For the lower-Manhattan commercial-lease sales tax exemption, when does the tenant's one-year exemption period begin?

Plain-English summary

A commercial tenant signed a lease for office space in lower Manhattan, an area where Tax Law § 1115(ee) gives qualifying tenants a one-year exemption from sales and use tax on tangible personal property and services bought to furnish, equip, or improve the leased premises. The lease was signed several months before the agreed "Commencement Date," and the tenant could not take occupancy or begin renovations until that Commencement Date. The tenant asked when its one-year exemption clock starts.

The Office of Counsel concluded the exemption period begins on the first day the tenant had the right to occupy the premises, which here is the lease's Commencement Date, not the signing date. The statute measures the benefit from "the first day of the tenant's lease term" but doesn't define when the term begins. Borrowing from the real estate transfer tax (where an "interest in real property" includes the right to use or occupy, and a lease term begins when the tenant has the right to use and occupancy), the Department fixed the start at the Commencement Date.

What this means for you

Lower-Manhattan commercial tenants

Your § 1115(ee) exemption window runs for one year from when you first have the right to occupy, typically the lease's Commencement Date, not when you signed. Plan your furnishing and build-out purchases (and the 90-day delivery tail the statute allows after the year) around that date to capture the benefit.

Landlords and tenant-improvement contractors

Coordinate the documented Commencement Date with the tenant; it controls the exemption period for qualifying purchases and services.

Accountants and tax professionals

Where the sales tax is silent on "lease term," the Department looks to RETT (Tax Law § 1401(f); TSB-A-99(1)R): the term starts with the right to use/occupy. See also TSB-M-05(12)S on the § 1115(ee) program.

Common questions

Q: Does signing the lease early start the exemption clock?
A: No. The clock starts when you first have the right to occupy, the Commencement Date here.

Q: What can the exemption cover?
A: Tangible personal property and services purchased to furnish, equip, or improve the leased lower-Manhattan office space, within the one-year window (plus a 90-day delivery period).

Q: What if the lease specifies a different start?
A: The term begins with the right to use and occupancy unless the lease specifies otherwise; here that was the Commencement Date.

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

Statutes and guidance:
- Tax Law § 1115(ee); § 1401(f)
- TSB-M-05(12)S; TSB-A-99(1)R

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-24s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(24)S
Sales Tax
June 30, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for Advisory Opinion from
[ REDACTED ] (hereinafter “Petitioner”). Petitioner asks when its lease commences for purposes of the
sales tax exemptions provided by Tax Law § 1115(ee) where Petitioner signed a lease several months
before the date the parties agreed would be the “Commencement Date” of the lease.
We conclude that Petitioner’s lease commenced on the date Petitioner first had the right to
occupy the property for purposes of the sales tax exemption benefits provided by Tax Law § 1115(ee).

Facts
Petitioner signed a commercial space lease for property (the “Premises”) located in lower
Manhattan. The Premises are in an area that has been granted exemptions from New York State and local
sales and use taxes for certain purchases of tangible personal property and services related to leased
commercial office space. The lease contained several prerequisites before it was deemed “commenced”
by the parties. Petitioner was precluded from accepting occupancy, or commencing renovations and
outfitting the site until the “Commencement Date” as defined in the lease.

Analysis
Tax Law § 1115(ee) provides an exemption from sales and use tax for certain tangible personal
property and services purchased by a tenant directly and exclusively to furnish, equip or improve leased
premises in designated areas in lower Manhattan for use as commercial office space. The exemption
applies only to purchases, uses and services rendered “commencing on the first day of the tenant’s lease
term and ending one year later ….” Tax Law § 1115(ee); see also TSB-M-05(12)S. Tax Law § 1115(ee)
also provides that such property must be delivered to the tenant’s leased premises for use or such
services must be rendered no later than ninety days after the end of such year.
The statute does not define the “lease term” or state when it begins. See Tax Law § 1115(ee).
While not specifically applicable to the sales tax, the definition of “an interest in real property” under the
real estate transfer tax (RETT) provides guidance. Under RETT, an interest in real property includes,
among other things, an interest with the right to use or occupy real property. Tax Law § 1401(f).
Accordingly, for RETT, unless otherwise specified in a lease, a lease term begins when Petitioner has the
right to use and occupancy of the premises. See TSB-A-99(1)R.

-2-

TSB-A-20(24)S
Sales Tax
June 30, 2020

Following this guidance, we conclude that, for purposes of Tax Law § 1115(ee), the lease term is
the date the Petitioner first had the right to occupy the Premises. In Petitioner’s case, that date is the
“Commencement Date.”
DATED: June 30, 2020

/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.