Are purchases, leases, and service contracts for equipment at a project owned by an Industrial Development Agency and used by a private company exempt from sales and use tax?

Plain-English summary

The Chase Manhattan Bank, N.A. planned to move a financial-services processing center to Brooklyn under a benefits package from the New York City Industrial Development Agency (IDA). The IDA would take fee title to the parcels, build and lease the project to Chase, and authorize Chase to buy property and sign contracts as the IDA's agent — with the IDA issuing a sales-tax authorization letter ("Sales Tax Letter"). When the IDA's bonds are paid off, the IDA conveys the project property to Chase. Chase asked whether the project purchases, leases, and service contracts are exempt from sales and use tax.

The Department held that they are exempt, on these conditions:

• IDAs are exempt public corporations. An IDA is a public corporation created for a public purpose and is exempt under Tax Law § 1116(a)(1) and 20 NYCRR § 529.2(a); General Municipal Law § 874 exempts an IDA's property and activities from tax.
• Buying/leasing project property is exempt — if the IDA owns it. Acquiring and installing machinery, equipment, furniture, furnishings, and other project property (including replacements, enhancements, and additions), whether purchased or leased by the IDA or by Chase as agent for the IDA, is exempt from the sales and compensating use taxes under §§ 1105, 1107 (NYC), 1109 (MCTD), and 1110 — provided the IDA-Chase agreement stipulates the IDA is the owner of the property.
• "Purchase" includes leases. The word "purchase" is used as defined in § 1101(b)(5), so it covers leases as well as outright purchases.
• Service contracts are exempt too. Maintenance and service contracts for the project's machinery, equipment, and computer software, entered into by the IDA or by Chase as its agent, are also exempt — provided the IDA owns those items and, under the agreement, the IDA is responsible for maintaining, repairing, and servicing them.
• The signed government contract is the proof. Under 20 NYCRR § 541.3(a), when a contractor's customer is a governmental entity like an IDA, the contract signed by the government representative is sufficient proof of exempt status. The Department relied on Wegmans Food Markets, Inc. v. Department of Taxation and Finance.

What this means for you

If your project is financed through an IDA: Purchases and leases of equipment, furniture, and other project property can be made exempt from state, New York City, and MCTD sales and use tax — even when you do the buying — because you act as the agent of the exempt IDA. The exemption reaches replacements, enhancements, and additions over the life of the project, and maintenance/service contracts too.

The exemption hinges on IDA ownership and agency. The agreement must say the IDA owns the property, and (for service contracts) that the IDA is responsible for the servicing. Buy as the IDA's authorized agent under the Sales Tax Letter — purchases you make outside that authority aren't covered.

Keep the paperwork. The IDA's sales-tax authorization letter and the signed contract are what substantiate the exemption to your vendors; expect to furnish periodic project updates and renew the authorization as the project grows.

Common questions

Q: We're a private company — how can our purchases be tax-exempt?
A: Because you buy as the agent of the IDA, which is an exempt public corporation, and the IDA owns the project property. The exemption flows from the IDA's status, documented by its sales-tax authorization letter and the signed contract.

Q: Does the exemption cover leased equipment and later replacements?
A: Yes. "Purchase" includes leases (§ 1101(b)(5)), and the exemption reaches replacements, enhancements, and additions to the project, as long as the IDA owns them.

Q: Are maintenance and service contracts exempt?
A: Yes, if the IDA owns the machinery, equipment, or software and the agreement makes the IDA responsible for the servicing.

Citations and references

Statutes and regulations:

• Tax Law §§ 1105, 1107, 1109, 1110 — state, New York City, MCTD sales taxes and the compensating use tax
• Tax Law § 1116(a)(1) — exemption for the State and its public corporations
• Tax Law § 1101(b)(5) — definition of "sale/purchase"; includes leases
• 20 NYCRR § 529.2(a) — IDAs are exempt public corporations
• 20 NYCRR § 541.3(a) — signed government contract as proof of exempt status for a contractor's government customer
• General Municipal Law § 874 — IDA tax exemptions

Case cited:

• Wegmans Food Markets, Inc. v. Department of Taxation and Finance, 126 Misc 2d 144, aff'd 115 AD2d 962, lv denied 67 NY2d 606

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_28s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-89 (28)S
Sales Tax
August 8, 1989

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890523A

On May 23, 1989, a Petition for Advisory Opinion was received from The Chase Manhattan
Bank, N.A., 1 Chase Manhattan Plaza, New York, New York 10081.
The issues raised in connection with the construction, equipping, furnishing and maintaining
of Petitioner's proposed financial services processing center in Brooklyn, New York, and the
equipping and maintaining of Petitioner's other facilities within New York City whose operations
are related to the operations to be performed at the financial services processing center (together
hereinafter referred to as Project) are whether:
a.)
the acquisition and installation of machinery, equipment, furniture and furnishings
and other property comprising a part of the Project (including replacements, enhancements and
additions) leased by the owner thereof either to the New York City Industrial Development Agency
(hereinafter referred to as IDA) for sublease to Petitioner, or leased by the owner thereof to Petitioner
as agent for and on behalf of the IDA, are exempt from the imposition of New York State, New York
City and the Metropolitan Commuter Transportation District Sales and Compensating Use Taxes
(hereinafter referred to as the sales and use taxes) imposed under Sections 1105, 1107, 1109 and
1110 of the Tax Law;
b.)
the acquisition and installation of machinery, equipment, furniture and furnishings
and other property comprising a part of the Project as additions to, replacements for or enhancements
of other property that is part of the Project, either directly by the IDA or by Petitioner as agent for
and on behalf of the IDA, are exempt from such sales and use taxes;
c.)
maintenance and service contracts for machinery, equipment and computer software
comprising a part of the Project entered into directly by the IDA, or by Petitioner as agent for the
IDA, are exempt from such sales and use taxes.
Petitioner has recently explored the feasibility of relocating its financial services processing
center from Manhattan to Brooklyn (the new center being hereinafter referred to as the CFSC). As
part of a benefits package offered to induce Petitioner to relocate its financial services processing
center, the IDA will purchase the fee title to two adjoining parcels (separated by a public street) in
Brooklyn and will lease the parcels and building(s) to be constructed on such parcels to Petitioner.
The IDA also will grant Petitioner the authority to acquire tangible personal property and to enter
into contracts, in each case as agent for and on behalf of the IDA with respect to the Project.
The Project, described heretofore, will also include the following:
TP-9 (9/88)

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(a)
machinery, equipment, furniture and furnishings (including furniture and furnishings
to be located at the CFSC after completion of the Project), and other property to be acquired by the
IDA and leased to Petitioner, or acquired by Petitioner as agent for the IDA,
(b)
machinery, equipment and computer software either leased by the owner to the IDA
and subleased to Petitioner or leased by the owner to Petitioner as agent for and on behalf of the
IDA; and
(c)
maintenance and service contracts for machinery, equipment and computer software
that are part of the Project pursuant to which the service provider will contract with the IDA or with
Petitioner as agent for the IDA.
It is anticipated that, as part of the Project, property will be acquired or leased, and
maintenance and service contracts will be entered into, all as provided above, over a 25 to 35 year
period. It also is anticipated that some of the property included in the Project will be acquired or
leased, in the same manner as set forth above, as replacements for or enhancements of other property
that is part of the Project. Additionally, the operations performed at the CFSC and at Petitioner's
other related facilities may expand, requiring the acquisition or rental of additional property as part
of the Project.
On a periodic basis (likely to be semiannually) the IDA will issue bonds or notes to finance
(either prospectively or to reimburse Petitioner for amounts expended) the costs of all or
substantially all of the machinery, equipment, furniture and furnishings, and other property acquired
by the IDA or by Petitioner acting as agent for the IDA. A subsidiary of Petitioner will be permitted
to purchase all such agency bonds if Petitioner so elects.
All of the Project property as shall be owned by or leased to the IDA will be leased (or
subleased) by the IDA to Petitioner pursuant to a lease agreement whereunder Petitioner will be
obligated to make lease payments equal to the principal of and interest due on the bonds and notes
issued from time to time by the IDA to finance the Project. The lease agreement will further provide
that upon the payment or prepayment in full of the IDA's bonds and notes issued to finance the
Project, the IDA shall convey to Petitioner all of the IDA's right, title and interest in the Project
property.
Upon the signing of the lease agreement by the IDA and Petitioner, the IDA will, pursuant
to statute and regulations, issue a sales tax authorization letter (the "Sales Tax Letter") to authorize
Petitioner, as agent for and on behalf of the IDA, to purchase and lease Project property and to enter
into maintenance and service contracts for such Project property exempt from sales and use taxes.
The Sales Tax Letter will contain a general description of the Project and will provide that the sales
and use tax exemption available thereunder will be available only to the extent that property is
acquired or rented, and maintenance and service contracts entered into, either directly by the IDA
or by Petitioner as agent for the IDA. Petitioner will be required to furnish periodic update
information on the Project to the IDA and obtain from the IDA a renewal of authorization for the

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Sales Tax Letter accompanied with an updated Project description.
Section 1101(b)(5) of the Tax Law defines "sale, selling or purchase" as: "Any transfer of
title or possession or both, exchange or barter, rental, lease or license to use or consume, conditional
or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement
therefor, including the rendering of any service, taxable under this article, for a consideration or any
agreement therefor."
Section 1105 of the Tax Law provides, in relevant part:
Imposition of sales tax. - ... there is hereby imposed and there shall be paid a tax of
four percent upon:
(a)
The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*
(c)

*

*

The receipts from every sale, except for resale, of the following services:

(3)
Installing tangible personal property ... or maintaining, servicing or repairing
tangible personal property ... not held for sale in the regular course of business,
whether or not the services are performed directly ... or by any other means, and
whether or not any tangible personal property is transferred in conjunction
therewith...
(5)
maintaining, servicing or repairing real property, property or land, as such
terms are defined in the real property tax law, whether the services are performed in
or outside of a building, as distinguished from adding to or improving such real
property, property or land, by a capital improvement as such term ... is defined in
paragraph 9 of subdivision (b) of section eleven hundred one of this chapter....
Section 1107 of the Tax Law provides, in relevant part:
(a)General. On the first day of the first month following the month in which a
municipal assistance corporation is created under article ten of the public authorities
law for a city of one million or more, in addition to the taxes imposed by sections
eleven hundred five and eleven hundred ten, there is hereby imposed..., within the
territorial limits of such city, and there shall be paid, additional taxes, at the rate of
four percent, which except as provided in subdivision (b) of this section, shall be
identical to the taxes imposed by sections eleven hundred five and eleven hundred
ten. Such sections and the other sections of this article, including the definition and
exemption provisions, shall apply for purposes of the taxes imposed by this

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section in the same manner and with the same force and effect as if the language of those sections
had been incorporated in full into this section and had expressly referred to the taxes imposed by this
section.
Section 1109 of the Tax Law provides, in relevant part:
(a)General. In addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten of this article, there is hereby imposed within ... the metropolitan
commuter transportation district ... and there shall be paid, additional taxes, at the
rate of one-quarter of one percent, which shall be identical to the taxes imposed by
sections eleven hundred five and eleven hundred ten of this article ....
Section 1110 of the Tax Law provides, in relevant part:
Except to the extent that property or services have already been or will be subject to
the sales tax under this article, there is hereby imposed on every person a use tax for
the use within this state ..., (A) of any tangible personal property purchased at retail,
(B) of any tangible personal property manufactured, processed or assembled by the
user, (i) if items of the same kind of tangible personal property are offered for sale
by him in the regular course of business or (ii) if items are used as such or
incorporated into a structure, building or real property by a contractor, subcontractor,
or repairman in erecting structures or buildings, or building on, or otherwise adding
to, altering, improving, maintaining, servicing, or repairing real property, property
or land, as the terms real property, property or land are defined in the real property
tax law, if items of the same kind are not offered for sale as such by such contractor,
subcontractor or repairman or other user in the regular course of business, (C) of any
of the services described in paragraph (1) of subdivision (c) of section eleven
hundred five, and (D) of any tangible personal property ... not acquired for purposes
of resale, upon which any of the services described under paragraphs (2) and (3) of
subdivision (c) of section eleven hundred five have been performed....
Section 1116 of the Tax Law provides, in relevant part:
(a)
... any sale ... by or to any of the following or any use ... by any of the
following shall not be subject to the sales and compensating use taxes imposed
under this article:
(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....

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Section 529.2(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(2) A public corporation as used in this section means any corporation created by an
act of the Legislature for a public purpose...
Example:

...Industrial Development Agencies are public
corporations and may purchase tangible personal
property exempt from the sales and use taxes.

Section 541.3(a) of the Sales and Use Tax Regulations provides, in relevant part:
"... When a contractor's customer is a governmental entity described in section 1116(a)(1)...of
the Tax Law, the contract signed by the government representative and the prime contractor
is sufficient proof of the exempt status of purchases made for such contract.
(1) Such governmental entities include:
(i)...(c) industrial development authorities...."
Section 874 of the General Municipal Law provides, in relevant part:
Tax exemptions
(1)
It is hereby determined that the creation of the agency and the carrying out of its
corporate purposes is in all respects for the benefit of the people of the state of New York
and is a public purpose, and the agency shall be regarded as performing a governmental
function in the exercise of the powers conferred upon it by this title and shall be required to
pay no taxes or assessments upon any of the property acquired by it or under its jurisdiction
or control or supervision or upon its activities.
(2) Any bonds or notes issued pursuant to this title, together with the income therefrom, as
well as the property of the agency, shall be exempt from taxation, except for transfer and
estate taxes.
In Wegmans Food Markets, Inc. v. Department of Taxation and Finance (126 Misc 2d 144,
aff'd 115 AD2d 962 lv denied 67 NY2d 606) the Court, in discussing the taxability of tangible
personal property purchased by an IDA for use by its lessee, stated:
...Wegmans commenced this action for a declaratory judgment seeking a
determination that no sales or use tax is payable with respect to purchases of tangible
personal property made by either an IDA or Wegmans for installation or use upon or
within IDB-financed projects; that no such taxes are payable by reason of payments
made by Wegmans under any lease, installment sale, or loan agreement for the

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purpose of amortizing the indebtedness of an IDA for bonds issued by it; and, that
no such taxes are payable, regardless of whether the IDB is tax exempt under the
Internal Revenue Code, and regardless of whether the personal property retains its
identity or becomes part of the real property...
The Department agrees that the exemption from state taxes of a governmental
agency would ordinarily apply to an IDA. However, it calls attention to section 1116
of the Tax Law, which delineates those organizations exempt from the payment of
sales taxes. By 1116(a)(1) of the Tax Law, the State of New York, or any of its
agencies, instrumentalities, public corporations or political subdivisions, obtains an
exemption, but only 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".
The Department also concedes that by section 888 of the General Municipal
Law inconsistent provisions in other Acts are superseded and that the provisions of
Article 18-A control. However, it contends that Wegmans has failed in its burden of
showing that the legislature intended the exemptions in Article 18-A to supersede the
Sales Tax Law. There is nothing in the statute which specifically so provides, which
it would if this were the legislative intent. Therefore, the Department argues, since
the IDAs are vending services of property of a kind ordinarily sold by private
persons, Wegmans, as an occupant of their projects, is obligated for all sales taxes
upon the personal property purchased for such projects.
However, there is strong authority to the contrary. The State Comptroller has
concluded that section 874 of the General Municipal Law (which provides for the tax
exemptions) read in conjunction with section 858(4) (which empowers IDAs to
engage in various transactions regarding real property) and section 888 (providing
that Article 18-A controls with respect to inconsistencies in other laws) indicates an
intention to exempt IDAs from the mortgage recording tax (1982 Opns State Compt
No. 82-188, p. 240). There is no reason why such intention would not apply to sales
taxes as well. ...
Section 874 subpar. (1), goes on to provide that the creation of IDAs and the
carrying out of their corporate purposes are "for the benefit of the people of the state
of New York", that they perform a "public purpose", and that they "shall be regarded
as performing a governmental function in the exercise of the powers conferred...and
shall be required to pay no taxes or assessments upon any of the propert[ies] acquired
by [them] or under [their] jurisdiction or control or supervision or upon [their]
activities.

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To accomplish the foregoing purposes, subparagraph (2) of section 874
exempts IDAs from all taxes, except transfer and estate taxes. Such exemption
extends not only to the bonds and notes issued by IDAs, together with the income
from them, but to the property of the IDAs as well.
The legislature very carefully included all revenues received by an IDA within
the purposes of Article 18-A. The definition of "revenues" in section 854, subpar. (7)
is all inclusive: "all rents, revenues, fees, charges and other sources of income
derived by the agency from the leasing, sale or other disposition of a project or
projects."
The term "projects" was also made all embracing. Section 854, subpar. (4),
defines "Project[s]" as "any land, building[s] or other improvement, and all real and
personal properties located within the state of New York...including, but not limited
to, machinery, equipment and other facilities deemed necessary or desirable in
connection therewith, or incidental thereto...which shall be suitable for
manufacturing, warehousing, research, commercial or industrial purposes...."
...the legislature went to great pains to spell out the categories of property to
be included within IDAs' intended activities. Clearly, the purpose was to emphasize
that such property was to be included within the tax exemption provided by the
statute so long as the IDA owned, controlled or supervised it in connection with its
activities, including the equipping and furnishing of a project. Indeed, the statute so
provides in section 858, subpar. (10), which empowers an IDA "to acquire, construct,
reconstruct, lease, improve, maintain, equip or furnish one or more projects."
In accordance with the sections of law and regulations cited above and the decision in
Wegmans Food Markets, Inc. v. Department of Taxation and Finance, supra, in the instant case, the
purchase and/or installation of machinery, equipment, furniture and furnishings and other property
comprising a part of the Project (including replacements, enhancements and additions), whether
purchased by the IDA for subsequent leasing or subleasing to Petitioner or purchased by Petitioner
as agent for and on behalf of the IDA as heretofore described, will be exempt from the sales and use
taxes imposed under Sections 1105, 1107, 1109 and 1110 of the Tax Law, provided that the
agreement between the IDA and Petitioner stipulates that the IDA is the owner of any such property.
The word "purchase" above is used as defined in section 1101(b)(5) of the Tax Law and thus
includes leases.
The purchase and/or installation of machinery, equipment, furniture and furnishings, and
other property comprising a part of the Project as additions to, replacements for or enhancements of
other property that is part of the Project, whether purchased by the IDA for subsequent leasing or
subleasing to Petitioner or purchased by Petitioner as agent for and on behalf of the IDA, will also

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be exempt from such sales and use taxes, provided that the agreement between the IDA and
Petitioner stipulates that the IDA is the owner of any such property.
The word "purchase" above is used as defined in section 1101(b)(5) of the Tax Law and thus
includes leases.
Maintenance and service contracts for maintaining, repairing and servicing machinery,
equipment and computer software comprising a part of the Project, whether entered into by the IDA
or by Petitioner as agent for and on behalf of the IDA, will also be exempt from such sales and use
taxes, provided that the IDA is the owner of such machinery, equipment and computer software and
that, under the agreement between the IDA and Petitioner, the IDA is responsible for maintaining,
repairing and servicing such items.

DATED: August 8, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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