Are a utility's charges for water service and sewer service subject to NY sales tax?

Plain-English summary

The petitioner provides management, administrative, and billing services for two New York utilities: a water-works company (supplying water through pipes and mains to customers at a commercial shopping center) and a sewage-works company (providing sewer service to the same customers). Both run stand-alone utility plants, and their costs (including plant operation and maintenance) are built into the rates. Since 2003 the bills have included sales tax on both services. The petitioner asked whether the water and sewer charges are taxable.

The Office of Counsel split the answer:

• Water -- exempt. Tax Law 1115(a)(2) exempts water when delivered to the customer through pipes or mains. So the water-works company's charges for water are not taxable. Customers who were charged tax on water can file refund claims within three years of when the tax was payable (Tax Law 1139(a)).
• Sewer -- taxable. Among the enumerated taxable services is the maintaining, servicing, or repairing of real property (Tax Law 1105(c)(5)). Under the regulations (20 NYCRR 527.7(a)(1)), a sewage service is treated as the maintenance of real property, so the sewer-works company's charges for sewer service are taxable.

What this means for you

Water and sewer utilities (and their billing agents)

Treat the two services differently: piped water is exempt, but sewer/sewage service is taxable as servicing of real property. If you've been charging sales tax on water, that tax wasn't due -- and your customers can claim refunds (within three years). Make sure your billing system applies tax to the sewer line and not the water line.

Customers

You shouldn't be paying sales tax on water delivered through pipes/mains; if you have been, you can seek a refund. Expect tax on sewer charges.

Common questions

Q: Is water service taxable in New York?
A: No. Water delivered through pipes or mains is exempt under 1115(a)(2).

Q: Is sewer service taxable?
A: Yes. A sewage service is treated as the maintenance of real property, taxable under 1105(c)(5).

Q: We were charged sales tax on water -- can we get it back?
A: Yes. You can file a refund claim within three years of when the tax was payable.

Citations and references

• Tax Law section 1105(c)(5) (maintaining/servicing real property)
• Tax Law section 1115(a)(2) (exemption for water delivered through pipes/mains)
• Tax Law section 1139(a) (refund or credit)
• 20 NYCRR section 527.7(a)(1) (sewage service as maintenance of real property)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(2)S
Sales Tax
December 28, 2010

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

PETITION NO. S101007A

On October 7, 2010, the Department of Taxation and Finance received a Petition for Advisory Opinion
from name redacted. Petitioner asks whether charges for sewer and water service as described below are taxable.
We conclude that the sewage service is subject to sales tax, but that the water service is exempt.
Facts
Petitioner provides management, administrative, and billing services for two New York State utility
companies. One is a water-works corporation formed pursuant to the New York State Transportation Corporations
Law (“Water Works Company”). The other is a sewage-works corporation formed pursuant to the New York State
Transportation Corporations Law (“Sewer Works Company”). Currently the Water Works Company provides water
services, through pipes and mains, to 18 customers at a commercial shopping center located in Putnam County,
New York. The Sewer Works Company provides sewer service to these same customers. These services are
provided through the operation of stand-alone water and sewer utility plants owned and operated by Water Works
Company and Sewer Works Company, respectively. The cost of providing water and sewer service includes the
maintenance and operation of the water and sewer plants and these costs and expenses are incorporated into the
rates paid by the customers for water and sewer service.
Since 2003, the bills for the two companies have included sales tax.
Analysis
The Tax Law imposes sales and use tax on, among other things, the sale of tangible personal property and
certain enumerated services (see Tax Law § 1105[a], [c]). Water is exempt from sales and use tax when delivered
through pipes or mains to the customer (see Tax Law § 1115[a][2]). Accordingly, Water Works Company’s sale of
water through pipes or mains is exempt. To obtain refunds, Water Works Company’s customers must file refund
claims within three years of the date when the tax was payable by the Company to the Department of Taxation and
Finance (see Tax Law §1139[a]).
Among the enumerated services subject to tax is the servicing, repair or maintenance of real property (see
Tax Law § 1105[c][5]). Under the Sales Tax Regulations, a sewage service represents the maintenance of real
property and is taxable (see 20 NYCRR § 527.7[a][1]).

DATED: December 28, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and 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.