Is a company that arranges HVAC repairs for retail chains an agent (non-taxable) or a reseller that must collect tax on all its charges including its management fee?

Plain-English summary

A Florida company designs and manages HVAC maintenance and repair programs for national retail chains. When a customer location falls outside a national service provider's coverage, the company hires a pre-screened local contractor from its "Peer Partner Network" to do the on-site work, then bills the customer the contractor's charge plus a "management fee." It doesn't employ HVAC technicians or do the work itself. An earlier opinion (TSB-A-14(17)S) had ruled it a retail vendor taxable on all charges; the company came back arguing it merely acts as its customers' agent, so its management fee shouldn't be taxable.

The Office of Counsel again concluded it's a taxable reseller:

• An agency relationship requires a manifestation that one party consents to act on another's behalf, subject to that party's control, with the principal's authorization (Custom Mgt. Corp.). At a minimum there must be an agreement between the claimed agent and the principal.
• The company had no written agreements with its customers establishing agency, and there's no indication customers even knew of or agreed to the contractor "Partner Agreement" (which the customers never signed). The PA was ambiguous and contradictory — it called the company an agent yet described contractors being retained by the company, barred contractors from contacting customers, and treated customers as mere third-party beneficiaries — all pointing away from agency.
• So the company is purchasing the HVAC services from its contractors and reselling them to customers — a retail vendor. The HVAC services are taxable (Tax Law §§ 1105(c)(3), (5)), and all the company's receipts are taxable — including the "management fee," which is just an itemized expense of the service (20 NYCRR 526.5(e)).
• Mechanics & nexus: the company should give its contractors a resale certificate (Form ST-120). And because it provides HVAC services through in-state subcontractors, it has nexus (Orvis; Scripto) and must register for sales tax (Tax Law § 1101(b)(8)(i)(A)).

What this means for you

Service intermediaries, brokers, and "management" middlemen

If you buy a taxable service and resell it to your customer, you're a vendor — and your markup/management/coordination fee is part of the taxable receipt, not a separate non-taxable charge. Calling yourself an "agent" doesn't make it so.

Want true agency treatment? Document it

Agency requires the customer's consent and control, evidenced by an actual agreement between you and the customer. A contract only between you and your subcontractors — that your customer never signed or saw — won't establish agency, especially if it's internally contradictory.

Out-of-state arrangers

Operating through in-state subcontractors creates nexus; you must register and collect, even with no New York office or employees.

Common questions

Q: I only arrange the work and add a management fee — why is the fee taxable?
A: Because you're reselling a taxable service, your management fee is an itemized expense of that service and part of the taxable receipt — receipts aren't reduced by the vendor's expenses.

Q: My contracts say I'm acting as my customers' agent. Isn't that enough?
A: No. Agency needs the customer's consent and control, shown by an agreement between you and the customer. A subcontractor agreement the customer never signed doesn't establish it.

Q: I have no office or employees in New York. Do I still have to register?
A: Yes. Providing the services through in-state subcontractors gives you nexus, so you must register and collect tax.

Q: How do I avoid double tax on the contractor's work?
A: Give your contractors a resale certificate (Form ST-120); you then collect tax from your customer on the full charge.

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 § 1105(c)(3), (5) (taxable services of repairing/maintaining tangible personal and real property)
• Tax Law § 1101(b)(8)(i)(A) (vendor; registration requirement)
• 20 NYCRR 526.5(e) (receipt; no deduction for itemized expenses); Form ST-120 (resale certificate)
• Custom Mgt. Corp. v. NYS Tax Comm'n, 148 AD2d 919 (1989); Matter of Orvis Co. v. Tax Appeals Tribunal, 86 NY2d 165 (1995); Scripto v. Carson, 362 US 207 (1960)
• TSB-A-14(17)S; TSB-A-05(7)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2017.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a17_20s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel

TSB-A-17(20)S
Sales Tax
August 4, 2017

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION PETITION NO. S141107A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED RE (Petitioner).
Petitioner asks whether the amounts it collects from customers when it arranges for the provision of
on-site heating, ventilation and air conditioning maintenance and repair services (HVAC Services),
including its “management and consulting fees,” are subject to New York State and local sales tax.
We conclude that all of Petitioner’s charges are subject to New York State and local sales tax.
Facts
Petitioner is a Florida-based limited liability company that provides HVAC-related services
to customers, most of which are national retail chains with numerous locations throughout the
United States. Petitioner consults with its customers to design and implement a “systematic,
coordinated, headquarters-driven approach” to managing their HVAC-related maintenance and
repair needs. Part of what Petitioner does in this regard is design preventive maintenance, service,
and emergency repair programs that can be implemented in all of a customer’s locations. These
programs generally include, among other things, recommended preventive maintenance service and
rate schedules, as well as detailed lists of tasks to be performed. While Petitioner has customers
with locations in New York State, Petitioner itself does not own property or have facilities, offices,
or employees here, nor does it dispatch its employees to New York State for any reason.
Moreover, Petitioner indicates that it does not employ any licensed HVAC technicians and,
consequently, does not directly perform any HVAC Services for its customers.
Once an HVAC service program has been created, Petitioner indicates that a customer
generally will enter into a “master service and maintenance contract” with a national HVAC service
provider with the capacity to perform repair and maintenance services at a large number of that
customer’s locations. Sometimes, however, a customer will have a location that falls outside of a
national provider’s coverage area, in which case Petitioner will arrange, in consultation with its
customer, for a local or regional contractor to perform any HVAC Service that may be necessary.
When this is required, Petitioner will contact a service provider that has been pre-screened by it,
and that is a member of what it calls its “Peer Partner Network,” or PPN. To be a member of
Petitioner’s PPN, contractors must enter into a “Partner Agreement” (PA) with Petitioner. Notably,
this PA is not an agreement to perform any work, nor is it a guarantee that a “peer partner” (Partner)
will be offered any work. Rather, the only benefit conferred upon Partners is the possibility that

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August 4, 2017

they may be asked to provide, on an independent contractor basis, onsite HVAC Services for one of
Petitioner’s customers in the future. This is reflected in the PA, which provides as follows:
Partner acknowledges that this Agreement does not require it to perform any work for
[Petitioner], and it does not require [Petitioner] to refer any work to the Partner. [Petitioner]
retains the right, on behalf of its client, to engage others to perform the same type of
services to any [customer of Petitioner] without any obligation to Partner. [Petitioner]
makes no representation as to the number, frequency or dollar value of work orders for
services to be issued to Partner under this Agreement.
For all purposes herein, and in the performance of its duties and obligations under this
Agreement, the Partner is and shall remain an independent contractor. Nothing contained
herein shall be deemed to create or be construed as creating a joint venture, partnership,
master-servant or employer-employee relationship between Partner and [Petitioner]. The
Partner must maintain all necessary licensing required by state and local laws where service
is performed for [Petitioner].
To the extent a Partner is asked to perform HVAC Services at a customer’s site, the PA
requires that such work be performed in accordance with various terms and conditions. Among
these is a requirement that Partners not solicit or accept business directly from any of Petitioner’s
customers. In addition, the PA contains “service guidelines” that must be adhered to:
a) Once a service call is issued, the technician or dispatcher must call [Petitioner]
with confirmation of receipt and an estimated time of arrival of the technician to the site.
b) If the [Estimated Time of Arrival] is delayed or changed, [Petitioner] must be notified
immediately.
c) Once the technician has determined the origin of the service problem[,] he or
she should perform the needed repairs up to the Not To Exceed amount (“NTE”). If the
service call cannot be completed within the NTE then Partner must call [Petitioner] and
request an increase in the NTE for that job before commencing repairs, and may not proceed
unless [Petitioner] has approved the increase. Neither [Petitioner] nor [Petitioner’s] client
shall be liable to Partner for any amounts charged in excess of the NTE that were not
approved by [Petitioner], in writing, beforehand.
d) Partner must notify [Petitioner] immediately if parts must be ordered, or that a quote is
being submitted for repairs that cannot be made on site. [Emphasis in original].
e) Once the service has been completed, Partner must notify [Petitioner] immediately.

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f) All service calls must have a customer signature on the Partner technician’s backup (not
[Petitioner’s] work order) before he leaves the client’s site. If there is no customer signature,
[Petitioner] reserves the right not to pay the invoice submitted.
g) All service calls should have a response time as stated on the work order unless otherwise
agreed upon by the Partner and [Petitioner] on a non-emergency basis, as determined on a
specific call.
h) All service calls (unless a quote is waiting on approval) must be completed
within five business days. All quotes are due to [Petitioner] within 24 hours of the
technician being on site.
In addition to the above, the PA contains “procedural guidelines” that Partners must follow.
These guidelines address issues such as the warranty that Partners must offer (30-days parts and
labor on most calls), and what is required when submitting quotes to Petitioner for approval. In
addition, these guidelines require that, when work is complete, the Partner prepares an invoice and
delivers it to Petitioner for payment. In fact, the guidelines expressly provide that “[u]nder no
circumstances shall Partner invoice any [of Petitioner’s customers] directly.” Moreover, the
guidelines require that all inquiries about a job be directed to Petitioner and that a Partner may “not,
under any circumstance contact [Petitioner’s] client.” The guidelines, however, make it “an
absolute condition precedent to any payment by [Petitioner] to Partner that [Petitioner] is first paid
the amounts in [the Partner’s invoice] by [Petitioner’s] client.”
When Petitioner receives an invoice for HVAC Services performed by a Partner at a
customer’s location, it in turn submits an invoice to that customer for payment. According to
Petitioner, this invoice will list the amount that is charged by the Partner that performed the work,
as well as a fee for “management services” that Petitioner provides. After Petitioner’s customer
pays this bill, Petitioner sends payment to its Partner from the funds that it (Petitioner) receives.
Each customer’s funds are separately accounted for on Petitioner’s books, and each account is
debited or credited as payments are made or received. The amount that is charged by Petitioner for
the HVAC Services performed is the same amount that is billed to Petitioner by its Partner.
Petitioner contends that this amount is not marked-up, and that it currently includes the applicable
sales tax that the Partner charges.
On July 8, 2014, an Advisory Opinion, TSB-A-14(17)S, was issued to Petitioner that
determined that it was a retail vendor of the HVAC Services that it arranged for its customers, and
that, as a result, it was required to collect sales tax on the entirety of its charges, including its
“management fee.” This decision was based, in part, on the terms of Petitioner’s PA at the time,
which contained a provision declaring that Partners would have “no direct contractual relationship

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with [Petitioner’s] clients except as a third party beneficiary” of the agreement.1 Petitioner, in its
current request for an advisory opinion, does not dispute that the HVAC Services being performed
by Partners are subject to New York State sales tax pursuant to Tax Law §§ 1105(c)(3) and (5).
Rather, Petitioner contends that TSB-A-14(17)S was “erroneous” because it merely arranges for the
provision of these services as an agent of its customers and, therefore, it is not a retail vendor of
such services. In support of this contention, Petitioner submits a revised PA that, while devoid of
any reference to the lack of a contractual relationship between a Partner and Petitioner’s customers,
still contains provisions that require Partners to acknowledge and agree that Petitioner’s customers
are third-party beneficiaries of it. In addition, Petitioner added language to the revised PA stating
that “Partner expressly acknowledges and agrees that [Petitioner] is entering into and acting under
this Agreement strictly as the agent for its designated clients.” Petitioner, however, indicates that it
does not have any written agreements with its customers that reflect this agency relationship.
Analysis
Petitioner, contends that, when it makes arrangements for the provision of the on-site
HVAC Services, it is doing so as an agent of a customer, so that its receipts from customers,
especially its “management fee,” should not be subject to sales tax. However, an agency
relationship, at its core, is a fiduciary relationship where there is consent “by one person to another
that the other shall act on his behalf and subject to his control, and the consent by the other to act.”
Custom Mgt. Corp. v. New York State Tax Com’n, 148 AD2d 919 (3d Dep’t 1989). To establish an
agency relationship, therefore, there must be a manifestation that one party consents to act on behalf
of another party, subject to the other party’s control, and that the other party authorized this
relationship. See, e.g., Matter of Hooper Holmes, Inc. v. Wetzler, 152 AD2d 871 (3d Dep’t 1989);
TSB-A-15(31)S; TSB-A-09(51)S. It logically follows, therefore, that to establish an agency
relationship there must be, at a minimum, an agreement between the party claiming to be an agent,
and the party for whom this “agent” claims to be acting. See, e.g., TSB-A-09(51)S (Petitioner had
agreement with its client to act as purchase agent); TSB-A-98(1)C (agency relationship established
by a Power of Attorney); TSB-A-93(45)S (agency relationship exists where agreement appointed
petitioner as an agent of an exempt organization).
As noted above, Petitioner does not have any written agreements with its customers. As
such, Petitioner is unable to point to any document that states that any customer considers its
relationship with Petitioner to be one of agency. Moreover, and with respect to Petitioner’s PA,
there is nothing in the petition that indicates that any of Petitioner’s customers know about, let
alone have agreed to, the terms of this document. Thus, while Petitioner’s current PA indicates that
it is acting as an agent of its customers and makes Partners acknowledge and agree to this, it does
not evidence the existence of an agency relationship between Petitioner and its customers. This is
especially true because no signature or other type of acknowledgment by Petitioner’s customers is
required by the PA.
1

The decision in TSB-A-14(17)S was based on other documents and information provided by Petitioner at that time, none of which
is relevant to, nor has been considered for purposes of, this Advisory Opinion.

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Moreover, the PA is, at best, ambiguous on its face with respect to Petitioner’s relationship
with its customers. For example, while the PA states that Petitioner is its customer’s agent in a
number of places, it also provides that certain terms and conditions be adhered to by a Partner “if it
is retained by [Petitioner]” to perform work for one of its customers. In addition, the PA requires
Partners to acknowledge that the agreement “does not require it to perform any work for
[Petitioner], and it does not require [Petitioner] to refer any work to the Partner.” (Emphasis
added). The PA also contains a provision requiring Partners to maintain all necessary licensing
required by “state and local laws where service is performed for [Petitioner].” These passages
suggest that the Partner is being hired by Petitioner, and not one of its customers. Moreover, the
PA requires that a Partner “acknowledge and agree,” not just that Petitioner is an agent of its
customers, but that Petitioner’s customers are third-party beneficiaries of the Agreement. These
provisions are contradictory, because, if Petitioner were its customer’s agent, the customer would
be more than merely a third-party beneficiary of the PA. See, e.g., Key Int’l Manufacturing, Inc. v.
Morse/Diesel, Inc., 182 AD2d 448, 453 (2d Dep’t 1988) (a principal is liable on contracts entered
into on its behalf by an authorized agent). Also, while Petitioner may consult with customers and
require their approval at times, the PA itself does not demonstrate a sufficient level of control over
Petitioner by its customers to support a finding of agency. See, e.g., Matter of MGK Constructors,
Tax Appeals Tribunal, March 5, 1992. If anything, the PA, which essentially requires Partners to
deal solely with Petitioner when performing work and expressly prohibits them from contacting
Petitioner’s customers “under any circumstance” suggests that Petitioner’s customers play little, if
any, role in the decision-making process.
In light of the above, we cannot find that Petitioner, when it makes arrangements with
Partners to perform HVAC Services at a customer’s site, is making such arrangements as an agent
of its customers. Rather, we conclude, as we did in TSB-A-14(17)S, that Petitioner is purchasing
these HVAC Services from its Partners and reselling them to its customers, thus making Petitioner a
retail vendor of such. That Petitioner may not itself employ HVAC technicians, or that it does not
do HVAC repair or maintenance work directly for customers, is of no consequence. Accordingly,
all of Petitioner’s receipts from its customers are subject to New York State and local sales tax,
which Petitioner must collect. This includes what Petitioner bills as a “management fee,” as this is
simply an itemized expense of the HVAC Service being provided. 20 NYCRR 526.5(e). See also
TSB-A-05(7)S. In addition, Petitioner should provide each of the Partners that perform HVAC
Services for its customers with a properly completed resale certificate (Form ST-120), the goodfaith receipt of which would release them from the obligation to collect sales tax from Petitioner.
Finally, Petitioner raises other arguments in its Petition, including that its management fee is
not an itemized expense of the HVAC Services provided to its clients, but is rather a separate nontaxable charge. However, this claim is premised on the belief that Petitioner is acting as agent for
its customers, which, for the reasons discussed above, we conclude has not been substantiated.
Likewise, Petitioner contends that it lacks nexus with New York State. However, having found that
Petitioner is providing HVAC Services through the use of independent local and regional sub-

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contractors in the State, we find that sufficient nexus between Petitioner and New York State exists.
See, e.g., Matter of Orvis Co., Inc. v. Tax Appeals Tribunal, 86 NY2d 165, 178 (1995) (economic
activity by a vendor or on a vendor’s behalf enough to establish nexus). See also Scripto, Inc. v.
Carson, 362 US 207 (1960) (conduct of business through independent contractors sufficient to
establish nexus); Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992) (noting that Scripto
involved a physical presence by the business at issue within the state). Petitioner, therefore, must
register with the Department for sales tax purposes. See Tax Law § 1101(b)(8)(i)(A).

DATED: August 4, 2017

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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.