Is a not-for-profit workers'-compensation and risk-management association, formed by a statewide association of municipalities exclusively for its member cities and villages, exempt from New York sales and use tax on its own purchases as an 'instrumentality of the State'?

Subject

Public Employer Risk Management Association, Inc.

What this means for you

The Public Employer Risk Management Association was incorporated in 1982 by the New York Conference of Mayors (NYCOM), under General Municipal Law authority letting municipalities jointly perform functions on a cooperative basis. Its board is made up of city and village officials, and membership is limited to "public employers" (cities, villages, and similar political subdivisions) that join to get risk-management and insurance services -- primarily a group self-insurance workers' compensation program to reduce job-related injury losses for municipal employees, funded entirely by member dues and insurance premiums. It also planned to form a related municipal safety group for property/liability coverage.

New York exempts the state, its agencies, and its political subdivisions from sales and use tax as purchasers. An organization that isn't itself literally a government body can still qualify as an "instrumentality" of the state or its political subdivisions -- and gets the same purchase exemption -- if it satisfies a multi-factor test: it serves a governmental function; acts on behalf of the state or political subdivisions; has no private ownership interest; is controlled/supervised by public authority; has statutory authority for its creation; and is funded by the political subdivisions. Applying that test (and following its own prior rulings on similar municipal fire-district and assessor associations), the Department found the risk-management association checks every box -- it exists solely to run a governmental workers'-compensation function for its municipal members, is controlled and funded entirely by them, and has statutory backing for its formation. So it's treated as an instrumentality of the state's political subdivisions and shares their sales/use tax purchase exemption.

Q&A

Q: We're a nonprofit or association formed by a group of municipalities to jointly provide a service (insurance, risk management, shared administration, etc.) -- can we claim the same tax exemption our municipal members have?
A: Possibly, per this opinion's six-factor "instrumentality" test: whether you serve a governmental function, act on behalf of the municipalities, have no private ownership interest, are controlled by public authority, have statutory authority for your creation, and are funded by the municipalities. All six factors need to point the same way for the exemption to apply.

Q: Does it matter that our organization is technically a separate not-for-profit corporation, not a government body itself?
A: Not per this opinion and its cited precedents (fire district officers associations, an assessors' association) -- being a distinct legal entity doesn't disqualify an organization from instrumentality status if it otherwise satisfies the six-factor test.

Q: We provide multiple services (e.g., both workers' comp AND a separate property/liability insurance program) -- does the exemption cover all of them?
A: This opinion addressed the association's overall structure and its workers'-compensation program specifically; a genuinely separate line of business should be evaluated on its own facts, though the Department's overall instrumentality finding here was based on the association's governmental purpose and structure as a whole.

Citations

• Tax Law § 1116(a)(1) -- exempts New York State, its agencies, instrumentalities, public corporations, and political subdivisions as purchaser/user/consumer.
• 20 NYCRR § 529.2(a)(3) -- defines "political subdivision" to include counties, towns, cities, villages, school districts, and fire districts.
• Opinion of Counsel, Department of Taxation and Finance, May 9, 1969 -- found the New York State Assessors' Association an instrumentality of its municipal members, entitled to the same exemption.
• Opinion of Counsel, Department of Taxation and Finance, April 30, 1980 -- found a fire-district-owned mutual insurance company an instrumentality of the state due to similarity of identity, control, and public purpose.
• Brookhaven Town Fire District Officers Association, Adv Op Comm T&F, January 5, 1993, TSB-A-93(1)S, and Suffolk County Fire District Officers Association, TSB-A-93(2)S -- both found to be instrumentalities of the State exempt under Tax Law § 1116(a)(1).
• Letter of the Commissioner of Taxation and Finance, September 28, 1965 -- found the New York State Conference of Mayors and its training institute to be instrumentalities of member cities/villages, sharing their tax exemption.

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_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (35)S
Sales Tax
August 8, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940307A

On March 7, 1994 a Petition for Advisory Opinion was received from Public Employer Risk
Management Association, Inc., 24 Aviation Road, Albany, NY 12205.
The issue raised by Petitioner, Public Employer Risk Management Association, Inc., is
whether Petitioner's purchases of tangible personal property and services are exempt from State and
local sales and use taxes under the provisions of Section 1116(a)(1) or 1116(a)(4) of the Tax Law.
Petitioner was incorporated in 1982 by the New York Conference of Mayors and Other
Officials ("NYCOM") as a New York Type-B not-for-profit corporation. Petitioner is recognized
by the Internal Revenue Service as exempt from federal income tax under Section 501(a) of the
Internal Revenue Code of 1986 (the "Code") as a social welfare organization described in Section
501(c)(4) of the Code.
Petitioner was created pursuant to Section 119-o(1) of the General Municipal Law, which
permits municipal corporations to "enter into, amend, cancel and terminate agreements for the
performance among themselves or one for the other of their respective functions, powers and duties
on a cooperative or contract basis...."
Petitioner's Board of Trustees consist of officials of cities and villages within New York
State.
Petitioner's membership is limited to "public employers", as defined in Section 201(6)(a) of
the Civil Service Law that elect and agree to join Petitioner in order to avail themselves of
Petitioner's risk management and insurance services, including the provision of workers'
compensation insurance.
NYCOM created and manages Petitioner to provide a workers' compensation service
program for its public employer-members to reduce the incidence of and the risk of loss from
job-related injuries to municipal employees. Petitioner currently provides risk management
programs and a municipal group self-insurance program providing workers' compensation coverage
for its members.
Petitioner's income is derived from dues and insurance premiums paid by the member
political subdivisions.

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Petitioner is in the process of forming a municipal safety group through which its members
will be able to obtain basic property and liability insurance. Dividends generated by the safety group
program will be used to capitalize a municipal reciprocal insurer, as authorized by Article 61 of the
New York Insurance Law. Petitioner will offer safety services to group members to assist membery
municipalities in controlling their losses and obtaining insurance coverage at favorable rates that take
account of the members' loss control experiences as a safety group.
Section 1116(a)(1) of Article 28 of the Tax Law grants an exemption from the sales and use
taxes imposed thereunder to "[t]he 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".
Petitioner's income is derived from dues and insurance premiums paid by the member
political subdivisions.
Section 529.2(a)(3) of the Sales and Use Tax Regulations defines a political subdivision as
"a county, town, city, village, school district, fire district, ...."
Section 529.2(b)(1) of said regulations provides that "New York State, or any of its ...
political subdivisions ... are not subject to sales or use tax when they are the purchaser, user or
consumer of tangible personal property or services ...."
Section 5-528 of the Village Law authorizes "[t]he board of trustees of any village ... to
annually include in the budget and raise by taxation a sum to meet its proportionate share of the
actual and necessary expenses of maintaining and continuing the conference of mayors and other
municipal officials of the state of New York and any of its activities in this state for the purpose of
devising practical ways and means for obtaining greater economy and efficiency in the government
thereof."
Section 13-a of the General City Law authorizes "[t]he common council of any city ... to
appropriate and expend annually, from moneys raised by taxation in such city, a sum to meet the
actual and necessary expenses of maintaining and continuing the conference of mayors and other city
officials of the state of New York and any of its activities, in this state, for the purpose of devising
practicable ways and means for obtaining greater economy and efficiency in the government thereof.
The moneys thus appropriated shall be raised by tax on the real and personal property liable to
taxation in any such city in the same manner as other city expenses."
Under Section 2, Article 1 of the General Municipal Law the term "municipal corporation"
is defined to include "only a county, town, city and village."
Sections 6-j.1 and .2 of the General Municipal Law provide, respectively, that "[t]he
governing board of any municipal corporation, ... or fire district, which is, or shall hereafter become
a self-insurer under the provisions of section fifty, subdivision four of the workmen's compensation

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law or section thirty of the volunteer firemen's benefit law may establish a reserve fund to be known
as the workmen's compensation reserve fund of such municipal corporation, ... or fire district" and
that "[t]here may be paid into any such fund (a) such amounts as may be provided therefor by
budgetary appropriations and (b) such other sums as may be legally appropriated."
Section 119-o.1 of the General Municipal Law provides that "[i]n addition to any other
general or special powers vested in municipal corporations ... for the performance of their respective
functions, powers or duties on an individual, cooperative, joint or contract basis, municipal
corporations ... shall have power to enter into, amend, cancel and terminate agreements for the
performance among themselves or one for the other of their respective functions, powers and duties
on a cooperative or contract basis or for the provision of a joint service...."
Section 50, 3-a, Article 4 of the Workers' Compensation Law states, in part:
Group self-insurance. (1) Definitions. As used in this chapter the term "employers"
shall include: (a) employers with related activity in a given industry which shall
include municipal corporations as that term is defined in sections two and six-n of
the general municipal law, employing persons who perform work in connection with
the given industry, (b) an incorporated or unincorporated association or associations
consisting exclusively of such employers provided they employ persons who perform
related work in the given industry, and (c) a combination of employers as described
in subparagraph (a) hereof and an association or associations of employers as
described in subparagraph (b) hereof.
In Opinion of Counsel of the Department of Taxation and Finance, May 9, 1969, Counsel
stated, in part, as follows:
The New York State Assessor's Association, Inc. is, in effect, an association of local
governments and its status as an instrumentality of these local governments in the
improvement of assessment administration has been recognized by the Legislature
in Section 13-g of the General City Law and Section 359(a) of the Village Law.
Accordingly, the Association is entitled to the same exemption from sales and use
taxes with respect to its purchases of property and services as the local governments
which are its members.
In Opinion of Counsel of the Department of Taxation and Finance, April 30, 1980, Counsel
stated, in part, as follows:
...When such fire districts have formed a domestic, mutual company, whose
membership is restricted to fire districts and such insurance corporation is operated
solely for the purpose of providing the financial benefits prescribed by the Volunteer
Firemen's Benefit Law, this mutual insurance corporation is, in effect, an
instrumentality of the State. In this instance, such treatment is accorded as a result

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of the similarity of identity, control, management and purpose of the mutual
insurance corporation with the member fire districts thereof, and, in addition, such
insurance corporation is performing a function public in nature and providing
insurance to the member fire districts for benefits that the State has deemed
mandatory and appropriate and public in purpose.
In Brookhaven Town Fire District Officers Association, Adv Op Comm T&F, January 5,
1993, TSB-A-93(1)S and in Suffolk County Fire District Officers Association, Adv Op Comm T&F,
January 5, 1993, TSB-A-93(2)S, the Commissioner opined that in accordance with Sections 170(1),
174(7) and 178-b of the Town Law and Opinion of Counsel, June 16, 1972, the petitioners were
instrumentalities of the State of New York. Accordingly, pursuant to Section 1116(a)(1) of the Tax
Law their purchases of tangible personal property and services were exempt from State and local
sales and use taxes.
In a letter of September 28, 1965, in which the exempt status of the New York State
Conference of Mayors and Other Municipal Officials and the exempt status of The Municipal
Training Institute of New York Conference of Mayors (which was provisionally incorporated
December 21, 1934 and was granted an "absolute charter" by the Regents of the University of the
State of New York February 16, 1940) the Commissioner of Taxation and Finance stated in part, as
follows:
The New York State Conference of Mayors and Other Municipal Officials is
an association of cities and villages and its status as an instrumentality of these
municipalities has been recognized by the Legislature in section 13-a of the General
Municipal Law and section 130 of the Village Law. Accordingly, the Conference
enjoys the same exemption as the cities and villages from sales and use tax on
property or services which it purchases.
...
What I have said above with respect to the tax exempt status of the
Conference of Mayors applies equally to the Municipal Training Institute which the
Conference operates.
In the instant matter, Section 1116(a)(1) of the Tax Law grants an exemption from the taxes
imposed thereunder to "[t]he 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 5-528 of
the Village Law authorizes the board of trustees of any village and Section 13-a of the General City
Law authorizes the common council of any city to raise by taxation a sum to meet the actual and
necessary expenses of maintaining and continuing the Conference of Mayors and Other Municipal
Officials of the State of New York and any of its activities in this State for the purpose of devising
practical ways and means for obtaining greater economy and efficiency in the government thereof.

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Petitioner's board of directors is made up of municipal officials from several municipalities
which are part of Petitioner's total membership, all of which consists of representatives from various
municipalities throughout New York State.
Section 529.2(a)(3) of the Regulations defines a municipality as a political subdivision of the
State. When a group of municipalities forms a not-for-profit corporation, whose membership is
restricted to "public employers," as defined in Section 201(6)(a) of the Civil Service Law, and which
is operated solely for the purpose of providing its members risk management programs to reduce the
incidence of and the risk of loss from job-related injuries to municipal employees and of providing
workers' compensation coverage for its members with an end result of obtaining greater economy
and efficiency in the government of its members, such corporation is, in effect, an instrumentality
of the State. Opinion of Counsel of the Department of Taxation and Finance, April 30, 1980, supra.
In order to determine whether a particular entity is an instrumentality of the State or of one
or more of its political subdivisions an examination must be made of the following factors:
1)
function;

whether the entity is used for a governmental purpose and performs a governmental

2)
whether the performance of its function is on behalf of the State or one or more of
its political subdivisions;
3)
whether there are any private interests involved, or whether the State or its political
subdivisions involved have the powers and interests of an owner;
4)
authorities;

whether control and supervision of the entity is vested in public authority or

5)
whether there is expressed or implied statutory or other authority necessary for the
creation and/or use of such entity; and
6)
whether financial autonomy and the source of operating expenses are provided by the
political subdivisions.
A review of these factors in the case of Petitioner indicates that Petitioner was formed and
is used to further the governmental function of providing a workers' compensation program for its
public employer-members. It serves a central unit in the performance of duties common to each of
the political subdivisions that are members. No proprietary interest in Petitioner exists other than
those of the political subdivisions themselves. Control and supervision of Petitioner is ultimately
vested in the political subdivisions. There is statutory authority for the creation of the Petitioner by
the political subdivisions. Petitioner's income is provided by the political subdivisions.

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Since Petitioner is considered to be an instrumentality of the State or its political subdivisions
Petitioner is afforded the same exemption from sales and use taxes as granted to NYCOM and to the
municipalities which are its members. Letter of Commissioner of Taxation and Finance, September
28, 1965, supra.
Accordingly, Petitioner qualifies for the exemption from sales and use taxes provided under
Section 1116(a)(1) of the Tax Law and may make purchases of tangible personal property and
services exempt from State and local sales and use tax.
Since Petitioner is considered to be an organization which is exempt from tax under Section
1116(a)(1) of the Tax Law, it is not necessary to address the issue as to whether or not Petitioner is
an exempt organization under Section 1116(a)(4) of the Tax Law.

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.