Ezel / Tax Rulings / NY
NY TSB-A-09(58)S Sales Tax 2009-12-09

Is a tenant's rent that includes utilities supplied by the landlord subject to sales tax as a utility sale?

Short answer: No. The tenant's payments are a component of rent for real property, so they are not subject to sales or use tax. A landlord's base rent isn't taxable even when the landlord provides utilities as part of the lease, and here the medical center bills the tenant unmetered, with no separate utility charge -- there's no separate, identifiable sale of utilities to tax under Tax Law 1105(b). If the tenant instead pays the landlord's own utility bill directly, that payment would be a taxable utility purchase under 1105(b) unless it's made in lieu of fixed rent or the tenant is reimbursed by the landlord (which is the case here). The opinion takes no position on whether the medical center's own purchase of utilities is taxable.
Currency note: this ruling is from 2009
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

The petitioner is an LLC owned by a tax-exempt Medical Center (exempt under Tax Law 1116(a)(4)) that sells technology and data-support services. It leases facilities from the Medical Center, which supplies utilities and building services as part of the lease on an unmetered basis with no separate utility charge. The utility companies bill the Medical Center (which alone is liable), and although the LLC may pay the Medical Center's utility bill, the Medical Center reimburses the LLC for those payments. The LLC asked whether its lease payments are subject to sales tax.

The Office of Counsel concluded the payments are a component of rent and are not taxable.

  • Rent, not a utility sale. Tax Law 1105(b) taxes utilities only when there's a separate, identifiable sale of the commodity. A landlord's base rent isn't taxable even when the landlord provides utilities as part of the lease (Jeffrey J. Coren CPA). Here the utilities are unmetered and bundled into the lease, so the rent payments aren't taxable.
  • Paying the landlord's bill directly. If the tenant pays the Medical Center's utility bill itself, that payment would be a taxable utility purchase under 1105(b) -- unless it's made in lieu of fixed rent owed, or the tenant is reimbursed by the landlord (RSM McGladrey). The LLC is reimbursed, so no tax.
  • Note on exempt orgs. Effective 9/1/2008, sales of utility services by certain exempt organizations became taxable (Tax Law 1116(b)(1)(ii); TSB-M-08(5)S) -- but the opinion takes no position on the taxability of the Medical Center's own purchase of utilities.

What this means for you

Tenants and landlords with bundled utilities

Rolling utilities into rent keeps them nontaxable -- a single, unmetered lease charge is rent, not a sale of electricity or gas. The taxable trap is a separate, identifiable utility charge, or a tenant directly paying the landlord's utility bill that isn't offset against rent or reimbursed.

Arrangements among related/exempt entities

Even between an exempt parent and its subsidiary, structure matters: reimbursement or an in-lieu-of-rent arrangement keeps a tenant's payment of the landlord's bill from becoming a taxable utility purchase.

Common questions

Q: My rent covers heat and electricity -- am I paying sales tax on utilities?
A: No. When utilities are bundled into rent with no separate identifiable charge, it's nontaxable rent for real property.

Q: What if I pay the landlord's utility bill directly?
A: That can be a taxable utility purchase under 1105(b), unless you pay it in lieu of fixed rent or the landlord reimburses you.

Citations and references

  • Tax Law section 1105(b) (sales tax on utility services as a separate identifiable sale)
  • Tax Law section 1116(a)(4) (exempt organizations)
  • Tax Law section 1116(b)(1)(ii) (utility sales by certain exempt orgs taxable from 9/1/2008)
  • TSB-M-08(5)S (sales by certain exempt organizations effective 9/1/2008)
  • TSB-A-05(10)S (RSM McGladrey; tenant paying landlord's utility bill)
  • TSB-A-06(21)S (Jeffrey J. Coren CPA; base rent not taxable even if landlord supplies utilities)

Source

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(58)S
Sales Tax
December 9, 2009

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

PETITION NO. S090403A

On April 3, 2009, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether payments it makes to its landlord
(Medical Center) pertaining to the lease of real property are subject to sales tax. Petitioner’s
payments are a component of rent for real property; therefore, they are not subject to sales tax or use
tax.
Facts
Petitioner is a limited liability company owned by Medical Center, a tax exempt
organization for purposes of Tax Law section 1116(a)(4). Petitioner sells technology and data
support services to Medical Center and other not-for-profit organizations. Petitioner leases facilities
from Medical Center, which provides utilities and other building services as part of the lease.
Medical Center provides utilities to Petitioner on an unmetered basis and does not separately charge
Petitioner for utilities. Utility companies bill Medical Center, which is solely liable for the utility
services purchased. Petitioner will pay Medical Center’s utility bill, but is reimbursed by Medical
Center for making these payments.
Analysis
Section 1105(b) of the Tax Law imposes sales tax on utility services furnished as a separate
identifiable sale of a commodity. The tax applies to separate, identifiable transactions which have
as their primary purpose the furnishing of utilities or utility services. See Matter of Mutual
Redevelopment Houses, Inc. v Arthur J. Roth, 307 AD 2d 422 (3d Dept 2003). Effective September
1, 2008, sales of utility services by tax exempt organizations for purposes of Tax Law section
1116(a)(4) are subject to sales tax. See Tax Law §1116(b)(1)(ii) and Tax Law Amendments Related
to Sales Made by Certain Sales Tax Exempt Organizations Effective September 1, 2008,
TSB-M-08(5)S.
A landlord's base rent charge is not subject to sales tax even if the landlord provides utilities
as part of a lease Cf. See Jeffrey J. Coren CPA, P.C., Adv Op Comm T&F, July 26, 2000,
TSB-A-06(21)S. Therefore, Petitioner’s rent payments to Medical Center are not subject to the sales
tax imposed under section 1105(b) of the Tax Law.
If Petitioner does pay Medical Center’s utility bill, its payment will be subject to sales tax
under Tax Law section 1105(b) unless the payment is made in lieu of an amount due Medical
Center for fixed rent or Petitioner is otherwise reimbursed by Medical Center for paying the utility.
See RSM McGladrey, Inc., Adv Op Comm T&F, April 4, 2005, TSB-A-05(10)S.

-2-

TSB-A-09(58)S
Sales Tax
December 9, 2009

This advisory opinion takes no position on the taxability of Medical Center’s purchase of
utility services.

DATED: December 9, 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.