New York Advisory Opinion TSB-A-95(43)S: In a 22-year NYC IDA bond financing to keep CS First Boston headquartered in the city, are the layered purchase, lease, resale-certificate, service-contract, rent, and eventual buyout transactions among Purchasing, Leasing, the Group Agents, and the IDA exempt from New York State and City sales and use tax?

Plain-English summary

CS First Boston Corporation ("CSFB") occupies office space at various New York City locations and proposed a large bond-financed project with the New York City Industrial Development Agency (the "IDA") to induce it to keep its headquarters in the city for roughly 22 years (January 23, 1995 through December 31, 2016). CSFB will relocate to space at 11 Madison Avenue, owned by Metropolitan Life Insurance Company (the "Owner"); the building will be converted to condominium form so that the space CSFB occupies (the "Project Premises") can be conveyed, unit by unit, to the IDA, giving CSFB a real estate tax abatement (via "payments in lieu of taxes," or PILOT) and sales/use tax exemptions on qualifying purchases connected to the project.

To capture the sales-tax benefit, every eligible purchase ("Acquisition") must be made through one of CSFB's designated "Group Agents" -- CSFB itself plus several affiliates (Madison Leasing Corp., CS First Boston Investment Management Corp., CS First Boston Merchant Bank, Inc., CS First Boston Securities Corp., CS First Boston USA, Inc., CS First Boston, Inc., and Lattice Trading, Inc., with more potentially added later) -- acting as the IDA's disclosed agents, and used only at IDA-authorized "Approved Premises" (the Project Premises plus several other CSFB office locations). The IDA issues bonds to finance most Acquisitions, and CSFB's internal corporate structure routes purchasing through one affiliate and leasing through another: Madison Purchasing Corp. ("Purchasing") buys furniture, machinery, equipment, and similar personal property outright ("Equipment," broadly including pre-written computer software in any medium) and then resells it to either Madison Leasing Corp. ("Leasing") or directly to the Group Agents; Leasing separately enters leases with third-party vendors for other personal property ("Leased Equipment," also including software) and re-leases it to the Group Agents. Leasing (or the Group Agents directly) also contracts for installation, maintenance, and repair services on this property and on physical "Improvements" built into the space -- these become "Exempt Service Contracts" once resold to the Group Agents, though they specifically exclude consumable replacement parts (like toner cartridges) and general services like janitorial work. All these sub-leases eventually get consolidated into a single "Master Lease" between Leasing and the Group Agents, and the IDA leases everything back to the Group Agents under a "Financing Lease," with the Group Agents' rent ("Debt Service Payments") sized to repay the IDA's bonds. Some improvements to the space (the "Owner Improvements") are paid for by the Owner and owned by the Owner for financial/tax reporting purposes, even though the IDA holds legal title -- Petitioner acts as the IDA's agent AND as the Owner's own general contractor for these. After a 3-year "Retention Period" (during which early removal of property triggers a "Premature Removal Penalty" equal to the tax that would otherwise have been due), the IDA automatically relinquishes its interest in everything to the Owner/Group Agents for no consideration (the "Automatic Transfer"), and at the end of the deal (or earlier bond redemption) the Group Agents can buy out the IDA's remaining interest for a nominal $1 "Option Price."

The Department answered all 13 of Petitioner's questions favorably, subject to strict conditions tied to the documented Project structure. Purchasing's and Leasing's purchases of Equipment, Leased Equipment, and services -- made using a properly completed Form ST-120 Resale Certificate with the genuine intent to resell or re-lease down the chain -- are exempt, as long as that resale/re-lease to Leasing or the Group Agents actually happens. Petitioner's purchases of materials for both Improvements and Owner Improvements to the IDA's share of the property are exempt as long as the IDA is documented as owner/lessor/lessee on every invoice and Petitioner is shown as its disclosed agent (and, where applicable, as the Owner's contractor). Rent payments flowing up the chain -- Leasing to Purchasing, Leasing to third-party vendors, and the Group Agents to Purchasing/Leasing under the Master Lease -- are exempt under the same paperwork conditions. Exempt Service Contract payments are exempt to the extent they cover genuine upkeep of Equipment/Leased Equipment or the structural integrity of Improvements/Owner Improvements, but consumable parts, janitorial services, and fuel/energy/utilities remain taxable regardless (following the Wegmans Food Markets precedent distinguishing an IDA's financing/ownership function from ordinary operating expenses) -- and a single invoice mixing taxable and exempt services must separately state each portion or the WHOLE charge becomes taxable. Finally, the Group Agents' debt-service rent to the IDA, the no-consideration Automatic Transfer at the end of the retention period, the $1 Option Price buyout, and any Premature Removal Penalty are all outside the sales and use tax entirely. The Department was explicit that every one of these conclusions depends on strict compliance with the terms of the Exemption Letter and Project Agreement as described.

What this means for you

Corporations negotiating a multi-entity IDA sale-leaseback retention deal

Layering purchasing and leasing through separate corporate affiliates (with resale certificates at each internal transfer) doesn't break the exemption chain -- but every single transfer needs its own properly completed Form ST-120 and needs to actually culminate in the promised resale/re-lease to the IDA's agent, or that specific link in the chain loses its exemption.

Businesses structuring "Exempt Service Contracts" for IDA-financed equipment and space

Keep consumable-parts replacement, janitorial services, and utilities contractually and financially separate from genuine maintenance/repair of the financed equipment or the structural integrity of financed improvements -- bundling them risks losing the exemption on the entire charge, not just the taxable slice.

Property owners participating in a "landlord improvement" IDA structure

If you (the building owner) are footing the bill for certain improvements while the IDA holds legal title for financing purposes, make sure the contractor doing that work is documented as BOTH the IDA's agent and your own contractor -- this dual-agency documentation is what let Petitioner's Owner Improvement purchases qualify here.

Common questions

Q: Does adding a corporate purchasing/leasing layer (Purchasing and Leasing as separate entities) create extra tax exposure compared to a simpler single-entity IDA deal?
A: Not according to this ruling -- as long as each entity in the chain (Purchasing, Leasing, the Group Agents) properly exchanges resale certificates and the property genuinely flows through to the IDA's agent as intended, each transfer in the chain is exempt on its own terms.

Q: What happens if CSFB removes financed equipment from an Approved Premises early?
A: Unless the removal is for obsolescence, uselessness, or another good-faith reason, the responsible Group Agent must pay the IDA a "Premature Removal Penalty" equal to the net present value of the sales/use tax that would have been due had the item been purchased outright on the original purchase date, based on its fair market value at removal -- but the ruling confirms that PENALTY payment itself isn't treated as consideration for a taxable sale.

Q: Are utilities, fuel, and janitorial services ever covered by this exemption?
A: No -- the ruling explicitly states these remain taxable regardless of the overall project's exempt structure, consistent with the Department's established Wegmans Food Markets distinction between an IDA's exempt financing/ownership function and a tenant's ordinary taxable operating expenses.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (definition of sale/purchase)
• Tax Law § 1101(b)(6) (definition of tangible personal property)
• Tax Law § 1101(b)(14) (definition of pre-written computer software)
• 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; resale exclusion for services)
• 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 § 858 (agency powers to acquire/hold/lease property)
• General Municipal Law § 862(2) (one-third retail facilities restriction)
• General Municipal Law § 874(1)-(2) (IDA tax exemption)
• General Municipal Law § 917 (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")
• TSB-A-94(14)S (referenced regarding sale-leaseback transactions for third-party financing of Improvements/Equipment, though this opinion doesn't rule on that separate issue)
• Advisory Opinion issued December 19, 1995 (referenced regarding the Owner Improvements title/reporting structure)

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_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (43)S
Sales Tax
December 21, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S951108B

On November 8, 1995, a Petition for Advisory Opinion was received from CS First Boston
Corporation, 55 East 52nd Street, Park Avenue Plaza, New York, New York 10022.
Petitioner, CS First Boston Corporation, states the issues as follows (the underlined terms
are defined in Petitioner's statement of facts):
1.
Whether Purchasing's purchase of Equipment pursuant to a resale certificate with the
intention of leasing the Equipment to Leasing or to the Group Agents will be exempt from New York
State and New York City Sales and Use Tax.
2.
Whether Leasing's lease of Equipment and Leased Equipment pursuant to a resale certificate
with the intention of leasing the Equipment and Leased Equipment to the Group Agents will be
exempt from New York State and New York City Sales and Use Tax.
3.
Whether Leasing's purchase of services under Service Contracts pursuant to a resale
certificate with the intention of reselling the services to the Group Agents will be subject to New
York State and New York City Sales and Use Tax.
4.
Whether Petitioner's purchase, on behalf of and as agent of the IDA, of materials to be
incorporated into Improvements to the IDA Share of the Common Area, pursuant to the Exemption
Letter and the Project Agreement, will be exempt from New York State and New York City Sales
and Use Tax.
5.
Whether the purchase of materials to be incorporated into the Owner Improvements to the
IDA Share of the Common Area by Petitioner, on behalf of and as agent of the IDA, and as general
contractor for the Owner, pursuant to the Exemption Letter and the Project Agreement, will be
exempt from New York State and New York City Sales and Use Tax.

6. Whether Leasing's rent payments to Purchasing to purchase Equipment (including Computer
   Software) will be exempt from New York State and New York City Sales and Use Tax.
   7.
   Whether Leasing's rent payments to third party vendors to purchase Leased Equipment
   (including Computer Software) will be exempt from New York State and New York City Sales and
   Use Tax.

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8.
Whether the Group Agents' rent payments, on behalf of and as agents of the IDA, to
Purchasing or to Leasing, for Equipment or Leased Equipment (including Computer Software),
pursuant to the Master Lease, where applicable, and to the Exemption Letter and Project Agreement,
will be exempt from New York State and New York City Sales and Use Tax.
9.
Whether the Group Agents' payments, acting on behalf of and as agents of the IDA, under
Exempt Service Contracts will be exempt from New York State and New York City Sales and Use
Tax.
10.
Whether debt service payments to the IDA under the Financing Lease with respect to
Improvements, Owner Improvements, Equipment and Leased Equipment will be exempt from New
York State and New York City Sales and Use Tax.
11.
Whether New York State and New York City Sales and Use Tax will be imposed on an
Automatic Transfer.
12.
Whether, at the time the Option is exercised, the amount paid to the IDA as the Option Price
will be subject to the New York State and New York City Sales and Use Tax.
13.
Whether any Premature Removal Penalty imposed on a Group Agent by the IDA will be
deemed to be consideration for a sale subject to New York State and City Sales and Use Tax.
Petitioner presents the following facts. This petition for advisory opinion concerns a
proposed transaction (the "Project") between the New York City Industrial Development Agency (the
“IDA") and Petitioner and certain of its affiliates (the "Eligible Affiliates" and together with CS First
Boston, "CSFB") intended to induce Petitioner to retain its headquarters in New York City (the
"City") for approximately twenty two years. As part of the Project, CSFB will relocate to premises
in a building at 11 Madison Avenue, New York, New York (the "Building") owned by the
Metropolitan Life Insurance Company (the "Owner").
In connection with the Project, the IDA will extend certain economic development benefits
to Petitioner 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
Petitioner's premises in the Building evidenced by Petitioner's obligation to make certain payments
in lieu of real estate taxes ("PILOT") with respect to the 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 dated January 23, 1995, the Amended and Restated Pre-Bond
Issuance Sales Tax Letter dated June 30, 1995, the Second Amended and Restated Pre-Bond
Issuance Sales Tax Letter dated August 1, 1995, the Third Amended and Restated Pre-Bond Issuance
Sales Tax Letter dated August 28, 1995, the Fourth Amended and Restated Pre-Bond Issuance Sales
Tax Letter dated October 30, 1995 or the Letter of Authorization for Sales Tax Exemption (as
applicable, the "Exemption Letter") and a Project agreement (the "Project Agreement"). The
Exemption Letters apply to all purchases of property and service contracts under the Project.

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In order to extend the real estate tax abatement to Petitioner, the IDA will take title to that
portion of the Building to be occupied by CSFB, for which Petitioner will seek real estate tax
abatement. Initially, CSFB will occupy approximately 1,100,000 square feet in the Building (not
including the Building common area ("Common Area")).
Petitioner will have an expansion option with respect to additional space in the Building (the
space initially to be occupied by Petitioner 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 CSFB
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 Petitioner and for which Petitioner will seek real estate tax
abatement will consist of the condominium units initially conveyed by the owner to the IDA and,
upon Petitioner'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").
In order for sales and use tax exemptions to be available to Petitioner, all purchases which
the IDA intends to be eligible for exemption from sales and use taxes in connection with the Project
(the "Acquisitions") must be made by the IDA through its designated agents within CSFB (the
"Group Agents"). In addition to Petitioner, the following Eligible Affiliates have been designated
as agents of the IDA under the Exemption Letter for purposes of the sales and use tax exemption:
Madison Leasing Corp., CS First Boston Investment Management Corporation, CS First Boston
Merchant Bank, Inc., CS First Boston Securities Corporation, CS First Boston USA, Inc., CS First
Boston, Inc., and Lattice Trading, Inc. It is anticipated that from time to time certain additional
Eligible Affiliates may be designated by Petitioner or the IDA as agents of the IDA for the purpose
of purchasing property and services intended to be exempt from sales and use taxes under the
Exemption Letter pursuant to the terms of the Project Agreement and the other Project documents.
These 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 and where
services acquired may be rendered, for use by CSFB in connection with the Project (collectively, all
such sites authorized by IDA resolution, the "Approved Premises"). Currently, the Approved
Premises consist of the Project Premises and other premises located at 55 East 52nd Street, 12 East
49th Street, 509 Madison Avenue, 599 Lexington Avenue, and 5 World Trade Center.
To finance most 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 CSFB (other than a Group
Agent) or to unrelated third parties. Proceeds raised through the sale of the Bonds will be available
(i) to make Acquisitions directly or (ii) to reimburse the Group Agents (or other members of CSFB)
that may have advanced funds to make Acquisitions. These reimbursements shall be made only for

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purchases made after the purchaser has been appointed an agent of the IDA. For income tax and
financial reporting purposes, CSFB will report the Acquisitions in the same manner that similar
acquisitions were reported prior to the Project.
Petitioner, acting on behalf of and as agent of the IDA (as applicable, through contractors
appointed by Petitioner in its capacity as agent of the IDA to act on behalf of and as agents of the
IDA), shall purchase and install all materials to be incorporated as permanent improvements,
additions and installations to the Project Premises and the associated Common Area (the materials
as so incorporated, including any permanent replacements, enhancements and additions thereto but
excluding the Owner Improvements (defined below), collectively, the "Improvements").
Certain of the materials to be incorporated as improvements to the Project Premises and the
associated Common Area will be paid for by the Owner (the "Owner Improvements") with the result
that they will be owned by the Owner for financial reporting and federal income tax purposes.
Accordingly, Petitioner, as agent of the IDA, will purchase materials to be incorporated into the
Owner Improvements, while acting also as general contractor for Owner, as explained below.
Pursuant to a Construction Agreement between the Owner and Petitioner, Petitioner has been
appointed by the Owner as its agent for purposes of constructing the Owner Improvements.
Petitioner will from time to time (i) submit to the Owner an invoice detailing and requesting
reimbursement of the costs of materials incorporated as the Owner Improvements to the Building
by Petitioner, acting in its capacity both as agent of the IDA and general contractor and agent of the
Owner and (ii) receive reimbursements from the Owner of such costs. As stated below, the Prime
Lease contemplates that for financial reporting and federal income tax purposes, the Owner
Improvements will be owned by Owner. Legal title to such Owner Improvements, however, will be
held by the IDA. This structure was the subject of an Advisory Opinion issued on December 19,
1995.
Pursuant to Petitioner's corporate policy, (i) an affiliate of Petitioner, Madison Purchasing
Corp. ("Purchasing"), is responsible for all purchasing within CSFB and (ii) another affiliate of
Petitioner, Madison Leasing Corp. ("Leasing"), is responsible for all leasing within CSFB.
Accordingly, Purchasing shall purchase outright all furniture, furnishings, machinery, equipment,
or other personalty which retains its character as tangible personal property used at the Approved
Premises (such personalty purchased outright, including any replacements, enhancements and
additions thereto, collectively, the "Equipment"). Purchasing shall then resell such Equipment either
to Leasing or to the Group Agents, acting on behalf of and as agents of the IDA.
Leasing shall enter into all leases with third party vendors for personalty and then shall re­
lease such personalty to the Group Agents, acting on behalf of and as agents of the IDA (such leased
personalty as so re-leased including any replacements, enhancements and additions thereto,
collectively, the "Leased Equipment"). Leasing may also enter into contracts (i) for installation,
maintenance, service and repair services to Equipment and/or Leased Equipment with third parties
and/or (ii) for maintenance, service and repair services to Improvements and/or Owner
Improvements with third parties and, in each case, re-sell such services to the Group Agents, acting
on behalf of and as agents of the IDA; in the alternative, Group Agents, acting on behalf of and as

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agents of the IDA, may enter into similar service contracts directly with applicable third parties (the
service contracts, whether entered into between Leasing and third parties or the Group Agents and
third parties, referred to herein as "Service Contracts"). In any event, the IDA will pass on the
benefits and burdens of these Service Contracts to CSFB under the Financing Lease (in all cases, the
services provided to the Group Agents under the Service Contracts with respect to Equipment and
Leased Equipment having a useful life of one year or more, Improvements and/or Owner
Improvements located or in use at the Approved Premises, including replacement parts but not
including parts (e.g., a toner cartridge) that contain substances consumed in operating the Equipment,
Leased Equipment, Improvements and/or Owner Improvements and that are replaced when the
substance is consumed, collectively, the "Exempt Service Contracts").
As used herein, the terms Equipment and Leased Equipment shall each specifically include
tangible personal property in the form of pre-written computer software, not limited as to any of the
following (i) the medium by means of which the software is conveyed to the purchaser (including
tangible media, e.g., computer disk, compact disc or magnetic tape, as well as intangible media, e.g.,
electronic transmission); (ii) the kind of equipment for which acquired (including computers, e.g.,
mainframe computers and peripherals, work stations, personal computers or networks, as well as
related equipment, e.g., modems, printers, copiers, scanners, facsimile machines, equipment for
video/multimedia teleconferencing or other telecommunications equipment); and (iii) whether or not
such software is used on equipment in which the IDA has an interest (such computer software as not
so limited, including any replacements, enhancements, upgrades pursuant to maintenance contracts
and additions thereto, collectively, "Computer Software").
In connection with the Project and in order to lessen the administrative burden resulting from
the Project, CSFB anticipates that it will cause Leasing to consolidate all separate sub-leases under
the Project between it and the Group Agents acting on behalf of and as agents of the IDA for
Equipment and Leased Equipment in use or to be used, and all Exempt Service Contracts rendered
or to be rendered, at the Approved Premises into a single master agreement (the "Master Lease").
In addition, with respect to the Improvements and the Equipment, CSFB may enter into sale­
leaseback transactions, as necessary, to obtain third party financing of the Improvements and the
Equipment. It is expected that these sale-leaseback transactions will not be subject to the New York
State and New York City Sales and Use Tax consistent with TSB-A-94(14)S. However, Petitioner
does not now request an opinion with respect to these sale-leaseback transactions.
a. Equipment. The following structure is proposed to secure the tax benefits offered by the
IDA to Petitioner with respect to Equipment.
(i) Purchasing will purchase Equipment, pursuant to a resale certificate, and either (a) re­
lease the Equipment to Leasing or (b) re-lease the Equipment to the Group Agents.

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(ii) If Purchasing re-leases the Equipment to Leasing, Leasing will lease the Equipment from
Purchasing, pursuant to a resale certificate, and then release the Equipment to the Group Agents
acting on behalf of and as agents of the IDA, pursuant to the Master Lease. If Purchasing re-leases
the Equipment to the Group Agents directly, the Group Agents will lease the Equipment acting on
behalf of and as agents of the IDA.
(iii) The IDA will lease the 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").
b. Leased Equipment. The following structure is proposed to secure the tax benefits offered by the
IDA to Petitioner with respect to Leased Equipment.
(i) Leasing will enter into leases for Leased Equipment with third party vendors, pursuant
to a resale certificate, and then re-lease the Leased Equipment 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 the Leased Equipment back to the Group Agents which are to use the
Leased Equipment pursuant to the Financing Lease for the Debt Service Payments.
c. Other Facts. The Overlease will contemplate the potential for additional condominium units to
be conveyed to the IDA in connection with Petitioner's expansion option and under other
circumstances, and will become applicable to these additional units upon the conveyance of the
additional units to the IDA.
The Prime Lease, among other things, requires Petitioner to (i) pay fair market value rent
with respect to the Project Premises and (ii) pay taxes imposed against the Project Premises, if any.
The Prime Lease contains an expansion option which, if exercised, may result in the conveyance of
additional condominium unit(s) to the IDA. In the event the 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 Petitioner pay PILOT to a PILOT Trustee.
Petitioner's obligation to pay PILOT will be secured by a form of security acceptable to the IDA.
Under the Project Agreement (but only for the purpose of the Project Agreement, as
Petitioner has no intention to remove the Improvements or Owner Improvements), among other
things and with certain limited exceptions, (i) none of the Improvements or Owner Improvements
may be removed from the Project Premises prior to the expiration of three years after the installation
or location of the Improvements or Owner Improvements at the Project Premises and (ii) none of the
Equipment or the Leased Equipment may be removed from the Approved Premises prior to the
expiration of three years after the location of the Equipment or Leased Equipment at the Approved
Premises (the periods referred to in clauses (i) and (ii) above, the "Retention Period").

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Generally, at the end of the Retention Period, the IDA will relinquish all of its right, title and
interest to the Improvements, Owner Improvements, the leasehold interests in the Equipment and
in the Leased Equipment, any interests in the Exempt Service Contracts, which right, title, and
interest will vest in the Owner and/or the Group Agents for no consideration (the "Automatic
Transfer").
At the end of the Project term (or earlier if the Bonds have been redeemed in full), the
Improvements, Owner Improvements, the leasehold interests in the Equipment and in the Leased
Equipment and all rights under the Exempt Service Contracts may be purchased from the IDA by
the Group Agents pursuant to 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 or Owner Improvements is removed from the Project Premises
or any of the Equipment or Leased 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 the 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 make Acquisitions
(including, without limitation, Exempt Service Contracts) will be exempt from State and local sales
and use taxes. The Project Agreement contemplates that benefits will be received by CSFB over a
period of approximately twenty two (22) years (beginning January 23, 1995 and ending December
31, 2016). Any benefits not realized prior to December 31, 2016 will be forfeited. With respect to
the Common Area, only the purchase price of materials to be incorporated into Improvements or
Owner Improvements to the IDA Share of the Common Area will be exempt from tax. Petitioner is
not expected to pay for any excess of the total costs of Improvements or Owner Improvements to the
Common Area over that portion of such costs which corresponds directly to 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 of the maturity date (December 31,
2016) or the redemption of all of the Bonds prior to maturity. However, Petitioner 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 1101(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 (including, with respect to computer software, merely the right to reproduce),
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 1101(b)(6) of the Tax Law defines "tangible personal property" as:
Corporeal personal property of any nature.... Such term shall also include pre-written
computer software, whether sold as part of a package, as a separate component, or otherwise,
and regardless of the medium by means of which such software is conveyed to a purchaser.
...
Section 1101(b)(14) of the Tax Law defines "pre-written computer software" as:
Computer software (including pre-written upgrades thereof) which is not software designed
and developed by the author or other creator to the specifications of a specific purchaser.
The combining of two or more pre-written computer software programs or pre-written
portions thereof does not cause the combination to be other than pre-written computer
software. Pre-written software also includes software designed and developed by the author
or other creator to the specifications of a specific purchaser when it is sold to a person other
than such purchaser. Where a person modifies or enhances computer software of which such
person is not the author or creator, such person shall be deemed to be the author or creator
only of such person's modifications or enhancements. Pre-written software or a pre-written
portion thereof that is modified or enhanced to any degree, where such modification or
enhancement is designed and developed to the specifications of a specific purchaser, remains
pre-written software; provided, however, that where there is a reasonable, separately stated
charge or an invoice or other statement of the price given to the purchaser for such
modification or enhancement, such modification or enhancement shall not constitute pre­
written computer software.
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:

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*

*

*

(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 nine of subdivision (b) of
section eleven hundred one of this chapter. ...
Section 1107(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 1109(a) of the Tax Law provides, in relevant part:
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:
(a) 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 (other than computer software used by the author or other creator)
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

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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 paragraphs (1), (7) and (8) of subdivision (c) of section eleven hundred five, (D) of any
tangible personal property ... not acquired for purposes of resale, upon which any of the
services described in paragraphs (2), (3) and (7) of subdivision (c) of section eleven hundred
five have been performed ....
Section 1116(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 who will resell the property. The receipts are
subject to tax at the time of the retail sale.
*

*

(8) The resale exclusion also applies to a sale of service.
Example 12: A jeweler sends a customer's watch to a repairman for servicing. The charge
by the jeweler to the customer is taxable. The charge to the jeweler by the repairman is not
taxable because the service was purchased for resale by the jeweler.

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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)(2) of the New York State Sales and Use Tax Regulations provides, in
relevant part:
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 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) Pursuant to section 1116(a)(1) of the Tax Law the State of New York, or any of
its agencies, instrumentalities, public corporations (including a public corporation
created pursuant to agreement or compact with another state or Canada), or political
subdivisions. This group includes, but is not limited to:

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*

*

*

(c) industrial development authorities.
Section 858 of the General Municipal Law provides, in relevant part:
... [E]ach agency shall have the following powers:
*

*

*

(3) To acquire, hold and dispose of personal property for its corporate purposes;
*

*

(10) To acquire, construct, reconstruct, lease, improve, maintain, equip or furnish one or
more projects; ...
Section 862(2) of the General Municipal Law provides as follows:
(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: (i) 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.

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(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(1) and (2) of the General Municipal Law provides as follows:
(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.
(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 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 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"), 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 municipal industrial development agencies 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 local industrial development agencies. The projects were
technically owned by the respective agencies as security for the bonds, but were under "lease back"
arrangements with the plaintiff. In an earlier action, Wegmans Food Markets v. Department of
Taxation and Finance, 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 a project
lease arrangement between an IDA and the private developer, it is a financing lease with the

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"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 [sic] 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 expense 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 ....
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 (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."

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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
Based on the structures under which the IDA proposes to make sales and compensating use
tax benefits available to Petitioner with respect to Improvements, Owner Improvements, Equipment,
Leased Equipment and Exempt Service Contracts, and based on the other facts, as described by
Petitioner in its petition, and in accordance with the sections of law and regulations cited above and
the decisions in Wegmans Food Markets v. 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 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 these terms and conditions are consistent with Petitioner's description of them as set forth
above, in the instant matter:
(a) Purchasing's purchases of Equipment for lease to Leasing or to the Group Agents will be exempt
from taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law (together “sales and
use taxes”), provided that Purchasing 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, and the Equipment is so leased to Leasing or to the Group Agents.
(b) Leasing's lease of Equipment for re-lease to Group Agents will be exempt from sales and use
taxes, provided that Leasing gives to Purchasing 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, and the Equipment is so re-leased to the Group Agents.
(c) Leasing's purchases of services under Service Contracts for resale to Group Agents will not be
subject to sales and use taxes, provided that Leasing gives the service provider 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, and the services are resold to the Group Agents, as described above.
(d) & (e) Petitioner's purchase of materials to be incorporated into Improvements and Owner
Improvements to the IDA Share of the Common Area, as agent for and on behalf of the IDA, and
also as general contractor for Owner with respect to Owner Improvements, pursuant to the
Exemption Letter, and, as applicable, the Project Agreement, will be exempt from sales and use
taxes, provided that (i) the IDA is the owner, lessor or lessee of such property, (ii) the purchase
invoices, statements and contracts with vendors and suppliers provide that the IDA is the purchaser,
lessor or lessee and (iii) Petitioner is the disclosed agent of the IDA, and also contractor for the
Owner if applicable.

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(f) Leasing's rent payments to Purchasing to purchase Equipment (including Computer Software)
will be exempt from sales and use taxes, provided that Leasing gives to Purchasing 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, and the Equipment is resold as described above.
(g) Leasing's rent payments to third party vendors to purchase Leased Equipment (including
Computer Software) will be exempt from sales and use taxes, provided that Leasing gives the third
party vendors 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, and the Leased Equipment
is resold as described above.
(h) The Group Agents' rent payments, on behalf of and as agents of the IDA, paid to Purchasing or
to Leasing for Equipment or Leased Equipment (including Computer Software), pursuant to the
Master Lease, if applicable, and to the Exemption Letter and Project Agreement, will be exempt
from sales and use taxes, provided that the IDA is the lessee of the Equipment or Leased Equipment,
and the Equipment or Leased Equipment is leased as described above.
(i) Payments made under Exempt Service Contracts by the Group Agents, as agents for and on
behalf of the IDA, (1) for purchases of the services of installing, maintaining, servicing and repairing
tangible personal property, consisting of the 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), or
(2) for purchases of the services of maintaining, servicing and repairing the Improvements or Owner
Improvements which constitute real property, property or land, will be exempt from sales and use
taxes, to the extent that (1) the Exempt Service Contracts, services and parts, with respect to
Equipment and Leased Equipment, are necessary to maintain, repair or service such Equipment and
Leased Equipment used as part of the Project, and provided that the IDA is the owner, lessor or
lessee of such Equipment and Leased Equipment, or (2) the Exempt Service Contracts, services and
tangible personal property, with respect to Improvements and Owner Improvements, are necessary
to maintain the structural integrity of the Improvements and Owner Improvements, and provided that
the IDA is the owner of such Improvements and Owner Improvements, and also provided that the
purchase invoices, statements and contracts with vendors and suppliers for services described in
preceding clauses (1) and (2) provide that the IDA is the purchaser, lessor or lessee with respect to
Equipment and Leased Equipment and that the IDA is the purchaser with respect to Improvements
and Owner Improvements, and that the Group Agents are the disclosed agents of the IDA. In any
instance where the installation, maintenance, servicing or repair service results in the replacement
of parts, materials or supplies that are consumed in the ongoing operation of the 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 sales and use
taxes, as indicated in 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.) supra. The purchase and use
of fuels and energy and utility services are not tax-exempt. Id.

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However, it is noted that in a transaction where the charge is for both taxable maintenance
and repair services and qualifying exempt services under an Exempt Services Contract, the total
charge will be subject to sales and use taxes, unless the portion of the charge applicable to the
qualifying exempt services under the Exempt Service Contract is separately stated from the other
charges or otherwise reasonably allocated.
(j) Debt Service Payments made to the IDA under the Financing Lease with respect to
Improvements, Owner Improvements, Equipment and Leased Equipment will not be subject to sales
and use taxes.
(k) Since the Owner and/or Group Agents do not pay any consideration upon an Automatic Transfer,
as described above, the Automatic Transfer will not be subject to sales and use taxes.
(l) The Option Price paid by a Group Agent to the IDA at the time the Option under the Financing
Lease is exercised will not be subject to sales and use taxes.
(m) The amount paid to the IDA as a Premature Removal Penalty by any of the Group Agents will
not be subject to sales and use taxes.
All of the foregoing conclusions depend on compliance with the terms and conditions of all
of the relevant Project documents, subject to any limitations set forth in such documents.

DATED: December 21, 1995

/s/
DORIS S. BAUMAN
Director
Technical Services Bureau

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