Does a National Park Service concessioner owe sales tax on materials and services it buys to repair, maintain, and improve government-owned facilities under its concession contract and city license agreement?

Subject

, are whether it is liable for sales and use tax when it purchases goods and services in order to repair and maintain property owned by the United States government or by the City of New York and whether it is liable for sales or use tax when it purchases goods and services used for capital improvement projects as directed by the National Park Service.

What this means for you

Circle Line-Statue of Liberty Ferry operates ferry and related services to Liberty and Ellis Islands under a concession contract with the National Park Service (U.S. Department of the Interior) and a separate license agreement with New York City for landing slips in Battery Park. Both agreements require the company to physically maintain and repair government-owned facilities (bulkheads, piers, piles, wales, chocks, walkways) at its own cost, and the Park Service contract additionally lets the company fund "concessioner improvement" capital projects -- though the company gets no ownership or leasehold interest in any of it; legal title to everything stays with the government.

New York exempts the state, its political subdivisions, and the federal government (and their agencies) as purchasers, and separately exempts materials sold to a contractor/repairman that become an integral, permanently-affixed component of a qualifying exempt organization's real property. Since the National Park Service and New York City both qualify as exempt government entities, the company can buy tax-free any tangible personal property that becomes an integral part of government-owned structures or property -- covering both the ongoing maintenance/repair work and the capital-improvement projects, as long as the materials get physically incorporated into the government's real property. Any services the company genuinely resells to the government are exempt too. But the exemption doesn't cover everything the company buys -- materials or equipment that DON'T become part of government-owned real property (for instance, tools or supplies the company keeps and uses itself) remain fully taxable.

Q&A

Q: We hold a concession contract or license to operate on government property, and our agreement requires us to maintain/repair government-owned facilities -- can we buy materials for that tax-free?
A: Per this opinion, yes -- materials that become an integral, permanently-affixed component of the government's real property qualify for the exemption under Tax Law § 1115(a)(15)/(16), since the federal government and its agencies and New York City are exempt organizations under § 1116(a)(1)/(2).

Q: Does that exemption cover EVERYTHING we purchase in connection with our government contract?
A: No -- per this opinion, only tangible personal property that actually becomes part of the government-owned structure or property qualifies. Equipment, tools, or supplies the company keeps for its own use (not incorporated into government property) remain taxable under Tax Law § 1105(a).

Q: We don't have any ownership or leasehold interest in the improvements we build under our concession contract -- does that affect the tax treatment?
A: Not per this opinion -- the exemption turns on whether the government (not the concessioner) ends up owning the completed improvement as real property, which is exactly the arrangement described here (the concessioner has no ownership interest; legal title vests in the government).

Citations

• Tax Law § 1105(a) -- imposes sales tax on retail sales of tangible personal property.
• Tax Law § 1115(a)(15) -- exempts materials sold to a contractor/repairman for erecting or improving real property of an exempt organization, if they become an integral component part.
• Tax Law § 1115(a)(16) -- exempts materials sold to a contractor/repairman for maintaining, servicing, or repairing real property of an exempt organization, if they become an integral component part.
• Tax Law § 1116(a)(1) -- exempts New York State, its agencies, and political subdivisions as purchaser/user/consumer.
• Tax Law § 1116(a)(2) -- provides the same exemption for the United States government and its agencies/instrumentalities.

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_36s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (36)S
Sales Tax
September 2, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940502A

On May 2, 1994, a Petition for Advisory Opinion was received from the Circle Line-Statue
of Liberty Ferry, Inc., 17 Battery Place, Suite 715, New York, New York 10004.
The issues raised by Petitioner, Circle Line-Statue of Liberty Ferry, Inc., are whether it is
liable for sales and use tax when it purchases goods and services in order to repair and maintain
property owned by the United States government or by the City of New York and whether it is liable
for sales or use tax when it purchases goods and services used for capital improvement projects as
directed by the National Park Service.
Petitioner was incorporated under the laws of the State of New York for the purpose of
providing transportation and related facilities and services for the public at the Statue of Liberty
Monument (Liberty and Ellis islands) under concession contracts with the U.S. Department of the
Interior (National Park Service).
Under the concession contract with the National Park Service, Petitioner is required to
physically maintain and repair all facilities (both government and concessioner improvements, and
including the Ellis Island bulkhead and Liberty Island pier and bulkhead) used in the operation under
the contract with the National Park Service.
Under the license agreement with New York City, Petitioner at its sole cost and expense is
required to put, keep, and preserve in good order the licensed premises consisting of landing slips
numbered 3, 4 and 5, and adjacent walkways located in Battery Park. The petitioner must also
maintain and repair the licensed premises, including but not limited to repair and replacement of
damaged piles, wales and chocks.
Under the agreement with the National Park Service, as partial consideration for privileges
granted under the contract, the petitioner established a "capital account" by which it undertakes, on
a project basis, improvements which directly support its operations under the contract. Petitioner
has no ownership or other interest in improvements made from the capital accounts fund.
Petitioner is not granted a leasehold interest, possessory interest, or other ownership right to
any government facilities, improvements, or other properties, the use of which is granted to
petitioner under the terms of its contracts or agreements with the National Park Service or New York
City.

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Petitioner's contract with the National Park Service provides the following:
Sec. 5. MAINTENANCE. Subject to section 4(e) hereof, the concessioner
will physically maintain and repair all facilities (both government and concessioner
improvements, and including the Ellis Island bulkhead and Liberty Island pier and
bulkhead) used in the operation hereunder, including maintenance of assigned lands
and all necessary housekeeping activities associated with the operation to the
satisfaction of the Secretary. In order that a high standard of physical appearance,
operations, repair and maintenance be maintained, appropriate inspections will be
carried out jointly by the Secretary and the Concessioner.
Sec. 6. CONCESSIONER'S IMPROVEMENTS. (a) "CONCESSIONER
IMPROVEMENTS," as used herein, means buildings, structures, fixtures,
equipment, and other improvements affixed to or resting upon the lands assigned
hereunder in such manner as to be part of the realty, provided by the Concessioner
for the purposes of this contract (excluding improvements made to GOVERNMENT
IMPROVEMENTS by the Concessioner), as follows: (1) such improvements upon
the lands assigned at the date hereof as described in Exhibit "D" hereto, and (2) all
such improvements hereafter constructed upon or affixed to the lands assigned to the
Concessioner with the written consent of the Secretary. CONCESSIONER
IMPROVEMENTS do not include any interest in the land upon which the described
structures are located.
(b)
The concessioner shall have a possessory interest in all
CONCESSIONER IMPROVEMENTS recognized by this contract. Possessory
interest shall consist of all incidents of ownership except legal title, which shall be
vested in the United States. However, such possessory interest shall not be construed
to include or imply any authority, privilege or right to operate or engage in any
business or other activity and the use or enjoyment of any structure, fixture, or
improvement in which the concessioner has a possessory interest shall be wholly
subject to the applicable provisions of this contract and to the laws and regulations
relating to the area. The said possessory interest shall not be extinguished by the
expiration or other termination of this contract,* * * *
Petitioner's contract with New York City provides the following:
7.0 During the term of this License, Licensee at its sole cost and expense and to the
reasonable satisfaction of the Commissioner, shall put, keep, repair, preserve in good
order Licensed Premises, as defined in Article II herein. Licensee shall at all times
keep Licensed Premises clean, litter free, and neat. Licensee shall provide regular
cleaning and maintenance services for Licensed Premises.
7.1 During the term of this License, Licensee shall maintain and repair the Licensed
Premises in accordance with the standards set forth in this Agreement, including but

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TSB-A-94 (36)S
Sales Tax
September 2, 1994
not limited to repair and replacement of damaged piles, wales and chocks. All such
maintenance and repair shall be performed by Licensee in a good and workmanlike
manner. To secure Licensee's obligation to maintain and repair the Licensed
Premises Licensee shall provide Parks with a Security Deposit as provided for in
Article VI of the General Provisions, annexed hereto as Exhibit A.
Section 1105(a) of the Tax Law imposes a tax on "[t]he receipts from every retail sale of
tangible personal property, except as otherwise provided in this article."
Section 1115(a) of the Tax Law exempts from the sales tax imposed under §1105(a) of the
Tax Law and from the compensating use tax imposed under §1110:
*

*

*

(15)
Tangible personal property sold to a contractor, subcontractor or repairman
for use in erecting a structure or building of an organization described in subdivision
(a) of section eleven hundred sixteen, or adding to, altering or improving real
property, property or land of such an organization as the terms real property, property
or land are defined in the real property tax law; provided, however, no exemption
shall exist under this paragraph unless such tangible personal property is to become
an integral component part of such structure, building or real property.
(16)
Tangible personal property sold to a contractor, subcontractor or repairman
for use in maintaining, servicing or repairing real property, property or land of an
organization described in subdivision (a) of section eleven hundred sixteen, as the
terms real property, property or land are defined in the real property tax law;
provided, however, no exemption shall exist under this paragraph unless such
tangible personal property is to become an integral component part of such structure,
building or real property.
Section 1116(a)(1) of the Tax Law provides an exemption from sales and compensating use
taxes with respect to the "State of New York, or any of its agencies, instrumentalities, public
corporations (including a public corporation created pursuant to agreement or compact with another
state or Canada) 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 1116(a)(2)
of the Tax Law provides essentially the same exemption for the United States government and its
agencies and instrumentalities.
The City of New York and the National Park Service are exempt organizations as defined
in Sections 1116(a)(1) and 1116(a)(2) of the Tax Law.
Accordingly, Petitioner may purchase tax exempt any tangible personal property that will
become an integral component part of any structure, building or real property owned by New York
City or the National Park Service in accordance with Sections 1115(a)(15) and 1115(a)(16) of the

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Tax Law. Any service that will be resold by Petitioner to New York City or to the National Park
Service may be purchased exempt from sales tax. It should be noted that any tangible personal
property purchased by Petitioner that does not become an integral part of property owned by New
York City or the National Park Service will be subject to sales tax under Section 1105(a) of the Tax
Law.

DATED: September 2, 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.