Are an independent real-estate consultant's services -- analysis, recommendations, and oversight for clients -- subject to NY sales tax?
Plain-English summary
The petitioner is starting an independent real-estate consulting firm serving landlords, developers, and commercial-property buyers. His services include: locating properties through contacts and brokers; assessing suitability and building custom cash-flow spreadsheets and long-term financial projections; touring properties and adding observations; making purchase recommendations and bid prices; drafting letters of intent; assisting with financing; and managing client properties by overseeing the client's on-site property manager (confirming/revising the manager's actions, following up on tenant complaints, reviewing rent-increase opportunities and expense cuts, and reviewing hirings/terminations). Critically, he is not an engineer or broker, prepares no written reports, shares nothing he develops with anyone but the client, and does no repair/maintenance himself. He asked whether he must charge sales tax.
The Office of Counsel concluded the services are not taxable:
- Consulting is unenumerated. Generally, consulting services are not among the enumerated services subject to sales or use tax (Tax Law 1105/1110).
- Any information-service component is excluded as personal/individual. Collecting, compiling, and analyzing information and furnishing reports can be a taxable information service (1105(c)(1); 1110(a)(C)), but it must be written or reproducible, and information that is personal or individual and not furnished to anyone but the purchaser is excluded. Because he prepares no written report and doesn't share what he develops, any such component is excluded.
- Not a taxable real-property service. Maintaining/repairing/servicing real property is taxable (1105(c)(5)), but the petitioner doesn't himself repair, maintain, or service the properties, and doesn't contract with providers to do so -- the client's own employees/contractors do that work. So 1105(c)(5) doesn't apply.
His charges are therefore not subject to State or local sales or use tax.
What this means for you
Real-estate consultants, advisors, and asset managers
Pure advisory work -- analyzing deals, projecting cash flow, recommending purchases, negotiating intent, and overseeing (not performing) property management -- is a nontaxable unenumerated service in New York. Two things keep it that way: don't turn it into a taxable information service (keep your analysis personal to the client and don't furnish it to others; not preparing standardized written reports helps), and don't perform or subcontract the actual repair/maintenance work yourself (overseeing the client's on-site manager is fine; swinging the hammer or hiring the crew is what triggers 1105(c)(5)).
Common questions
Q: Is my real-estate consulting taxable in New York?
A: Generally no -- consulting isn't an enumerated taxable service.
Q: I build custom financial analyses for clients -- is that a taxable information service?
A: Not when it's personal/individual to the client and not furnished to anyone else. Here the consultant prepared no written reports and shared nothing, so any information-service component is excluded.
Q: I oversee my client's property manager -- does that make it a taxable real-property service?
A: No. Overseeing isn't repairing or maintaining. You'd only trigger 1105(c)(5) if you performed the maintenance yourself or hired contractors to do it.
Citations and references
- Tax Law section 1105(c)(1) (information services; personal/individual exclusion)
- Tax Law section 1105(c)(5) (maintaining/repairing/servicing real property)
- Tax Law section 1110(a)(C) (use tax on information services)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_4s.pdf
Original ruling text
New York State Department of Taxation and Finance
TSB-A-12(4)S
Sales Tax
March 2, 2012
Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. S110606A
The Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address redacted. Petitioner asks whether he has to charge sales tax to clients for any
of the real estate consulting services he will be performing.
We conclude that, under the facts presented, Petitioner’s services are not subject to State
or local sales or compensating use taxes.
Facts
Petitioner presented the following facts and questions with his petition. Petitioner
provided additional facts by telephone on September 19, 2011. Petitioner is starting a real estate
consulting firm. All of the anticipated consulting functions are personal or individual in nature.
Petitioner will not prepare written reports for clients. Petitioner will not share information
prepared for a client with any other person. Petitioner is not an engineer or real estate broker.
Petitioner does not repair or maintain any real or personal property for his clients. As an
independent consultant, Petitioner will perform the services listed below for real estate landlords,
developers and other purchasers of commercial properties (together, “clients”):
1
Locate properties for sale by using personal contacts as well as major real estate brokers.
- Determine the suitability of the properties for specific clients. This does not include
Petitioner inspecting physical systems; rather, the client would hire an engineer or inspector
to look at HVAC and other systems and property conditions.
2a. Develop a custom analysis including cash flow spreadsheets of historical performance and
long term financial projections.
2b. Tour the inside and outside of selected properties and add custom observations to analysis.
2c. Make purchase recommendations including bid price based on observations, location
analysis, and financial projection.
2d. If client is interested, then bring client to property for site visit and tour of surrounding area
All information developed in Items 2 a-d is of a confidential nature and may not be disclosed
to any individual other than the client.
-2-
TSB-A-12(4)S
Sales Tax
March 2, 2012
- Develop letters of intent for a client to send to a property owner to express interest in a
property. - Assist in obtaining financing either directly from bank or through commercial mortgage
broker as is most appropriate for specific financing. - Manage properties owned by clients, on behalf of the client. This means Petitioner would
deal with the client’s on-site property manager. For example, to confirm or revise the on-site
manager’s actions, such as whether an employee of the client under the on-site manager’s
supervision should be let go. Or to follow up with tenants to ensure that complaints the
tenants made in the log kept by the on-site manager have been satisfactorily dealt with.
Petitioner would not perform any of the remedial work needed to deal with those complaints. - Develop and approve opportunities to increase revenue. For example, this would include
comparing comparable rentals in the area to see whether the client’s rentals could be
increased. - Develop and approve methods of decreasing expenditures.
- Review tenants complaints if appealed by the tenants. Initially these complaints were
disapproved by the on-site manager. - Review all hirings and termination of employees at the building site.
Analysis
Generally, consulting services are not among the enumerated services subject to sales or
compensating use tax in section 1105 or 1110 of the Tax Law. Many of Petitioner’s activities,
for which he charges his clients, include collecting, compiling, and analyzing information and
providing reports to his clients. Tax Law section 1105(c)(1) imposes the State’s sales tax on the
sale, other than for resale, of information services, including collecting, compiling or analyzing
information of any kind or nature and furnishing reports thereof to other persons. Section
1110(a)(C) imposes the State’s compensating use tax on the use of such information services.
To be taxable under section 1105(c)(1), the information must be written or in a form that can
reproduced in any manner. Excluded from sales and use taxes are information services that are
personal or individual in nature and that are not or cannot be included in reports furnished to
anyone other than the purchaser of the service. Petitioner asserts that he does not prepare any
written report. Petitioner also asserts that he does not provide information developed for a client
to any other person. Petitioner also indicates that he gives advice to clients based on information
that he gathers looking at real estate or based on evaluations made after contacting clients’
tenants and on-site property managers. Thus, to the extent that any of the components of
Petitioner’s services constitutes an information service, Petitioner’s charge for that component
would be excluded from sales and use taxes.
-3-
TSB-A-12(4)S
Sales Tax
March 2, 2012
Tax Law section 1105(c)(5) imposes the State’s sales tax on sales of the service, other
than for resale, of maintaining, repairing, or servicing real property. Petitioner’s clients’
employees or independent contractors do work on or at the respective client’s property.
Petitioner does not himself repair, maintain, or service any of his clients’ properties. Nor does
Petitioner contract with any service providers to repair, maintain, or service any of his clients’
properties. Thus, Petitioner’s services are not subject to the sales tax imposed by section
1105(c)(5).
DATED: March 2, 2012
NOTE:
/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.