New York Advisory Opinion TSB-A-96(17)S: In a New York City Industrial Development Agency bond financing designed to keep an insurance company headquartered in the city, are the company's equipment purchases, leasehold improvements, maintenance contracts, and lease/rent payments to the Agency exempt from New York State and City sales and use tax?

Plain-English summary

The Equitable Life Assurance Society of the United States leases office space at various New York City locations and had entered a lease for new headquarters space at 1290 Avenue of the Americas (the "Facility Realty"). To induce Equitable to keep its headquarters in the city, the New York City Industrial Development Agency (the "Agency") agreed to a bond-financing deal with Equitable and its subsidiary Equitable Variable Life Insurance Company (together, the "Lessees"). Under a "Company Lease Agreement," the Lessees sublease their Facility Realty leasehold to the Agency for nominal rent. Under a separate "Project Property Lease Agreement," the Lessees -- acting as the Agency's disclosed agent -- will enter leases for personal property (computers, telecommunications equipment, software: the "Leased Personalty"), acquire other equipment and furnishings (the "Facility Equipment"), and make improvements to the space (the "Tenant Improvements"), plus contract for "Qualified Maintenance" (repair/replacement services, but specifically excluding janitorial services, working capital costs, and consumable parts like toner cartridges that get replaced when used up). The Agency will hold title to or a leasehold interest in all this property, financed by bonds it issues; the Lessees will sub-sublease the Facility Realty and Tenant Improvements back from the Agency, and sublease/lease the Leased Personalty and Facility Equipment back, paying "rent" to the Agency (or directly to the bond Trustee) exactly matching the Agency's bond debt service. At the deal's end (by 2011 at the latest), the Agency will convey all its interest in the project property back to the Lessees for $1.

The Department ruled the whole structure qualifies for exemption, subject to real conditions. First, the Lessees' acquisition, leasing, and installation of the Leased Personalty, Facility Equipment, and Tenant Improvements -- done as the Agency's agent -- are exempt from state, City (§ 1107), and MCTD (§ 1109) sales and use tax, PROVIDED the Agency is the documented owner/lessor/lessee, every purchase invoice/contract with vendors clearly shows the Agency (not the Lessees) as purchaser/lessor/lessee, and the Lessees are shown as the Agency's disclosed agent -- the same documentation standard the regulations require for any governmental-entity purchase under § 1116(a)(1) (which covers IDAs as public corporations). Second, payments under Qualified Maintenance contracts are exempt to the extent they cover repair/maintenance/replacement parts for the Facility Equipment, Leased Personalty, and Tenant Improvements (or structural maintenance of capital-improvement-level Tenant Improvements/Facility Realty) -- but NOT janitorial services, working capital costs, or consumable parts that get replaced when used up (those remain taxable), and any charge mixing taxable and exempt maintenance must be separately stated or reasonably allocated, or the WHOLE charge becomes taxable. Fuels, energy, and utility services are never tax-exempt under this structure, following the Wegmans Food Markets precedent. Third, the "rent" the Lessees pay -- whether routed through the Agency or paid directly to the Trustee to cover Agency bond debt service -- is exempt from sales tax, and the Lessees' use of the leased property isn't subject to compensating use tax either. Fourth, the Agency's own principal/interest payments to the Trustee are exempt. The ruling leans heavily on the Wegmans Food Markets litigation, which established that an IDA's General Municipal Law § 874 tax exemption covers the agency's financing/ownership function (acquiring, holding, and leasing project property as security for its bonds) but does NOT extend to a private operator's ordinary day-to-day business operating expenses unrelated to that financing structure -- a distinction the Department carries through explicitly in excluding janitorial services, working capital, and utilities from the Qualified Maintenance exemption here.

What this means for you

Corporations negotiating an IDA sale-leaseback retention deal

Structure every purchase, lease, and maintenance contract so the Agency is unambiguously named as the purchaser/lessor/lessee on paper, with your company disclosed as its agent -- the exemption lives or dies on that documentation, not just on the underlying economic reality of who benefits.

Businesses drafting "Qualified Maintenance" or similar service contracts under an IDA deal

Keep taxable services (janitorial, consumable-parts replacement, utilities) contractually and financially separate from exempt structural maintenance and repair -- bundling them into one undifferentiated charge risks losing the exemption on the ENTIRE charge, not just the taxable portion.

Tax and real estate advisors structuring similar headquarters-retention incentives

The Wegmans distinction between an IDA's financing/ownership function (exempt) and a private operator's ordinary operating expenses (taxable) is the analytical backbone of this ruling -- expect the Department to draw that same line in any comparable sale-leaseback opinion, regardless of industry.

Common questions

Q: Does the exemption cover Equitable's utility bills for the headquarters space?
A: No -- the ruling explicitly states "the purchase and use of fuels and energy and utility services are not tax-exempt," citing Wegmans directly.

Q: What happens if a Qualified Maintenance invoice doesn't separately break out the excluded janitorial or consumable-parts charges?
A: The ruling warns that if a single charge covers both taxable services (like janitorial work) and exempt Qualified Maintenance services without separate statement or reasonable allocation, the ENTIRE charge becomes subject to sales and use tax -- not just the taxable portion.

Q: Does the exemption depend on the Lessees' own accounting treatment of the leases (operating vs. capital lease)?
A: The facts describe the Lessees' accounting and statutory-reporting intentions, but the Department's ruling and conditions turn on the documented Agency-as-purchaser/agency-agent structure, not on how the Lessees characterize the leases for financial reporting purposes.

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 § 1115(a)(28) (affiliated-group custom software transfer exemption)
• Tax Law § 1115(o) (services performed on computer software exemption)
• Tax Law § 1116(a)(1) (governmental entity/public corporation exemption)
• 20 NYCRR 526.7(a) (definition of sale/purchase)
• 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")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (17)S
Sales Tax
March 19, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S951124B

On November 24, 1995, a Petition for Advisory Opinion was received from The Equitable
Life Assurance Society of the United States, 787 Seventh Avenue, New York, NY 10019.
Petitioner, The Equitable Life Assurance Society of the United States, states the issues and
facts as follows (the underlined terms are defined in Petitioner's statement of facts):

1. Whether the acquisition, lease, installation and use by the Lessees of the Leased
   Personalty, the Facility Equipment and the Tenant Improvements are exempt from the New York
   State and City Sales and Compensating Use Tax.
2. Whether payments made by the Lessees under contracts for Qualified Maintenance are
   exempt from the New York State and City Sales and Compensating Use Tax.
3. Whether amounts payable by the Lessees to the Agency which are denominated as "rent"
   under the Project Property Lease Agreement will be exempt from the New York State and City Sales
   and Compensating Use Tax, whether such amounts are paid by the Lessees to the Agency or to the
   Trustee to be applied in satisfaction of the Agency's obligation to pay principal and interest on the
   Bonds.
4. Whether amounts payable by the Agency to the Trustee in respect of Bond principal and
   interest will be exempt from the New York State and City Sales and Compensating Use Tax.
   No ruling is requested regarding payments made with respect to Project property after the
   termination of the Project Agreement.
   Petitioner currently leases office space at a number of different locations within New York
   City, and has entered into a lease for office space (the "Facility Realty") at 1290 Avenue of the
   Americas, New York, New York (the "Project Building"). In order to induce Petitioner to remain in
   New York City, the City of New York has executed a term sheet with Petitioner pursuant to which
   Petitioner, Equitable Variable Life Insurance Company, a wholly owned subsidiary of Petitioner
   (Petitioner and Equitable Variable Life Insurance Company, hereinafter collectively referred to as
   the "Lessees"), and the New York City Industrial Development Agency (hereinafter the "Agency")
   will enter into a bond financing agreement (the "project Agreement"). Under the Project Agreement,
   the Lessees and the Agency will enter into two leases, described more fully below, pursuant to which
   the Lessees will maintain their New York City leasehold interests, make improvements to the
   Facility Realty (which will be used as corporate headquarters), and purchase or lease personal
   property for use at the Facility Realty and at other locations in New York City (such activities
   collectively referred to as the "Project"), and the Agency will extend to the Lessees certain sales and
   compensating use tax benefits. In a Resolution adopted June 13, 1995 (the "Resolution"), the Agency

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determined that the Project will promote, is authorized by and will be in furtherance of the policy
of New York State, as set forth in the New York State Industrial Development Agency Act.
The Sublease of the Facility Realty and the Improvements
Under a lease agreement (the "Company Lease Agreement"), Petitioner will sublease its
leasehold interest in the Facility Realty to the Agency for a nominal rent.
The Financing Lease
The Personalty, Capital Improvements, and Qualified Maintenance
Pursuant to an agreement denominated the "Project Property Lease Agreement", the Lessees,
on behalf of and as agents for the Agency, will (i) enter into leases, as lessees, with third parties, as
lessors, of tangible personal property, including mainframes, personal computers,
telecommunications equipment, equipment relating to the operation of the three foregoing categories,
and software, all having a useful life of one year or more (the "Leased Personalty"), for use at the
Project Building and at other specified locations in New York City, (ii) acquire machinery,
equipment, trade fixtures, furniture, furnishings and other tangible personal property, all having a
useful life of one year or more (the "Facility Equipment"), for use at the Facility Realty and at other
specified locations in New York City, and (iii) make improvements, additions, alterations and
modifications to the Facility Realty (the "Tenant Improvements"). The Agency either will hold title
to or have a leasehold interest in the Leased Personalty, Facility Equipment and Tenant
Improvements.
The Lessees, on behalf of and as agents for the Agency, will also enter into contracts for the
maintenance, repair and replacement of parts of the Facility Realty, Leased Personalty, Facility
Equipment and Tenant Improvements ("Qualified Maintenance"). The Qualified Maintenance,
however, will not include operating or working capital costs, janitorial services, and the cost of
replacement parts that contain materials or substances consumed in operating the property and that
are replaced when the part, material or substance is consumed (e.g., a toner cartridge). Such
exclusions from Qualified Maintenance will hereinafter be referred to as "NonQualified
Maintenance". The Facility Realty, Leased Personalty, Facility Equipment, Tenant Improvements
and contracts for Qualified Maintenance will hereinafter be referred to as the "Project Property".
The Lessees may perform certain functions or services for their affiliates. The Lessees may
allocate to their affiliates the costs of performing such functions and services, which may include as
overhead an allocable share of costs associated with the Project Property.
The Agency will issue bonds (the "Bonds") pursuant to an Indenture of Trust (the
"Indenture") for the purpose of financing the cost of the Project Property other than the Facility
Realty and contracts for Qualified Maintenance (the "Project Costs"). Project Costs will be paid
either (i) by the Lessees, as agents of the Agency, who will be reimbursed with the proceeds of the
Bonds, (ii) by the Lessees, as agents of the Agency, from the proceeds of the Bonds, or (iii) by the
trustee appointed under the Indenture (the "Trustee") as agent of and on behalf of the Agency from
the proceeds of the Bonds. The liability of the Agency to holders of the Bonds is limited under the

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Indenture to the extent of the amount of rent received from the Lessees pursuant to the Project
Property Lease Agreement. It is anticipated that the Bonds will be purchased by a Grantor Trust, the
sole beneficiary of which will be Petitioner.
The Sublease and Sub-sublease of the Project Property
Pursuant to the Project Property Lease Agreement, the Agency will sub-sublease to the
Lessees the Facility Realty and Tenant Improvements and will also sublease or lease to them all of
the Leased Personalty and Facility Equipment. The Lessees will be obligated to pay rent for such
property to the Agency. The Agency will be obligated to pay to the Trustee principal and interest due
on the Bonds. The amount of rent due from the Lessees is equal to the amount of such principal and
interest due on the Bonds. The Lessees are required to pay such rent on the same dates that the
Agency is required to pay such principal and interest. Pursuant to the Project Property Lease
Agreement, instead of paying the rent to the Agency, the Lessees will pay the amount of rent owed
to the Agency directly to the Trustee. Pursuant to the Indenture, the Trustee will then apply such
payments from the Lessees in satisfaction of the Agency's obligation to pay interest and principal on
the Bonds. The Trustee will make principal and interest payments to the registered holder of the
Bonds, namely the Grantor Trust, which in turn will distribute such payments to Petitioner, sole
beneficiary of the Grantor Trust.
The Agency has issued to the Lessees on Agency letterhead a Pre-Bond Issuance Sales Tax
Letter (the "Pre-Issuance Letter") signed by the Agency and dated October 12, 1995, which
authorizes the Lessees, on behalf of and as agent for the Agency, to lease the Leased Personalty and
to purchase and install the Facility Equipment and the Tenant Improvements, and to enter into
contracts for Qualified Maintenance. In addition, paragraph 4 of the Pre-Issuance Letter requires that
specific language be included in each contract, invoice, bill, purchase order or lease, stating that the
acquisition is on behalf of the Agency. Upon the initial issuance of the Bonds, the Agency will issue
a Sales Tax Letter with substantially the same provisions as the Pre-Issuance Letter.
For financial reporting and federal income tax purposes, the Lessees intend to treat the
Project Property as having been acquired, leased or contracted for directly by the Lessees. The
Lessees will, in accordance with generally accepted accounting principles, treat leases which it enters
into (as agents for the Agency) as either capital leases or operating leases. Under section 3.1 of the
Project Agreement and in accordance with the definition of "Qualified Personalty Lease" as provided
in the Project Property Lease Agreement, leases treated as operating leases must include an option
for the Lessees to purchase the property upon the expiration of the lease at or near the fair market
value of the property.
The Lessees are subject to additional statutory reporting requirements under New York State
insurance law. The Lessees' present intent for such statutory reporting purposes is to treat the Project
Property as having been acquired, leased, or contracted for directly by the Lessees. The Lessees will,
in accordance with their long-standing statutory reporting practices, treat all leases which it enters
into (as agents for the Agency) as operating leases.

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The Project Agreement and the agreements executed pursuant thereto will terminate at the
earliest of December 31, 2011, the occurrence of an event of default on the Bonds, or the redemption
of the Bonds by the Lessees. Upon termination of the agreements, the Agency will convey all of its
rights and interests in the Project Property to the Lessees for consideration of one dollar.
The Project will not exceed the allowable one-third retail facilities restriction of Section 862
of the General Municipal Law.
Applicable Law and Regulations
Section 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

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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:
*
*
*
(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

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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 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 ....

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Section 1115(a)(28) of the Tax Law provides:
Computer software designed and developed by the author or creator
to the specifications of a specific purchaser which is transferred
directly or indirectly to a corporation which is a member of an
affiliated group of corporations within the meaning of subparagraph
six of paragraph (b) of subdivision seventeen of section two hundred
eight of this chapter except for clauses (ii) and (iii) of such
subparagraph that includes such purchaser, or to a partnership in
which such purchaser and other members of such affiliated group
have at least a fifty percent capital or profits interest (but only if the
transfer is not in pursuance of a plan having as its principal purpose
the avoidance or evasion of tax under this article), but in no case
including computer software which is pre-written, as defined in
paragraph six of subdivision (b) of section eleven hundred one of this
article and available to be sold to customers in the ordinary course of
the seller's business.
Section 1115(o) of the Tax Law provides:
Services otherwise taxable under subdivision (c) of section eleven
hundred five or under section eleven hundred ten shall be exempt
from tax under this article where performed on computer software of
any nature; provided, however, that where such services are provided
to a customer in conjunction with the sale of tangible personal
property any charge for such services shall be exempt only when such
charge is reasonable and separately stated on an invoice or other
statement of the price given to the purchaser.
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 526.7(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:

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(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 526.8(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:
*
*
(c) industrial development authorities.

*

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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

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the city, town, or village within which the proposed project would be
located because of a lack of reasonably accessible retail trade
facilities offering such goods or services, or (iii) the project is located
in a highly distressed area.
(c) With respect to projects authorized pursuant to paragraph (b) of
this subdivision, no project shall be approved unless the agency shall
find after the public hearing required by section eight hundred fifty­
nine of this chapter that undertaking the project will serve the public
purposes of this article by preserving permanent, private sector jobs
or increasing the overall number of permanent, private sector jobs in
the state. Where the agency makes such a finding, prior to providing
financial assistance to the project by the agency, the chief executive
officer of the municipality for whose benefit the agency was created
shall confirm the proposed action of the agency.
Section 874(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 industrial development agencies pursuant to Article 18-A of the General
Municipal Law, and accordingly their construction was financed by industrial

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development bonds ("IDBs") issued by the various 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,
("Weqmans I") the section 874 tax exemption was held to be broader than the exemption provided
by section 1116 of the Tax Law. The court in Wegmans II stated in part:
The IDAs are not authorized to engage in supermarket businesses, or
any other businesses per se. Their functions are limited to the
acquisition, construction, reconstruction, leasing, improving,
maintaining, equipping, and furnishing of projects as security for the
repayment of industrial development bonds, in the nature of a
mortgage. Although there is a project lease arrangement between an
IDA and the private developer, it is a financing lease with the "rent"
paid thereunder consisting only of amortized costs and expenses
related to the project financing and 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

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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."
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 al 1 real and
personal properties located within the state of New York ....
Opinion
Based on the terms of the Project Agreement under which the IDA proposes to make sales
and compensating use tax benefits available to Petitioner with respect to Leased Personalty, Facility
Equipment, Tenant Improvements and Qualified Maintenance 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,

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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:

1. The Lessees' acquisition, lease and installation of the Leased Personalty, Facility
   Equipment and Tenant Improvements, as agent for and on behalf of the Agency, will be exempt from
   taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law (together, the "sales and
   use taxes"), provided that (i) the Agency is the owner, lessor or lessee of such property, (ii) purchase
   invoices, statements and contracts with vendors and suppliers clearly indicate that the Agency is the
   purchaser, lessor or lessee and (iii) the Lessees are the disclosed agents of the Agency.
2. Payments made under the contracts for Qualified Maintenance (which does not include
   operating or working capital costs or janitorial services) by the Lessees, as agents for and on behalf
   of the Agency, (a) for purchases of the services of maintaining and repairing tangible personal
   property consisting of the Leased Personalty, Facility Equipment and Tenant Improvements or (b)
   for purchases of the services of maintaining and repairing the Facility Realty and Tenant
   Improvements which constitute real property, property or land, in either case (a) or (b) 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 and also not including contracts for general services (e.g., janitorial services),
   will be exempt from sales and use taxes, to the following extent:
   With respect to Facility Equipment, Leased Personalty and those Tenant Improvements which
   do not constitute capital improvements, payments for such services and parts will be exempt where
   the services and parts are necessary to maintain, repair or service such Facility Equipment, Leased
   Personalty or Tenant Improvements, with a useful life of one year or more, used as part of the
   Project, provided that the Agency is the owner, lessor or lessee of such Facility Equipment, Leased
   Personalty and Tenant Improvements. Likewise, with respect to the Facility Realty and Tenant
   Improvements which constitute capital improvements, payments for such services and parts will be
   exempt where the services and parts are necessary to maintain the structural integrity of the Facility
   Realty and such Tenant Improvements, provided that the Agency is the owner, lessor or lessee of the
   Facility Realty and such Tenant Improvements.
   The exemptions described in the preceding paragraph shall not be available unless the
   purchase invoices, statements and contracts with vendors and suppliers for the services and parts
   described in the preceding paragraph provide that the Agency is the purchaser, lessor or lessee with
   respect to the Facility Equipment, Leased Personalty, Tenant Improvements and Facility Realty, and
   that the Lessees are the disclosed agents of the Agency. In any instance where the maintenance or
   repair results in the replacement of parts, materials or supplies that are consumed in the ongoing
   operation of the Facility Equipment or Leased Personalty, 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 a contract for Qualified Maintenance, 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 contract for Qualified Maintenance is separately stated from
the other charges or otherwise reasonably allocated.

3. Amounts payable by the Lessees to the Agency under the sub-sublease for the Facility
   Realty and Tenant Improvements and under the sublease or lease for the Leased Personalty and
   Facility Equipment, which amounts are denominated as "rent" under the Project Property Lease
   Agreement, will be exempt from the sales taxes imposed under sections 1105, 1107 and 1109 of the
   Tax Law, whether the Lessees make such payments to the Agency or to the Trustee to be applied in
   satisfaction of the Agency's obligation to pay Bond principal and interest to the Trustee. The Lessees'
   use, in accordance with the terms of the Project Property Lease Agreement, of the Facility Realty,
   Leased Personalty, Facility Equipment and Tenant Improvements which the Lessees lease, sublease
   or sub-sublease from the Agency under such Project Property Lease Agreement, will not be subject
   to the compensating use taxes imposed under sections 1107, 1109 and 1110 of the Tax Law.
4. Amounts payable by the Agency to the Trustee in respect of Bond principal and interest
   are exempt from sales and use taxes.

DATED: March 19, 1996

/s/
Doris S. Bauman
Director
Technical Services Bureau

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