For a company that readies foreclosed properties for sale, which of its services and reimbursements are subject to NY sales tax, and what does it owe on its own purchases?

Plain-English summary

The Petitioner gets bank-owned ("REO") properties -- homes financial institutions like FNMA acquired through foreclosure -- into marketable condition and arranges their sale. It offers optional appraisals/valuations/broker price opinions (through third-party licensed professionals), and hires brokers who pre-approve and arrange the utility, protective, and repair/maintenance work a property needs, billing the Petitioner an itemized cost, which the Petitioner passes through to its customer. The Petitioner charges a discrete management fee and is not acting as its customer's agent.

The Office of Counsel concluded:

• Appraisals/valuations/broker price opinions = not taxable -- real-estate appraisal and valuation are not taxable services, so neither buying nor selling them is taxable.
• Management fee = not taxable. Its predominant elements -- arranging the sale and recommending the work needed to preserve and market the property -- are not taxable. Recommending work goes beyond a taxable inspection under section 1105(c)(5), which only covers keeping property in a condition of fitness/efficiency/readiness/safety; placing a property in marketable condition is different. So the management fee stays nontaxable even though the Petitioner also sells taxable services.
• Resold utility/protective/repair services = taxable at retail. Utilities (1105(b)), protective services (1105(c)(8)), and real-property repair/maintenance (1105(c)(5)) are taxable when sold at retail. The Petitioner is reselling them -- shown by its pre-approval of the specific work, the itemized billing, and the customer getting the economic benefit via increased property value. So its own purchases of those services from the brokers are not taxable (it can give a resale certificate), but it must collect tax from its customer.
• Unless the customer is exempt. FNMA and its successor the Federal Housing Finance Agency are exempt from State/local sales tax by federal statute (12 U.S.C. 1723a(c)(2); 4617(j)(2)), so no tax is due on sales to them -- keep documentation. The Petitioner must still register and file sales tax returns even if all its customers are exempt.

What this means for you

Property preservation / REO management

Appraisals, valuations, and broker price opinions aren't taxable. A management fee for arranging a sale and recommending marketing work isn't taxable either -- recommending work to make a property marketable is not a taxable inspection (which is only about keeping property fit/efficient/safe).

Pass-through repair/utility/protective work is resale

When you pre-approve specific repair, utility, or protective work, get itemized bills, and pass it to an owner who benefits via increased value, you are reselling those taxable services: buy them exempt for resale, but collect tax from your customer on the resale.

Watch the customer's exempt status -- and register anyway

Sales to federally exempt customers (e.g., FNMA/FHFA) carry no tax -- document the exemption. But you must still register and file returns even if every customer is exempt.

Common questions

Q: Is my REO management fee taxable?
A: No -- arranging the sale and recommending marketing work are not taxable, and recommending work isn't a taxable section 1105(c)(5) inspection.

Q: What about the repairs, utilities, and security I arrange and bill through?
A: Those are taxable services you're reselling. Buy them exempt for resale, but collect tax from your customer -- unless the customer is exempt.

Q: My customer is FNMA -- do I charge tax?
A: No. FNMA and the FHFA are exempt by federal statute. Keep documentation -- but you must still register and file returns.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(b) (sales tax on utility services)
• Tax Law section 1105(c)(8) (sales tax on protective and detective services)
• Tax Law section 1105(c)(5) (sales tax on maintaining, servicing, repairing real property)
• Tax Law section 1134 (registration; person required to collect tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(17)S
Sales Tax
May 11, 2015

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S101101C

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTED “Petitioner”. Petitioner asks
whether it is required to collect sales tax on the receipts for the services it provides to financial
institutions that own real property in New York and whether it is required to pay sales and use
tax on certain expenditures it makes in providing those services.
We conclude that Petitioner’s appraisals, valuations, and broker opinion services are not
subject to sales tax. Also, Petitioner’s fees for managing real property are not subject to sales tax.
Petitioner’s receipts for utilities, protective services, and repair and maintenance services of real
property in New York are subject to sales tax unless the customer is exempt from sales tax.
Because Petitioner is reselling utilities, protective services, and repair and maintenance services,
its purchases of these services are not subject to sales or use tax.
Facts
Petitioner provides services to the Federal National Mortgage Association (FNMA) and
other financial institutions that own real properties in New York that were obtained through a
completed mortgage default. Petitioner’s primary responsibility to these customers is to get the
properties in a marketable condition and arrange for their sale.
A discrete optional service that Petitioner offers is to arrange for an appraisal, valuation,
or broker price opinion, which is similar to an appraisal. Petitioner uses a network of third party
licensed real estate professionals and appraisers to perform the appraisals, valuations, and broker
price opinions. Petitioner does not purchase these services as agent of its customer. Petitioner
reviews and audits these appraisals, valuations, and broker price opinions to ensure quality and
performance standards are met.
Petitioner will hire a broker to sell the real property. The broker is responsible for
assessing the work needed to done to protect the property and place the property in a marketable
condition. The broker furnishes a report about the work needed to Petitioner, and Petitioner
forwards the report to its customer. If the customer and Petitioner approve the work, the broker
hires contractors and other service providers to perform the work. The broker does not act as
agent for Petitioner or Petitioner’s customer in hiring the contractors or other service providers.
Among the purchases made by the broker are utility services subject to sales tax under
Tax Law § 1105(b), protective services subject to sales tax under Tax Law § 1105(c)(8), and

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TSB-A-15(17)S
Sales Tax
May 11, 2015

services to real property subject to sales tax under Tax Law § 1105(c)(5). The broker pays for
these services. After it is presented with a written itemization of the payments made by the
broker for these services, Petitioner reimburses the broker at cost for them. The broker does not
receive a discrete fee for managing the work on a property, but will receive a commission for
selling the property upon the sale of the property, which is the standard fee that a broker in the
area would receive for selling a residence.
After the Petitioner has presented to the customer a written itemization of the payments
made to the broker, Petitioner is reimbursed at cost by its customer for the payments Petitioner
makes to the broker. Petitioner also receives a discrete management fee for all the services that it
provides. Petitioner does not act as agent for its customer in hiring the broker or making
payments to the broker.
Analysis
Real estate appraisal and real property valuation services are not services subject to sales
tax; therefore, neither Petitioner’s purchase of real property appraisals, valuations or broker price
options is not subject to sales tax. See TSB-A-03(42)S.
A person that manages real property for the owner may, in some circumstances, be
providing taxable services to its customer. See TSB-A-91(43)S. Petitioner’s management fee is
not to subject sales tax because the fee is for the overall activities of placing a residential
property in a marketable condition and arranging for the sale of the property. Arranging for the
sale of the real property is not a service subject to sales tax. Nor is the service of identifying the
tasks that need to be performed to preserve the value of real property and place real property in a
marketable condition subject to sales tax. Such a service does not qualify as a taxable inspection
service for purposes of Tax Law § 1105(c)(5) because the services and work being recommended
go beyond those needed merely to keep real property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition. Thus, for example, when Petitioner
recommends that a protective service be hired to protect real property from vandalism, Petitioner
is not providing an inspection service or other service to real property subject to sales tax under
Tax Law § 1105(c)(5). In brief, offering recommendations of actions that will place real property
in a marketable condition is not the same as offering recommendations of actions that will place
real property in a condition of fitness and efficiency. Because arranging the sale of real property
and making recommendations as to how specifically to preserve or enhance the value of real
property are the predominant elements of Petitioner’s service, the discrete management fee
Petitioner receives is not subject to sales tax even though Petitioner is also selling taxable
services to its customer.
The brokers hired by Petitioner are reselling services to it. Two facts supporting this
conclusion are Petitioner’s pre-approval of the specific work to be performed on the property and
the broker’s itemized billing for the work performed.
Utility services covered by Tax Law § 1105(b), protective services covered by Tax Law §
1105(c)(8), or services to real property covered by Tax Law § 1105(c)(5) are subject sales tax
when sold at retail. Sales of these services are not subject to sales tax if the service is to be resold
as such. See Tax Law §§ 1105(b)(1) & 1105(c). The rationale why Petitioner is purchasing

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TSB-A-15(17)S
Sales Tax
May 11, 2015

goods and services from a broker (Petitioner’ pre-approval of the goods and services to be
purchased in advance and the broker’s presentation of an itemized bill to Petitioner for the goods
and services purchased) is germane to whether Petitioner resells these goods and services. The
pre-approval by Petitioner’s customer of the specific goods and services to be purchased by
Petitioner and Petitioner’s presentation of an itemized bill to its customer for the goods and
services purchased are indications that Petitioner is reselling the goods and services to its
customer. These facts establish resale when coupled with Petitioner’s customer receiving the
economic benefit of the services in question through an increase in the value of its real property.
For all these reasons, Petitioner is the retail vendor of these goods and services.
Because Petitioner is not the retail purchaser of the utility, protective, repair and
maintenance services it purchases from the brokers, it does not owe sales or use tax on these
purchases. Once Petitioner registers for sales tax purposes, it would be entitled to present a resale
certificate to a broker who is selling to Petitioner the taxable services that Petitioner resells. 20
NYCRR § 532.4(d).
Petitioner is selling at retail the utility, protective, and repair and maintenance services it
purchases from the brokers. It must collect sales tax on its receipts for these services unless its
customer is exempt from sales and use taxes. FNMA and its successor, Federal Housing Finance
Agency, are exempt from State and local sales tax by federal statute. 12 U.S.C. § 1723a(c)(2); 12
U.S.C. § 4617(j)(2); see also County of Oakland v. Federal Housing Finance Agency, 716 F.3d
935. Therefore, if Petitioner’s customer was or is either of these entities, no sales tax is due on
the sale. Petitioner should retain documentation from the customer substantiating its exempt
status. 20 NYCRR § 529.1(e).
Because Petitioner is selling services subject to sales tax, it is required register with the
Department of Taxation and Finance for sales tax purposes, file sales tax returns and remit any
sales tax due from its customers. Tax Law §§ 1134, 1136 & 1137. It is required to register and
file sales tax returns even if all its customers are exempt from sales and use tax.

DATED: May 11, 2015

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.