In 1984, a state energy authority issued pollution-control bonds for our nuclear plant, backed by our first mortgage bonds. Now we want to refinance those bonds at today's lower interest rates, which requires amending and restating our mortgage bonds and recording a new supplemental mortgage indenture. Is that refinancing exempt from mortgage recording tax, and does restating the bonds count as new debt?

Plain-English summary

This is the founding ruling behind Niagara Mohawk Power Corporation's long-running mortgage recording tax exemption for its financing arrangements with the New York State Energy Research and Development Authority (NYSERDA), later cited and extended in the Department's 1998 follow-up opinion on a separate refunding (TSB-A-98(4)R). In 1984, NYSERDA issued two series of bonds to finance pollution-control, sewage, and solid-waste-disposal systems at Niagara Mohawk's Nine Mile Point Nuclear Station in Oswego, New York. To back those bonds, Niagara Mohawk issued its own "first mortgage bonds" under a blanket mortgage trust indenture dating to 1937, assigned to the bond trustee, with Niagara Mohawk obligated to make principal and interest payments matching the bond schedule.

By the early 1990s, interest rates had fallen, and NYSERDA wanted to refinance ("refund") the 1984 bonds with a single new series of refunding bonds totaling $115,705,000 — the amount still outstanding. That required Niagara Mohawk's existing first mortgage bonds to be redelivered to the mortgage trustee, amended and restated to match the new refunding bonds' terms, and reassigned to the new trustee — evidenced by a new "Supplemental Mortgage Indenture" recorded against Niagara Mohawk's property, again solely for NYSERDA's benefit (not the refunding bondholders directly). Niagara Mohawk asked two things: whether this whole transaction was exempt from mortgage recording tax, and separately, whether restating the first mortgage bonds counted as "further or additional indebtedness" by NYSERDA.

The Department answered both questions in Niagara Mohawk's favor. Although Tax Law § 252 generally bars mortgage recording tax exemptions arising from statutes other than the mortgage recording tax article, NYSERDA is exempt from taxation under its own enabling statute (Public Authorities Law § 1861), and New York courts have long held that state agency tax immunity is independent of § 252's general exemption list — because taxing a mortgage held (even beneficially, through a trustee) by a state agency is effectively taxing the agency itself (Hotel Waldorf-Astoria Corp. v. State Tax Commission). Since NYSERDA remained the real beneficiary of the mortgage throughout — the Authority was the obligor whose bond obligations the mortgage secured, and the trustee held the mortgage on NYSERDA's behalf — the restated first mortgage bonds and the concurrent Supplemental Mortgage Indenture recording were exempt. And because NYSERDA's tax-exempt status disposed of the underlying question, whether the restatement technically represented "further or additional indebtedness" made no practical difference for mortgage recording tax purposes either way.

What this means for you

Utilities and companies financing through public authority bonds

If a public authority's bonds are backed by your company's mortgage bonds, and that arrangement was previously ruled MRT-exempt, refinancing the authority's bonds to capture better interest rates — even where it requires amending and restating your mortgage bonds — generally preserves the exemption, as long as the authority remains the real beneficiary of the mortgage throughout.

Bond counsel handling public authority refundings

This is the origin precedent for a durable line of Niagara Mohawk/NYSERDA rulings; cite it (and its 1998 successor, TSB-A-98(4)R, addressing a later refunding of a different NYSERDA bond series for the same company) together when advising on similar public-authority bond refunding transactions requiring mortgage bond restatement.

Accountants and tax professionals

Note the Department's practical shortcut here: rather than separately analyzing whether a restatement is "new" indebtedness, once state-agency tax immunity is established, that immunity resolves the mortgage recording tax question regardless of how the restatement is technically characterized.

Common questions

Q: Does refinancing a public authority's bonds require re-proving the exemption from scratch?
A: The Department's analysis here didn't re-derive the exemption independently — it confirmed the refunding transaction didn't disturb the facts (NYSERDA remaining the beneficial mortgagee) that made the underlying exemption apply.

Q: Does it matter whether restating the mortgage bonds counts as new debt?
A: Not for mortgage recording tax purposes, according to this ruling — since NYSERDA's tax exemption applies regardless of how the restatement is characterized, that classification question doesn't change the outcome.

Q: Can another utility or public authority financing rely on this specific ruling?
A: No. It binds the Department only as to Niagara Mohawk and these facts, though the underlying NYSERDA/state-instrumentality tax immunity is a general doctrine likely to apply to similarly structured refundings.

Citations and references

Statutes:

• Tax Law §§ 253(1), (1-a), (2) (mortgage recording tax imposition)
• Tax Law § 252 (general rule against MRT exemptions arising from other statutes)
• Public Authorities Law § 1861 (NYSERDA property, income, and operations exempt from taxation)

Case law and prior opinions cited:

• Williamsburg Power Plant Corp. v. City of New York, 255 A.D. 214, aff'd 280 N.Y. 551 (later specific enactment governs earlier general enactment)
• First National Bank and Trust Co. v. Village of Saltaire, 256 A.D. 156
• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330 (state agency mortgagee immunity independent of Tax Law § 252)
• Matter of City of New York v. Tully, 88 A.D.2d 701 (state agency tax immunity)
• Riverton Properties, Inc., TSB-H-81(17)M (mortgage for the benefit of the US government, via a trustee, exempt)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a94_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (1)R
Mortgage
Recording Taxes
January 28, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M931019A

On October 19, 1993, a Petition for Advisory Opinion was received from Niagara Mohawk
Power Corporation, 300 Erie Boulevard West, Syracuse, New York 13202.
The issues raised by Petitioner, Niagara Mohawk Power Corporation, are:
1.

Whether the amendment and restatement of the First Mortgage
Bonds, and the concurrent recordation of the Supplemental Mortgage
Indenture, being undertaken for the benefit of, and to support the
issuance of the Refunding Bonds by, the New York State Energy
Research and Development Authority (hereinafter the "Authority"),
a New York State agency, are exempt from the imposition of the
mortgage recording taxes.

2.

Whether the amendment and restatement of the First Mortgage Bonds
represents the issuance of a further or additional indebtedness by the
Authority.

In 1984, the Authority issued two series of bonds (the "Prior Bonds") to finance the
acquisition, construction and installation of various systems and facilities to abate, control and
reduce pollution, and to aid in sewage and solid waste disposal, at Petitioner's Nine Mile Point
Nuclear Station in Oswego, New York. The Prior Bonds were issued pursuant to Indentures of Trust
dated as of July 1, 1984 and October 1, 1984 (the "Prior Indentures") between the Authority and
Bankers Trust Company, as trustees (the "Prior Trustees"). In support of the Prior Bonds, first
mortgage bonds (the "First Mortgage Bonds") were issued by Petitioner pursuant to certain
supplemental indentures to a blanket Mortgage Trust Indenture between Petitioner and Marine
Midland Bank, N.A., as trustee (the "Mortgage Trustee"), dated as of October 1, 1937, and thereafter
supplemented and amended (the mortgage trust indenture, as so supplemented and amended, the
"Mortgage"). Upon issuance, the First Mortgage Bonds were assigned to the Prior Trustee. The
terms of the First Mortgage Bonds paralleled the terms of the Prior Bonds, and under the provisions
of certain Participation Agreements entered into as of July 1, 1984 and October 1, 1984, each
between the Authority and Petitioner (collectively, the "Prior Participation Agreement"), Petitioner
was required to make payments of principal and interest on the First Mortgage Bonds to the Prior
Trustee on or before the due date for the corresponding payment on the Prior Bonds.
In order to enable Petitioner to take advantage of currently favorable interest rates, the
Authority has agreed to issue a single series of refunding bonds (the "Refunding Bonds") in the
aggregate principal amount of $115,705,000, the amount outstanding under the Prior Bonds. The
Refunding Bonds will be issued by the Authority pursuant to an Indenture of Trust, dated as of
October 1, 1992 (the "Indenture"), between the Authority and The Bank of New York, as Trustee

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TSB-A-94 (1)R
Mortgage
Recording Taxes
January 28, 1994
(the "Trustee"). Upon the issuance of the Refunding Bonds, the proceeds of the sale thereof will be
deposited with the Trustee and remitted to the Prior Trustee, enabling the Prior Trustee, which will
then be holding sufficient funds to defease the Prior Bonds, to deliver the existing First Mortgage
Bonds to the Trustee. Upon receipt by the Trustee, the First Mortgage Bonds will be redelivered to,
and (simultaneously with such delivery) amended and restated by, the Mortgage Trustee to parallel
the provisions of the Refunding Bonds. The First Mortgage Bonds, as so amended and restated, will
then be reassigned to the Trustee to be held in support of the Refunding Bonds The Mortgage
Trustee, in its capacity as trustee under the Mortgage, will no hold the Mortgage for its own benefit
or for the benefit of the holders of the Refunding Bonds.
The First Mortgage Bonds, as amended and restated, will continue to be secured under the
Mortgage, as evidence by a consolidated, amended and restated Supplemental Mortgage Indenture,
to be entered into as of July 1, 1994 (the "Supplemental Mortgage Indenture"). The Supplemental
Mortgage Indenture from Petitioner to the Mortgage Trustee will impose a lien on the mortgage of
real property owned by Petitioner solely for the benefit of the Authority and not for the benefit of the
holders of the Refunding Bonds.
A Participation Agreement, in form and substance identical to the Prior Participation
Agreement, was entered into between the Authority and Petitioner as of October 1, 1992 (the
"Participation Agreement"). The Participation Agreement provides, as did the Prior Participation
Agreement, that payments by Petitioner on the First Mortgage Bonds will be made to the Trustee
prior to the due date for the corresponding payments under the Refunding Bonds. Petitioner is
submitting the Supplemental Mortgage Indenture for recordation at the direction of, and to satisfy
its obligations to, the Authority under the Participation Agreement.
The recordation of the Supplemental Mortgage Indenture is being undertaken for the benefit
of the Authority. The Authority is the obligor under the Prior Indenture and the Indenture, for the
benefit of which the First Mortgage Bonds were, and continue to be, provided. Further, the First
Mortgage Bonds evidence and secure Petitioner's obligation to make payments to the Authority,
thereby assuring the Authority that its obligations under the Prior Bonds and the Refunding Bonds
would be timely met. The Trustee, in turn, is acting on behalf of the Authority and holding the First
Mortgage Bonds for the benefit of the Authority. Moreover, the Authority is, beneficially through
the Mortgage Trustee, the mortgagee under the Mortgage.
Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law impose taxes on the recording of
a mortgage of real property in the State measured by the principal debt or obligation, which is, or
under any contingency, may be secured at the date of the execution thereof or at any time thereafter.

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Section 252 of the Tax Law provides, with certain exceptions, that "no mortgage of real
property situated within this state shall be exempt, and no person or corporation owning any debt or
obligation secured by mortgage of real property situated within this state shall be exempt, from taxes
imposed by this article by reason of anything contained in any other statute..."
Notwithstanding the language of Section 252 of the Tax Law, the Department of Taxation
and Finance has considered claims for exemption from various authorities in New York State based
on tax exemptions in their creating statutes and has ruled in certain cases that the recording of the
mortgages the authorities issued were exempt from the tax imposed by Article 11 of the Tax Law,
despite the fact that Section 252 on its face makes no provision for such an exemption. This position
is consistent with the general rule that where a conflict or variance exists between two enactments
relating to the same general subject matter, a later special statute takes precedence against a general
statute and the prior general statute must yield to the later specific or special statute. (Williamsburg
Power Plant Corp. v. City of New York, 255 App Div 214, affd 280 NY 551; First National Bank
and Trust Co. v. Village of Saltaire, 256 App Div 156).
Section 1861 of the Public Authorities Law provides that the property of the Authority [New
York State Energy Research and Development Authority] and its income and operations shall be
exempt from taxation.
In Hotel Waldorf-Astoria Corp. v. State Tax Commission, (86 Ad2d 330, 334), in
acknowledging that a $45 million dollar mortgage secured by the Waldorf-Astoria Hotel was exempt
from the mortgage recording tax because the mortgagee (the New York State Employees' Retirement
System) was a New York State agency, the court stated: "as a State agency, the Retirement System
enjoys an immunity from taxation independent of the statutory exemptions listed in Section 252 of
the Tax Law..." The court reasoned that imposition of a tax upon a mortgage held by a New York
State agency was tantamount to a tax upon the agency itself. The court, thus, concluded that the tax
on the recording of the mortgage securing the loan, in this case, amounted to an unlawful assessment
of the agency's property in violation of its general immunity from taxation. (See also, Matter of City
of New York v. Tully, 88 Ad2d 701.)
In Riverton Properties, Inc., Dec St Tx Comm, November 6, 1981, TSB-H-81(17)M, the
Commission held that an Indenture of Mortgage and Deed of Trust executed by a private party to a
trustee in respect of debentures guaranteed by the United States government was not subject to
mortgage recording taxes since the United States government by way of its contingent economic
interest, was party to the mortgage. In its decision, the Commission concluded that the mortgage
from the private party to the trustee constituted a mortgage for the benefit of the United States - ­
notwithstanding that it was held by the trustee and inured, in the first instance, to the benefit of the
debenture holders.

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With respect to issue "1", the recordation of the Supplemental Mortgage Indenture is being
undertaken for the benefit of the Authority. The Authority is the obligor under the Prior Indenture
and the Indenture, for the benefit of which the First Mortgage Bonds were, and continue to be,
provided. Further, the First Mortgage Bonds evidence and secure Petitioner's obligation to make
payments to the Authority, thereby assuring the Authority that its obligations under the Prior Bonds
and the Refunding Bonds would be timely met. The Trustee, in turn, is acting on behalf of the
Authority and holding the First Mortgage Bonds for the benefit of the Authority. Moreover, the
Authority is beneficially through the Mortgage Trustee the mortgagee under the Mortgage.
Accordingly, since the Authority is a governmental agency exempt from taxation pursuant to Section
1861 of the Public Authorities Law and it has either a direct or indirect interest in the mortgages to
be recorded, pursuant to Williamsburg Power Plant Corp. v. City of New York, supra, Hotel
Waldorf-Astoria Corp. v. State Tax Commission, supra, and Riverton Properties, Inc., supra, the
amendment and restatement First Mortgage Bonds and the concurrent recordation of the
Supplemental Mortgage Indenture are not subject to the mortgage recording taxes imposed pursuant
to Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law.
Concerning issue "2", as set forth in issue "1", since the Authority is a governmental agency
exempt from taxation pursuant to Section 1861 of the Public Authorities Law and holds a direct or
indirect interests in the First Mortgage Bonds, whether the amendment or restatement of the First
Mortgage Bonds represents the issuance of a further or additional indebtedness by the Authority
would be of no consequences for purposes of the mortgage recording taxes.

DATED: January 28, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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