If I rent construction equipment to a subcontractor working on a government project like the Freedom Tower, do I have to charge sales tax, or is the rental exempt because the ultimate owner is a tax-exempt government entity?

Plain-English summary

A company that rents cranes for construction jobs asked whether it had to charge sales tax on cranes it rented to a subcontractor working on the "Freedom Tower" at the World Trade Center — a project ultimately owned by the Port Authority of New York and New Jersey, a tax-exempt governmental entity. The Department said yes, tax was due, because the paper trail didn't actually prove the renting subcontractor was the Port Authority's appointed agent.

New York exempts purchases made directly by the state, its agencies, and public corporations like the Port Authority. A private party can also buy or rent things tax-free as the government's agent, but only if it's been formally appointed to that role — the Department requires specific proof: Form DTF-122 (the government entity certifying who its agent is) attached to Form ST-122 (the agent's certificate to the vendor), given to the vendor within 90 days of the sale.

Here, the Port Authority had properly appointed 1 World Trade Center, LLC as its agent. But the crane company's actual customer was a subcontractor working several tiers down the chain (subcontractor → contractor → 1 WTC LLC → Port Authority). None of the paperwork named that subcontractor itself as an agent of anyone. Because the exemption doesn't automatically flow down through a construction chain just because the top of the chain is exempt, the crane company had no protection and owed tax on the rentals.

What this means for you

Equipment rental companies and other vendors on government-linked projects

Don't assume a customer's sales-tax exemption because the ultimate project owner is a government entity. You're only protected if your own customer — not some other company up the chain — is documented, by name, as an appointed agent on Forms DTF-122 and ST-122, given to you within 90 days of delivery. If the paperwork names a different company (even a company one tier removed from yours), you're not covered and should collect tax.

General contractors and subcontractors on public projects

Being on a job for a tax-exempt government entity doesn't make every company down the subcontracting chain exempt. Each entity that wants to buy or rent tax-free as the government's agent needs its own written agency appointment — a contractor's agency status doesn't pass down to its subcontractors without separate paperwork naming them too.

Accountants and tax professionals

This opinion applies the seven-factor agency test from Department guidance (control, risk of loss, authority to bind the government's credit, etc.) but ultimately turns on the documentary formalities: absent a Form DTF-122/ST-122 pair naming the actual purchaser as agent, the substantive agency question doesn't even need to be reached. Separately, the opinion confirms that renting (not selling) construction equipment doesn't qualify for the contractor capital-improvement exemptions under §1115(a)(15)/(16) or the WTC-area exemption under §1115(ee), since rented equipment isn't incorporated into the structure.

Common questions

Q: If the ultimate project owner is tax-exempt, is everyone who works on the project also exempt from sales tax on their purchases?
A: No. Only the specific entity that has been formally appointed as the government's agent — with the proper Form DTF-122/ST-122 documentation naming that entity — gets the exemption on its purchases. A subcontractor several tiers removed from the appointed agent isn't automatically covered.

Q: What protects a vendor from having to pay the tax itself if it turns out the customer wasn't really exempt?
A: A vendor is protected if it received a properly completed Form ST-122 (with Form DTF-122 attached) from the purchaser within 90 days of delivery, accepted in good faith, and its invoice reflects that the purchase was made as agent for the named government entity. Without that paperwork, the vendor bears the tax risk.

Q: Could renting the cranes ever qualify for the World Trade Center area exemption instead?
A: Not based on these facts. That exemption is aimed at property incorporated into a building or into a tenant's leased premises; rented equipment used but not incorporated into the structure falls outside it.

Q: Does this advisory opinion apply to my company's rentals?
A: Not automatically. An advisory opinion binds the Department only as to the taxpayer who requested it and only on the facts described. It shows how the Department reasons about agency documentation, but your paperwork and facts may differ.

Citations and references

Statutes, regulations, and forms:

• Tax Law §1105 (sales tax imposition)
• Tax Law §1116(a)(1) (exemption for New York governmental entities)
• Tax Law §§1115(a)(15), (16) (contractor exemption for property incorporated into government real property)
• Tax Law §1115(ee)(2), (3), (5), (6), (7) (World Trade Center area exemption)
• 20 NYCRR §541.3(d)(2)(iv)
• Form DTF-122, Form ST-122, Form ST-120.1
• TSB-M-05(6)S (Purchases by New York Governmental Entities Through Properly Appointed Agents)

Cited opinions and cases:

• TSB-A-00(10)S (Japan Airlines — Port Authority as a public corporation)
• Matter of West Valley Nuclear Servs. Co., Tax Appeals Tribunal, Nov. 13, 1998
• Matter of 7 World Trade Center, Det Tax App Trib, Apr. 3, 2003, DTA No. 817373

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(32)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(32)S
Sales Tax
July 13, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S081027A

The Department of Taxation and Finance received a petition requesting an advisory opinion
from name and address redacted (Petitioner). Petitioner asks whether sales and use tax applies to its
rental of cranes to a subcontractor working for a contractor who, in turn, was employed by an entity
purported to be the agent of an exempt governmental entity (the Port Authority of New York and
New Jersey). The cranes are to be utilized in the construction of the “Freedom Tower” at the World
Trade Center in lower Manhattan. The Department concludes based upon the facts presented, that
Petitioner must collect tax on its rental of cranes to the contractor in question.
Facts
Petitioner is engaged in the business of renting cranes for use in construction projects within
New York City. Petitioner has been renting cranes to name redacted (Construction Company), which
is a subcontractor employed by Corporation B, which in turn, is a contractor employed by 1 World
Trade Center, LLC. Among the documents supplied by Petitioner for consideration by the Tax
Department is a letter from the Port Authority of New York and New Jersey (“Port Authority”) dated
June 21, 2007 which provides, in part:
This letter also confirms that 1 World Trade Center, LLC, a wholly owned entity of the
Port Authority, is the net lessee of 1 WTC [1 World Trade Center] and the improvements being
constructed in connection therewith, pursuant to a lease dated July 16, 2001 which
was Amended and Restated on November 16, 2006, which lease is for a term of ninety-nine
years . . . The Lease is in full force and effect.
Petitioner represents that 1 World Trade Center, LLC is the official agent of the Port Authority, and
that Corporation B is acting as the agent of 1 World Trade Center, LLC.
Petitioner also provided a copy of a letter from Corporation B dated November 28, 2007,
addressed to Construction Company, among others, which refers to “your contract/vendor agreement
with 1 World Trade Center, LLC.” This suggests that Construction Company may have been either a
contractor employed directly by 1 World Trade Center LLC or a subcontractor employed through
Corporation B which in turn is under an agency contract with 1 World Trade Center LLC. In either
case, given the other documents provided by Petitioner to the Tax Department with respect to the
status of Construction Company, our analysis remains the same, as does our conclusion.
Petitioner has been charging sales tax in connection with its rental of cranes to Construction
Company. Construction Company has claimed that the subject crane rental transactions are exempt
from sales tax because it is renting cranes as an agent or sub-agent of an exempt governmental entity.
Petitioner submitted with its Petition various documents, including:

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TSB-A-09(32)S
Sales Tax
July 13, 2009

A) Form DTF-122, Certification of Agency Appointment by a New York Governmental Entity.
This form designates 1 World Trade Center LLC as agent for the Port Authority of
New York and New Jersey and has been executed by representatives of both organizations;
B) The aforementioned correspondence dated November 28, 2007, from Corporation B which
identifies Construction Company as being a contractor or subcontractor participating in the
construction of the “Freedom Tower” at 1 World Trade Center;
C) Form ST-120.1, Contractor Exempt Purchase Certificate, which names Construction
Company as the vendor, Corporation B as the purchasing contractor, and identifies
Corporation B as agent for 1 World Trade Center LLC; and
D) Form ST-122, Exempt Purchase Certificate for an Agent of a New York Governmental
Entity, which names Construction Company as the seller, 1 World Trade Center LLC as the
purchaser, and identifies 1 World Trade Center LLC as agent for the Port Authority of New
York and New Jersey.
E) Excerpts from a contract between “the Authority” and an unidentified “Contractor.” One
clause of the contract, entitled “Agency for Rental of Construction Equipment and Purchase
of Materials not Incorporated in Permanent Construction” provides that the Contractor
agrees to act as the agent of the Authority “for the rental of all construction equipment
necessary or desirable for or incidental to the performance of the Contract.”
Issue
Whether the documentation supplied by Construction Company to Petitioner supports the
contention that its crane rental transactions are exempt from the collection and remittance of sales and
compensating use tax, because Construction Company is acting as the agent of a New York
governmental entity? If Construction Company is not making the purchase as the agent of a New York
governmental entity, are its crane rental transactions exempt from the collection of sales tax under any
other provision of the Tax Law?
Analysis
State and local sales taxes are imposed on the receipts from every retail sale of tangible
personal property and various specified services, except as otherwise provided. Tax Law §1105. In
general, the Tax Law provides an exemption from sales tax for purchases made by New York
governmental entities. This exemption applies to the “state of New York, or any of its agencies,
instrumentalities, public corporations (including a public corporation created pursuant to agreement or
compact with another state or Canada) or political subdivisions.” NY Tax Law §1116(a)(1). The Port
Authority of New York and New Jersey is one such “public corporation” created by an act of the
Legislature for a public purpose and/or pursuant to an agreement or compact with another state. See
Japan Airlines Co., LTD., Adv Op Comm T & F, February 28, 2000, TSB-A-00(10)S. A subsidiary
corporation formed by the Port Authority “shall have all of the privileges, immunities, tax exemptions
and other exemptions” of the Port Authority. See Unconsolidated Laws §6612.

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TSB-A-09(32)S
Sales Tax
July 13, 2009

A New York governmental entity may also make exempt purchases through a third party, but
only where the third party has been appointed by the governmental entity to act as agent on its behalf.
(cf., Matter of West Valley Nuclear Servs. Co., Tax Appeals Tribunal, November 13, 1998, Tribunal
confirmed Matter of West Valley Nuclear Servs. Co. v. Tax Appeals, 264 AD2d 101, lv denied 95
NY2d 760 [wherein the petitioner failed to establish that it was an agent for the Department of Energy
when it made purchases under their contract]; Matter of 7 World Trade Center, Det Tax App Trib,
April 3, 2003, DTA No. 817373). Generally, in order for a third party to make exempt purchases as
the agent of a governmental entity, the following conditions must be satisfied: (1) the purchasing
agent must have the authority to legally bind the credit of the government entity at the time of the
purchase, to the extent that the vendor can proceed against the government entity for payment if the
invoice is not paid; (2) the purchase is within the authority granted by the government entity (and the
government entity has the authority to make such an appointment); (3) the agency appointment must
be in writing and in effect at the time of purchase; (4) the government entity exercises the requisite
amount of control over the agent; (5) the risk of loss of the item or service purchased is on the
government entity; (6) the agent discloses to the vendor that it is making the purchases as agent of the
government entity; and (7) the invoices are made out in the government entity’s name or indicate that
the purchase is being made by an agent of the government entity on its behalf. Furthermore, the parties
must otherwise conduct themselves in a manner consistent with a principal/agent relationship, and any
contract or written agreement between the parties must not contain any clauses that are or may be
interpreted to be, inconsistent with the purported agency relationships.
Determining whether a principal/agent relationship exists requires a legal determination that a
vendor may not be in a good position to make. In order to remove some of the uncertainty, the Tax
Department created forms that a New York governmental entity and its properly appointed agent may
complete. These include Form DTF-122, entitled Certification of Agency Appointment by a New York
Governmental Entity, where the governmental entity certifies the designation of the agent to make tax
exempt purchases on its behalf, the scope of the appointment, and an acknowledgment that the credit
of the governmental entity is bound by the agent for purchases made within the scope of this authority.
When making a purchase or rental of tangible personal property (other than motor fuel, diesel motor
fuel and residential petroleum products) or services on behalf of a New York governmental entity, the
agent must also provide the vendor with a copy of a properly executed and completed Form ST-122,
Exempt Purchase Certificate for an Agent of a New York Governmental Entity. In order for form
ST-122 to be properly completed, Form DTF-122 must also be attached.
A vendor like Petitioner in this case would be protected from liability for the sales and use
taxes otherwise due if all of the following conditions are met:
A) A properly completed Form ST-122 is received from the purchaser within 90 days of the
delivery of the property or the rendition of services;
B) A properly completed Form DTF-122 (which is valid for the date the property is delivered
or the service is rendered) is attached to form ST-122;
C) Form ST-122 along with Form DTF-122 are accepted in good faith by the vendor; and

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Sales Tax
July 13, 2009

D) The bill or invoice that is provided by the vendor to the purchaser as agent indicates that the
purchase is being made by the purchaser as agent on behalf of the named governmental
entity.
Notwithstanding the use of these forms, a purchaser’s agency relationship with a governmental entity
is always subject to a later review by the Tax Department to see if the substantive legal elements meet
the requirements of the relevant case law. However, the vendor will be protected from tax liability if
the above conditions are met. See Technical Services Bureau Memorandum entitled Purchases by
New York Governmental Entities Through Properly Appointed Agents, June 8, 2005, TSB-M-05(6)S,
(3)M. (See generally, Sales and Fuel Excise Tax Information for Properly Appointed Agents of New
York Governmental Entities, Publication 765 (5/05].)
Based upon the facts presented in this case, the only tendered written agreement of agency
certified by the Port Authority is that of 1 World Trade Center, LLC as indicated by the Form
DTF-122 executed by both parties. Construction Company is not listed as an agent of the Port
Authority, or of 1 World Trade Center, LLC, on either Form DTF-122 or Form ST-122 presented to
Petitioner in this case. The contract excerpt provided by Petitioner between “the Authority” and an
unidentified “Contractor” does not identify Construction Company as a party to the contract, or the
project to which the contract pertains. Even if it was assumed that Construction Company had its own
agency agreement with the Port Authority, or a subsidiary of the Port Authority that also qualified as
an exempt governmental entity, Petitioner would only be protected from sales tax liability on its crane
rentals if Petitioner received Construction Company’s own Form ST-122 with attached Form DTF-122
executed by the governmental entity’s representatives naming Construction Company as the
governmental entity’s agent for the purposes specified in the form. (Form DTF-122 clearly requires
that a separate certification of agency must be completed for each contractor or subcontractor who is to
purchase on behalf of a government entity.) Since the documentation presented to Petitioner by
Construction Company in this case does not name Construction Company as the agent of a
governmental entity, we conclude that Petitioner would not be protected from sales tax liability on the
acceptance of this documentation. Without Form ST-122 or Form DTF-122 made out to the proper
parties, it is not necessary to examine whether the invoices provided by Petitioner indicate that
Construction Company is making purchases as the agent of a named governmental entity.
The question remains whether, as an independent contractor, Construction Company may
qualify on some other basis to rent crane equipment for use on the “Freedom Tower” project exempt
from sales tax liability.
Certain types of purchases made by contractors may be exempt from sales tax. Generally,
purchases of tangible personal property by a contractor for use in erecting, adding to, or altering a
structure or building owned by a New York governmental entity, or in maintaining, servicing, or
repairing real property owned by such entity, are exempt when the personal property is to become an
integral component part of the structure, building or real property. Tax Law §§1115(a)(15), (16). In
these circumstances, a contractor who is registered with the Tax Department for sales tax purposes
may make tax exempt purchases of such tangible personal property by presenting to vendors Form
ST-120.1, entitled Contractor Exempt Purchase Certificate. The exemptions under §§1115(a)(15),
(16) do not apply where the purchasing contractor is renting construction equipment that will not be

TSB-A-09(32)S
Sales Tax
July 13, 2009

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incorporated into the structure of the completed building or project. See 20 NYCRR § 541.3(d) (2) (iv).
See also Matter of 7 World Trade Center, supra.
Purchases of tangible personal property by a contractor, subcontractor, or repairman may also
be exempt from sales tax if used directly and exclusively in adding to, altering or improving a tenant’s
leased premises for use as commercial office space, provided the leased premises are located in certain
eligible areas of lower Manhattan and the tangible personal property becomes an integral component
part of the building in which the leased premises are located. Tax Law §1115(ee)(3), (7). Purchases of
tangible personal property by a tenant or landlord for use in adding to, altering, or improving a tenant’s
leased premises for use as commercial office space may, in certain circumstances, qualify for
exemption regardless of whether the tangible personal property becomes an integral component part of
the building in which the leased premises are located, if the leased premises are located in the World
Trade Center site. Tax Law §1115(ee)(2), (6). However, the exception provided by section
1115(ee)(6) does not extend to section 1115(ee)(3), which exempts certain tangible personal property
sold to a contractor, subcontractor or repairman. Moreover, section 1115(ee) does not apply to
tangible personal property for use in erecting or adding to a structure or building of a landlord. Tax
Law §1115(ee)(5). It does not appear from the facts in this Advisory Opinion that Petitioner’s rentals
of cranes to Construction Company are exempt under section 1115(ee).
In conclusion, there is no basis for Petitioner to be protected from sales tax liability in
connection with its rental of crane equipment to Construction Company in the context of the facts
presented in the case.

DATED: July 13, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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 time
period at issue in the Opinion.