As a tenant leasing space in a government-owned airport terminal, do I owe sales tax on a contractor's bill for repairs and maintenance, including the materials the contractor uses -- and does it matter if I buy the materials myself instead?

Plain-English summary

JetBlue Airways Corporation is the prime tenant at Terminal 6 at John F. Kennedy International Airport (JFK), which is owned by the City of New York and operated by the Port Authority of New York and New Jersey. JetBlue began operating from JFK in January 2000, and its lease required it to spend at least $4 million improving Terminal 6. JetBlue hires contractors to perform both capital improvements and ordinary repair/maintenance work on its leasehold, and title to all construction work vests in the City of New York once it's built into the premises. JetBlue asked the Department two related questions: (1) when a contractor bills JetBlue for repair and maintenance work, is the portion of that bill representing the contractor's cost of materials taxable, and (2) if JetBlue instead buys the materials itself and has its own employees or a hired contractor install them, is that purchase of materials taxable?

On the first question, the Department held the contractor's entire bill is taxable, materials included. Under Tax Law §1101(b)(4), a sale of building materials to a contractor, subcontractor, or repairman for use in repairing or maintaining real property is legally a retail sale to the contractor -- meaning the contractor, not JetBlue, is treated as the purchaser and consumer of those materials, regardless of the type of contract (lump sum, time-and-materials, etc.). Because repair and maintenance of real property is itself a taxable service under Tax Law §1105(c)(5), the contractor must collect sales tax from JetBlue on its whole receipt for the job -- including any part of the price that reflects the contractor's own materials cost. The fact that the underlying property (Terminal 6) is ultimately owned by the City of New York and the Port Authority -- both tax-exempt governmental entities under §1116(a) -- doesn't change this result, because JetBlue itself is not an exempt entity; the exemption would only come into play if the contractor were dealing directly with the City or the Port Authority using a proper exempt-purchase certificate.

On the second question, the Department held that JetBlue can achieve a better result by restructuring the purchase. If JetBlue buys the building materials itself and acts as its own "prime contractor" (either using its own employees or hiring a subcontractor solely to install the materials), those materials can qualify for exemption under Tax Law §1115(a)(16) -- because they become an integral, permanent part of real property owned by the City of New York, an exempt governmental entity. JetBlue can issue a Contractor Exempt Purchase Certificate (Form ST-120.1) to the materials supplier to buy the materials tax-free, provided JetBlue is registered for sales tax and holds a valid Certificate of Authority. However, this exemption applies only to the materials purchase itself -- any separate charge from a subcontractor for installing those materials (i.e., for the repair/maintenance service) is still fully taxable under §1105(c)(3) or (5), including any portion of that installation charge that reflects the subcontractor's own materials costs. And any materials JetBlue or its subcontractors use or consume that do not end up permanently incorporated into the real property remain taxable.

What this means for you

Tenants leasing space from a government or other tax-exempt landlord

Simply being a tenant in a building owned by a tax-exempt governmental entity does not make your own repair/maintenance purchases exempt. A contractor's bill to you for repair or maintenance work -- including the materials portion -- is fully taxable unless you restructure the deal so that you (not the contractor) are the one buying the exempt-qualifying materials directly, using the proper exemption certificate.

Businesses that want to capture the governmental-property exemption

To get any tax benefit from your landlord's exempt status, you generally need to buy the building materials yourself with a Contractor Exempt Purchase Certificate (Form ST-120.1) and hire a subcontractor separately just for installation labor. The materials purchase can then be exempt, but the installation/repair service charge from the subcontractor is still taxable.

Contractors and subcontractors working on leased government-owned property

Whether your customer is the tenant or a purchasing agent for an exempt landlord matters. If you're contracting directly with a non-exempt tenant like an airline, you must collect tax on your entire receipt, including materials. If your customer supplies its own materials and hires you only to install them, your installation charge is still taxable, but you aren't on the hook for tax on materials you didn't sell.

Accountants and tax professionals

This opinion is a clean illustration of the Department's long-standing contractor rule (Tax Law §1101(b)(4), §526.6(b), §541.1): contractors are treated as the "users or consumers" of materials they buy for repair/maintenance jobs, so their entire billed receipt -- not just labor -- is taxable to their customer, unless the customer buys the materials directly and passes the installation-only work to a separate subcontractor.

Common questions

Q: If my landlord is a tax-exempt government entity, does that make my repair contractor's bill to me tax-exempt?
A: No. The exemption belongs to the property owner, not to you as tenant. A contractor's full bill to you for repair or maintenance -- including the materials portion -- is taxable unless you restructure the purchase so you're buying the exempt-qualifying materials directly.

Q: How can I reduce the sales tax on materials used to repair my leased space if the property will end up owned by an exempt government entity?
A: Buy the building materials yourself, using a Contractor Exempt Purchase Certificate (Form ST-120.1), provided you're registered for sales tax and hold a valid Certificate of Authority, then hire a subcontractor separately just to install them.

Q: If I buy the materials myself and hire a subcontractor only for installation, is the installation charge still taxable?
A: Yes. The subcontractor's charge for installing or repairing the property is still subject to tax under Tax Law §1105(c)(3) or (5), including any portion of that charge that reflects the subcontractor's own materials costs.

Q: Does it matter whether the repair contract is lump-sum or time-and-materials?
A: No. Regardless of the contract type, if a contractor performs repair/maintenance services for a non-exempt customer, the contractor must collect tax on its entire receipt for the job, including any portion attributable to materials cost.

Q: Does this ruling apply to my business if I'm not JetBlue?
A: Not automatically. This is an Advisory Opinion binding only on JetBlue Airways Corporation and only as to the facts it described. It does, however, restate general contractor sales-tax rules (Tax Law §1101(b)(4), §1115(a)(16), §541.1) that the Department applies broadly to similar tenant/contractor situations.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(3) (definition of "receipt")
• Tax Law §1101(b)(4) (definition of "retail sale"; sales to contractors deemed retail sales)
• Tax Law §1105(a) (tax on retail sales of tangible personal property)
• Tax Law §1105(c)(3) (tax on installing/maintaining/servicing/repairing tangible personal property)
• Tax Law §1105(c)(5) (tax on maintaining, servicing or repairing real property)
• Tax Law §1115(a)(15) (exemption for building materials used in erecting/improving property of an exempt organization)
• Tax Law §1115(a)(16) (exemption for building materials used in maintaining/repairing property of an exempt organization)
• Tax Law §1116(a) (exemption for governmental entities and other exempt organizations)
• Sales and Use Tax Regulations §525.2(a)(4) (sales tax as a "consumer tax")
• Sales and Use Tax Regulations §526.6(b) (special rule; sales to contractors deemed retail sales)
• Sales and Use Tax Regulations §527.7 (maintaining, servicing or repairing real property)
• Sales and Use Tax Regulations §529.2(a) (governmental entities exemption)
• Sales and Use Tax Regulations §541.1 (contractors; sales tax treatment of materials and services)

Prior opinions referenced:

• Michaels Prospect Plaza, LLC, c/o Arthur Brown, Esq., TSB-A-07(4)S (February 8, 2007)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_44s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(44)S
Sales Tax
October 3, 2008

Office of Tax Policy Analysis
Taxpayer Guidance Division

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S080529A

On May 29, 2008, the Department of Taxation and Finance received a Petition for
Advisory Opinion from JetBlue Airways Corporation, 19 Old Kings Highway, Suite 23, Darien,
Connecticut 06820. Petitioner, JetBlue Airways Corporation, provided additional information
pertaining to the Petition on July 1, 2008.
The issues raised by Petitioner are:

1. Whether the portion of a contractor’s bill to Petitioner as a tenant in an airport
   terminal for repairs and maintenance to the terminal that represents the cost of
   materials incorporated into the real property is subject to sales tax.
2. Whether Petitioner’s purchase of materials that are used to repair or maintain the
   airport terminal, with the repair and maintenance services being performed either by
   Petitioner’s employees or a third party contractor hired by Petitioner to perform the
   repairs and maintenance, are subject to sales tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner is the prime tenant at Terminal 6 at John F. Kennedy International Airport
   (JFK) and currently operates out of Terminal 6. JFK is owned by the city of New York and is
   operated by the Port Authority of New York and New Jersey (Port Authority). Petitioner is a
   commercial air carrier, which began operating from JFK in January 2000. Petitioner's lease
   mandated that it spend at least $4 million to improve Terminal 6. Petitioner hires contractors
   who perform capital improvements or repair and maintenance services to its leasehold. Title to
   all construction work vests in the city of New York when the property is erected, constructed, or
   installed or otherwise becomes part of the premises.
   Applicable law and regulations
   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:
   *

*

*

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(3) Receipt. The amount of the sale price of any property and the charge for any
service taxable under this article…including any amount for which credit is allowed by
the vendor to the purchaser, without any deduction for expenses for early payment
discounts and also including any charges by the vendor to the purchaser for shipping or
delivery,...
(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. Notwithstanding the preceding provisions of this subparagraph, 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 . . .
is deemed to be a retail sale regardless of whether the tangible personal property is to be
resold as such before it is so used or consumed, . . .
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:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

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

*

*

(3) Installing tangible personal property . . . or maintaining, servicing or repairing
tangible personal property . . . except:
*

*

*

(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

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is defined in paragraph nine of subdivision (b) of section eleven hundred one of this
chapter; . . .
*

*

*

(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 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:
*

*

*

(15) Tangible personal property sold to a contractor, subcontractor or repairman
for use in (i) erecting a structure or building (A) of an organization described in
subdivision (a) of section eleven hundred sixteen . . . or (ii) adding to, altering or
improving real property, property or land (A) 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 (i) 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 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 for exemption from the sales and compensating
use taxes with respect to purchases by New York State governmental entities, United States
governmental entities, certain nonprofit organizations and other entities who have received
New York State sales tax exempt organization status.
Section 525.2(a)(4) of the Sales and Use Tax Regulations provides:

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The sales tax is generally a “consumer tax.” That is, the person required to collect
tax must collect the tax from the customer (i.e., the consumer) when collecting the
taxable receipt, rent or amusement charge to which the tax applies. The customer cannot
shift the liability for payment of the tax to another person nor otherwise be relieved of
such liability. The vendor, or other person required to collect the tax, collects the tax as
trustee for and on account of the State and is also personally liable for the tax required to
be collected.
Section 526.6(b) of the Sales and Use Tax Regulations provides, in part:
Special rule—sales specifically included as retail sales. (1) A sale of any tangible
personal property to a contractor, subcontractor or repairman for use or consumption in
erecting structures or buildings or adding to, altering , improving, maintaining, servicing
or repairing real property, property or land, is deemed to be a retail sale, regardless of
whether the tangible personal property is to be resold as such before it is used or
consumed. …
Section 527.7 of the Sales and Use Tax Regulations provides, in part:
Maintaining, servicing or repairing real property.
(a) Definitions.
(1)
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.
*

*

*

(b) Imposition. (1) The tax is imposed on receipts from every sale of the services
of maintaining, servicing or repairing real property, whether inside or outside of a
building.
Section 529.2(a) of the Sales and Use Tax Regulations provides, in part:
New York State, agencies, instrumentalities, public corporations, and political
subdivisions thereof. (Tax Law, § 1116(a)(1))
(a) Governmental entities.
(1) Agencies and instrumentalities of the State as used in this section means any
authority, commission or independent board created by an act of the Legislature for a
public purpose.

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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 or pursuant to an agreement or compact
with another state or Canada.
*

*

*

(3) A political subdivision as used in this section means a county, town, city,
village, school district, fire district, special district corporation and board of cooperative
educational services of this State.
Section 541.1 of the Sales and Use Tax Regulations provides, in part:
(b) The principal distinguishing feature of a sale to a contractor, as compared to a
sale to other vendors who purchase tangible personal property for resale, is that the sale
of tangible personal property to a contractor for use or consumption in construction is a
retail sale and subject to sales and use tax, regardless of whether tangible personal
property is to be resold as such or incorporated into real property as a capital
improvement or repair. Whenever a contractor uses materials, on which the contractor
has paid sales tax, in a repair or maintenance contract . . . subject to the sales tax on
services under section 1105(c) of the Tax Law, the contractor may be entitled to a refund
or credit of the portion of the tax he paid attributable to the materials transferred to the
customer.
*

*

*

(d) Receipts from the services of repairing, maintaining or servicing of real
property . . . and tangible personal property, and the receipts from the installation of
tangible personal property that remains tangible personal property are subject to the New
York State and local sales tax unless otherwise exempt.
(e) Tangible personal property purchased by a contractor that is to become an
integral component part of real property owned by an organization described in section
1116(a) of the Tax Law is exempt from the New York State and local sales tax. …
Opinion
Petitioner is the prime tenant at Terminal 6 at John F. Kennedy International Airport
(JFK) which is owned by the city of New York and operated by the Port Authority of New York
and New Jersey (Port Authority). Petitioner hires contractors who perform capital improvements
or repair and maintenance services to its leasehold. All construction work becomes the property
of the city of New York upon completion. Both the city of New York and the Port Authority are
governmental entities exempt from the sales tax pursuant to section 1116(a) of the Tax Law. See
section 529.2(a) of the Sales and Use Tax Regulations.

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Issue 1
Section 1101(b)(4)(i) of the Tax Law provides that 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 is a retail sale to the contractor regardless
of whether the tangible personal property ( hereinafter referred to as “building materials”) is to
be resold as such before it is so used or consumed. Section 525.2(a)(4) of the Sales and Use Tax
Regulations provides that the sales tax is generally a “consumer tax.” That is, the person
required to collect tax must collect the tax from the customer (i.e., the consumer) when collecting
the taxable receipt, rent or amusement charge to which the tax applies. Taken together, section
1101(b)(4) of the Tax Law and section 525.2(a)(4) of the Sales and Use Tax Regulations provide
that contractors, subcontractors and repairmen are the users or consumers of building materials
that they purchase. See section 526.6(b) of the Sales and Use Tax Regulations.
Section 1105(a) of the Tax Law imposes sales tax on all sales of tangible personal
property unless specifically exempted and section 1105(c) imposes sales tax on certain
enumerated services. Section 1105(c)(5) of the Tax Law imposes the tax on the services of
maintaining, servicing, or repairing real property, property or land. When contractors,
subcontractors, and repairmen perform these services, they are not making a sale of tangible
personal property in the form of building materials taxable to the contractor’s customer under
section 1105(a) of the Tax Law. Rather, contractors, subcontractors, and repairmen are
performing services that may be taxable under section 1105(c) of the Tax Law. See sections
527.7 and 541.1(b) of the Sales and Use Tax Regulations. In performing these services, they
may use or consume tangible personal property in the form of building materials. See Michaels
Prospect Plaza, LLC, c/o Arthur Brown, Esq., Levine, Staller, Sklar, Chan, Brown & Donnelly,
P. A., Adv Op Comm T & F, February 8, 2007, TSB-A-07(4)S.
Accordingly, when a property owner or tenant purchases the services of a contractor,
subcontractor, or repairman to maintain, service or repair real property, property or land,
regardless of the type of contract (e.g., lump sum, time and materials, etc.), the property owner or
tenant is purchasing services that are taxable under section 1105(c) of the Tax Law. In such
instance, the contractor, subcontractor, or repairman is not making a sale of tangible personal
property (i.e., building materials) to the property owner or tenant taxable under section 1105(a)
of the Tax Law. Rather, the contractor, subcontractor, or repairman is the user or consumer of
such building materials in the performance of its contract.
If the contract is for repair or maintenance of real property, the contractor, subcontractor,
or repairman must collect sales tax based on its entire receipt for the services performed for its
customer, including any portion of the receipt that may be attributable to the contractor’s cost of
building materials. See section 1101(b)(3) of the Tax Law. If, however, the customer is an
entity or organization exempt from sales tax pursuant to section 1116(a) of the Tax Law, the
contractor, subcontractor, or repairman may accept a properly completed Exempt Organization

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Exempt Purchase Certificate (Form ST-119.1) in lieu of collecting the sales tax from the
customer. The contractor, subcontractor, or repairman may purchase building materials that
become an integral component part of the real property of an entity exempt from tax pursuant to
the provisions of section 1116(a), without payment of sales tax. See section 1115(a)(16) of the
Tax Law. However, the provisions of sections 1115(a)(16) and 1116(a) have no bearing on the
charge to a customer, which is not an entity exempt from tax pursuant to the provisions of
section 1116(a), for a repair or maintenance service subject to tax under section 1105(c)(5) of the
Tax Law.
Therefore, when Petitioner is the purchaser under a contract for repair or maintenance
services that do not qualify as capital improvement services to real property, there is no
exemption provided in the Tax Law for such services from the taxes imposed under section
1105(c)(3) or (5) of the Tax Law. The contractor must collect sales tax from Petitioner on the
entire receipt for the repair or maintenance service including any portion of the receipt that may
be attributable to the contractor’s cost of building materials.
Issue 2
Sections 1115(a)(15) and (16) of the Tax Law provide exemptions from sales tax on the
purchase by a contractor, subcontractor or repairman of building materials when the building
materials become an integral component part of the property of an entity exempt from sales tax
under section 1116(a) of the Tax Law. See section 541.1(e) of the Sales and Use Tax
Regulations. In the present case, Petitioner wishes to purchase the materials and use them itself
or hire a subcontractor to install the materials, as part of a repair or maintenance project.
Petitioner will, in effect, be acting as its own prime contractor. Petitioner's purchases of materials
for use in the repair or maintenance project will qualify for exemption from sales tax under
section 1115(a)(16) of the Tax Law, provided that such materials become an integral component
part of real property owned by New York City. Provided that Petitioner is registered for sales tax
purposes and has a valid Certificate of Authority for sales tax, it is authorized to issue a properly
completed Contractor Exempt Purchase Certificate (Form ST-120.1) in lieu of paying sales tax
to the building material supplier on the purchase of such materials. Petitioner may then,
independent of its purchase of materials that are to be incorporated into the property, hire a
subcontractor to install the purchased materials in the course of the subcontractor’s performance
of the repair or maintenance project. Any charge to Petitioner by the subcontractor for repair or
maintenance services to Petitioner's landlord’s real property (i.e., to Terminal 6 owned by the
city of New York) is subject to sales tax under section 1105(c)(3) or 1105(c)(5) of the Tax Law,
including any portion of the charge by the subcontractor representing the subcontractor’s cost of
materials.
Lastly it is noted that any purchases by Petitioner of tangible personal property used or
consumed by Petitioner or its subcontractors in the performance of repair or maintenance

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contracts that are not incorporated into the realty as an integral component part of such property
are subject to sales tax.

DATED: October 3, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific