New York Advisory Opinion TSB-A-95(36)S: In Donaldson, Lufkin & Jenrette's 22-year NYC IDA headquarters-relocation deal -- where a single affiliate, Leasing Corp., handles all outright equipment purchases -- are the purchases, improvement materials, rent, maintenance contracts, debt service, reimbursements, and buyout all exempt from sales and use tax?

Plain-English summary

Donaldson, Lufkin & Jenrette, Inc. ("DLJ") and its affiliates (the "DLJ Group") proposed a project with the New York City Industrial Development Agency (the "IDA") intended to keep DLJ's offices in the city for approximately 22 years, relocating from 120 Broadway and 140 Broadway to a new building at 277 Park Avenue owned by Stanley Stahl d/b/a Stahl Park Avenue Company (the "Owner"). Like the CS First Boston and Equitable Life deals from the same era, the structure involves the IDA taking title to condominium units DLJ will occupy (in exchange for a real estate tax abatement via PILOT payments), with all tax-exempt purchases ("Acquisitions") made through designated "Group Agents" within the DLJ Group -- including DLJ itself, Donaldson Leasing Corp., DLJ Securities Corporation, DLJ Capital Corporation, DLJ Merchant Banking, DLJ Mortgage Capital, and Wood, Struthers & Winthrop Management Corp. What's distinctive here: for regulatory reasons unrelated to the project, one affiliate -- Donaldson Leasing Corp. ("Leasing Corp.") -- is the SOLE entity within the DLJ Group responsible for making outright equipment purchases, and this practice continues under the deal. Leasing Corp. purchases materials for permanent Improvements to the space (acting as the IDA's agent, sometimes through contractors) and separately purchases Equipment outright, which it then leases to the various Group Agents under a consolidated "Master Lease." DLJ is separately authorized to spend up to $37,979,000 from a Owner-financed "Fund" for various purposes, including purchasing Improvement materials -- with the Owner owning those Improvements for federal tax purposes even though Leasing Corp. still makes the purchases as the IDA's agent. Each Group Agent using a share of the Improvements reimburses Leasing Corp. for its portion of the cost ("Reimbursements"), funded through nonrecourse loans DLJ extends to each Group Agent ("Reimbursement Loans"). Group Agents can also independently lease "Leased Equipment" from third parties and enter "Exempt Service Contracts" for maintenance/repair of Improvements, Equipment, and Leased Equipment (excluding consumable parts and general services like janitorial work).

The Department answered all nine of DLJ's questions favorably. (a) Leasing Corp.'s purchases of Equipment FOR RESALE to the Group Agents are exempt as long as Leasing Corp. gives the vendor a properly completed Form ST-120 Resale Certificate. (b) Leasing Corp.'s purchases of materials for Improvements -- whether funded from general project funds or the Owner-financed Fund, and covering the IDA's share of the Common Area -- are exempt as the IDA's agent purchases, provided the IDA is documented as owner/lessor/lessee and Leasing Corp. is shown as its disclosed agent on every invoice and contract. (c) Rent the Group Agents pay Leasing Corp. for Equipment under the Master Lease (for payments made after March 5, 1995) is exempt provided the IDA is the lessee. (d) Rent the Group Agents pay third-party vendors for Leased Equipment is exempt under the same IDA-lessee/disclosed-agent conditions, citing the Department's own prior Morgan Stanley Group precedent. (e) Exempt Service Contract payments are exempt to the extent necessary to maintain, repair, or service the Improvements, Equipment, and Leased Equipment -- but EXCLUDE consumable parts (like toner cartridges replaced when consumed) and general services (janitorial), and a mixed taxable/exempt invoice must separately state each portion or the entire charge becomes taxable. (f) Debt Service Payments to the IDA under the Financing Lease are exempt. (g) Reimbursement payments a Group Agent makes to Leasing Corp. for its share of Improvement costs, and payments on the related Reimbursement Loans DLJ extends, are exempt. (h) The $1 aggregate Option Price paid to buy out the IDA's interest at the end of the deal (or bond redemption) is exempt. (i) Any Premature Removal Penalty a Group Agent pays for removing property before the retention period ends is not treated as consideration for a taxable sale.

What this means for you

Companies where one affiliate is the sole outright-purchasing entity for regulatory reasons

Having a single designated affiliate handle all outright equipment purchases (whether for broker-dealer regulatory capital reasons or otherwise), then resell/lease that equipment to other affiliates via resale certificates, doesn't jeopardize the IDA exemption chain -- each transfer just needs its own properly completed documentation.

Businesses using landlord-financed improvement funds under an IDA deal

An arrangement where the building owner finances an "improvement fund" that your leasing affiliate draws from -- while your affiliate still makes the actual purchases as the IDA's agent -- can preserve the sales-tax exemption on those purchases, even though the owner ultimately owns the resulting improvements for tax purposes.

Corporations financing improvement costs through intercompany loans

Reimbursements a using-affiliate pays to a purchasing-affiliate for its share of improvement costs -- even when funded through nonrecourse intercompany loans -- can be structured as exempt from sales tax, as long as the underlying purchases were genuinely made as the IDA's agent.

Common questions

Q: Why does one affiliate (Leasing Corp.) handle all outright purchases instead of each Group Agent buying its own equipment?
A: The ruling states this is due to "certain regulatory reasons unrelated to the Project" -- consistent with the kind of broker-dealer regulatory capital concerns that drove a similar centralized-purchasing structure in the contemporaneous CS First Boston opinion, though this ruling doesn't specify DLJ's exact regulatory rationale.

Q: Does the Owner's ownership of Improvements funded from the Fund affect the sales-tax exemption?
A: No -- the ruling treats the Owner's federal-tax-purposes ownership of Fund-financed Improvements as a separate question from the sales-tax exemption, which turns on Leasing Corp. genuinely making the purchases as the IDA's disclosed agent, regardless of who ultimately owns the improvements for other purposes.

Q: What's the practical difference between "Reimbursements" and "Reimbursement Loans" in this structure?
A: Reimbursements are what each Group Agent pays Leasing Corp. for its pro rata share of Improvement costs; Reimbursement Loans are the nonrecourse loans DLJ extends to each Group Agent (secured by that Group Agent's interest in the Improvements) to FUND those Reimbursement payments -- both are addressed and both are held exempt from sales and use tax.

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(a) (additional NYC sales tax)
• Tax Law § 1109(a) (metropolitan commuter transportation district tax)
• Tax Law § 1110 (compensating use tax)
• Tax Law § 1116(a)(1) (governmental entity/public corporation exemption)
• 20 NYCRR 526.6(c) (resale certificate rules)
• 20 NYCRR 526.7(a) (definition of sale/purchase)
• 20 NYCRR 526.7(c)(2) (tax on lease-option exercise price)
• 20 NYCRR 526.8(c) (tangible personal property excludes real property)
• 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")
• General Electric Capital Corporation, Advisory Opinion, April 4, 1994, TSB-A-94(14)S (referenced regarding sale-leaseback financing transactions, not directly ruled on in this opinion)
• Morgan Stanley Group Inc., Advisory Opinion, Commissioner of Taxation and Finance, December 16, 1993, TSB-A-93(69)S

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_36s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-95 (36)S
Sales Tax
August 18, 1995

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSION OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950118B

On January 18, 1995, a Petition for Advisory Opinion, as amended on April 3, 1995, was
received from Donaldson, Lufkin & Jenrette Inc., 140 Broadway, 42nd Floor, New York, NY 10005.
Petitioner, Donaldson, Lufkin & Jenrette, Inc., states the issues and facts as follows:
1.

Whether Leasing Corp.'s purchases of Equipment for resale to Group Agents pursuant to a
resale certificate will be exempt from New York State and New York City Sales and
Compensating Use Taxes and the Metropolitan Commuter Transportation District Tax
(together, "State and local sales and use taxes").

2.

Whether Leasing Corp's purchases of materials to be incorporated into Improvements
(including from the Fund and with respect to the IDA Share of the Common Area) on
behalf of and as agent of the IDA pursuant to the Exemption Letter and, as applicable, the
Project Agreement will be exempt from State and local sales and use taxes.

3.

Whether rent payments made after March 5, 1995, for Equipment to Leasing Corp. by the
Group Agents, on behalf of and as agents of the IDA, pursuant to the Master Lease and to the
Exemption Letter and, as applicable, the Project Agreement will be exempt from State and
local sales and use taxes.

4.

Whether rent payments for Leased Equipment to third party vendors by the Group Agents, on
behalf of and as agents of the IDA, pursuant to the Exemption Letter and, as applicable, the
Project Agreement will be exempt from State and local sales and use taxes.

5.

Whether payments under Exempt Service Contracts by the Group Agents acting on behalf of
and as agents of the IDA will be exempt from State and local sales and use taxes.

6.

Whether Debt Service Payments to the IDA under the Financing Lease will be exempt from
State and local sales and use taxes.

7.

Whether payments of Reimbursements and all payments with respect to Reimbursement Loans
will be exempt from State and local sales and use taxes.

8.

Whether or not State and local sales and use taxes will be imposed only on the Option Price
at the time the Option is exercised.

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9.

Whether or not, if, at any time, a Premature Removal Penalty is imposed on any of the Group
Agents by the IDA, such Premature Removal Penalty shall be deemed to be consideration for
a sale subject to State and local sales and use taxes.

This petition for advisory opinion concerns a proposed transaction (the "Project") between the
New York City Industrial Development Agency (the "IDA") and Donaldson, Lufkin and Jenrette,
Inc. ("DLJ") intended to induce DL3 to maintain its offices in New York City (the "City") for
approximately twenty-two (22) years. As part of the Project, DLJ and certain affiliates (the "DLJ
Group") will relocate from premises in buildings at 120 Broadway and at 140 Broadway, New York,
New York, (together, the "Broadway Premises") to premises in the building at 277 Park Avenue,
New York, New York, (the "Building") owned by Stanley Stahl (d/b/a Stahl Park Avenue Company)
(the "Owner").
In connection with the Project, the IDA will extend certain economic development benefits
to DLJ to reduce the cost of maintaining offices in the City and of acquiring associated
improvements and equipment. Among these benefits are (i) a real estate tax abatement on all or a
portion of the DLJ premises in the Building evidenced by DLJ's obligation to make certain payments
in lieu of real estate taxes ("PILOT") with respect to such premises pursuant to a PILOT agreement
(the "PILOT Agreement") and (ii) sales and compensating use tax exemptions pursuant to the PreBond Issuance Sales Tax Letter (November 11, 1994), the Amended and Restated Pre-Bond Issuance
Sales Tax Letter (March 6, 1995), the Second Amended and Restated Pre-Bond Issuance Sales Tax
Letter (April 26, 1995), the Third Amended and Restated Pre-Bond Issuance Sales Tax Letter (May
17, 1995), the Fourth Amended and Restated Pre-Bond Issuance Sales Tax Letter (June 30, 1995),
the Fifth Amended and Restated Pre-Bond Issuance Sales Tax Letter (July 31, 1995) or the Sales Tax
Letter (as applicable, the "Exemption Letter") and pursuant to a Project agreement (the "Project
Agreement"). The Exemption Letter applies to all of the property, service contracts and purchases
under the Project.
In order to extend the real estate tax abatement to DLJ, the IDA will take title to that portion
of the Building to be occupied by the DLJ Group, for which DLJ will seek real estate tax abatement.
Initially, the DLJ Group will occupy approximately seven hundred thirty-three thousand (733,000)
rentable square feet in the Building (not including the Building common area ("Common Area"));
DLJ will have expansion options with respect to additional space in the Building (the space initially
to be occupied by the DLJ Group in the Building together with any additional space, the "Project
Premises"). Because the IDA will not take title to any portion of the Building that the DLJ Group
does not lease, the Building will be converted to a condominium form of ownership, with the Project
Premises comprising separate condominium units, title to which can be separately conveyed to the
IDA. Each unit so conveyed will carry with it an undivided proportionate interest in the Common
Area (the aggregate undivided interest in the Common Area, the "IDA Share"). That portion of the
Project Premises to be leased by the DL3 Group and for which DLJ will seek real estate tax
abatement will consist of the condominium units initially conveyed by the Owner to the IDA and,
upon DLJ's exercise of its expansion options or otherwise, so conveyed from time to time thereafter
(these initial units together with any additional units, the "IDA Units").

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In order for sales and use tax exemptions to be available to DLJ, all purchases eligible for
exemption in connection with the Project ("Acquisitions") must be made by the IDA through its
designated agents within the DLJ Group (the "Group Agents"). In addition to DL3, the following
members of the DLJ Group have been designated as agents of the IDA under the Exemption Letter
for purposes of the sales and use tax exemption: Donaldson Leasing Corp.; Donaldson, Lufkin &
Jenrette Securities Corporation; DLJ Capital Corporation; DL3 Merchant Banking, Inc.; DLJ
Mortgage Capital, Inc.; and Wood, Struthers & Winthrop Management Corp. It is anticipated that
from time to time certain additional members of the DLJ Group may be designated by DL3 as agents
of the IDA for purposes of the sales and use tax exemption under the Exemption Letter pursuant to
the terms of the Project Agreement and the other Project documents. Such Acquisitions will be made
in all respects in accordance with (i) the Exemption Letter and, as and when applicable, (ii) the
Project Agreement. In addition, the IDA must authorize by specific resolution each site in the City
where property acquired in Acquisitions may be situated for use by the DLJ Group in connection
with the Project (together, all such sites authorized by IDA resolution, the "Approved Premises").
Currently, the Approved Premises consist of the Broadway Premises and the Project Premises.
To finance the purchase of the Acquisitions, the IDA will from time to time issue special
obligation revenue bonds (the "Bonds"). The Bonds may be sold to a member of the DLJ Group
(other than a Group Agent) or to unrelated third parties. Proceeds raised through the sale of such
Bonds will be available (i) to purchase the Acquisitions directly or (ii) to reimburse the Group
Agents (or other members of the DLJ Group) that may have advanced funds to purchase the
Acquisitions. Such reimbursements shall be made only for purchases made after the purchaser has
been appointed an agent of the IDA. For income tax and financial reporting purposes, the DL3 Group
will report the Acquisitions in the same manner that similar acquisitions were reported prior to the
Project.
For certain regulatory reasons unrelated to the Project, one member of the DLJ Group,
Donaldson Leasing Corp. ("Leasing Corp.") is currently the sole entity within the DL3 Group
responsible for making outright purchases for the DLJ Group. It is anticipated that this arrangement
will continue under the Project. Accordingly, (i) Leasing Corp., acting on behalf of and as agent of
the IDA (as applicable, through contractors acting on behalf of and as agents of Leasing Corp. in its
capacity as agent of the IDA), shall purchase and install all materials to be incorporated as permanent
improvements, additions and installations to the Project Premises (such materials as so incorporated,
including any replacements, enhancements and additions thereto, collectively, the "Improvements");
and (ii) Leasing Corp. shall purchase outright certain furniture, furnishings, machinery, equipment,
or other personalty used at the Approved Premises (such personalty purchased outright, including
any replacements, enhancements and additions thereto, collectively, the "Equipment") and shall lease
the Equipment to the Group Agents, acting on behalf of and as agents of the IDA, as described
below. In connection with the Project and in order to lessen the administrative burden resulting from
the Project, DL3 anticipates that it will cause Leasing Corp. to restate and consolidate all separate
leases under the Project for Equipment in use or to be used at the Approved Premises into a single
master lease agreement (the "Master Lease") between Leasing Corp. and the Group Agents. In
addition, with respect to Equipment, DL3 may enter into sale-leaseback transactions, as necessary,
to obtain third party financing of the Equipment.

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Petitioner expects that these sale-leaseback transactions will not be subject to State and local
sales and use taxes, consistent with General Electric Capital Corporation, TSB-A-94(14)S (April 4,
1994). However, Petitioner does not now request an opinion with respect to these sale-leaseback
transactions.
DLJ is authorized under the PrimeLease (as defined below) to expend up to $37,979,000, to
be financed by Owner, (the "Fund") for various purposes, including the purchase of materials to be
incorporated into Improvements. To the extent that all or a portion of the Fund is expended to
purchase such materials, the Owner will own, for federal income tax purposes, any Improvements
into which such materials are incorporated and so financed. Notwithstanding this, expenditures from
the Fund to purchase such materials will be made by Leasing Corp. acting on behalf of and as agent
of the IDA (as applicable, through contractors acting on behalf of and as agents of Leasing Corp. in
its capacity as agent of the IDA). Any materials to be incorporated as Improvements to the Project
Premises purchased with expenditures from the Fund will be affixed to the Project Premises and
leased to the Owner by the IDA pursuant to the Overlease (as defined below), subleased to DLJ by
the Owner pursuant to the Prime Lease (as defined below), sub-subleased to the IDA by DLJ
pursuant to the Facility Lease (as defined below), and sub-sub-subleased to the Group Agents by the
IDA pursuant to the Financing Lease (as defined below). It is intended that, to the extent they
otherwise would have been subject to sales or use tax, all expenditures from the Fund to purchase
Improvements in connection with the Project will be eligible for sales and use tax exemption.
The Master Lease will be either one that is characterized under Accounting Standards of the
Financial Accounting Standards Board as a "capital lease" (and is so recorded on the books and
records of the lessees) or one in which an option to purchase the subject property is granted to the
lessees by the lessor, Leasing Corp.
No similar regulatory reasons require that Leasing Corp. be the sole entity within the DLJ
Group to enter into leases of property or into maintenance, service and repair contracts directly.
Certain designated members of the DLJ Group, namely, the Group Agents, currently enter into such
leases and contracts on their own behalf (e.g., to lease or maintain copying machines). It is
anticipated that this arrangement will continue under the Project. Accordingly, each Group Agent,
acting on behalf of and as agent of the IDA, may (i) enter into leases with third party vendors for
personalty, which such Group Agent will use (such leased personalty, including any replacements,
enhancements and additions thereto, collectively, the "Leased Equipment") and (ii) enter into
contracts for maintenance, service and repair of real and personal property, consisting of the
Improvements, Equipment and Leased Equipment, with a useful life of one year or more, in use at
or comprising part of the Approved Premises, including replacement parts but not including parts
(e.g., a toner cartridge) that contain materials or substances consumed in operating the property and
that are replaced when the part, material or substance is consumed, but not including contracts for
general services (e.g., janitorial services) ("Exempt Service Contracts").
a.
Improvements. The following structure is proposed to secure the tax benefits offered
by the IDA to DLJ with respect to Improvements.

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(i) The Group Agents, acting on behalf of and as agents of the IDA (through contractors acting
on behalf of and as agents of the Group Agents, in their capacity as agents of the IDA), will purchase
and install all materials to be incorporated as Improvements to the Project Premises. (As noted
above, Petitioner anticipates that Leasing Corp. will be the sole entity responsible for purchasing
materials to be incorporated as Improvements on-behalf of the DLJ Group and of the IDA (either
directly or through contractors). However, each Group Agent will be responsible for paying its share
of the costs of Improvements to Leasing Corp. After the materials are incorporated as Improvements
to the Project Premises and as of the time when such Improvements are placed in service for federal
income tax purposes, the books of each Group Agent will reflect its interest in the Improvements.
At the same time, each Group Agent will reimburse Leasing Corp. for such Group Agent's share of
Leasing Corp.'s expenditures to purchase materials to be incorporated as Improvements (the
"Reimbursements"). The Group Agents will make the Reimbursements with funds borrowed from
DLJ through nonrecourse loans to each Group Agent secured by such Group Agent's interest in the
Improvements (the "Reimbursement Loans").)
(ii) The Group Agents will have purchased all materials to be incorporated as Improvements
to the Project Premises, on behalf of and as agents of the IDA, but there will be no installation of any
such materials until the IDA acquires a leasehold interest in the Project Premises. (In the period prior
to when Bonds are first issued, the IDA will acquire a leasehold interest in the Project Premises by
an interim arrangement in which DLJ will lease the Project Premises to the IDA pursuant to an
interim lease agreement (the "Interim Lease") for nominal rent and the IDA will lease this interest
back to DLJ pursuant to an interim sublease agreement (the "Interim Sublease") for nominal rent.
The terms of the Interim Lease and of the Interim Sublease shall each end on the date when Bonds
are first issued or earlier upon certain other events.) In the period after Bonds are first issued, the
IDA will obtain both title to the IDA Units and a leasehold interest in the Project Premises. The IDA
will acquire a leasehold interest in the Project Premises pursuant to the Facility Lease defined below.
In addition, the IDA will have acquired title to the IDA Units from the Owner. The Owner will
condominiumize the Building and convey title to the IDA Units for a nominal amount to the IDA,
subject to an existing mortgage on the Building. The IDA will then lease the IDA Units back to the
Owner pursuant to a lease agreement (the "Overlease") for nominal rent. The deed conveying the
initial IDA Units to the IDA (the "Initial Deed") will contain reverters to the Owner upon the
expiration of, or earlier termination of, the Financing Lease defined below, or upon certain other
events.
(iii) The Owner will lease the Project Premises, including the IDA Units, to DLJ pursuant to
a lease agreement (the "Prime Lease") for fair market value rent.
(iv) DLJ will then lease the Project Premises, including the IDA Units, to the IDA pursuant
to a lease agreement (the "Facility Lease" ) for nominal rent. The IDA, which also holds title to the
Improvements, will lease the Project Premises (including the IDA Units and the Improvements) and
the Equipment and Leased Equipment back to the Group Agents pursuant to a lease agreement (the
"Financing Lease") for an amount sufficient to repay the Bonds (the "Debt Service Payments").

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b. Equipment. The following structure is proposed to secure the tax benefits offered by the
IDA to DLJ with respect to Equipment.
(i) Leasing Corp. continuing its present practice, will purchase Equipment and then lease such
Equipment used at the Approved Premises to the Group Agents acting on behalf of and as agents of
the IDA, pursuant to the Master lease, for fair market value rent.
(ii) The IDA will lease such Equipment back to the Group Agents pursuant to the Financing
Lease for the Debt Service Payments.
c. Leased Equipment. The following structure is proposed to secure the tax benefits offered
by the IDA to DLJ with respect to Leased Equipment.
(i) The Group Agents acting on behalf of and as agents of the IDA will enter into leases for
Leased Equipment with third party vendors for fair market value rent.
(ii) The IDA will lease the Leased Equipment back to the Group Agent which is to use such
Leased Equipment pursuant to the Financing Lease for the Debt Service Payments.
d. Other Facts. The Overlease will require the Owner to pay the PILOT due from DLJ in the
event DLJ should fail to make such payments under the PILOT Agreement. In addition, the
Overlease will contemplate the potential for additional units to be conveyed to the IDA in connection
with DLJ's expansion options, and will become applicable to such additional units upon the
conveyance thereof to the IDA.
The Prime Lease will, among other things, require DLJ to (i) pay fair market value rent with
respect to the Project Premises, (ii) pay taxes imposed against the Project Premises, if any, and (iii)
reimburse the Owner for any PILOT paid by the Owner under the Overlease as a result of a DLJ
default under the PILOT Agreement. The Prime Lease also will contain various expansion options
which, if exercised, may result in the conveyance of additional unit(s) to the IDA. In the event such
additional conveyances are consummated, the deeds executed in connection therewith will grant the
same type of interest to the IDA and contain the same reverters as the Initial Deed.
The PILOT Agreement will require that DLJ pay PILOT to a PILOT Trustee. The Owner's
obligation to pay PILOT under the Overlease will be secured by a first mortgage on the IDA Units
("PILOT Mortgage") to be granted by the Owner as mortgagor to the IDA as mortgagee. The existing
mortgage on the Building will be subordinated to the PILOT Mortgage.
Under the Project Agreement (but only for the purpose of the Project Agreement, as DLJ has
no intention to remove the Improvements), among other things and with certain limited exceptions,
(i) none of the Improvements may be removed from the Project Premises prior to the expiration of
three years after the installation or location of such Improvements at the Project Premises and (ii)
none of the Equipment or the Leased Equipment may be removed from the Approved Premises
(except for removals from one Approved Premises to another Approved Premises) prior to the

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expiration of the period provided for in the Project Agreement following the location of such
Equipment or Leased Equipment at the Approved Premises (the periods referred to in clauses (i) and
(ii) above, the "Retention Period").
At the end of the Project term (or earlier if the Bonds have been redeemed in full), the
Improvements, the leasehold interests in the Equipment and Leased Equipment and all rights under
the Exempt Service Contracts may be purchased from the IDA by the Group Agent which exercises
a purchase option (the "Option") under the Financing Lease for an aggregate option price of $1.00
(the "Option Price").
If any of the Improvements is removed from the Project Premises or any of the Equipment or
Lease Equipment is removed from the Approved Premises prior to the expiration of the Retention
Period, other than upon the occurrence of certain specified grounds for such removal (i.e.,
obsolescence, uselessness, or another good faith reason), the Group Agents must pay the IDA 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 original purchase if such item had been
purchased or leased by a Group Agent 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 (the "Premature
Removal Penalty").
The Project Agreement will provide that certain amounts paid to purchase Acquisitions and
related Exempt Service Contracts will be exempt from State and local sales and use taxes. The
Project Agreement contemplates that benefits will be received by the DLJ Group over a period of
approximately twenty-two (22) years (beginning August 9, 1994, and ending March 31, 2016).
Benefits allocated to but not used during the portion of the period while the Building is prepared for
DLJ's relocation will be reallocated to the portion of the period after such relocation, for on-going
expenditures. Ail remaining benefits must be used by the end of the period or forfeited. With respect
to the Common Area, only the purchase price of materials to be incorporated into Improvements to
the IDA Share of the Common Area will be exempt from tax. (DLJ is not expected to pay for any
excess of the total costs of Improvements to the Common Area over that portion of such costs which
corresponds directly to the IDA Share of the Common Area.)
The IDA and a banking institution designated by the IDA (the "Bond Trustee") will enter into
a trust indenture (the "Trust Indenture") to provide for the issuance from time to time by the IDA of
the Bonds. The term of the Bonds will end upon the earlier to occur of the maturity date (March 31,
2016) or the redemption of all of the Bonds prior to maturity. However, DLJ is entitled to redeem
less than all of the Bonds from time to time, subject to certain requirements of the IDA. Bond
proceeds may not be used to finance (i) payments under maintenance contracts (including Exempt
Service Contracts) or (ii) that portion of any lease payment for Equipment or for Leased Equipment
not otherwise attributable to the deemed "principal portion" of the payments due for such Equipment
or Leased Equipment.
The Project will not exceed the allowable one-third retail facilities restriction of Section 862
of the General Municipal Law.

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Applicable Law and Regulations
Section l101(b)(5) of the Tax Law defines "sale, selling or purchase" as:
Any 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.
Section 1105 of the Tax Law provides, in relevant part:
. . . 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 . . . .
(5) Maintaining, servicing or repairing real property, property or land, as such terms are
defined in the real property tax law, whether the services are performed in or outside of a
building, as distinguished from adding to or improving such real property, property or land,
by a capital improvement as such term . . . is defined in paragraph 9 of subdivision (b) of
section eleven hundred one of this chapter . . . .
Section l107(a) of the Tax Law provides, in relevant part:
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 l109(a) of the Tax Law provides, in relevant part:

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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, (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 ll16(a) of the Tax Law provides, in relevant part:
. . . . 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 526.6(c) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(1) Where a person, in the course of his business operations, purchases tangible personal
property or services which he intends to sell . . . the property or services which he has
purchased will be considered as purchased for resale, and therefore not subject to tax until he
has transferred the property to his customer. (2) A sale for resale will be recognized only if the
vendor receives a properly completed resale certificate. (3) Receipts from the sale of property
purchased under a resale certificate are not subject to tax at the time of purchase by the person

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who will resell the property. The receipts are subject to tax at the time of the retail sale.
Section 526.7(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(1) The words sale, selling or purchase mean any transaction in which there is a transfer of
title or possession, or both, of tangible personal property for a consideration.
(2) Among the transactions included in the words, sale, selling or purchase are exchanges,
barters, rentals, leases or licenses to use or consume tangible personal property.
Section 526.7(c) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(2) Where a lease . . . with an option to purchase has been entered into, and the option is
exercised, the tax will be payable on the consideration given when the option is exercised, in
addition to the taxes paid or payable on each lease payment.
Section 526.8(c) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
Tangible personal property does not include:
(1) real property;
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 New York State Sales and Use Tax Regulations provides, in relevant
part:
When a contractor's customer is a governmental entity described in section ll16(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:

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Restrictions on funds of the agency

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 service the
   public purposes of this article by preserving permanent, private sector jobs in the state. Where
   the agency makes such 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:
   (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 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.

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(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 generally the scope and applicability of the tax exemption established by section 874 of
the General Municipal Law and more specifically, whether that tax exemption applied to operational
expenses incurred by plaintiff in the day-to-day operation of several projects in western New York
State developed as its supermarkets. Those markets were constructed and equipped under agreements
made with various industrial development authorities pursuant to Article 18-A of the General
Municipal Law, and accordingly their construction was financed by industrial development bonds
("IDBs") issued by the various industrial development agencies. The respective agencies 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 and Finance of the State
of N.Y., 126 Misc 2d 144, Aff'd 115 AD2d 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 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 the 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 [sic]
complaint may be exempt (such as expenses necessary to preserve or repair project
property), not all of the claimed expenses would be exempt. Many of these expenses
bear no relationship to the purchase, repair or replacement of project property per se but
instead represent costs of supermarket business operations . . . .

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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 shallbe 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 of 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
[General Municipal Law].
In [Wegmans I], the Court stated:
The Legislature very carefully included all revenues received by an 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: "All 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."
The term projects" was also made all-embracing. Subdivision (4) of section 854
of the General Municipal Law defines "Project[s]" as "any land, and building[s] or other
improvement, and all real and personal properties located within the state of New York
....
Opinion
In accordance with the sections of law and regulations cited above and the decisions in
Wegmans Food Markets Inc. v. Department of Taxation and Finance (126 Misc 2d 144, affd 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, 3an. 10, 1992, Galloway, J.),
supra, and provided that all the terms and conditions of the relevant documents are complied with,

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and that such terms and conditions are consistent with Petitioner's description of them as set forth
above, in the instant matter:
(a) Leasing Corp.'s purchases of Equipment for resale to the Group Agents will be exempt from
taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law (sales and use taxes),
provided that Leasing Corp. gives the Equipment vendor a properly completed form ST-120, Resale
Certificate, as discussed in sections 526.6(c), 526.7(a) and 526.7(c) of the Sales and Use Tax
Regulations.
(b) Leasing Corp.'s purchases of tangible personal property to be incorporated as Improvements
(including from the Fund and with respect to the IDA Share of the Common Area), as agent for and
on behalf of the IDA pursuant to the Exemption Letter and, as applicable, the Project Agreement,
will be exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law,
provided that the IDA is the owner, lessor or lessee of the property and that the purchase invoices,
statements and contracts with vendors and suppliers provide that the IDA is the purchaser, lessor or
lessee and that the Group Agent (in this instance, Leasing Corp.) effecting the purchase or lease is
the disclosed agent of the IDA.
(c) Rent payments made after March 5, 1995, for Equipment to Leasing Corp. by the Group Agents,
as agents for and on behalf of the IDA, pursuant to the Master Lease, Exemption Letter and, as
applicable, Project Agreement, will be exempt from the taxes imposed under sections 1105, 1107,
1109 and 1110 of the Tax Law, provided that the IDA is the lessee of the Equipment.
(d) Rent payments for Leased Equipment made to third party vendors by the Group Agents, as
agents for and on behalf of the IDA, pursuant to the Exemption Letter and, as applicable, the Project
Agreement, will be exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110 of the
Tax Law, provided that the IDA is the lessee of the Leased Equipment, that the lease documents
provide that the IDA is the lessee and that the Group Agents are the disclosed agents of the IDA.
Morgan Stanley Group Inc., Adv. Op. Comm. T&F, December 16, 1993, TSB-A-93(69)S.
(e) Payments made under Exempt Service Contracts by the Group Agents, as agents for and on
behalf of the IDA, for the purchase of the service of maintaining, repairing or servicing real property
or tangible personal property, consisting of the Improvements, Equipment and Leased Equipment,
with a useful life of one year or more, and which comprises part of or is in use at the Approved
Premises, including replacement of parts, but not including parts (e.g. a toner cartridge) that contain
materials or substances consumed in operating the property and that are replaced when the part,
material or substance is consumed, but not including contracts for general services (e.g., janitorial
services), will be exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110 of the
Tax Law, to the extent that such Exempt Service Contracts, services and parts, are necessary to
maintain, repair or service Improvements, Equipment and Leased Equipment used as part of the
Project, and provided that the IDA is the owner, lessor or lessee of the Improvements, Equipment
and Leased Equipment, and that the purchase invoices, statements and contracts with vendors and
suppliers provide that the IDA is the purchaser, lessor or lessee and that the Group Agents are the
disclosed agents of the IDA. In any instance where the maintenance, repair or servicing results in the
replacement of parts, materials or supplies that are consumed in the ongoing operation of the

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August 18, 1995
Improvements, Equipment or Leased Equipment, where such parts, materials or supplies must be
replaced when consumed, the portion of the charges applicable to such parts, materials or supplies
will be subject to the taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law, as
indicated in 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, 3.) supra.
However, it is noted that in a transaction where the charge is for both taxable maintenance and
repair services and an Exempt Services Contract, the total charge will be subject to the tax imposed
under section 1105(c)(3) or (5), 1107, 1109 or 1110 of the Tax Law, unless the portion of the charge
applicable to the Exempt Service Contract is separately stated from the other charges or otherwise
reasonably allocated.
(f) Debt Service Payments made to the IDA under the Financing Lease will not be subject to the
taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law.
(g) Payments of Reimbursements by a Group Agent to Leasing Corp. and payments with respect to
Reimbursement Loans made by a Group Agent to DLJ with respect to the Group Agent's share of
the cost of Improvements, which costs were incurred as agent for and on behalf of the IDA, will not
be subject to the taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law.
(h) The Option Price paid by a Group Agent to the IDA at the time the Option under the Financing
Lease is exercised will be exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110
of the Tax Law.
(i) The amount paid to the IDA as a Premature Removal Penalty by any of the Group Agents for the
premature removal of property will not be subject to the taxes imposed under sections 1105, 1107,
1109 and 1110 of the Tax Law.
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.