential units bill each individual owner for the electric
usage determined for such individual owner's apartment based on a specific submeter; and the
Office, Retail and Parking Unit Owners bill their respective tenants for electricity based on
submeters measuring electric usage within each tenant's premises. The Unit Owners and
residential unit boards recoup their steam and water costs through general common charges or
rents. The Retail Unit Owner also may bill its tenants in part based on submeters measuring the
use of steam and/or water by its tenants. In addition, steam is used to heat water for space
heating within the Retail Unit, and some Retail Unit tenants are then billed “Hot Water Charges”
for such heating based on BTU meters measuring usage.
As noted above, the Board of Managers charges each Unit Owner and residential unit
board the AC Factor representing the Unit Owner’s and the residential unit board’s share of the
costs of the Central Plant. The North and South Residential unit boards recoup their respective
shares of the AC Factor and the cost of electricity used in operating Time Warner Center
Condominium’s common areas as part of the residential units’ condominium common charges to
the individual owners. The residential unit boards further recoup through common charges the
costs of electricity consumed within the common areas (e.g.; the lobby) of the residential units
and not specifically submetered to a particular resident.
The Parking Unit Owner passes its entire AC Factor charge directly through to its single
tenant. It does not separately meter or charge its tenant for the AC Factor based on BTU load.
The Parking Unit Owner recoups its share of Time Warner Center Condominium’s common area
electric usage through rent charges to its tenant.
The Retail and Office Unit Owners bill certain tenants for AC Factor charges based upon
metered BTU loads. These Unit Owners recoup the costs of their respective shares of Time
Warner Center Condominium’s common area electric usage and the electric usage within the
major units’ common area through rent charges to their tenants.
As noted above, TWI currently plans to occupy all of the TWI Unit and all of the North
Office Unit. It is possible, however, that TWI may in the future lease part or all of the North
Office Unit, and TWI may bill tenants for submetered electricity or electric service, steam, water,
AC Factor and/or hot water. It is at this point unknown whether, should TWI submeter utilities
to tenants, specific metered charges for utilities to TWI could be identified as either utilities that
are solely consumed by TWI or utilities that are solely resold to its tenants or instead whether
some of the metered charges to TWI would relate to utilities that are in part consumed by TWI
and in part resold by TWI to its tenants.
-5
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Applicable law and regulations
Section 1101(a) of the Tax Law provides, in part:
When used in this article the term “person” includes an individual, partnership,
limited liability company, society, association, joint stock company, corporation, estate,
receiver, trustee, assignee, referee, and any other person acting in a fiduciary or
representative capacity … and any combination of the foregoing.
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*
*
*
(8) Vendor. (i) The term "vendor" includes:
(A) A person making sales of tangible personal property or services, the receipts
from which are taxed by this article;
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; . . .
Section 1105-A of the Tax Law provides, in part:
Reduced tax rate on certain energy sources and services (a) Notwithstanding any
other provisions of this article, but not for purposes of the taxes imposed by section
eleven hundred seven or eleven hundred eight or authorized pursuant to the authority of
article twenty-nine of this chapter, the taxes imposed by subdivision (a) or (b) of section
eleven hundred five on . . . the receipts from every sale, other than for resale, of . . .
natural gas, electricity, steam and gas, electric and steam services used for residential
-6
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
purposes shall be paid at the rate of . . . zero percent on and after October first, nineteen
hundred eighty. . . .
Section 1107 of the Tax Law provides, in part:
Temporary municipal assistance sales and compensating use taxes for cities of
one million or more (a) General. 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 on such
date, within the territorial limits of such city, and there shall be paid, additional taxes . . .
which except as provided in subdivision (b) 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 of the Tax Law provides, in part:
Sales and compensating use taxes for the metropolitan commuter transportation
district (a) General. In addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten of this article, there is hereby imposed within the territorial limits of
the metropolitan commuter transportation district created and established pursuant to
section twelve hundred sixty-two of the public authorities law, and there shall be paid,
additional taxes . . . which shall be identical to the taxes imposed by sections eleven
hundred five and eleven hundred ten of this article. 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 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:
*
*
*
(2) Water, when delivered to the consumer through mains or pipes.
-7
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Section 1132 of the Tax Law provides, in part:
(a) (1) Every person required to collect the tax shall collect the tax from the
customer when collecting the price, amusement charge or rent to which it applies. If the
customer is given any sales slip, invoice, receipt or other statement or memorandum of
the price, amusement charge or rent paid or payable, the tax shall be stated, charged and
shown separately on the first of such documents given to him. The tax shall be paid to the
person required to collect it as trustee for and on account of the state.
*
*
*
(c) (1) For the purpose of the proper administration of this article and to prevent
evasion of the tax hereby imposed, it shall be presumed that all receipts for property or
services of any type mentioned in subdivisions (a), (b), (c) and (d) of section eleven
hundred five, all rents for occupancy of the type mentioned in subdivision (e) of said
section, and all amusement charges of any type mentioned in subdivision (f) of said
section, are subject to tax until the contrary is established, and the burden of proving that
any receipt, amusement charge or rent is not taxable hereunder shall be upon the person
required to collect tax or the customer. Except as provided in subdivision (h) or (k) of this
section, unless (i) a vendor, not later than ninety days after delivery of the property or the
rendition of the service, shall have taken from the purchaser a resale or exemption
certificate in such form as the commissioner may prescribe, signed by the purchaser and
setting forth the purchaser’s name and address and, except as otherwise provided by
regulation of the commissioner, the number of the purchaser’s certificate of authority,
together with such other information as the commissioner may require, to the effect that
the property or service was purchased for resale or for some use by reason of which the
sale is exempt from tax under the provisions of section eleven hundred fifteen, and,
where such resale or exemption certificate requires the inclusion of the purchaser’s
certificate of authority number or other identification number required by regulations of
the commissioner, that the purchaser’s certificate of authority has not been suspended or
revoked and has not expired as provided in section eleven hundred thirty-four, or (ii) the
purchaser, not later than ninety days after delivery of the property or the rendition of the
service, furnishes to the vendor: any affidavit, statement or additional evidence,
documentary or otherwise, which the commissioner may require demonstrating that the
purchaser is an exempt organization described in section eleven hundred sixteen, the sale
shall be deemed a taxable sale at retail. . . . here such a resale or exemption certificate or
such an affidavit, statement or additional evidence has been furnished to the vendor, the
burden of proving that the receipt, amusement charge or rent is not taxable hereunder
shall be solely upon the customer. The vendor shall not be required to collect tax from
purchasers who furnish a resale or exemption certificate, or such an affidavit, statement
or additional evidence in proper form, . . .
-8
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Section 1134(a)(1)(i) of the Tax Law provides, in part:
Every person required to collect any tax imposed by this article . . . commencing
business or opening a new place of business, (ii) every person purchasing or selling
tangible personal property for resale commencing business or opening a new place of
business . . . shall file with the commissioner a certificate of registration, in a form
prescribed by the commissioner, at least twenty days prior to commencing business or
opening a new place of business or such purchasing, selling or taking of possession or
payment, whichever comes first. . . .
Section 1139(a) of the Tax Law provides, in part:
In the manner provided in this section the tax commission shall refund or credit
any tax, penalty or interest erroneously, illegally or unconstitutionally collected or paid if
application therefor shall be filed with the tax commission (i) in the case of tax paid by
the applicant to a person required to collect tax, within three years after the date when the
tax was payable by such person to the tax commission as provided in section eleven
hundred thirty-seven. . . . Such application shall be in such form as the tax commission
shall prescribe. . . .
Section 527.2 of the Sales and Use Tax Regulations provides, in part:
Sale of utility and similar services. (a) Imposition. (1) Section 1105(b) of the Tax
Law imposes a tax on the receipts from every sale, except a sale for resale . . . of
(i) gas, electricity, refrigeration and steam, and gas, electric, refrigeration and
steam service of whatever nature; . . .
*
*
*
(2) Although this tax is generally known as the "consumer's utility tax," the
intention of the statute is to tax the enumerated sales and services whether or not rendered
by a company subject to regulation as a utility company. The words "of whatever nature"
indicate that a broad construction is to be given the terms describing the items taxed. The
inclusion of the word "service" indicates an intent to tax, under this provision, items that
are furnished as a continuous supply while the vendor-vendee relationship exists.
Section 527.13 of the Sales and Use Tax Regulations provides, in part:
(a) Reduction in rate. (1) Section 1105-A of the Tax Law provides for a reduction
in the . . . statewide sales tax rate imposed under sections 1105(a) and 1105(b) of the Tax
-9
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Law and in the . . . statewide compensating use tax rate imposed under section 1110(a) of
the Tax Law, as set forth in subdivision (c) of this section, on the receipts from every
sale, other than for resale, used for residential purposes of:
*
*
*
(vi) electricity;
(vii) steam; and
(viii) gas, electric and steam services.
For purposes of this regulation, the term energy sources is used to describe the
above-mentioned tangible personal property and services.
(2) The reduction in the sales and compensating use tax rates does not apply to
those tax rates imposed by localities, pursuant to article 29 of the Tax Law, nor to the . . .
sales and compensating use tax rate in New York City which is imposed by section 1107
of the Tax Law. . . .
*
*
*
(d) Definitions. (1) The term residential purposes means any use of a structure or
part of a structure as a place of abode, maintained by or for a person, whether or not
owned by such person, on other than a temporary or transient basis with the exclusion of
accommodations subject to tax under subdivision (e) of section 1105 of the Tax Law.
(2) The term nonresidential purposes means any use other than for residential
purposes, as defined in paragraph (l) of this subdivision, including any use in the conduct
of a trade, business or profession, whether such trade, business or profession is carried on
by the owner of the structure or some other person.
(3) The term common area means any area of the premises of a structure used
without distinction for both residential and nonresidential purposes.
(e) Certification and allocation. (1) Purchases of energy sources used exclusively
for residential purposes shall receive the reduced tax rate without the necessity of
certification.
(2) Where energy sources billed on a single meter or in a lump sum are used for
both residential and nonresidential purposes, and the residential purposes constitute 75
- 10
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
percent or more of the usage, the entire amount billed shall be taxed at the reduced sales
tax rate without certification. See paragraph (5) of this subdivision to determine the
percentage of residential use.
(3) Where energy sources billed on a single meter or in a lump sum are used for
both residential and nonresidential and less than 75 percent of the usage is for residential
purposes, the purchaser is entitled to the reduced tax rate on only the percentage of
energy sources used for residential purposes. This percentage shall be determined in
accordance with paragraph (5) of this subdivision and shall be rounded off to the nearest
10 percent. A certificate shall be filed in the form provided and shall be given by the
purchaser to the supplier of the energy sources. In the absence of such a certificate, the
supplier of energy sources shall collect the full tax on the entire usage.
(4) Where a structure is exclusively used for nonresidential purposes, no
certification or statement is required, since no eligibility for a reduced sales tax rate shall
exist for purchases of energy sources and services.
(5) To determine the percentage of the area of a structure used for residential
purposes, the following formula shall be used by the purchaser of the energy sources and
services: total area of space used for residential purposes, excluding common areas,
divided by the total area (residential and nonresidential), excluding common areas, equals
the percentage rounded off to the nearest 10 percent applicable to use for residential
purposes. Thus, if the percentage before rounding is 74.9 percent, the percentage when
rounded is 70 percent.
(6) Certifications, when needed, may be obtained from the Taxpayer's Assistance
Bureau at the State Campus in Albany, from any district tax office or from the supplier of
the energy sources and services.
(f) Customer classification. (1) Vendors of energy sources which are regulated by
the New York State Public Service Commission and which have on file therewith a tariff
or rate schedule which classifies its customer either as residential or nonresidential, may
request from the Department of Taxation and Finance approval to use such classifications
for determining the eligibility of its customer for a reduced sales tax rate without
certification.
(2) All other vendors of energy sources may use from their records any
classifications presently in use which classifies a customer as either a residential or
nonresidential customer. If there is no such classification, the vendor is required to make
a visual inspection of the structure to determine his customer's classification in
- 11
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
accordance with subdivision (e) of this section for eligibility for a reduced sales tax rate
without certification.
*
*
*
(4) Where a customer is eligible for the reduced tax rate, as a residential customer
described in paragraph (1) or (2) of subdivision (e) of this section, but the supplier of
energy sources has not classified him as a residential user, the customer should furnish
the supplier with a certification.
(g) Collection of tax. (l) Every vendor, making a sale of energy sources to a
customer who is classified as a residential customer, shall collect the sales tax at the
reduced sales tax rate on such customer's total purchase.
(2) Every supplier of energy sources who has received from his customer a
certification shall collect the sales tax at the reduced rate on the portion of the purchase
shown as being used for residential purposes and shall collect the tax at the full rate on
the remainder which is used for nonresidential purposes.
(3) Every vendor making sales of energy sources which are used for
nonresidential purposes shall collect the sales tax at the full rate.
Section 186-a of the Tax Law imposes a tax on the furnishing of utility services, and
provides, in part:
1. Notwithstanding any other provision of this chapter, or of any other law,
*
*
*
(b) a tax equal to (1) … two percent commencing January first, two thousand five
and thereafter of that portion of its gross income derived from the transportation,
transmission or distribution of gas or electricity by means of conduits, mains, pipes,
wires, lines or the like … is hereby imposed upon every utility not taxed under paragraph
(a) of this subdivision doing business in this state which is subject to the supervision of
the state department of public service which has a gross income for the year ending
December thirty-first in excess of five hundred dollars …; and
(c) a tax equal to ... zero percent commencing January first, two thousand five of
its gross operating income is hereby imposed upon every other utility doing business in
this state which has a gross operating income for the year ending December thirty-first in
- 12
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
excess of five hundred dollars, which taxes shall be in addition to any and all other taxes
and fees imposed by any other provision of law for the same period.
2. As used in this section,
(a) the word "utility" includes every person … subject to the supervision of the
state department of public service … and also includes every person (whether or not such
person is subject to such supervision) who 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, or of
whether use is made of the public streets;
(b) the word "person" means persons, corporations, companies, associations …;
(c) the words "gross income" mean and include receipts received in or by reason
of any sale, conditional or otherwise … made or service rendered for ultimate
consumption or use by the purchaser in this state … without any deduction therefrom….
(1) Provided, however, that all receipts from sales of the transportation,
transmission or distribution of gas or electricity by means of conduits, mains, pipes,
wires, lines or the like, rendered or performed in this state, shall be included in gross
income except receipts from … (iv) sales of the transportation, transmission or
distribution of gas or electricity, not otherwise excluded, to nonresidential customers, but
only in accordance with the following schedule: ... for sales during the calendar year two
thousand four, seventy-five percent of the receipts from such sales shall be excluded; and
for sales thereafter, one hundred percent of such sales shall be excluded. For the purposes
of this clause, the term "nonresidential customers" means those customers whose use of
gas or electricity, or gas or electric service does not qualify for the reduced rate of sales
and compensating use tax on gas, electricity, or gas or electric service under section
eleven hundred five-A of article twenty-eight of this chapter.
*
*
*
- The tax imposed by this section shall be charged against and be paid by the
utility and may be added as a separate item to bills rendered by the utility to customers.
Upon request the utility shall furnish a statement of the amount of tax imposed by this
section to its customers for bills rendered on or after January first, two thousand.
- 13
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Opinion
Issue 1
The Time Warner Center Condominium is located at Columbus Circle in New York City.
The Time Warner Center Condominium is comprised of nine major condominium units that can,
for purposes of determining sales tax liability on energy sources, be divided into two categories:
residential and nonresidential. The Hotel Unit, North Residential Unit, South Residential Unit,
Office Unit, Retail Unit and Parking Unit are used primarily for the purposes described in their
names. The TWI and North Office Units and the Jazz Unit can be described as nonresidential
units. Accordingly, the North and South Residential units are used for residential purposes and
the remaining seven major units are used for nonresidential purposes.
Each of the major units shares various common elements in Time Warner Center
Condominium and maintains common elements within the unit itself that, for sales tax purposes,
are considered to be common areas. In some cases, utilities are purchased by the major units
(TWI and Jazz) directly from a utility company. More often, utilities are purchased by the Board
of Managers from a utility company through single meters for electricity or electric service,
steam, and water and are either consumed by the Board of Managers in the operation of Time
Warner Center Condominium or redistributed by the Board of Managers to the major units. The
utilities are, in turn, redistributed to the subunits (residents or tenants) by the major units by
various means. For example, the Office Unit purchases the following from the Board of
Managers: electricity or electric service and steam through submeters and HVAC services using
the AC Factor; and is billed for its share of Time Warner Center Condominium common charges
for electricity used in Time Warner Center Condominium’s common areas. The Office Unit, in
turn, bills each of its tenants for submetered electricity or electric service, passes AC Factor
charges through to some of its tenants by means of an allocation method based on BTU loads,
and bills its tenants for rent that covers the Office Unit’s share of electricity or electric service,
steam, and water used in Time Warner Center Condominium’s common areas and the cost of
utilities used in the common areas of Office Unit.
Receipts from the sale of water, when delivered to the consumer through mains or pipes,
are exempt from sales tax pursuant to section 1115(a)(2) of the Tax Law. Accordingly, charges
to the Board of Managers and Unit Owners for water are not subject to sales tax.
Section 1105(b) of the Tax Law imposes the sales tax on receipts from the sale of
enumerated utilities and utility services. The tax is on the receipts from the sale of utilities
furnished in 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). The Board of Managers bills each of the Unit
Owners and residential unit boards for electricity or electric service and steam based on actual
- 14
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
usage as determined by submeter readings, bills the Unit Owners and residential unit boards for
HVAC services using the AC Factor and bills the Unit Owners and residential unit boards for
Time Warner Center Condominium common elements electricity usage (common charges) using
the agreed upon common area percentages. Charges to the Unit Owners and residential unit
boards for submetered electricity or electric service and steam are sales subject to sales tax under
section 1105(b) unless otherwise exempt. See Matter of Mutual Redevelopment Houses, supra.
Since the Board of Managers is a person making sales of electricity or electric service
and steam, the receipts from which are taxed by Article 28 of the Tax Law, it is required to
register as a vendor for sales tax purposes and undertake the responsibilities of a registered
vendor, including the collection and remittance of the applicable sales tax upon its taxable sales.
See sections 1101(a), 1101(b)(8), 1105(b), 1132(a)(1) and 1134 of the Tax Law.
Sales and purchases of utilities by the Board of Managers
The TWI, North Office, Hotel, Office, Retail, Parking and Jazz units are nonresidential
units. Receipts from sales of metered electricity or electric service and steam either by the Board
of Managers or by a utility company to these nonresidential units are subject to State and local
sales tax at the full rate in effect at the location at which such utilities are delivered. Sales tax is
required to be collected on the sale of metered or submetered electricity or electric service and
steam to these units. However, if Jazz, the owner of a nonresidential unit, is an organization
which qualifies for exemption from sales tax (see section 1116(a)(4) of the Tax Law) and if it is
the purchaser and payer of record of the metered or submetered electricity or electric service and
steam sold by a utility company or the Board of Managers, Jazz may provide the utility company
or the Board of Managers with a properly completed Exempt Organization Exempt Purchase
Certificate (Form ST-119.1) to make its purchases of metered or submetered electricity or
electric service and steam without payment of sales tax. Such certification accepted in good faith
will relieve the utility company and Board of Managers of its obligation to collect sales tax on
sales of metered or submetered electricity or electric service and steam sold to Jazz. See section
1132(c) of the Tax Law.
The North and South Residential units are owned by the individual subunit owners and
are each operated by a condominium board (residential unit board). Section 1105-A of the Tax
Law exempts energy sources and services used for residential purposes from New York State
sales and use tax, but not from the sales and use taxes imposed by localities. If the residential
metered usage of these units is shown to be 75% or more of the total metered usage as
determined by the formula described in section 527.13(e)(5) of the Sales and Use Tax
Regulations, the residential unit boards’ purchases of metered electricity or electric service and
steam in their entirety are exempt from the statewide portion of the tax as well as the tax imposed
within the Metropolitan Commuter Transportation District pursuant to section 1109 of the Tax
Law. If such metered usage is shown to be less than 75% of the total metered usage as
- 15
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
determined by the formula described in section 527.13(e)(5), only the portion of the electricity or
electric service and steam determined to be used for residential purposes is exempt from the
statewide portion of the tax and the tax imposed within the Metropolitan Commuter
Transportation District. The metered sales of utilities and utility services are subject to the local
portion of the sales tax imposed within New York City under section 1107 of the Tax Law. The
residential unit boards should provide a properly completed Certification of Residential Use of
Energy Purchases (Form TP-385) to the Board of Managers.
The Board of Managers also operates an HVAC facility (Central Plant) which serves all
of the major units. The costs of operating the Central Plant (including purchases of electricity or
electric service and steam used to operate the Central Plant) are shared by the Unit Owners and
the residential unit boards based on the AC Factor. The AC Factor charge is based upon a
combination of the actual design capacity for the particular unit (for fixed costs) and actual usage
as measured by BTU meters for the particular unit (for variable costs).
Each Unit Owner and residential unit board is charged for its agreed upon share of the
costs for utilities, including electricity, steam (if any) and water, used in Time Warner Center
Condominium’s common areas based on the agreed upon common areas percentages. These
common charges are computed using factors such as square footage of the particular unit and
percentage of space occupied and are not based on actual metered usage.
The payment of common charges by the Unit Owners and residential unit boards to the
Board of Managers is not a purchase of taxable services. The payment merely provides the
Board of Managers with the financial means to operate the condominium and purchase services
necessary to such operation. Such common charges are not subject to sales tax. See Locy
Development, Inc., Dec Tax App Trib, May 14, 1991, DTA No. 802499. The AC Factor charges
to the Unit Owners and residential unit boards included in the common charges are not the sale
of taxable utility services. See Debevoise & Plimpton v New York State Dept. of Taxation &
Fin., 80 NY2d 657; Matter of British Airways, PLC, Dec Tax App Trib, June 3, 2004, DTA No.
818259. Therefore, AC Factor charges imposed by the Board of Managers on the Unit Owners
and residential unit boards are not subject to sales tax.
Since the Board of Managers is consuming the electricity or electric service and steam in
the case of its common charges and AC Factor charges, its purchases from a utility company of
electricity or electric service and steam are not purchases exclusively for resale even if a portion
of these utility services are, in fact, resold on a submetered basis. See Bruce A. Mekul, CPA,
Adv Op Comm T & F, March 18, 2005, TSB-A-05(8)S. Accordingly, the entire purchase price
of such utilities is subject to the full rate of sales tax. The Board of Managers may apply for a
credit or refund of the sales tax paid on charges for that portion of the utilities purchased by it
that are resold as metered or submetered utility services. See section 1139(a) of the Tax Law.
- 16
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
Sales of utilities by Unit Owners and residential unit boards to subunit owners and tenants
The Unit Owners or the residential unit boards purchase metered or submetered
electricity or electric service and steam from the Board of Managers and also pay AC Factor and
common charges relating to the operation of Time Warner Center Condominium. Each of the
Office, Retail and Parking Unit Owners and the North and South Residential unit boards bills the
occupants of its unit for such occupants' actual electric usage, measured by submeters. Thus, the
North and South Residential unit boards bill each individual owner for the electric usage
determined for such individual owner's apartment based on a specific submeter measuring such
usage; and the Office, Retail, and Parking Unit Owners bill their respective tenants for electric
usage based on submeters measuring such usage within each tenant's premises. Therefore, these
Unit Owners and residential unit boards are persons making sales of electricity or electric
service, the receipts from which are taxed by section 1105(b) of the Tax Law. Accordingly, they
are each required to register as vendors for sales tax purposes and undertake the responsibilities
of a registered vendor, including the collection and remittance of the applicable sales tax on their
taxable sales. See sections 1132(a)(1) and 1134 of the Tax Law. TWI would also be required to
register and collect tax if it sold metered or submetered utility services to tenants of the North
Office Unit. The remaining major units, including the Hotel Unit, do not appear to have tenants,
and their owners purchase metered or submetered electricity or electric service and steam for
their own consumption.
The owners of the Office, Retail and Parking units (which are nonresidential) are required
to collect State and local sales tax at the full rate on charges to their tenants for metered utilities
unless the tenant provides an appropriate and properly completed New York State sales tax
exemption certificate or governmental purchase order.
Sales by the North and South Residential unit boards of submetered electricity or electric
service to the individual subunit owners are not subject to the sales tax imposed by sections
1105(b) and 1109 of the Tax Law. See section 1105-A of the Tax Law. However, the
residential unit boards must collect the local portion of the sales tax imposed by section 1107 of
the Tax Law on their receipts for utilities sold for residential use through meters or submeters.
Charges by the Unit Owners and the residential unit boards for water supplied to their
occupants are not subject to sales tax. See section 1115(a)(2) of the Tax Law. General common
or rental charges for steam or steam service by a Unit Owner or residential unit board to its
occupants are not subject to sales tax; however, if the Retail Unit sells a portion of the steam or
steam service it purchases to its tenants on a metered basis, such sales are subject to sales tax
pursuant to section 1105(b) of the Tax Law. Sales by the Retail Unit of chilled or heated water
are not subject to sales tax. See Matter of British Airways, PLC , supra.
- 17
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
If the Unit Owners (including the North Office Unit Owner in the event that it leases
space to tenants) and residential unit boards purchase from the Board of Managers metered or
submetered electricity or electric service and steam that are intended exclusively for resale to the
subunit owners or tenants on a submetered basis, such purchases of utilities are not subject to
sales tax. Such Unit Owners and residential unit boards should provide a properly completed
Resale Certificate (Form ST-120). See section 1132(c)(1) of the Tax Law.
However, if a Unit Owner or residential unit board purchases from the Board of
Managers metered or submetered utilities where some are resold and some are used to operate
that major unit’s common elements, the total purchase has not been made exclusively for resale
and, therefore, cannot be purchased without payment of sales tax. In this case, the Unit Owner
or residential unit board cannot properly issue a resale certificate and must pay sales tax on its
purchases of metered utility services. Where a Unit Owner or residential unit board purchases
metered or submetered utilities and has paid sales tax on such purchase, it may apply for a refund
or credit of the sales tax paid on those utilities subsequently resold through meters or submeters
to its subunit owners and/or tenants. The residential unit boards may submit a properly
completed Certification of Residential Use of Energy Purchases (TP-385) showing the
percentage of energy purchases used for residential purposes (including utilities consumed in the
operation of the residential units’ common elements such as hallways, elevators, etc.) computed
as described in section 527.13 of the Sales and Use Tax Regulations. See Bruce A. Mekul, supra.
The Unit Owners and residential unit boards may pass through the AC Factor charges by
allocating the charges among their tenants or residents. The Unit Owners and residential unit
boards may also pass through the units’ allocated charges for Time Warner Center Condominium
common elements. In addition to these passed-through charges, the Unit Owners and residential
unit boards charge their tenants or residents common charges attributable to electricity consumed
within the common areas of their units. The payment of common charges by tenants or subunit
owners to the Unit Owners and residential unit boards as part of their rent does not constitute the
purchase of taxable utility services from Unit Owners or residential unit boards. The payment
merely provides the Unit Owners and the residential unit boards with the financial means to
operate the unit and purchase the utility services necessary for such operation. These common
charges are not subject to sales tax. See Locy Development, Inc., supra.
Each of the Unit Owners and residential unit boards is charged for its share of the total
costs of operating the Central Plant based on the AC Factor. The Unit Owners and residential
unit boards in turn pass these costs through to their tenants or occupants. The AC Factor charges
include the cost of electricity, steam and water consumed in producing chilled water and
providing HVAC services, as well as the costs of central plant labor, equipment and supplies.
The Unit Owners’ or residential unit boards’ AC Factor charges to their tenants or occupants
included in the tenants’ or occupants’ common charges are not the sale of a taxable utility
service. See Debevoise & Plimpton v New York State Dept. of Taxation & Fin., supra; Matter of
- 18
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
British Airways, supra. Therefore, such AC Factor charges by the Unit Owners and residential
unit boards are not subject to sales tax.
Issue 2
The Board of Managers, TWI, and Jazz, which are nonresidential customers of a utility
company, each have separate direct meters through which the utility company sells electric
transmission services.
Pursuant to section 186-a.2(a) of the Tax Law, a utility includes every person subject to
the supervision of the New York State Public Service Commission and also includes every
person (whether or not subject to such supervision) who sells gas, electricity, steam, water, or
refrigeration delivered through mains, pipes, or wires or furnishes gas, electric, steam, water, or
refrigeration service by means of mains, pipes, or wires. The Board of Managers, TWI, and Jazz
are not subject to the supervision of the Public Service Commission, but the Board of Managers
makes sales of submetered electricity, steam, and water to the major units, and TWI in the future
may also make sales of such submetered utilities. Accordingly, the Board of Managers is, and
TWI may be, a utility subject to the tax imposed under section 186-a.1(c) of the Tax Law.
However, the rate of tax under section 186-a.1(c) is 0% as of 2005. Jazz is not a utility for
purposes of section 186-a since it is not subject to the supervision of the Public Service
Commission and does not make sales of submetered utilities.
The utility company furnishing electricity to the Board of Managers, TWI, and Jazz, as a
person subject to the supervision of the New York State Public Service Commission, is subject to
the tax under section 186-a of the Tax Law on all receipts from the sale of electric transmission
services pursuant to section 186-a.1(b)(1) of the Tax Law. However, as of 2005, pursuant to
section 186-a.2(c)(1)(iv) of the Tax Law, receipts from sales of the transportation, transmission,
or distribution of gas or electricity to nonresidential customers are not included in gross income
subject to tax under section 186-a. Since the Board of Managers, TWI, and Jazz are
nonresidential units, the utility company's gross income should not include receipts from the
electric transmission services provided for the Board of Managers, TWI, and Jazz.
It should be noted that the tax imposed on utilities under section 186-a of the Tax Law is
an expense of the utility that may be included in the price that the utility charges for transmission
services provided to its customers. However, the inclusion of such expense in the amount
charged for transmission services is not the equivalent of directly taxing the purchaser of the
service. See New York Telephone Company v County of Nassau, 122 AD2d 124; Sempra Energy
Trading Corp., Adv Op Comm T&F, December 18, 2002, TSB-A-02(23)C; and Village of
Springville Electric System, Adv Op Comm T&F, January 4, 2005, TSB-A-05(1)C.
- 19
TSB-A-06(6)C
Corporation Tax
TSB-A-06(23)S
Sales Tax
August 25, 2006
In this case, when the utility company computes the monthly charge to the Board of
Managers, TWI, and Jazz for electric transmission services, the utility company may include
amounts to recover its operating expenses, including an amount for the gross receipts tax
imposed on the utility company under section 186-a of the Tax Law. However, the inclusion in
the Board of Managers’, TWI’s, and Jazz’s monthly charge of an amount for the recovery of the
gross receipts tax imposed on the utility company that is separately stated on the Board of
Managers’, TWI’s, and Jazz’s bill pursuant to section 186-a.6 of the Tax Law is not the
equivalent of directly taxing the Board of Managers, TWI, and Jazz. The tax imposed on a utility
company under section 186-a of the Tax Law is not being imposed on the Board of Managers,
TWI, and Jazz through the monthly charges the Board of Managers, TWI, and Jazz pay the
utility company for provision of transmission services. See Village of Springville Electric
System, supra.
It should be noted that the conclusions of this Advisory Opinion with respect to the
application of section 186-a of the Tax Law are not binding with respect to any taxpayer other
than the Board of Managers, TWI, and Jazz.
DATED: August 25, 2006
NOTE:
/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division
The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.