Does a tax-exempt public benefit corporation's blanket sales-tax exemption extend to purchases made by the private contractor it hires to operate and maintain its facility?

Subject

Issue raised by Petitioner, Dutchess County Resource Recovery Agency, is whether purchases by Dutchess Resource Management, Inc. (DRMI), necessary to operate, repair and maintain the Dutchess County Resource Recovery Facility, which is owned by Petitioner, are exempt from sales and use taxes pursuant to Section 541.2(c) of the Sales and Use Tax Regulations or Section 2047-n of the Public Authorities Law.

What this means for you

A special 1982 state law created the Dutchess County Resource Recovery Agency, a public benefit corporation that owns and operates a solid-waste disposal and energy-generating facility, and grants the agency a broad exemption from taxes (including sales and use tax) on its own property and activities. The agency contracted with DRMI (a Westinghouse subsidiary) to actually run, repair, and maintain the facility day-to-day; DRMI handles all procurement of labor, materials, and equipment needed for that work, and the agency reimburses DRMI for any sales tax DRMI ends up paying on its purchases. The agency told its vendors that DRMI, "acting on the Agency's behalf," should be treated as tax-exempt too.

The Department draws a sharp line: the agency's own statutory exemption is real and does control (even over the general Tax Law exempt-organization rule) -- but ONLY for transactions where the agency itself is the actual purchaser and payor of record. DRMI can't borrow that exemption by claiming to act as the agency's "agent," both because the agency's own enabling law makes it a misdemeanor for anyone to act as its purchasing agent for facility work, and because the parties' own contract expressly disclaims any agency relationship between them. So DRMI's purchases are, as a general matter, fully taxable in DRMI's own name. That said, DRMI's purchases don't lose out entirely -- they can independently qualify for OTHER exemptions available to any purchaser regardless of tax-exempt status: machinery/equipment used more than 50% of the time to produce electricity or steam for sale qualifies for the manufacturing exemption; short-lived parts, tools, and supplies for that same production purpose get a parallel exemption (unless delivered in New York City, where local tax still applies); and materials that get physically built into the agency's real property as a capital improvement or repair qualify under the exempt-organization capital-improvement provisions, since they become part of an exempt entity's own building or structure.

Q&A

Q: We're a tax-exempt public authority, and we've told our private operating contractor's vendors that the contractor is exempt too since it's "acting on our behalf" -- does that actually work?
A: No, per this opinion -- a governmental exemption under a statute like Public Authorities Law § 2047-n applies only when the agency itself is the purchaser and payor of record; a contractor operating the facility (even one specifically retained to run it) can't claim the agency's exemption unless it's genuinely acting as the agency's legal agent, which this contract's own terms (and the agency's enabling statute) expressly ruled out.

Q: Our operating contractor buys machinery that's used to produce electricity or steam for sale as part of running our facility -- is that still exempt, even though the contractor (not us) is the purchaser?
A: Yes, per this opinion -- machinery/equipment (and related short-lived parts, tools, and supplies) used directly and predominantly (over 50%) in producing electricity or steam for sale qualifies for the manufacturing exemption under Tax Law § 1115(a)(12) and § 1105-B(a) regardless of who buys it, though delivery within New York City can still trigger local tax on the parts/tools/supplies piece.

Q: Our contractor buys materials that get physically incorporated into our building as a repair or capital improvement -- does that still qualify for an exemption even though the contractor isn't us?
A: Yes, per this opinion -- materials that actually become part of the agency's real property through a capital improvement or repair qualify under Tax Law § 1115(a)(15)/(16), since those exemptions run with the fact that the property becomes part of an exempt organization's structure, not with who technically makes the purchase.

Citations

• Tax Law § 1105(a) -- imposes sales tax on retail sales of tangible personal property.
• Tax Law § 1105-B(a) -- provides a reduced-rate/exemption path for parts, tools, and supplies used directly and predominantly in production of electricity or steam for sale.
• Tax Law § 1115(a)(12) -- exempts machinery/equipment used directly and predominantly in production of electricity or steam for sale.
• Tax Law § 1115(a)(15), (16) -- exempts tangible personal property sold to a contractor that becomes an integral component of an exempt organization's real property via capital improvement or repair.
• Tax Law § 1116(a)(1) -- generally exempts New York governmental entities as purchaser/user/consumer, but only where they are themselves the purchaser or payor.
• Public Authorities Law § 2047-n -- grants the Dutchess County Resource Recovery Agency a broad tax exemption on its own property and activities, controlling over inconsistent general Tax Law provisions per § 2047-x.
• Public Authorities Law § 2047-q -- makes it a misdemeanor for an agency officer/agent to act, directly or indirectly, in furnishing work/materials/supplies/labor under a facility contract.

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_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (4)S
Sales Tax
February 24, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930416A

On April 16, 1993 a Petition for Advisory Opinion was received from Dutchess County
Resource Recovery Agency, 41 Sand Dock Road, Poughkeepsie, New York 12601.
The issue raised by Petitioner, Dutchess County Resource Recovery Agency, is whether
purchases by Dutchess Resource Management, Inc. (hereafter DRMI) necessary to operate, repair
and maintain the Dutchess County Resource Recovery Facility, which is owned by Petitioner, are
exempt from sales and use taxes pursuant to Section 541.2(c) of the Sales and Use Tax Regulations
or Section 2047-n of the Public Authorities Law.
In .1982, the New York Legislature passed special legislation entitled "Dutchess County
Resource Recovery Agency Act" (Chapter 675 of the Laws of 1982, the Act), which created the
Dutchess County Resource Recovery Agency (Petitioner), a public benefit corporation. The Act
authorizes Petitioner to construct and operate a resource recovery facility for disposing of solid waste
and for producing and selling energy, and the exercise of such power constitutes an essential
governmental function. The facility which is owned by Petitioner is situated on an approximately
11.5 acre site, which is also owned by Petitioner, located in the Town of Poughkeepsie, New York.
Petitioner indicates that, in accordance with its duties and responsibilities under the Act,
Petitioner, as authorized by Section 120-w of the New York General Municipal Law, entered into
a Service Agreement, dated June 29, 1989, with DRMI, a wholly-owned subsidiary of Westinghouse
Electric Company, a copy of which Petitioner furnished as part of its petition. Pursuant to the
contract, DRMI's primary responsibility is to operate and maintain the facilities on the site on behalf
of Petitioner. Petitioner, in turn, agrees to provide processable waste for disposal.
Petitioner also indicates that, in support of its responsibilities under the contract, DRMI, as
operator of the facility, is charged with all procurement activities related to labor, materials, and
equipment necessary for the operation, overhaul, repair, and maintenance of the facility which
includes, but is not limited to, the cost of all machinery, equipment, replacement parts, material, etc.
However, Petitioner will pay DP. MI a sum certain for repair and/or replacement of major facility
components as set forth under article 6.5.4. of the Service Agreement.
DRMI occupies the Facility and operates it for Petitioner. On behalf of Petitioner and in
furtherance of Petitioner's activity of providing the Facility for the benefit of the public, DRMI
purchases supplies, equipment and services for installation in and improvement of the Facility.
Procurement of the supplies, equipment and services is essential to Petitioner's activity. Finally,
according to Petitioner, ownership of the Facility and the supplies, equipment and services procured
by DRMI remains at all times in Petitioner.

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Although DRMI maintains responsibility for all procurement activities, all purchases of
supplies, equipment and services are made on behalf of Petitioner and expended in support of the
operation of the Facility. If New York sales tax is incurred on supplies, equipment and services
purchased or leased by DRMI, Petitioner must reimburse DRMI as a sales tax pass-through under
Article 6.5.3. of the Service Agreement.
Petitioner indicates that it has issued a notice to vendors stating that DRMI, acting on
Petitioner's behalf, is exempt from the payment of sales or compensating use taxes on purchases or
leases of materials, goods or services relating to the construction, reconstruction, repair, equipping,
operation or maintenance of the Facility.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.–..., there is hereby imposed and there shall be paid
a tax ... upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
Section 1105-B of the Tax Law states, in part:
Reduced tax rates on certain parts, tools, supplies and services relating to
tangible personal property used or consumed in production. -- (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)
of section eleven hundred five on the receipts from the retail sales of parts with a
useful life of one year or less, tools and supplies for use or consumption directly and
predominantly in the production of ... electricity, ... or steam for sale by
manufacturing, processing, generating, ... shall be paid at the rate of two percent for
the period commencing September first, nineteen hundred eighty and ending
February twenty-eighth, nineteen hundred eighty-one, and such retail sales shall be
exempt from such tax on and after March first, nineteen hundred eighty-one.
(b) Notwithstanding any other provisions of this article, but not for the
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 (c) of section eleven hundred five on receipts from
every sale of the services of installing, repairing, maintaining or servicing the
tangible personal property described in paragraph twelve of subdivision (a) of section
eleven hundred fifteen, including the parts with a useful life of one year or less, tools
and supplies described in subdivision (a) of this section, to the extent subject to such
tax, shall be paid at the rate of two percent for the period commencing September
first, nineteen hundred eighty and ending February twenty-eighth, nineteen hundred
eighty-one and such receipts shall be exempt from the tax on sales imposed under

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subdivision (c) of section eleven hundred five on and after March first, nineteen
hundred eighty-one.
(c) Notwithstanding any other provision of this article, but not for purposes
of the taxes imposed by section eleven hundred seven or eleven hundred eight or
pursuant to the authority of article twenty-nine of this chapter, the compensating use
tax imposed by section eleven hundred ten on the use of parts with a useful life of
one year or less, tools and supplies described in subdivision (a) of this section and
services described in subdivision (b) of this section, shall be paid at the rate of two
percent for the period commencing September first, nineteen hundred eighty and
ending February twenty-eighth, nineteen hundred eighty-one and such use shall be
exempt from the compensating use tax imposed by section eleven hundred ten on and
after March first, nineteen hundred eighty-one.
Section 1115 of the Tax Law states, in part:
Exemptions from sales and use taxes.-- (a) Receipts from the following shall
be exempt from the tax on retail sales imposed under subdivision (a) of section
eleven hundred five and the compensating use tax imposed under section eleven
hundred ten:
(12) Machinery or equipment for use or consumption directly and
predominantly in the production of ... electricity, ... or steam for sale by ..., generating
, ...
(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, 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.

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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 (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 529.2 of the Sales and Use Tax Regulations states, in part:
New York State, agencies, instrumentalities, public corporations, and political
subdivisions thereof. [Tax Law, S ll16(a)(1)] (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.

(b) As purchaser. (1) New York State, or any of its agencies,
instrumentalities, public corporations or political subdivisions (hereinafter referred
to as New York State governmental entities) are not subject to sales or use tax when
they are the purchaser, user, or consumer of tangible personal property or services ....
(2) New York State governmental entities as purchasers, users, consumers,
occupants or patrons must exercise their right to exemption through the issuance of
governmental purchase orders or the appropriate exemption document.
Article 8, Title 13-D of the Public Authorities Law states, in pertinent part:
DUTCHESS COUNTY RESOURCE RECOVERY AGENCY

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§ 2047-b. Definitions
As used or to refer to in this title, unless a different meaning clearly appears
from the context:
1.
"Agency" means the public benefit corporation created by section two
thousand forty-six-c of this title, known as the Dutchess County Resource Recovery
Agency.
4.
"Cost" as applied to any project, includes the cost of construction, the
cost of the acquisition of all property, including real property and other property, both
real and personal and improved and unimproved, the cost of demolishing, removing
or relocating any buildings or structures on lands so acquired, including the cost of
acquiring any lands to which such buildings or structures may be moved or relocated,
the cost of all systems, facilities, machinery, apparatus and equipment, financing
charges, interest prior to, during and after construction to the extent not paid or
provided for from revenues or other sources, the cost of engineering and architectural
surveys, plans and specifications, the cost of consultants' and legal services, the cost
of lease guarantee or bond insurance, other expenses necessary or incidental to the
construction of such project and the financing of the construction thereof, including
the amount authorized in the resolution of the agency providing for the issuance of
bonds to be paid into any reserve or other special fund from the proceeds of such
bonds and the financing of the placing of any project in operation, including
reimbursement to the county, or any municipality, state agency, the state, the United
States government, or any other person for expenditures that would be costs of the
project hereunder had they been made directly by the agency.
6.
"Construction" means the acquisition, erection, building, alteration,
improvement, increase, enlargement, extension, reconstruction, renovation or
rehabilitation of a solid waste management-resource recovery facility; the inspection
and supervision thereof; and the engineering, architectural, legal, fiscal and economic
investigations and studies, surveys, desks, plans, working drawings, specifications,
procedures and other actions incidental thereto.
9.
"Person" means any natural person, partnership, association, joint
venture or corporation, exclusive of a public corporation.
10.
"Project' means any solid waste management-resource recovery
facility, the planning, development, financing, construction, operation, or
maintenance of which is authorized to be undertaken in whole or in part by the
agency pursuant to this title.
15.
"Solid waste management-resource recovery facility" or "facility"
means any facility, plant, works, system, building, structure, improvement,
machinery, equipment, fixture or other real or personal property which is to be used,
occupied or employed for the collecting, receiving, transporting, storage, processing,

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or disposal of solid waste or the recovery by any means of any material or energy
product or resource therefrom including but not limited to recycling centers, transfer
stations, baling facilities, rail haul or maritime facilities, collection vehicles
processing systems, resource recovery facilities, steam and electric generating and
transmission facilities, including auxiliary facilities to supplement or temporarily
replace such generating facilities, steam distribution facilities, sanitary landfills,
plants and facilities for compacting, composting or pyrolization of solid wastes,
incinerators, and other solid waste disposal, reduction or conversion facilities and
resource recovery equipment and disposal equipment as defined in subdivisions four
and five of section 51-0903 of the environmental conservation law.
§ 2047-c. Dutchess County Resource Recovery Agency
1.
A corporation known as the Dutchess County Resource Recovery
Agency is hereby created for the public purposes and charged with the duties and
having the powers in this title. The agency shall be a body corporate and politic
constituting a public benefit corporation ....
6.
It is hereby determined and declared, that the agency and the carrying
out of its powers and duties are in all respects for the benefit of the people of the
county and the state for the improvement of their health, welfare and prosperity and
that such purposes are public purposes and that the agency is and will be performing
an essential governmental function in the exercise of the powers conferred upon it
by this title.
§ 2047-e. Powers of the agency
The agency shall have the power:
3.
To acquire in the name of the agency, hold, sell, lease, mortgage or
otherwise dispose of property, real, personal or mixed, or any interest therein, without
limitation, for its corporate purposes; provided, however, that in the acquisition of
any real property designated as the site for any facility, the agency shall give
consideration to the present and any proposed land use character of the area in which
the site is to be located and the zoning laws or regulations, if any, otherwise generally
applicable to such area.
5.
To collect, receive, transport, process, dispose of, sell, store, convey,
recycle, and real with, in any lawful manner and way, solid waste and any products
or by-products thereof now or hereafter developed or discovered, including any
energy generated by the operation of any solid waste management-resource recovery
facility. Any such disposal or sale may be effected on such terms and in such manner
as the agency may deem proper.
6.
To plan, develop and construct projects and to pay the cost thereof and
to have the right to contract in relation thereto with municipalities or persons within

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or without the county and to own and operate, maintain, repair, improve, reconstruct,
enlarge, and extend, subject to the provisions of this title, any of its projects acquired
or constructed under this title, and to sell, lease, mortgage or otherwise dispose of any
project or part thereof to any person or public corporation, subject to such conditions
and limitations as the agency may determine to be in the public interest.
7.
To assist in the planning, development and construction of and the
financing of the cost of any solid waste management-resource recovery facility to be
located in the county whether or not such solid waste management-resource recovery
facility is to be owned or operated by the agency, which assistance may include loans
to any person or public corporation. Any such solid waste management resource
recovery facility producing either electricity or shaft horsepower and useful thermal
energy shall constitute a co-generation facility as defined in subdivision two-a of
section two of the public service law.
15.
Subject to any limitations imposed by any contract pursuant to
subdivision two of section two thousand forty-six-t of this title, to fix and collect
rates, rentals, fees and other charges for the use of the facilities of, or services
rendered by, or any commodities furnished by, the agency so as to provide revenues
sufficient at all times to pay, as the same shall become due, the principal and interest
on the bonds of the agency, together with the maintenance of proper reserves
therefor, in addition to paying, as the same shall become due, the expenses of
operating and maintaining the properties of the agency, together with proper reserves
for debt service, depreciation, maintenance and contingencies and all other
obligations and indebtedness of the agency.
18.
To do all things necessary or convenient to carry out the powers
expressly given in this title.
§ 2047-f. Governmental capacity of the agency and municipalities
The county, other municipalities within the county and the agency in carrying
out their respective powers and duties under this title shall be deemed to be acting in
a governmental capacity. The construction, operation and maintenance of any project
financed in whole or in part by the agency, shall be deemed to be the performance of
an essential governmental function by the agency acting in its governmental capacity,
whether such project shall be owned or operated by the agency or by any person or
other public corporation.
§ 2047-n. Exemption from taxes, assessments and certain fees
1.
It is hereby determined that the creation of the agency and the carrying
out of its corporate purpose is in all respects for the benefit of the people of the
county and the state and is a public purpose and the agency shall be regarded as
performing a governmental function in the exercise of the powers conferred upon it
by this title and shall not be required to pay any taxes or assessments upon any

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property owned by it or under its jurisdiction, control or supervision or upon its
activities, or any filing, recording or transfer fees or taxes in relation to instruments
filed, recorded or transferred by it or on its behalf. The construction, use, occupation
or possession of any property owned by the agency or the county, including
improvements thereon, by any person or public corporation under a lease, lease and
sublease or any other agreement shall not operate to abrogate or limit the foregoing
exemption, notwithstanding that the lessee, user, occupant or person in possession
shall claim ownership for federal income tax purposes. The agency shall be deemed
a public authority for the purposes of section four hundred twelve of the real property
tax law.
2.
Any bonds issued pursuant to this title together with the income
therefrom as well as the property of the agency shall be exempt from taxes, except
for transfer and estate taxes. The state hereby covenants with the purchasers and with
all subsequent holders and transferees of bonds issued by the agency pursuant to this
title, in consideration of the acceptance of any payment for the bonds, that the bonds
of the agency issued pursuant to this title and the income therefrom and all revenues,
moneys, and other property pledged to secure the payment of such bonds shall at all
times be free from taxation, except for transfer and estate taxes.
§ 2047-q. Interest in contracts prohibited
It shall be a misdemeanor for any member of the governing body or any
officer, agent, servant or employee of the agency to be in any way or manner
interested, directly or indirectly, in the furnishing of work, materials, supplies or
labor, or in any contract therefor which the agency is empowered by this title to
make.
§ 2047-x. Effect of inconsistent provisions
In so far as the provisions of this title are inconsistent with the provisions of
any other act, general or special, or of the county charter or any local law, ordinance
or resolution of the county or any other municipality, the provisions of this title shall
be controlling. Nothing contained in this section shall be held to supplement or
otherwise expand the powers or duties of the agency otherwise set forth in this title.
Nothing contained in this title shall be held to alter or abridge the powers and duties
of the department of environmental conservation.

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Petitioner has submitted a copy of the Dutchess County Service Agreement which states in
part:
ARTICLE ONE
Definitions
1.1 Definition of Terms
DISCRIMINATORY TAX: Any tax or other imposition levied by the State
or one of its Subdivisions which (a) discriminates against or has the effect of
discriminating against (i) owners or operators of mass-burn and resource
recovery Facilities of the general character and purpose of the Facility, (ii)
producers or sellers of electrical or thermal energy, (iii) owners or operators
of combustion products emissions stacks or (iv) generators of Process
Residue; and (b) which tax or other imposition applies to or results from the
operation of the Facility or to the Contractor or its affiliates, or the direct or
indirect beneficial owners of such affiliates, in respect of the Contractor's or
its affiliate's ownership of the Facility.
FACILITY: All elements of the County's resource recovery facility as
constructed and accepted by the Agency, including the O'Connor Combustion
System, the Site, the buildings, equipment, rolling stock, machinery and other
real and personal property including such improvements that may be
necessary to fulfill the terms of this Agreement.
SERVICE FEE:
The amount paid by the Agency to the Contractor
pursuant to Articles 6.5.1 and 6.5.2 for operation, overhaul, repair and
maintenance of the Facility.
UNCONTROLLABLE CIRCUMSTANCES:
Any act or event that
prevents a party to this Agreement from performing its obligations hereunder
or complying with any conditions required of the party hereunder if such act
or event if beyond the reasonable control of the party relying thereon as
justification for nonperformance or noncompliance. Such acts or events may
include but shall not be limited to the following:
(b)

... except that such adoption, change, etc. relating to Federal and State
tax law shall not be an Uncontrollable Circumstance ...

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ARTICLE TWO
Responsibilities of the Parties and Appendices
2.1

Responsibilities of the Parties
The Agency hereby retains the Contractor and the Contractor hereby
accepts this retainment to operate and maintain the Facility on behalf of the
Agency ....

ARTICLE THREE
Operations
3.3

Labor, Materials and Equipment
The Contractor will provide all labor, materials and equipment
necessary for the operation, overhaul, repair and maintenance of the Facility.

3.6

Repair, Replacement and Maintenance
The Contractor shall keep the Facility in good operating condition,
conduct all required overhauls and make all necessary repairs and
replacements, maintain an adequate inventory of spare parts to prevent
unnecessary downtime and otherwise manage the Facility consistent with
good engineering practices for facilities similar to the Facility. The
Contractor's estimate for repair and replacement of major equipment
components is set forth in Appendix N. The Contractor shall maintain the
safety of the Facility at a level consistent with applicable law and good
engineering practices, shall establish and maintain safety procedures for the
Facility and shall enforce all reasonable safeguards for the safety and
protection of persons or property on and near the Site, including the
designation of a qualified employee to be responsible for safety procedures.

3.21

Liens and Encumbrances
The Contractor shall keep the Site and the Facility free from any and
all liens and encumbrances arising out of or in cormection with acts,
omissions or debts of the Contractor or any of its subcontractors or suppliers,
...

ARTICLE SIX
Payments
6.1

Basic Financial Responsibilities of the Parties

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The Agency shall pay Debt Service on the Bonds, any Debt Service
reserve funds under the Trust Indenture, the Contractor's compensation under
Article 6.4, Discriminatory Taxes and property taxes or assessments directly
related to ownership of the Facility. ...
6.5.3 Pass Through Costs - The Agency shall reimburse Contractor for the following direct
costs and expenses:
(e)

Taxes, including any Discriminatory Tax, and state and local sales
taxes on supplies and equipment purchased or leased by the
Contractor provided that the Contractor first attempts to acquire such
supplies and equipment on a tax exempt basis and cooperates with the
Agency in the challenge to the levy of any such tax; excluding
Federal and State taxes paid by the Contractor based on net income
and employee benefit taxes;

(f)

Utilities including electric (but excluding electricity generated by the
Facility), gas, oil, water and sewer, up to the Maximum Utility Usage
Guarantee as listed in Appendix M.

ARTICLE TWELVE
Miscellaneous
12.5

Relationship of the Parties
No party to this Agreement shall have any responsibility whatsoever
to perform services or to assume contractual obligations that are the
obligations of the other party; nothing herein shall constitute either party
apartner, agent or representative of the other party, ...

12.11 Industrial Property Rights
The Contractor shall pay all royalties, license fees and import duties
relating to its obligations under this Agreement. ...
12.12 Permits
It will be the obligation of the Agency to secure and maintain a Part
360 Solid Waste Management Facility Operating Permit from the New York
State Department of Environmental Conservation and to secure and maintain
any other environmental permits or other permits or certificates that are or
may be required during the term of this Agreement. The Contractor will
provide the Agency with any information in its possession or under its control
that is required to obtain and maintain environmental and other permits.

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12.18 Transfer or Removal of Equipment
... The Contractor will retain ownership of the Contractor furnished tools and
equipment (included testing equipment), utilized in performance of its work. In no
event shall the Agency take possession of or transfer or remove any such Contractor
tools and equipment.
In the instant matter, Petitioner was created as a public benefit corporation for a public
purpose pursuant to Section 2047-c of the Public Authorities Law and was granted exemption from
taxes as provided in Section 2047-n of the Public Authorities Law.
Petitioner was authorized to construct, operate, repair and maintain a resource recovery
facility under the provisions of Sections 2047-e, 6. and 7. of the Public Authorities Law.
Petitioner has entered into a Service Agreement with DRMI, wherein DRMI has been
retained, generally, to operate and maintain the Dutchess County Resource Recovery Facility on
behalf of Petitioner.
Section 2047-f of the Public Authorities Law provides that Petitioner will be acting in its
governmental capacity and performing an essential governmental function during the construction,
operation and maintenance of any project financed in whole or in part by Petitioner, whether the
project is owned or operated by Petitioner, any person or other public corporation.
The exemption provided by Section 2047-n of the Public Authorities Law includes sales and
use taxes. To the extent Section 2047-n of the Public Authorities Law is inconsistent with Section
1116(a)(1) of the Tax Law, Section 2047-n of the Public Authorities Law controls. See, Section
2047-x of the Public Authorities Law.
However, the exemption provided under Section 2047-n of the Public Authorities Law
applies only to transactions wherein Petitioner is the purchaser and payor of record. The exemption
afforded under Section 2047-n does not extend to DRMI. Also, since the provisions of Section 2047­
q provide that it will be a misdemeanor for any agent of Petitioner to act directly or indirectly in the
furnishing of work, materials, supplies or labor or in any contract therefore and since Article 12, Part
12.5 of the Service Agreement states that "nothing herein shall constitute either party a partner, agent
or representative of the other party; DRMI is prohibited from acting as Petitioner's agent and may
not make purchases as such.
Generally, any purchases of tangible personal property made by DRMI will be subject to the
tax imposed under Section 1105(a) of the Tax Law. However, when DRMI makes purchases of
machinery or equipment including parts with a useful life of more than a year, for Petitioner's
resource recovery facility, the purpose of which are for use or consumption directly and
predominantly (more than 50% of use) in the production of electricity or steam for sale, such
purchases will qualify for the exemption from state and local sales and use taxes provided under
Section 1115(a)(12) of the Tax Law. Similarly, DRMI's purchases of parts with a useful life of one

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TSB-A-94 (4)S
Sales Tax
February 24, 1994
year or less, tools or supplies for use directly and predominantly in the production of electricity or
steam for sale will qualify for the exemption from state and local sales and use tax provided under
Section 1105-B(a) of the Tax Law unless delivery of such purchases occurs within New York City
in which instance the purchases will be subject to New York City local sales or use tax. Any charges
paid by DEMI for the service of installing, repairing, maintaining or servicing the parts with a useful
life of one year or less, tools or supplies will be exempt from state tax but subject to the New York
City taxes and all other local sales and use taxes.
Any transactions entered into by DRMI involving purchases of tangible personal property
which will be incorporated into Petitioner's real property as the result of a capital improvement or
repair to such real property will qualify for the exemption from tax provided under Section
1115(a)(15) or 1115(a)(16) of the Tax Law, whichever is applicable since the tangible personal
property will actually be incorporated into the structure, building or real property of an exempt
organization as described in Section 1116(a) of the Tax Law.

DATED: February 24, 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.