New York Advisory Opinion TSB-A-95(35)S: In a 15-year NYC IDA deal to keep Travelers Group and Smith Barney headquartered in New York City, are the group's equipment purchases, maintenance contracts, debt-service payments, intercompany cost-sharing, option buyout, and lease-removal penalties all exempt from sales and use tax?

Plain-English summary

Smith Barney Inc. ("SBI") and Travelers Group Inc. ("TGI"), together with their New York City-based subsidiaries (collectively "Travelers"), proposed a project (the "TGI Project") with the New York City Industrial Development Agency (the "IDA") intended to keep TGI and SBI headquartered in the city for approximately 15 years. The project covers Travelers' acquisition -- by purchase, lease, or license -- of furniture, machinery, equipment, trade fixtures, and similar tangible personal property ("Equipment") for use at IDA-approved NYC locations. To secure the sales-tax benefit, all eligible purchases ("Acquisitions") must be made through the IDA's designated agents within Travelers ("Agents," and when acting for another Travelers member, "Group Agents"), with the acquired Equipment then leased to Travelers under a Lease. The IDA finances Acquisitions by issuing bonds ("IDA Bonds"), and Travelers members responsible for using the Equipment (each an "Eligible Affiliate Agent") reimburse the purchasing Group Agent for their pro rata share of cost -- either through intercompany settlement or through IDA Bond proceeds forwarded via a designated "Bond Trustee." The deal also covers "Maintenance Contracts" for equipment (like copying machines) with a useful life of a year or more, though not general services like janitorial work. After a 3-year retention period, ownership of outright-purchased Equipment automatically transfers back to Travelers for no consideration ("Automatic Transfer"); at the project's end (or earlier bond redemption), Travelers can buy Equipment outright for a nominal $1 aggregate "Option Price"; and early removal outside the retention period triggers a "Premature Removal Penalty" equal to the tax that would have applied at original purchase.

The Department answered all six of Petitioner's questions favorably, applying its established Wegmans Food Markets framework distinguishing an IDA's exempt financing/ownership function from ordinary taxable operating expenses. (1) Amounts a Group Agent pays to make Acquisitions on behalf of itself or any Travelers member, as the IDA's agent, are exempt from state, city, and MCTD sales/use tax regardless of the PAYMENT MECHANISM -- whether paid directly by the purchasing entity, advanced by one Group Agent and later reimbursed via IDA Bond proceeds, or forwarded directly by the Bond Trustee -- as long as every purchase invoice, statement, and vendor contract identifies the IDA as the purchaser/lessee/licensee and the paying party as the IDA's disclosed agent. (2) Debt Service Payments to the IDA, and the related intercompany reimbursements, aren't taxable. (3) Payments Eligible Affiliate Agents make to a Group Agent to settle their pro rata share of Acquisition or Maintenance Contract costs aren't taxable. (4) and (5) The $1 aggregate Option Price paid to buy out Equipment at the deal's end, and the no-consideration Automatic Transfer after the retention period, both fall outside sales and use tax. (6) A Premature Removal Penalty paid for early removal isn't treated as consideration for a taxable sale. Separately, payments under Maintenance Contracts for genuine repair/service of IDA-owned Equipment are exempt as "Exempt Maintenance Services" -- but this specifically EXCLUDES consumable parts (like toner cartridges replaced when consumed) and general services (like janitorial work), and if a single invoice mixes taxable and exempt maintenance charges without separately stating or reasonably allocating them, the WHOLE charge becomes taxable.

What this means for you

Financial services firms negotiating multi-affiliate IDA equipment financing

Structuring cost-sharing among multiple corporate affiliates using a Group Agent/Eligible Affiliate Agent framework doesn't jeopardize the exemption, and the specific mechanics of how bond proceeds reach vendors (direct payment, later reimbursement, or Bond Trustee pass-through) don't matter either -- what matters consistently is that every purchase document names the IDA as purchaser/lessee and the paying entity as its disclosed agent.

Businesses with equipment maintenance contracts under an IDA deal

Keep consumable-parts replacement and general/janitorial services contractually and financially separate from genuine equipment repair and maintenance -- bundling them into one undifferentiated invoice risks taxing the entire charge, not just the non-qualifying portion.

Corporations evaluating a lease-and-buyout IDA structure

A nominal ($1) aggregate option price to buy out financed equipment at deal-end, and a no-consideration automatic transfer after a multi-year retention period, are both treated as outside the sales/use tax base -- consistent with how the Department has approached this same structural pattern across multiple large NYC IDA headquarters-retention deals.

Common questions

Q: Does it matter which specific entity within Travelers actually pays the vendor?
A: No -- the ruling explicitly holds that the payment method (direct payment, later Bond-proceeds reimbursement, or Bond Trustee pass-through) doesn't affect tax-exempt status, as long as the paperwork properly documents the IDA as purchaser and the paying entity as its disclosed agent.

Q: What happens if a maintenance invoice doesn't separate consumable parts from genuine repair work?
A: The entire charge becomes taxable under §§ 1105(c)(3), 1107, 1109, or 1110 -- the ruling is explicit that mixed taxable/exempt maintenance charges must be separately stated or reasonably allocated, or the whole invoice loses the exemption.

Q: Is this the same kind of deal as the CS First Boston or Equitable Life NYC IDA opinions issued around the same period?
A: Yes -- this follows the same general Group-Agent/Wegmans-based structural template the Department applied to several other major financial-sector NYC IDA headquarters-retention deals in this era, though the specific parties (Travelers/Smith Barney), deal length (~15 years), and some structural details differ from those other opinions.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (definition of sale/purchase)
• Tax Law § 1105 (imposition of sales tax)
• Tax Law § 1107 (additional NYC sales tax)
• Tax Law § 1109 (metropolitan commuter transportation district tax)
• Tax Law § 1110 (compensating use tax)
• Tax Law § 1116(a)(1) (governmental entity/public corporation exemption)
• 20 NYCRR 529.2(a) (public corporation definition; IDAs included as an example)
• 20 NYCRR 541.3(a) (governmental contractor exemption documentation)
• General Municipal Law § 862 (one-third retail facilities restriction)
• General Municipal Law § 874 (IDA tax exemption)
• General Municipal Law § 917-a (New York City Industrial Development Agency)

Prior rulings and cases referenced:

• Wegmans Food Markets v. Department of Taxation and Finance, 126 Misc. 2d 144, aff'd 115 A.D.2d 962, lv to app den 67 N.Y.2d 606 ("Wegmans I")
• Wegmans Food Markets v. The Department of Taxation and Finance of the State of N.Y., Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J. ("Wegmans II")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_35s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (35)S
Sales Tax
August 18, 1995

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950216B

On February 16, 1995 a Petition for Advisory Opinion was received from Smith Barney Inc.,
388 Greenwich Street, New York, NY 10013, and Travelers Group Inc., 388 Greenwich Street, New
York, NY 10022.
Petitioners, Smith Barney Inc. and Travelers Group Inc., state the issues and facts as follows:
(1)

whether all amounts paid by a Group Agent to make Acquisitions on behalf of TGI, SBI or
any other member of Travelers, as agent for the IDA pursuant to the Sales Tax Letter, will
be exempt from New York State and New York City Sales and Use Tax (i) whether
payments are made directly to vendors by the Group Agent, (ii) even if one Group Agent
pays vendors directly and another Group Agent receives reimbursement from IDA Bond
proceeds, or (iii) if IDA Bond proceeds are forwarded to the vendors through the Bond
Trustee.

(2)

whether or not Debt Service Payments paid to the Agency by a Group Agent and the
intercompany reimbursements related thereto will be subject to New York State or New
York City Sales and Use Taxes.

(3)

whether or not Payments from Eligible Affiliate Agents to Group Agents in respect of costs
allocated to such Eligible Affiliate Agents will be subject to New York State or New York
City Sales and Use Taxes.

(4)

whether, at the time an Option is exercised, sales tax will be imposed only on the Option
Price.

(5)

whether or not sales tax will be imposed on an Automatic Transfer.

(6)

whether or not if, at any time, a Premature Removal Penalty is imposed on Travelers by the
Agency, such Premature Removal Penalty shall be deemed to be consideration for a sale
subject to New York State and City Sales and Use Taxes.

This petition for an advisory opinion concerns a proposed transaction (the "TGI Project")
between the New York City Industrial Development Agency (the "IDA" or the "Agency"), and
Travelers Group Inc. (hereinafter referred to with respect only to its New York City operations
"TGI"), Smith Barney, Inc. (hereinafter referred to with respect only to its New York City operations
"SBI"), and each of their subsidiaries to the extent such subsidiaries have employees in New York
City (collectively, the "Eligible Affiliates"; TGI, SBI and the Eligible Affiliates are collectively
referred to as "Travelers") intended to induce TGI and SBI to retain their headquarters in New York
City for approximately fifteen (15) years.
TP-9(9/88)

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The TGI Project will encompass Travelers' acquisition (by purchase, including by lease or license
to use) of certain furniture, machinery and equipment for installation and use by Travelers at
approved Travelers' New York City locations (the "Approved Locations") over the term of the
transaction.
As part of the proposed transaction, pursuant to the Project Agreement between the Agency,
TGI and SBI, the Agency will extend tax benefits to reduce Travelers' costs of acquiring, leasing,
subleasing, licensing and sublicensing (as purchaser, lessee, sublessee, licensee or sublicensee, as
the case may be) (collectively, "purchases") certain furniture, machinery, equipment, trade fixtures
and other eligible tangible personal property, including replacements, enhancements and additions
made thereto from time to time over the 15 year Project term (collectively, the "Equipment"). Among
these benefits is the arrangement for sales and use tax exemptions for Travelers pursuant to the
Project Agreement, the Lease (as hereinafter defined), and the Sales Tax Letter (collectively referred
to as the "Agreement").
The Agreement will provide that certain purchases and payments in respect of purchases of
property and of certain related contracts made in connection with the TGI Project will be exempt
from New York State and New York City Sales and Use Taxes. Such exempt contracts will be for
maintenance, service and repair of specific property with a useful life of one year or more (e.g., for
copying machines) (the "Maintenance Contracts") but will not include contracts for general services
(e.g., janitorial services).
The Agreement contemplates that benefits will be received by Travelers over a period of
approximately 15 years up to a stated maximum sales tax benefit plus any additional sales or use tax
exemptions which Travelers will be entitled to as a Growth Credit (as defined in Section 4.1(h) of
the Project Agreement), and less any reductions in available sales and use tax exemptions as set forth
in the Agreement.
In order to create the relationship needed to assure the sales tax exemption, all purchases of
tangible personal property and Maintenance Contracts eligible for the exemption in connection with
the TGI Project must be made by the Agency. Under the Agreement, TGI and other members of
Travelers will be authorized to act as an agent for the Agency (each entity acting in such capacity,
an "Agent") in making purchases outright of, or entering into leases of or licenses to use, (together,
the "Acquisition Leases") Equipment in connection with the TGI Project as further described in the
Agreement (such purchases and Acquisition Leases referred to collectively herein as the
"Acquisitions") and purchasing Maintenance Contracts. From time to time, another member of
Travelers may designate an Agent to act on its behalf as its agent (an Agent acting on its own behalf
as agent of the IDA or acting on behalf of an Eligible Affiliate Agent (as defined below), as Agent
of the IDA, is hereinafter referred to as a "Group Agent") in the Agent's capacity as such for the
purpose of making Acquisitions and purchasing Maintenance Contracts. Such Acquisitions and
Maintenance Contracts will be purchased in all respects in accordance with the Sales Tax Letter and
with the procedural requirements of Article III of the Project Agreement [which Project Agreement
was not furnished with Petitioner's petition]. The Equipment acquired by the Agency through its
Agents' Acquisitions then will be leased to Travelers pursuant to a lease agreement between the
Agency and Travelers (the "Lease").

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To finance the Acquisitions (exclusive of the Interest Portion of the rental payments due
under the Acquisition Leases as hereinafter explained), the Agency will issue bonds from time to
time which may be bought by a TGI affiliate and/or unrelated third parties (the "IDA Bonds"). The
Lease will require one or more of the Eligible Affiliate Agents (as defined below) to make payments
equal to the debt service on the IDA Bonds issued by the Agency to finance the Equipment leased
there under to Travelers (the "Debt Service Payments") and certain other costs incurred by the
Agency in connection with the TGI Project. Pursuant to the Agreement, Bond proceeds cannot be
used to finance: (i) payments under Maintenance Contracts; or (ii) that portion of any payment made
under the Acquisition Leases which is not attributable to the deemed "principal portion" of rental
payments due under such Acquisition Leases (the "Interest Portion"). It is intended, however, that
such payments of the "principal portion" of rent plus the Interest Portion and payments for the
Maintenance Contracts will be exempt from New York State and New York City Sales and Use
Taxes.
Pursuant to Travelers' internal corporate policies, each member of Travelers is responsible
for its own costs. The sharing of costs with respect to the Acquisitions and Maintenance Contracts
will be handled as follows: Each Eligible Affiliate will be appointed as an agent of the Agency for
the purpose of making Acquisitions and purchasing Maintenance Contracts through TGI, SBI or any
other Group Agent, and shall, in such capacity as agent, reimburse the Group Agent for such Eligible
Affiliate's pro rata share of the cost (based on pro rata usage) of the Equipment acquired in an
Acquisition and of such Maintenance Contracts (an "Eligible Affiliate Agent"). Each such Eligible
Agent will be assessed a charge based upon its pro rata share of the cost thereof by the Group Agent
that makes an Acquisition or purchases a Maintenance Contract which the Eligible Affiliate Agent
uses. This charge will accrue on the books of the Eligible Affiliate Agent, generally on a monthly
basis beginning when the Equipment is placed in service. From time to time, the Eligible Affiliate
Agent will make a payment to the Group Agent to settle the intercompany charges described above.
It is the intention of Travelers and the Agency that such payments to settle such intercompany
charges will be exempt from New York State and New York City Sales and Use Taxes.
Except to the extent described above with respect to the Interest Portion, Acquisitions will
be financed through the IDA Bonds. It is anticipated that IDA Bonds will be sold periodically. Funds
raised through the sale of IDA Bonds will be available either (i) to pay the purchase price of the
Acquisitions when such payments are due, or (ii) to reimburse TGI or a Group Agent for the
purchase price of Acquisitions previously paid by such entity. Bond proceeds that represent
reimbursements of the purchase price for Acquisitions may not necessarily be passed on to the
Eligible Affiliate Agent on whose behalf an expenditure was incurred.
Travelers and the Agency intend that each of the following amounts paid to vendors will be
eligible to qualify for sales and use tax exemptions: amounts paid to vendors (1) by Group Agents
to make Acquisitions, including the Interest Portion which is not being funded through IDA Bonds,
as well as amounts paid to vendors for Maintenance Contracts; (2) where Acquisitions are funded
through IDA Bonds, whether funded in advance or arrears and whether paid directly by an Eligible
Affiliate Agent or by a Group Agent and subsequently settled by an intercompany charge as
described above or by a banking institution designated by the Agency to disburse IDA Bond
proceeds (the "Bond Trustee").

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Pursuant to the Lease, in general, (i) no Equipment purchased outright by any member of
Travelers as Agent or Group Agent may be removed from an Approved Location prior to the
expiration of three years after the installation or location of such Equipment at an Approved
Location, and (ii) no Equipment leased by any member of Travelers as Agent or Group Agent may
be removed from an Approved Location until the Lease expires or it is taken out of the name of the
Agency (the periods referred to in clauses (i) and (ii) of this sentence are both referred to as the
"Retention Period"). After the expiration of the Retention Period with respect to the Equipment
purchased outright, title to such Equipment will automatically vest (the "Automatic Transfer") in a
member of Travelers for no consideration.
At the end of the TGI Project term (or sooner when the Bonds have been paid in full),
Equipment may be purchased outright from the IDA by a member of Travelers who exercises a
purchase option (the "Option") under the Lease for an aggregate option price of $1.00 (the "Option
Price").
If Equipment purchased outright is removed from an approved Location prior to the
expiration of the Retention Period for a reason other than an allowable reason under the Agreement
for such removal (i.e., obsolescence, uselessness, or another good faith reason), Travelers must pay
the Agency an amount equal to the net present value, at the time of removal, of the sales or
compensating use tax which would have been required to be paid at the time of the original purchase
if such item had been purchased by a member of Travelers in its own name on the date of its original
purchase, based upon a purchase price equal to its fair market value as of the date of such removal.
Such payment will herein be referred to as the "Premature Removal Penalty."
Payments of rent on the Lease (which, as stated above, will equal corresponding Debt Service
Payments due on the IDA Bonds) will be made by a Group Agent (1) acting on its own behalf to the
extent that it is the user of the Equipment with respect to which the rent is due or (2) acting in its
capacity as Group Agent for forwarding rent payment to the IDA to the extent that an Eligible
Affiliate Agent uses the Equipment with respect to which the rent is due. Where the Group Agent
acts in its capacity to forward rent from an Eligible Affiliate Agent to the IDA, the Group Agent
essentially will be acting as a mere conduit that will serve the administrative function of collecting
rent owed to the IDA from the Eligible Affiliate Agent.
The Project will not exceed the allowable one-third retail facilities restriction of section 862
of the General Municipal Law.
Applicable Law and Regulations
Section l101(b)(5) of the Tax Law defines "sale, selling or purchase" as: "[a]ny transfer of
title or possession or both, exchange or barter, rental, lease or license to use or consume, conditional
or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement
therefor, including the rendering of any service, taxable under this article, for a consideration or any
agreement therefor."

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Section 1105 of the Tax Law provides, in relevant part:
Imposition of sales tax. - ... there is hereby imposed and there shall be paid a tax of
four percent upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*
*
*
(c) The receipts from every sale, except for resale, of the following services:
(3) Installing tangible personal property ... or maintaining, servicing or repairing
tangible personal property ... not held for sale in the regular course of business,
whether or not the services are performed directly ... or by any other means, and
whether or not any tangible personal property is transferred in conjunction therewith
...
Section 1107 of the Tax Law provides, in relevant part:
(a) General. On the first day of the first month following the month in which a
municipal assistance corporation is created under article ten of the public authorities
law for a city of one million or more, in addition to the taxes imposed by sections
eleven hundred five and eleven hundred ten, there is hereby imposed ... within the
territorial limits of such city, and there shall be paid, additional taxes, at the rate of
four percent, which except as provided in subdivision (b) of this section, shall be
identical to the taxes imposed by sections eleven hundred five and eleven hundred
ten.
Such sections and the other sections of this article, including the definition and
exemption provisions, shall apply for purposes of the taxes imposed by this section
in the same manner and with the same force and effect as if the language of those
sections had been incorporated in full into this section and had expressly referred to
the taxes imposed by this section.
Section 1109 of the Tax Law provides, in relevant part:
(a) General. In addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten of this article, there is hereby imposed within ... the metropolitan
commuter transportation district ... and there shall be paid, additional taxes, at the
rate of one-quarter of one percent, which shall be identical to the taxes imposed by
sections eleven hundred five and eleven hundred ten of this article ....
Section 1110 of the Tax Law provides, in relevant part:
Except to the extent that property or services have already been or will be subject to
the sales tax under this article, there is hereby imposed on every person a use tax for
the use within this state ... (A) of any tangible personal property purchased at retail,

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(B) of any tangible personal property manufactured, processed or assembled by the
user, (i) if items of the same kind of tangible personal property are offered for sale
by him in the regular course of business or (ii) if items are used as such or
incorporated into a structure, building or real property by a contractor, subcontractor,
or repairman in erecting structures or buildings, or building on, or otherwise adding
to, altering, improving, maintaining, servicing, or repairing real property, property
or land, as the terms real property, property or land are defined in the real property
tax law, if items of the same kind are not offered for sale as such by such contractor,
subcontractor or repairman or other user in the regular course of business, (C) of any
of the services described in paragraph (1) of subdivision (c) of section eleven
hundred five, and (D) of any tangible personal property ... not acquired for purposes
of resale, upon which any of the services described under paragraphs (2) and (3) of
subdivision (c) of section eleven hundred five have been performed ....
Section 1116 of the Tax Law provides, in relevant part:
(a) ... any sale ... by or to any of the following or any use ... 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 ... 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(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(2) A public corporation as used in this section means any corporation created by an
act of the Legislature for a public purpose ...
Example:

... Industrial Development Agencies are public corporations and may
purchase tangible personal property exempt from the sales and use
taxes

Section 541.3(a) of the Sales and Use Tax Regulations provides, in relevant part:
" ... When a contractor's customer is a governmental entity described in section 1116
(a) (1) ... of the Tax Law, the contract signed by the government representative and
the prime contractor is sufficient proof of the exempt status of purchases made for
such contract.
(1)

Such governmental entities include:

(i) ... (c) industrial development authorities ..."
Section 862 of the General Municipal Laws provides, in relevant part:
Restrictions on funds of the agency

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2.(a) Except as provided in paragraph (b) of this subdivision, no financial assistance
of the agency shall be provided in respect of any project where facilities or property
that are primarily used in making retail sales to customers who personally visit such
facilities constitute more than one-third of the total project cost. For the purposes of
this article, retail sales shall mean: (1) sales by a registered vendor under article
twenty-eight of the tax law primarily engaged in the retail sale of tangible personal
property, as defined in subparagraph (i) of paragraph four of subdivision (b) of
section eleven hundred one of the tax law; or (ii) sales of a service to such customers.
Except, however, that tourism destination projects and projects operated by not-for­
profit corporations shall not be prohibited by this subdivision. For the purpose of this
paragraph, "tourism destination" shall mean a location or facility which is likely to
attract a significant number of visitors from outside the economic development
region as established by section two hundred thirty of the economic development
law, in which the project is located.
(b) Notwithstanding the provisions of paragraph (a) of this subdivision, financial
assistance may, however, be provided to a project where facilities or property that are
primarily used in making retail sales of goods or services to customers who
personally visit such facilities to obtain such goods or services constitute more than
one-third of the total project cost, where (i) the project occupant would, but for the
assistance provided by the agency, locate the related jobs outside the state, or (ii) the
predominant purpose of the project would be to make available goods or services
which would not, but for the project, be reasonably accessible to the residents of the
city, town, or village within which the proposed project would be located because of
a lack of reasonably accessible retail trade facilities offering such goods or services,
or (iii) the project is located in a highly distressed area.
(c) With respect to projects authorized pursuant to paragraph (b) of this subdivision,
no project shall be approved unless the agency shall find after the public hearing
required by section eight hundred fifty-nine of this chapter that undertaking the
project will serve the public purposes of this article by preserving permanent, private
sector jobs or increasing the overall number of permanent, private sector jobs in the
state. Where the agency makes such a finding, prior to providing financial assistance
to the project by the agency, the chief executive officer of the municipality for whose
benefit the agency was created shall confirm the proposed action of the agency.
Section 874 of the General Municipal Law provides, in relevant part:
Tax exemptions
(1) It is hereby determined that the creation of the agency and the carrying out of its
corporate purposes is in all respects for the benefit of the people of the state of New
York 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

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and shall be required to pay no taxes or assessments upon any of the property
acquired by it or under its jurisdiction or control or supervision or upon its activities.
(2) Any bonds or notes issued pursuant to this title, together with the income
therefrom, as well as the property of the agency, shall be exempt from taxation,
except for transfer and estate taxes.
Section 917-a of the General Municipal Law establishes the New York City Industrial
Development Agency as an industrial development agency in general having the powers of industrial
development agencies under Article 18-A of the General Municipal Law.
In Wegmans Food Market, Inc. v. The Department of Taxation and Finance of the State of
N.Y., (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J.) ("Wegmans II") the issues presented
concerned the scope and applicability of the section 874 tax exemption of the General Municipal
Law and, specifically, whether that tax exemption applied to operational expenses incurred by
plaintiff in developing its supermarkets in western New York State. Those markets were constructed
and equipped under agreements made with various Industrial Development Agencies ("IDAs")
pursuant to Article 18-A of the General Municipal Law. The construction was financed by industrial
development bonds ("IDBs") issued by the various IDAs. The respective IDAs held legal title to the
projects, as security for the bonds, but were under "lease back" arrangements with the plaintiff. In
an earlier action, Wegmans Food Markets v. Department of Tax & Finance of the State of N.Y., 126
Misc. 2d 144, aff'd 115 A.D.2d 962, lv to app den 67 NY2d 606, ("Wegmans I") the section 874 tax
exemption was held to be broader than the exemption provided by Section 1116 of the Tax Law.
The court in Wegmans II stated in part:
The IDAs are not authorized to engage in supermarket businesses, or any
other businesses per se. Their functions are limited to the acquisition, construction,
reconstruction, leasing, improving, maintaining, equipping, and furnishing of projects
as security for the repayment of industrial development bonds, in the nature of a
mortgage. Although there is a project lease arrangement between an IDA and the
private developer it is a financing lease with the "rent" paid thereunder consisting
only of amortized costs and expenses related to the project financing and IDBs. The
IDAs do not pay the costs of utilities or other operational expenses; nor do the leases
suggest that the "rent" has been adjusted so as to account for the developer's payment
of operational expenses. The lease is simply a financing tool, designed to secure tax­
exempt IDBs, which are part of an overall plan benefitting, financially, the private
developer and IDB purchasers. Of course, if IDAs are not authorized to operate a
business then it would have no authority to designate agents to do that which they
could not do themselves.
Although some of the numerous expenses listed by plaintiff in their
complaint may be exempt (such as expenses necessary to preserve or repair
equipment), not all of the claimed expense would be exempt. Many of these expenses

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bear no relationship to the purchase, repair or replacement of equipment per se but
instead represent costs of supermarket business operations ....
Because all the expenses involved in this action do not have the same
relationship to the IDA's ownership of the project and authorized functions under the
financing scheme, the expenses must be individually examined to determine what,
if any, relationship each bears to the authorized and lawful functions of an IDA,
particularly the "maintenance" function. The exemption shall be applicable only to
those expenses properly within such function and authority. In this regard, it should
be noted that tax-exempt maintenance would be that needed to maintain the structural
integrity of the structures constructed or rehabilitated to house the various
supermarkets, or to repair equipment used as part of the project.
The use of utilities and washing of windows and other such operating
expenses have nothing to do with the underlying financial scheme and should not be
tax-exempt under the law. If one business is able to operate indefinitely without
paying taxes on its operating expenses simply because at one time its structures were
financed with IDBs, that business would have an apparently unintended, open-ended
economic advantage over competitors, thereby flying in the face of the fundamental
purpose of the law -- i.e. the development of economically sound commerce.
This decision is not inconsistent with [Wegmans I] (supra), where the tax
exemption of section 874 was held applicable to the purchase of tangible personal
property acquired and owned by the IDA, as security for the IDBs. Ownership of
property, real and personal--as distinguished from operation of the business--was
clearly within the express, contemplated function and authority of IDAs under the
GML.
Opinion
In accordance with the sections of law and regulations cited above and the decisions in
Wegmans Food Markets. Inc. v. The Department of Taxation and Finance (126 Misc. 2d 144, aff'd
115 AD2d 962, lv. to app. den. 67 NY2d 606) and Wegmans Food Markets, Inc. v. The Department
of Taxation and Finance of the State of N.Y., (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway,
J.) supra, and provided that all the terms and conditions of the relevant documents are complied with,
and that such terms and conditions are consistent with Petitioner's description of them as set forth
above, in the instant matter, subject to the terms of the Agreement, amounts paid by a Group Agent
to make Acquisitions on behalf of itself or other members of Travelers, as agent of the IDA, where
the Acquisitions consist of the purchase, lease or sublease of, or license or sublicense to use,
furniture, machinery, equipment, trade fixtures and certain other eligible tangible personal property
for use at Travelers' facilities within New York City approved by the IDA, all of which compromise
a part of the TGI Project purchased by the Group Agent or Agent for and on behalf of the IDA, will
be exempt from the sales and use taxes imposed under Sections 1105, 1107, 1109 and 1110 of the
Tax Law, provided that the IDA is the owner or lessor of such property.

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The method of payment to vendors of the purchase price of such Acquisitions, whether (i)
made directly by an Eligible Affiliate Agent or Agent or Group Agent, on its own behalf as agent
of the IDA; (ii) made by a Group Agent where an Eligible Affiliate Agent receives reimbursement
from IDA Bond proceeds; or (iii) made by the Bond Trustee directly forwarding Bond Proceeds, will
not affect the tax exempt status of the transactions involved, so long as all purchase invoices,
statements and contracts with vendors provide that the IDA is the purchaser, lessee, sublessee,
licensee or sublicensee, as the case may be, and that the Group Agent or Agent effecting the
purchase, lease or license is the disclosed agent of the IDA.
Payments made by a Group Agent to vendors for a Maintenance Contract, and payments
made to a Group Agent by an Eligible Affiliate Agent, which constitute an allocation of costs for a
Maintenance Contract, where the Maintenance Contract provides for the replacement of parts which
have a useful life of one year or more, other than parts that contain materials or substances that are
consumed in the operation of the equipment (e.g., a toner cartridge) where such parts must be
replaced when the part, material or substance is consumed, and repair of or with respect to
Equipment, ("Exempt Maintenance Services"), will be exempt from the sales and use taxes imposed
under sections 1105, 1107, 1109 and 1110 of the Tax Law, to the extent that such contracts are
necessary to maintain and repair the IDA machinery and equipment used as part of the TGI project,
in accordance with Wegmans Food Market, Inc. v. The Department of Taxation and Finance of the
State of N.Y. (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J.) supra.
However, it is noted that in any case where the vendor bills for both taxable maintenance or
repair services and Exempt Maintenance Services, the total charge will be subject to the tax imposed
under section 1105(c)(3), 1107, 1109 or 1110 of the Tax Law, unless the portion of the charge
applicable to the Exempt Maintenance Services is separately stated from the other charges or
otherwise reasonably allocated.
Debt Service Payments to the IDA and intercompany reimbursements related thereto, under
the circumstances described above, are not subject to the sales and use taxes imposed under Sections
1105, 1107, 1109 and 1110 of the Tax Law.
Payments from Eligible Affiliate Agents to a Group Agent in respect of costs allocated to
such Eligible Affiliate Agents, under the circumstances described above, will not be subject to the
sales and use taxes imposed under Sections 1105, 1107, 1109 and 1110 of the Tax Law.
In Wegmans Food Markets v Department of Tax & Finance of the State of N.Y.(126 Misc
2d 144, aff'd 115 AD2d 962, iv to app den 67 NY 2d 606) the Court stated, "The Legislature very
carefully included all revenues received by the IDA within the purposes of article 18-A. The
definition of "revenues" in subdivision (7) of Section 854 of the General Municipal Law is all
inclusive: "Ail rents, revenues, fees, charges and other sources of income derived by the agency from
the leasing, sale or other disposition of a project or projects."
Subdivision (4) of Section 854 of the General Municipal Law defines "Project[s]" as "any
land, any building[s] or other improvement, and all real and personal properties located within the
state of New York ..."

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Accordingly, where any member of Travelers elects to remove property from the TGI Project
through the exercise of an Option or by Premature Removal subject to a Premature Removal Penalty,
under the circumstances described above, the amount paid to the IDA as the Option Price or as the
Premature Removal Penalty in these instances will be exempt from the sales and use taxes imposed
under sections 1105, 1107, 1109 and 1110 of the Tax Law. Since there is no consideration paid upon
an Automatic Transfer of Equipment to a member of Travelers, under the circumstances described
above, there is no tax due from such member for such Equipment.
All of the foregoing conclusions depend on compliance with the terms and conditions of the
relevant Project documents, subject to any limitations set forth in such documents.

DATED: August 18, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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