Is a nonprofit that runs a downtown Business Improvement District a tax-exempt governmental entity under New York sales tax law?

Plain-English summary

The Downtown Utica Development Association, Inc., is a Type C not-for-profit corporation formed to administer the Downtown Utica Business Improvement District (BID) — a special assessment district the City of Utica created to fund improvements and services downtown. The Association hangs the annual Christmas lights, maintains flowers, cleans sidewalks, runs an art show, and promotes a streetscape plan; the City's comptroller administers the assessment funds collected on the Association's behalf. It asked whether it is a governmental entity exempt from sales and use tax under Tax Law § 1116(a)(1).

The Department said no. Section 1116(a)(1) exempts New York State and its agencies, instrumentalities, public corporations, and political subdivisions. Regulation § 529.2 defines an "agency or instrumentality" as an authority, commission, or board created by an act of the Legislature for a public purpose, and a "public corporation" as one created by an act of the Legislature (or by interstate compact).

The Association failed that test for two reasons:

• Authorized by statute, but not created by statute. Although statute (General City Law Article 2-B, later replaced by General Municipal Law Article 19-A) authorized the BID, the Association itself was incorporated by its members as private individuals, not as public officers. It was not brought into being by an act of the Legislature, so it isn't a public corporation.
• Not funded by appropriated tax monies. It is funded by special assessment funds the City collects on its behalf to carry out its contract with the City — not by appropriated tax revenue (citing Opinion of Counsel, Jan. 15, 1979).

Because it is neither an agency, instrumentality, public corporation, nor political subdivision, the Association is not entitled to the § 1116(a)(1) exemption.

What this means for you

"Authorized by statute" is not "created by statute"

The governmental-entity exemption turns on how the entity came into existence. A public corporation or agency is one the Legislature created. An organization that a statute merely empowers private parties to form — like a BID management nonprofit incorporated by local business owners — is a private corporation doing public-facing work, not a governmental body. That distinction, not the public benefit of the work, controls.

BID managers and similar nonprofits generally aren't governmental

Business Improvement District associations, downtown development corporations, and similar entities that run public spaces are typically private not-for-profits. They don't automatically get § 1116(a)(1) governmental treatment, and — as this opinion shows — they may not qualify under the charitable/educational branch (§ 1116(a)(4)) either. If your organization does municipal-style work, don't assume sales-tax exemption; confirm the basis.

Funding source is a tell

The Department pointed to funding by special assessments collected on the Association's behalf, not appropriated tax dollars. Being funded through a government mechanism isn't the same as being funded as a government. Look at whether the money is the entity's own contractual revenue or genuine public appropriations.

Common questions

Q: Is a Business Improvement District nonprofit exempt from New York sales tax as a government entity?
A: Not on these facts. It's a private not-for-profit that was authorized — but not created — by statute, so it isn't a § 1116(a)(1) governmental entity.

Q: Why does "created by statute" matter?
A: Regulation § 529.2 defines agencies, instrumentalities, and public corporations as bodies created by an act of the Legislature. An entity incorporated by private individuals doesn't meet that definition.

Q: Does doing public work (cleaning sidewalks, holiday lights) make it a government entity?
A: No. The nature of the work doesn't convert a private corporation into a governmental one for § 1116(a)(1) purposes.

Q: Did its special-assessment funding help?
A: No. Being funded by assessments the City collects on its behalf isn't the same as being funded by appropriated tax monies as a governmental body.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1116(a)(1) (exemption for New York State and its agencies, instrumentalities, public corporations, and political subdivisions)
• Sales and Use Tax Regulations § 529.2 (definitions of agency/instrumentality and public corporation as entities created by an act of the Legislature)
• General City Law Article 2-B, § 24-o (City Business Improvement District Law; repealed by L. 1989, c. 282, § 4)
• General Municipal Law Article 19-A, §§ 980–980-p (Business Improvement Districts; L. 1989, c. 282, § 5)
• Opinion of Counsel, January 15, 1979

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (12)S
Sales Tax
February 20, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911125A

On November 25, 1991 a Petition for Advisory Opinion was received from the Downtown
Utica Development Association, Inc., 258 Genesee Street, Utica, N.Y. 13502.
The issue raised by Petitioner, the Downtown Utica Development Association, Inc., is
whether it is an entity exempt from the imposition of sales and use tax pursuant to Section 1116(a)(l)
of the Tax Law.
Petitioner was formed to administer the Downtown Utica Business Improvement District
pursuant to the authorization of Article 2-B, Section 24-o of the General City Law. (It is noted that
Article 2-B - City Business Improvement District Law, §§24-a to 24r was repealed under the Laws
of 1989, c. 282, §4, effective September 5, 1989 and is covered under Article 19-A, Business
Improvement Districts, Section 980 to 980-p of the General Municipal Law pursuant to the Laws of
1989, c. 282, §5, effective September 5, 1989.)
Pursuant to Article 2-B, §§24-d and 24-h of the General City Law and pursuant to Local Law
No. 1 of 1987, Introductory Local Law No. 1 of 1987, Local Law No. 3 of 1987 and Introductory
Local Law No. 2 of 1987, the City of Utica was authorized to and did create the Downtown Utica
Business Improvement District, a special assessment district, for the purpose of constructing,
improving and providing services within the district. Such construction, improvements and provision
of services shall be pursuant to the district plan of the Downtown Utica Business Improvement
District.
Petitioner, the Downtown Utica Development Association, Inc., formed a Type C not-for­
profit corporation. The Certificate of Incorporation filed by Petitioner states, in part:

3. The specifically designated lawful or quasi public purposes for which this
   corporation is to be formed are:
   (b) To encourage the construction, installation, maintenance and operation of capital
   improvement or improvements in any Special Assessment District as established by
   the Common Council of the City of Utica. . .
   (c) To enter into a contract or contracts with the City of Utica for the supervision of
   the operation and maintenance of special district capital improvements situated in
   such Special Assessment District. . .
   (d) To enter into a contract or contracts with the City of Utica to conduct any
   additional activities within such Special Assessment District for the purpose of
   carrying out the foregoing purposes or advancement thereof.

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TSB-A-92 (12)S
Sales Tax
February 20, 1992
(e) To accept, hold and administer any funds paid by the City of Utica to defray the
expenses in performing the operation and maintenance functions for such Special
Assessment District as provided for in any contract or contracts executed with the
City of Utica as set forth above.
Petitioner is responsible for promoting development in the central business district in Utica.
Its activities have included hanging the annual Christmas lights, maintaining flowers, cleaning
sidewalks, presenting an art show and promoting a streetscape plan. The comptroller of the City of
Utica administers funds collected by the City on behalf of Petitioner, the Downtown Utica
Development Association, Inc.
Section 1116 of the Tax Law states, in part:
Exempt organizations. - (a) Except as otherwise provided in this section, any sale or
amusement charge by or to any of the following or any use or occupancy 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. . .

Section 529.2 of the New York State Sales and Use Tax Regulations states, in part:
New York State, agencies, instrumentalities, public corporations and political
subdivisions thereof. [Tax Law, §1116(a)(l)] (a) Governmental entities.
(1) Agencies and instrumentalities of the State as used in this section means any
authority, commission or independent board created by an act of the Legislature for
a public purpose.
(2) A public corporation as used in this section means any corporation created by an
act of the Legislature for a public purpose or pursuant to an agreement or compact
with another state or Canada.
Example:

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

Petitioner, a corporation, is not considered to be an agency, instrumentality, public
corporation or political subdivision of the State of New York or the City of Utica. Petitioner is not
a public corporation since, although authorized by statute, it was not created by statute but was
incorporated by the members of the Association as individuals and not as public officers.

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TSB-A-92 (12)S
Sales Tax
February 20, 1992
Furthermore, it is not funded by appropriated tax monies. By statute it is funded by special funds
collected by the City on behalf of Petitioner for the purpose of Petitioner fulfilling its contractual
obligations with the City of Utica. See Opinion of Counsel, January 15, 1979.
Accordingly, as Petitioner is not an agency, instrumentality, public corporation or political
subdivision of the State of New York or the City of Utica, Petitioner is not accorded the exemption
provided under Section 1116(a)(l) of the Tax Law.

DATED: February 20, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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