Can a commercial landlord that resells submetered electricity to tenants claim a credit for the sales tax it paid on that electricity?

Plain-English summary

A commercial real estate company buys electricity and electric service for its New York City buildings and pays sales tax on those purchases. Most of the power is used by its tenants; some is consumed in common areas. The company submeters each tenant's actual usage and bills the tenant for it, usually with a markup set by the lease, collecting sales tax on the whole invoice. It asked whether it can take a credit for the sales tax it already paid on the electricity it resells.

The Office of Counsel said yes, with the mechanics spelled out:

• By reselling electricity to tenants based on submetered usage, the company is selling electricity and is a person required to collect tax (Tax Law § 1131(1)). It must collect sales tax on the entire charge to tenants — including any administrative fee or markup (Tax Law §§ 1101(b)(3), 1105(b)(1)(A)).
• Because some electricity is used in the common areas, the company isn't buying exclusively for resale, so it can't issue a resale certificate to buy the power tax-free (Empire State Bldg. Co. v. NYS Dept. of Tax. & Fin.).
• But the submeters show exactly how much electricity is resold and how much tax was paid on it. So the company may claim a credit on its periodic sales tax return for the tax it paid on the resold electricity, against the tax it collects from tenants — by submitting a properly completed Form AU-11 with the required documentation.

What this means for you

Commercial landlords who submeter utilities

You must charge sales tax on the full submetered electricity charge to tenants, markup included — receipts are figured "without any deduction for expenses." You can't buy the power tax-free with a resale certificate if you also use some yourself (common areas). The relief is a credit for the tax you paid on the portion you resell.

Why submetering is what makes the credit work

The credit depends on being able to prove the resold quantity and the tax paid on it. Submeters provide that proof; without that precision the credit claim falls apart.

Accountants

Claim the credit on the periodic return via Form AU-11 (see TB-ST-350), keeping documentation that ties the credit to the resold electricity. Don't net it informally.

Common questions

Q: Do I charge tax on my markup, or only on the raw electricity cost? A: On the entire charge, markup and any administrative fee included — receipts aren't reduced by expenses.

Q: Why can't I just buy the electricity tax-free for resale?
A: Because you also use some in common areas, it isn't bought exclusively for resale, so no resale certificate (Empire State Bldg).

Q: How do I recover the tax I paid on the power I resold?
A: Claim a credit on your sales tax return for the tax paid on the resold electricity, filing Form AU-11 with documentation.

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(b)(1) (tax on receipts from sales of electricity, other than sales for resale)
• Tax Law § 1105(b)(1)(A) (tax on the entire charge for electricity and electric service)
• Tax Law § 1101(b)(3) (definition of receipt; no deduction for expenses)
• Tax Law § 1131(1) (person required to collect tax)
• 20 NYCRR 527.2 (electricity and electric service)
• Empire State Bldg. Co. v. NYS Dept. of Tax. & Fin., 81 NY2d 1002 (1993); TSB-A-05(8)S; TSB-A-07(8)S; Publication TB-ST-350; Form AU-11

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/a20-64s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(64)S
Sales Tax
November 10, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance (Department) received a Petition for Advisory Opinion from [ REDACTED ] (Petitioner) asking whether Petitioner may take a credit for sales tax paid on purchases of electricity where the electricity is resold to its tenants. We conclude that Petitioner may take a credit on its periodic sales tax return for sales tax paid on purchases of electricity subsequently resold to tenants. Facts Petitioner is a commercial real estate company that acquires and manages commercial properties throughout New York City. Petitioner purchases electricity and electric service (i.e., transmission) for its buildings, and pays sales tax on those purchases. The bulk of the electricity Petitioner purchases is used by its tenants. However, a portion is consumed in common areas of the buildings. Petitioner submeters the electricity provided to its tenants, and invoices tenants based on their actual usage as measured by those submeters. Each invoice generally includes a "mark-up" as determined by the applicable lease agreement. Petitioner states that it computes and collects sales tax for each tenant on the entire invoice, including the mark-up. Analysis Sales tax is imposed on the receipts from every sale, other than sales for resale, of electricity and electric service. See Tax Law § 1105(b)(1); 20 NYCRR 527.2. Petitioner purchases electricity and electric service for use in its buildings. Petitioner states that it resells a portion of that electricity and electric service to its tenants based on actual usage measured by submeters. Petitioner is selling electricity and electric service to its tenants, and is, therefore, a person required to collect tax. See Tax Law § 1131(1). Petitioner must collect sales tax on the entire charge to its tenants for electricity and electric service, including any administrative fee or markup. See Tax Law §§ 1101(b)(3), 1105(b)(1)(A). Petitioner also is required to be registered for sales tax purposes, timely file periodic sales tax returns and remit the tax it collects to the Department. Because some of the electricity and electric service Petitioner purchases is for its own use in common areas, the electricity and electric service is not purchased exclusively for resale. As a result, Petitioner cannot issue a resale certificate to purchase electricity and electric service without paying sales tax. See Empire State Bldg. Co. v. NYS Dept. of Tax. & Fin., 81 NY2d 1002 (1993); TSB-A-07(8)S. However, Petitioner knows the amount of electricity it resells to tenants based on its submeters, and it knows the amount of sales tax it paid for such resold electricity. Accordingly, Petitioner may claim a

TSB-A-20(64)S
-2-

Sales Tax

November 10, 2020

credit for the sales tax it paid for the resold electricity against sales tax collected from tenants. See TSB-A05(8)S; TSB-A-07(8)S. This credit may be claimed on Petitioner’s sales tax return, provided it also submits a properly completed Form AU-11 and any required documentation. See TB-ST-350. DATED: November 10, 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.