A utility's customers on public assistance have their bills ultimately paid by a social services agency. Is that an exempt sale to the government?

Plain-English summary

Consolidated Edison serves some customers who receive public assistance. When a customer qualifies, the New York City Human Resources Administration (HRA) or Westchester County Department of Social Services (DSS) issues a utility guarantee; the customer keeps getting monthly bills (with sales tax), and if the customer can't pay, HRA or DSS pays the bill — sometimes after Con Edison sends the agency a computer tape or a copy of the bill. Con Edison asked whether these are exempt sales to a government agency under § 1116(a)(1).

The Department held these sales are taxable — the customer, not the agency, is the buyer.

• The exemption for government purchases. Section 1116(a)(1) exempts the State and its agencies, instrumentalities, and political subdivisions where the government is the purchaser, user, or consumer. HRA and DSS are such agencies (20 NYCRR 529.2(a)(1)).
• Three elements are required. For the exemption to apply, all three must be true: (1) the agency places the order; (2) the bill is prepared in the agency's name; and (3) the agency pays.
• Here, only payment runs through the agency. As in the Department's Jones Fuel Co. illustration — where a fuel dealer sells and bills a customer who only later gets county assistance to pay — the sale is to the individual who ordered and was billed, even though the government pays. So Con Edison must collect and remit the sales tax on these public-assistance sales.
• Residential-utility wrinkle. Residential utilities are generally exempt from the state tax under § 1105-A, but that exemption does not reach the New York City (§ 1107) or Westchester County local sales taxes, which still apply.

A companion Modified Advisory Opinion, TSB-A-87(30.1)S (issued February 8, 1988 on the same Petition No. S870602C), reaches the opposite result for Con Edison's later "Direct Vendor" program, where the agency itself orders, is billed, and pays directly — those sales are exempt under § 1116(a)(1).

What this means for you

"The government eventually pays" is not enough for the exemption. New York's exemption for government purchases requires the agency to be the actual buyer — ordering the goods or service, being billed in its own name, and paying. A sale to an individual who is later reimbursed or bailed out by a public-assistance agency stays fully taxable.

Structure the transaction if you want the exemption. The difference between a taxable sale and an exempt one here is who orders and who is billed. Where a program is set up so the agency places the order and is billed directly (as in the companion Direct Vendor opinion), the sale can qualify.

Watch the state-vs-local split on residential utilities. Residential energy is exempt from the state portion of the tax but can still carry New York City and county local sales tax. Don't assume "residential = fully exempt."

Common questions

Q: My customer is on public assistance and the county pays the bill. Is my sale tax-exempt?
A: Not if the customer ordered the goods or service and was billed. The government paying later does not make it an exempt government purchase.

Q: What would make it exempt?
A: All three of: the agency places the order, the bill is in the agency's name, and the agency pays. A program built that way (like Con Edison's Direct Vendor program) can qualify.

Q: Are residential utilities tax-free?
A: They're exempt from the state tax under § 1105-A, but New York City and county local sales taxes can still apply.

Citations and references

Statutes and regulation:

• Tax Law § 1116(a)(1) — exempts sales to the State, its agencies, and political subdivisions as purchaser/user/consumer
• Tax Law § 1105(b) — taxes receipts from sales of gas, electricity, and utility service
• Tax Law § 1105-A — residential utilities exempt from the state tax under § 1105(b)
• Tax Law § 1107 (New York City) and § 1210 (counties) — local sales tax on utility services
• 20 NYCRR 529.2(a)(1) — agencies and instrumentalities of the State

Department guidance:

• TSB-M-78(14)S and TSB-A-85(26)S — application of sales tax to goods and services sold to persons receiving public assistance

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(27)S
Sales Tax
August 31, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S870602C

On June 2, 1987, a Petition for Advisory Opinion was received from Consolidated Edison
Company of New York Inc. - 4 Irving Place, Room 208, New York, New York 10003.
The issue raised is whether Petitioner's sale of service to public assistance customers,
ultimately paid for by a social service agency, constitutes a sale to an exempt organization under Tax
Law Section 1116(a)(1) for the purpose of the sales and use tax imposed under Articles 28 and 29
of the Tax Law.
Petitioner, is a public utility corporation organized under the laws of New York State.
Petitioner is engaged in the manufacture, distribution, and sale of electricity and steam. It is also
involved in the distribution and sale of gas throughout various portions of the City of New York and
County of Westchester.
Some of the customers served by Petitioner are recipients of public assistance whose bills
are paid for by either the New York City Human Resources Administration (HRA) or the
Westchester County Department of Social Services (DSS). Pursuant to Chapter 189, Laws of 1965,
effective May 17, 1965, when a customer first qualifies for assistance he receives a utility guarantee
from either HRA or DSS and a check covering up to four months of arrears. Thereafter, the customer
continues to receive monthly bills from Petitioner, which include a sales tax. If a customer is unable
to pay his monthly bill during the period he is in receipt of public assistance, HRA or DSS will pay
such bill.
In addition to the monthly bill sent directly to the customer, Petitioner sends HRA a computer
tape with the billing information accompanied by a printed summary of the computer tape. Based
on this information, HRA pays Petitioner the outstanding balances due for the services provided to
its public assistance recipients - including the applicable sales tax.
DSS follows a similar procedure except that Petitioner does not send a computer tape to DSS.
Instead, Petitioner sends DSS either a printed document containing billing information, or in some
instances, the customer's actual bill. Based on this information, DSS pays Petitioner the outstanding
balances due including the appropriate sales tax.
Section 1105(b) of the Tax Law imposes a sales tax on "the receipts from every sale, other
than sales for resale, of gas, electricity, refrigeration and steam, and gas, electric, refrigeration and
steam service of whatever nature..." The intention of the statute is to tax the...sales and services
whether or not rendered by a company subject to regulation as a utility company. (20 NYCRR
527.2(2)).

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-87(27)S
Sales Tax
August 31, 1987

Section 1107 of the Tax Law imposes within the City of New York a local sales tax upon,
among other things, the utility services subject to tax under section 1105(b) of the Tax Law.
Similarly, section 1210 of the Tax Law authorizes counties of the state to impose sales tax upon,
among other things, the utility services subject to tax under section 1105(b) of the Tax Law.
Westchester County has imposed such a tax.
Section 1105-A of the Tax Law exempts from the tax imposed under section 1105(b) of the
Tax Law utilities consumed for residential purposes. Such exemption does not apply to the tax
imposed under section 1107 of the Tax Law. Similarly, residential utilities continue to be subject to
Westchester County local sales tax.
Accordingly, it should be noted that residential utilities such as those sold by Petitioner are
generally exempt from New York State sales tax but subject to New York City and Westchester
County sales tax at various local rates.
Additionally, section 1116 of the Tax Law states that certain organizations will be exempt
from the imposition of the sales and use tax, including the local sales taxes here at issue. Section
1116(a)(1) exempts: (1) The State of New York, or any of its agencies, instrumentalities, public
corporations .... or political subdivisions where it is the purchaser, user or consumer, or where it is
a vendor of services or property of a kind not ordinarily sold by private persons.
Chapter 619, of the Laws of 1940 created the Social Services Law. The HRA and DSS were
created pursuant to the authority given to the Commissioner of Social Services. (Social Services Law
§17). Agencies and instrumentalities of the State as used in section 1116 means any authority,
commission or independent board created by an act of the Legislature for a public purpose. (20
NYCRR 529.2(a)(1)). Accordingly, HRA and DSS are such agencies and instrumentalities exempt
from the sales and use tax by section 1116(a)(1).
In order for a sale such as the sales here at issue to qualify for the exemption contained in
section 1116(a)(1) of the Tax Law, it must have all three of the following elements:
(1)

An order for goods or services must be placed by the Social Services Agency; and

(2)

The bill for the goods or services must be prepared in the name of the Social Services
Agency; and

(3)

Payment for the goods or services must be made by the Social Services Agency.

-3­
TSB-A-87(27)S
Sales Tax
August 31, 1987

The following illustration demonstrates how goods are sold to persons receiving public
assistance. The principles are equally applicable to all sales of goods and services sold to persons
receiving public assistance. (Technical Services Bureau Memorandum, Application of New York
State and Local Sales Tax to Goods and Services Sold to Persons Receiving Public Assistance, July
20, 1978, TSB-M-78(14)(S)).
Transaction:
Jones Fuel Co. agrees to sell Mr. Smith 100 gallons of fuel oil. The fuel oil is
delivered and Mr. Smith is billed. Shortly thereafter Mr. Smith applies for assistance
from the County Social Services Department. The County pays Jones Fuel Co. for
the fuel oil sold to Mr. Smith.
Determination:
Jones Fuel Company's sale is to Mr. Smith who ordered and was billed for the fuel
even though the County Social Services Department paid for it. New York Sales and
Use Tax Law, section 1105, imposes sales tax on tangible personal property, utility
services and other select services. Consequently, Jones Fuel Company is required to
collect the appropriate sales tax on this sale and remit it to the State Tax
Commission.
The sales here at issue were ordered by and billed to individuals (public assistance recipients)
and not to the State, its agencies, instrumentalities, public corporations or political subdivisions.
Accordingly, such sales are not exempt from the tax. Petitioner is required to collect and remit the
appropriate sales tax on sales to such public assistance recipients.
For additional information regarding the application of New York State and Local Sales Tax
to goods and services sold to persons receiving public assistance, see TSB-M-78(14)S and TSB-A­
85(26)S.

DATED: August 31, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.