If a utility bills a homeowner's backyard hot tub at a commercial 'general secondary' rate (because it's on a separate meter), does that override the tax-law rule that residential recreational equipment gets the reduced or exempt residential energy sales tax rate?

Subject

Issue raised is whether the statewide sales tax is due on receipts from the sale of electricity or gas which is consumed for residential purposes where the utility company's tariff allows the utility company to classify the sale as other than residential for rate purposes.

What this means for you

About 17 years before this opinion, a homeowner installed a backyard hot tub, and his utility company put in a separate meter to measure its energy use. Because a second meter was involved, the utility's Public Service Commission-approved tariff let it bill that meter at a "general secondary" rate -- normally used for commercial customers -- rather than the residential rate, and the utility collected the full statewide sales tax on that energy the whole time.

New York taxed residential energy (electricity, gas, propane, steam) at a declining rate that phased down to 0% by October 1980. Separately, the Department has a longstanding policy that electricity and gas used to run an individual homeowner's personal residential recreational equipment -- like a hot tub -- in a non-commercial way counts as residential-purpose energy use for sales tax purposes. Critically, the Department held that a utility's own rate classification (driven by billing/metering mechanics like a second meter, not by the actual use of the energy) doesn't change that sales-tax analysis: the hot tub's energy use was still "residential" for tax purposes even though the utility billed it at a commercial-sounding rate. Since the homeowner's actual (non-fraudulent) use was residential the whole time, his hot-tub energy costs were taxed at 3% in 1979, 2.5% through September 1980, and 0% (fully exempt) after that -- and since the utility had continued charging full sales tax the entire time based on its own rate classification, the homeowner was told to file Form TP-385 (certifying residential use) with the utility going forward, and to seek a refund via Form AU-11 for the tax erroneously overcollected during the three years before his claim.

Q&A

Q: My utility bills my backyard pool heater, hot tub, or similar recreational equipment at a "commercial" or "general" rate because it's on a separate meter -- am I stuck paying sales tax at a commercial rate?
A: Not necessarily, per this opinion -- the Department's own residential-energy sales tax determination doesn't depend on the utility's billing/rate classification, only on the actual nature of the use (personal, non-commercial residential recreation). File Form TP-385 with your utility to certify residential use for the reduced/exempt rate going forward.

Q: My utility has been overcharging me sales tax for years on energy that should have gotten the residential rate -- can I get a refund?
A: Per this opinion, yes -- you can file Form AU-11 (Application for Credit or Refund) with the Department for the tax erroneously collected during the three years immediately before your claim; older overcollections outside that three-year window aren't recoverable.

Q: Does it matter that the utility's own tariff, filed with the Public Service Commission, explicitly permits treating a second-metered load as non-residential?
A: No -- per this opinion, the utility's PSC-approved billing classification governs rate-setting mechanics, not the Department's own sales-tax residential/nonresidential determination, which turns on the actual use of the energy.

Citations

• Tax Law § 1105(b) -- imposes the general sales tax on receipts from sales of gas, electricity, and related services.
• Tax Law § 1105-A -- established a phased-down reduced tax rate on residential-use energy sources, reaching 0% on and after October 1, 1980.
• 20 NYCRR § 527.13 -- defines residential/nonresidential purposes, the certification and customer-classification procedures (including Form TP-385), and vendor tax-collection duties for energy sources.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_34s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (34)S
Sales Tax
August 8, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940418A

On April 18, 1994 a Petition for Advisory Opinion was received from Gabe Silver, 26 Hilltop
Lane, Monsey, New York 10952.
The issue raised is whether the statewide sales tax is due on receipts from the sale of
electricity or gas which is consumed for residential purposes where the utility company's tariff allows
the utility company to classify the sale as other than residential for rate purposes.
Approximately 17 years ago, Petitioner installed a hot tub in his backyard. The utility
company from whom Petitioner purchases electricity and gas installed a separate meter for use in
measuring the energy consumed by the hot tub.
Because Petitioner used a second meter to measure the energy used in the operation of the
hot tub, the utility company billed Petitioner at a "general secondary" rather than a "residential" rate.
(The "general secondary" classification is typically used for billing customers for consumption of
energy for commercial purposes.) The utility company's tariff on file with the New York State
Public Service Commission permits the utility company to use a "general secondary" rate
classification when a second meter is used for residential purposes such as the separate meter for
Petitioner's hot tub. The utility company has always collected the statewide sales tax on the receipts
from the sales of energy for use in connection with Petitioner's hot tub.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--...there is hereby imposed and there shall be paid a tax of
four percent upon:
(b)
The receipts from every sale, other than sales for resale, of gas, electricity,...
and gas, electric,... service of whatever nature....
Section 1105-A of the Tax Law states, in part:
Reduced tax rate on certain energy sources and services.- (a) Notwithstanding any
other provisions of this article, but not for purposes of the taxes imposed by section
eleven hundred seven or eleven hundred eight or authorized pursuant to the authority
of article twenty-nine of this chapter, the taxes imposed by subdivision (a) or (b) of
section eleven hundred five on the ... receipts from every sale, other than for resale,
of propane (except when sold in containers of less than one hundred pounds), natural
gas, electricity, steam and gas, electric and steam services used for residential
purposes shall be paid at the rate of three percent for the period commencing January

-2­
TSB-A-94 (34)S
Sales Tax
August 8, 1994
first, nineteen hundred seventy-nine and ending December thirty-first, nineteen
hundred seventy-nine; at the rate of two and one-half percent for the period
commencing January first, nineteen hundred eighty and ending September thirtieth,
nineteen hundred eighty, and at the rate of zero percent on and after October first,
nineteen hundred eighty....
Section 527.13 of the New York State Sales and Use Tax Regulations states, in part:
Certain energy sources and services. [Tax Law, §1105-A]
(d)
Definitions. (1) The term residential purposes means any use of a structure
or part of a structure as a place of abode, maintained by or for a person, whether or
not owned by such person, on other than a temporary or transient basis with the
exclusion of accommodations subject to tax under subdivision (e) of section 1105 of
the Tax Law.
(2)
The term nonresidential purposes means any use other than for residential
purposes, as defined in paragraph (1) of this subdivision, including any use in the
conduct of a trade, business or profession, whether such trade, business or profession
is carried on by the owner of the structure or some other person.
(e)
Certification and allocation. (1) Purchases of energy sources used
exclusively for residential purposes shall receive the reduced tax rate without the
necessity of certification.
(f)
Customer classification. (1) Vendors of energy sources which are regulated
by the New York State Public Service Commission and which have on file therewith
a tariff or rate schedule which classifies its customer either as residential or
nonresidential, may request from the Department of Taxation and Finance approval
to use such classifications for determining the eligibility of its customer for a reduced
sales tax rate without certification.
(3)
Every supplier of energy sources who has received from his customer a
certification claiming eligibility for a reduced sales tax rate shall not be held liable,
except in the case of his fraud, for any misrepresentations made by the customer on
the certification or for any tax not collected by granting the sales tax rate reduction
based on such certification.
(4)
Where a customer is eligible for the reduced tax rate, as a residential customer
described in paragraph (1) ... of subdivision (e) of this section, but the supplier of
energy sources has not classified him as a residential user, the customer should
furnish the supplier with a certification.

-3­
TSB-A-94 (34)S
Sales Tax
August 8, 1994
(g)
Collection of tax. (1) Every vendor, making a sale of energy sources to a
customer who is classified as a residential customer, shall collect the sales tax at the
reduced sales tax rate on such customer's total purchase.
(2)
Every supplier of energy sources who has received from his customer a
certification shall collect the sales tax at the reduced rate on the portion of the
purchase shown as being used for residential purposes and shall collect the tax at the
full rate on the remainder which is used for nonresidential purposes.
(3)
Every vendor making sales of energy sources which are used for
nonresidential purposes shall collect the sales tax at the full rate.
It is Department policy that the purchases of electricity and gas for use in the operation of an
individual homeowner's personal residential recreational appurtenances and equipment, in a non­
commercial manner, are considered purchases of electricity and gas for residential purposes.
Therefore in the instant matter, Petitioner's purchases of electricity and gas, including
purchases of electricity and gas for use in the operation of Petitioner's hot tub, are considered as
purchases of electricity and gas for residential purposes.
Accordingly, Petitioner's purchases of electricity and gas during the period January 1, 1979
through December 31, 1979 were subject to the reduced statewide sales tax rate of 3%. Petitioner's
purchases of electricity and gas during the period January 1, 1980 through September 30, 1980 were
subject to the reduced statewide sales tax rate of 2 1/2%. Petitioner's purchases of electricity and gas
on and after October 1, 1980 were exempt from the statewide sales tax.
The fact that the utility company, which supplied Petitioner's electricity and gas, was allowed,
under its tariff on file with the Public Service Commission, to classify the sales of electricity or gas
for use in the operation of Petitioner's hot tub as "general secondary" rather than "residential" did not
preclude such sales from being considered as "residential" sales of electricity and gas for sales tax
purposes.
However, in accordance with section 527.13(f)(4) of the Regulations, since the utility
company collected and continues to collect sales tax at the full amount on the receipts from sales of
energy for use in the operation of Petitioner's hot tub, Petitioner should give the utility company a
properly completed form TP-385, Certification of Residential Use of Energy Purchases. Under the
provisions of Section 527.13(g)(2) of the Regulations, the utility company, upon receipt of the
completed form TP-385, should collect the statewide sales tax at the reduced rate of 0% on the
receipts from sales of energy for use in the operation of Petitioner's hot tub. Under the provisions
of Section 527.13(f)(4) of the Regulations form TP-385 will also substantiate that the utility
company is relieved from any liability to collect the statewide sales tax on the receipts from sales of
energy for use in Petitioner's hot tub.

-4­
TSB-A-94 (34)S
Sales Tax
August 8, 1994
Additionally, since the statewide portion of the sales tax was collected erroneously from
Petitioner, Petitioner is entitled to a partial refund of such erroneously collected tax. Section 1139
of the Tax Law provides that "the tax commission shall refund ... any tax ... erroneously ... collected
... if application therefor shall be filed with the tax commission (i) in the case of tax paid by the
applicant to a person required to collect tax, within three years after the date when the tax was
payable by such person to the tax commission...." Accordingly, Petitioner may apply for a refund
of the statewide sales tax which was erroneously collected during the three year period immediately
preceding the filing date of Petitioner's claim, by completing a form AU-11, Application for Credit
or Refund and mailing such form to State of New York Department of Taxation and Finance, Central
Office Audit Bureau - Sales Tax, W. A. Harriman Campus, Albany, NY 12227.

DATED: August 8, 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.