New York Advisory Opinion TSB-A-96(26)S: When a commercial landlord bills a tenant "additional rent" for building services beyond the basic lease package -- overtime elevator/porter/heat, plus separate categories like extra cleaning, mechanical maintenance, and rubbish removal -- which of those charges are subject to sales tax?

Plain-English summary

Midtown Realty Company's commercial lease bundles basic cleaning, elevator, porter (janitorial), and heat/air conditioning service into the tenant's base rent, but only during normal building operating hours (7:30 a.m. to 5:30 p.m. on regular business days). Beyond that, the lease bills the tenant "additional rent," calculated from Midtown's hourly rates and costs, for seven categories: (1) overtime elevator service, (2) overtime porter service, (3) miscellaneous mechanical services, (4) overtime heat/air conditioning, (5) additional cleaning services, (6) maintenance of mechanical equipment, and (7) rubbish removal. Midtown asked whether these "additional rent" charges are subject to sales tax.

The Department split the categories into two groups based on substance, not label. Overtime elevator service, overtime porter service, and overtime heat/air conditioning are simply the SAME services already included in base rent, just extended beyond normal hours -- following the Court of Appeals' Debevoise & Plimpton and Empire State Building Company decisions (which held that overtime HVAC charges and an "Electricity Rent Inclusion Factor" were incidental to renting the premises, not separate sales of utility/refrigeration/steam service), these overtime charges are treated as simply an increase in rent, not independently taxable. But the other four categories -- miscellaneous mechanical services, additional cleaning services beyond the base package, maintenance of mechanical equipment, and rubbish removal -- are different in kind, not merely the same base services run longer. The Department pointed to specific lease language showing these aren't really part of the landlord's rental obligation at all: one clause lets the tenant pay a third-party cleaning/rubbish contractor DIRECTLY (making clear those payments aren't rent to Midtown at all), and another states plainly that "nothing contained herein shall in any manner...obligate Owner to do any such maintenance or repair work." Because these are genuinely separate service transactions the landlord isn't obligated to provide (rather than an overtime extension of an already-included service), labeling the charges "additional rent" doesn't change their real character -- they're taxable maintenance, servicing, and repair services under Tax Law § 1105(c)(3) and (5), subject to New York State and local sales tax (including the New York City local tax).

What this means for you

Commercial landlords billing tenants for building services beyond base rent

Whether an "additional rent" charge is taxable depends on whether it's genuinely the SAME service included in base rent just extended past normal hours (untaxed, treated as rent) or a different-in-kind service the lease doesn't actually obligate you to provide (taxable as a separate service sale) -- calling something "additional rent" in the lease doesn't control the tax outcome. Review your lease's obligation language (who's actually required to do the work, and whether the tenant can instead pay a third-party contractor directly) to classify each service category correctly.

Commercial tenants paying for extra building services

Expect sales tax to apply to charges for services genuinely outside your building's normal included package -- like special cleaning, mechanical equipment maintenance, or rubbish removal -- even when your landlord bills them as "additional rent" on the same invoice as your regular rent.

Common questions

Q: Why are overtime elevator/porter/heat charges different from the other "additional rent" items?
A: Those three are literally the same services already bundled into base rent, just provided for extra hours -- per Debevoise & Plimpton and Empire State Building Company, extending an already-included service past normal hours is treated as an increase in rent for using the premises longer, not a separate sale of a taxable service.

Q: What made the other four categories "genuinely separate" rather than overtime extensions?
A: The lease's own language: it explicitly allows the tenant to pay a cleaning/rubbish contractor directly (meaning those payments aren't rent to the landlord at all), and separately disclaims any landlord obligation to do maintenance or repair work unless specifically agreed -- both signs that these are distinct service transactions the landlord isn't contractually bound to provide as part of the tenancy.

Q: Does labeling a charge "additional rent" in the lease protect it from sales tax?
A: No. The Department was explicit that characterizing a payment as "additional rent" doesn't change the nature of the underlying transaction or its taxability -- the real substance of what's being provided controls, not the lease's label.

Q: Does the New York City local sales tax apply to these taxable service charges too?
A: Yes -- the Department specified that the taxable categories (miscellaneous mechanical services, additional cleaning, mechanical equipment maintenance, rubbish removal) are subject to New York State AND local sales tax, including the tax imposed in New York City.

Citations and references

Statutes and regulations:

• Tax Law § 1105(b) (utility service tax)
• Tax Law § 1105(c)(3), (5) (installation/maintenance/repair service tax)

Prior rulings and cases referenced:

• Debevoise & Plimpton v. New York State Department of Taxation and Finance, 80 N.Y.2d 657
• Empire State Building Company v. New York State Department of Taxation and Finance, 81 N.Y.2d 1002

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_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (26)S
Sales Tax
May 2, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950502B

On May 2,1995, a Petition for Advisory Opinion was received from Midtown Realty
Company, 1775 Broadway, New York 10019.
The issue raised by Petitioner, Midtown Realty Company, is whether its charges to a tenant
for certain services are subject to sales tax.
Petitioner presents the following facts.
Pursuant to an Agreement of Lease between Petitioner, as landlord, and its tenant, Petitioner
is to provide basic cleaning, elevator, porter (i.e. janitorial), heat and air conditioning services during
normal operating hours (the "included services"). The included services are part of the basic rent
charge. In addition, pursuant to the Agreement of Lease the tenant will pay additional rent for the
services enumerated below. Some of these are additional services that differ in kind from the
included services, and some are simply the included services provided on an overtime basis beyond
the normal operating hours of the building.
The services to be provided for additional rent are:
1) overtime elevator service;
2) overtime porter service;
3) miscellaneous mechanical services;
4) overtime heat and/or air conditioning;
5) additional cleaning services;
6) maintenance of mechanical equipment; and
7) rubbish removal.
The additional rent charges are calculated based upon Petitioner's hourly rates, costs of
personnel and additional costs depending upon the type of services provided.
The normal operating hours of the building for which the included services are routinely
provided as part of the basic rental agreement are the business hours of 7:30 a.m. to 5:30 p.m., on
regular business days. The lease provides that the tenant is to pay additional rent for included
services during non-business hours or on non-business days and for the additional services as
requested by the tenant during normal business hours.
According to Petitioner, the following articles in the Agreement of Lease are relevant to the
issue presented in this Advisory Opinion:
Maintenance and repairs 4. Tenant shall, throughout the term of this lease, take
good care of the demised premises and the fixtures and appurtenances therein. Tenant
shall be responsible for all damage or injury to the demised premises or any

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other part of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness, omission,
neglect or improper conduct of Tenant ...

Services Provided by Owner 29 .... (d) cleaning service for the demised premises
on business days at Owner's expense provided that the same are kept in good order
by Tenant ....

47. MAINTENANCE OF DEMISED PREMISES. Except as otherwise expressly
    specified in Articles 4, 29 and 51 hereof, Owner shall not be responsible for the
    upkeep or maintenance of the demised premises or any installation or fixtures therein.
    In no event shall Owner be responsible for or insure any installation, fixtures,
    betterments or leasehold improvements made by or for the benefit of Tenant. Should
    Owner hereafter agree, in writing or otherwise, at the request of Tenant or otherwise,
    to do any work in or in respect of the demised premises, same shall be paid for by
    Tenant as additional rent not later than twenty (20) days after being billed therefor.
    (Emphasis supplied)
48. CLEANING SERVICES: RECYCLING: EXTERMINATION. A. The cleaning
    service to be provided by Owner in accordance with the Provisions of Article 29(d)
    hereof shall include removal of Tenant's normal office refuse and the general
    cleaning services specified on Exhibit B. Tenant shall pay the Building's cleaning
    contractor (as additional rent) upon demand the cost of any other cleaning services
    and for removal of any of Tenant's refuse and rubbish (such as cartons, boxes, crates,
    packing cases, furniture and furnishings, filing cabinets, etc.) that is in excess of
    normal office refuse. Owner, at no cost to it and without the need to incur any
    obligation or liability, shall cooperate to resolve any disputes that may arise between
    Tenant and the Building's cleaning contractor.
49. OTHER SERVICES. Tenant shall pay Owner's customary charges (as additional
    rent) within (20) days after receipt of Owner's invoice therefor, for any and all
    maintenance and/or repair work done by Owner for Tenant, at Tenant's request, but
    nothing contained herein shall in any manner or to any degree obligate Owner to do
    any such maintenance or repair work.
50. ADDITIONAL RENT. A. In addition to the Base Rent, all other payments
    required to be made by Tenant hereunder shall be deemed to be additional rent,
    whether or not same shall be designated as such, and in the event of the non-payment
    thereof, Owner (in addition to and not in limitation of its other rights and remedies,
    whether herein reserved or as may be provided by law) shall have all of the rights and
    remedies in respect thereof as are herein or otherwise provided in the case of the non­
    payment of Base Rent. (Emphasis supplied)

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Applicable Law
Section 1105(b) of the Tax Law imposes a tax upon:
[T]he receipts from every sale, other than for resale, of gas, electricity, refrigeration
and steam, and gas, electric, refrigeration and steam service of whatever nature, and
from every sale, other than sales for resale, of telephony and telegraphy and telephone
and telegraph service of whatever nature except interstate and international telephony
and telegraphy and telephone and telegraph service and from every sale, other than
sales for resale, of a telephone answering service.
Section 1105(c) of the Tax Law imposes sales tax upon: [T]he receipts from every
sale, except for resale, of the following services:
*

*

*

(3) Installing tangible personal property, excluding a mobile home, or
maintaining, servicing or repairing tangible personal property, including a mobile
home, not held for sale in the regular course of business, whether or not the services
are performed directly or by means of coin-operated equipment or by any other
means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:
*

*

*

(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 capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter, but excluding services rendered by an individual who
is not in a regular trade or business offering his services to the public.
In Debevoise & Plimpton v New York State DePt. of Taxation and Finance, 80 NY2d 657,
661, the Court of Appeals held that the tenants' payments for overtime heat, ventilation and air
conditioning services were incidental to the rental of the commercial premises and not the sale of
a refrigeration and steam service and, therefore, not subject to the sales tax pursuant to Section
l105(b) of the Tax Law.
In Empire State Building Company v New York State Dept. of Taxation and Finance, 81
NY2d 1002, the Court of Appeals held that the tenants' payments of an Electricity Rent Inclusion
Factor were for an electric service provided only as an incident to the rental of the commercial
premises and not as a part of "separate transactions which have as their primary purpose the

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furnishing of utilities or utility services," and therefore, not subject to tax as a sale of utility services
under Section 1105(b) of the Tax Law.
In Debevoise & Plimpton, supra and Empire State Building Company, supra, charges for
overtime heat, electricity, etc., that the landlord was responsible for providing were considered an
increase in the rent when the tenant required the service outside of certain established hours. Other
than overtime elevator and porter service and overtime heat, the transactions described by Petitioner
are fundamentally different. The additional services provided by Petitioner are not an incident to the
rental of the premises. Petitioner's lease agreement supports this conclusion. Petitioner's lease
agreement requires the lessee to be responsible for keeping the building in a certain condition. In
doing so, the lessee may hire its own contractor or one may be provided by the owner. Article 51 of
Petitioner's lease agreement provides that the tenant will pay a third-party cleaning contractor directly
for additional services and rubbish removal. The tenant's payments directly to the contractor for
services rendered cannot be considered rent to Petitioner. Article 52 of Petitioner's lease agreement
provides that ". . .nothing contained herein shall in any manner obligate Owner to do any such
maintenance or repair work." This language further indicates that these transactions should be treated
differently from the additional rent paid in the Debevoise and Empire State Building cases. The
characterization as "additional rent" of the various payments described in Articles 4, 47, 51 and 52,
other than for elevator, porter and indicated utility services, does not change the nature of the
transactions referred to or their taxability under the Sales and Use Tax Law.
With the exception of charges for furnishing overtime elevator and porter service and
overtime heat and/or air conditioning, the relevant portions of Petitioner's lease agreement describe
separate transactions, the charges for which cannot be considered payments for real property rent
merely because Petitioner chooses to characterize the charges as additional rent. Miscellaneous
mechanical services, additional cleaning services, maintenance of mechanical equipment and rubbish
removal provided to the tenant under the lease agreement are among the services taxable under
Section 1105 (c)(3) and (5)of the Tax Law. Consequently, charges to the tenant for these services
are subject to New York State and local sales taxes, including the sales tax imposed in New York
City.

DATED: May 2, 1996

/s/
Doris S. Bauman
Director
Technical Services Bureau

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