New York Advisory Opinion TSB-A-96(35)S: When a group of securities-clearing companies finances new equipment through the New York City Industrial Development Agency's bond program, are the equipment purchases/leases, the companies' lease payments to the IDA, the $1 buyout price, and the early-removal penalty all exempt from New York sales and use tax?

Plain-English summary

Six related securities-clearing companies -- the Depository Trust Company, National Securities Clearing Corporation, International Securities Clearing Corporation, MBS Clearing Corporation, Government Securities Clearing Corporation, and Participants Trust Company -- set up a financing structure with the New York City Industrial Development Agency (IDA) to buy and lease computers, telecom equipment, business machines, furniture, and similar tangible personal property for their Manhattan and Brooklyn offices. Under the deal, the IDA (a public corporation) technically becomes the buyer, lessor, or lessee of the equipment using bond proceeds, with DTC acting as the IDA's disclosed agent (and NSCC/PTC as limited agents acting through DTC) to actually place the orders and pay the vendors. The equipment is then leased back to the companies, who make debt-service (rent) payments sized to cover the bonds. After a three-year retention period, the companies can buy the equipment from the IDA for a nominal $1 (Option 1), or buy it outright for $1 once the bonds are fully paid off (Option 2). If equipment is pulled out of the project sites early without a qualifying reason, the company must pay the IDA a "Premature Removal Penalty" equal to the sales tax that would otherwise have applied.

The Department ruled all four pieces of this structure exempt from state and local sales/use tax, relying on General Municipal Law § 874 (which exempts IDA property and activities from taxation) and the Wegmans Food Markets line of cases construing that exemption. As long as the paperwork consistently shows the IDA as the real purchaser/lessor/lessee and one of the companies as its disclosed agent, none of the following is taxable: (1) the purchases and leases of equipment (and qualifying maintenance contracts covering parts replacement, but not consumable items like toner or plain janitorial service), (2) the companies' debt-service lease payments to the IDA, (3) the $1 option prices paid to later buy the equipment outright, or (4) the Premature Removal Penalty if equipment leaves early. The opinion does flag one limit carried over from Wegmans: only maintenance tied to the Equipment itself is exempt -- if a maintenance charge mixes taxable and exempt work or parts without separately stating the exempt portion, the whole charge becomes taxable.

What this means for you

Companies structuring equipment purchases through a local IDA

Keeping the IDA as the documented purchaser/lessor/lessee -- with your company acting only as its disclosed agent -- is what makes the exemption work; if the paperwork instead names your company as the buyer, the IDA structure won't shield the purchase. Track which maintenance charges are tied to the financed equipment itself (exempt) versus general operating costs like janitorial service or consumables (taxable), and make sure any mixed invoice separately states the exempt portion.

Businesses considering an early exit from an IDA equipment lease

Removing financed equipment from the project site before the retention period ends (without a permitted business reason like obsolescence) triggers a "Premature Removal Penalty" sized to the sales tax you'd otherwise have paid -- budget for that possibility before committing equipment to a specific location.

Common questions

Q: Why does routing the purchase through a city IDA make it tax-exempt when the company itself couldn't buy the same equipment tax-free?
A: General Municipal Law § 874 exempts an IDA's own property, bonds, and activities from taxation as a matter of public policy encouraging IDA-sponsored economic development projects -- it's a benefit of the IDA's public-corporation status, not something that transfers automatically to the private company using the equipment. The exemption only holds while the IDA is genuinely the purchaser/lessor/lessee on the documents and the private company acts strictly as its disclosed agent.

Q: Does the exemption cover everything the companies later do with the equipment?
A: No. The opinion preserves the Wegmans II distinction between exempt "maintenance" of the financed equipment (repairs, part replacement) and non-exempt day-to-day operating expenses (the Wegmans case itself denied exemption for things like utilities and window washing). It also excludes ordinary consumable parts (e.g., a toner cartridge) and general janitorial-type service contracts, and a single invoice mixing taxable and exempt items becomes fully taxable unless the exempt portion is separately stated.

Q: What is the "Premature Removal Penalty" and why isn't it taxed?
A: If a company removes financed equipment from a project site before three years have passed, without a permitted reason, it owes the IDA a penalty equal to the present value of the sales tax that would have applied to the original purchase had the IDA exemption not been used. That's a contractual penalty paid to the IDA under the Project Agreement, not a taxable sale itself, so the Department ruled it isn't subject to sales or use tax.

Q: Can another company rely on this exact result?
A: No. This advisory opinion binds the Department only as to the named petitioners and the specific facts described; another IDA-financed project should confirm its own agency/lease documentation matches this fact pattern before assuming the same exemption.

Citations and references

Statutes and regulations:

• Tax Law §§ 1101(b)(5), 1101(b)(6), 1101(b)(14) (definitions)
• Tax Law §§ 1105, 1107, 1109, 1110 (sales and compensating use tax imposition)
• Tax Law § 1116(a)(1) (government exemption)
• 20 NYCRR 526.7(a), 526.7(c)(2), 526.8(c), 529.2(a), 541.3(a) (Sales and Use Tax Regulations)
• General Municipal Law §§ 858, 862, 874, 917 (industrial development agency powers and exemption)

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. denied 67 N.Y.2d 606 ("Wegmans I")
• Wegmans Food Markets v. 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_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (35)S
Sales Tax
June 5, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S951129A

On November 29, 1995, a Petition for Advisory Opinion was received from The Depository
Trust Company, National Securities Clearing Corporation, International Securities Clearing
Corporation, MBS Clearing Corporation and Government Securities Clearing Corporation, all of 55
Water Street, New York, NY 10041, and Participants Trust Company, 40 Rector Street, New York,
NY 10006.
Petitioners, the above mentioned companies, state the issues and facts as follows, (the
underlined terms below are defined in Petitioners' statement of facts):

1. Whether amounts paid by one of the Companies to purchase as Agent for the IDA
   pursuant to the Pre-Bond Issuance Sales Tax Letter and the Sales Tax Letter will be
   exempt from the sales and compensating use taxes imposed under sections 1105,
   1107, 1109 and 1110 of the Tax Law, (i) whether such amounts are paid directly to
   vendors by an Agent, or (ii) whether the Bond Trustee uses Bond proceeds to pay
   such amounts to vendors on behalf of one of the Companies as Agent for the IDA.
2. Whether Debt Service Payments made to the IDA by DTC will be exempt from
   the sales and compensating use taxes imposed under Sections 1105, 1107, 1109 and
   1110 of the Tax Law.
3. Whether the option price paid by any one of the Companies to the IDA at the time
   such company exercises either Option 1 or Option 2 will be subject to the sales and
   compensating use taxes imposed under Sections 1105, 1107, 1109 and 1110 of the
   Tax Law.
4. Whether, if, at any time, a Premature Removal Penalty is paid by one of the
   Companies to the IDA, such penalty will be exempt from the sales and compensating
   use taxes imposed under Sections 1105, 1107, 1109 and 1110 of the Tax Law.
   The Depository Trust Company ("DTC"), a New York limited purpose trust company,
   National Securities Clearing Corporation ("NSCC"), a New York corporation, Participants Trust
   Company ("PTC"), a New York limited purpose trust company, International Securities Clearing
   Corporation ("ISCC"), a New York corporation, MBS Clearing Corporation ("MBSCC"), a New
   York Corporation, and Government Securities Clearing Corporation ("GSCC"), a New York
   corporation, are in the business of providing services which a clearing agency registered under
   Section 17A of the Securities and Exchange Act of 1934, as amended, is authorized to provide.
   These services include (i) clearing house operations for the settlement of trades in the corporate
   securities, mortgaged backed securities and municipal securities markets, (ii) securities custody
   services for participating banks and broker dealers, and (iii) related operations of full service
   securities clearance houses and custodial services and other related operations. The companies have

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many members and/or stockholders in common, and are all in the business of providing clearance,
settlement and custodial services to the financial industry with each company handling different
aspects of these services.
Pursuant to a resolution adopted by the New York City Industrial Development Agency (the
"IDA") on September 12, 1995, a Lease Agreement dated as of November 1, 1995 (the "Lease
Agreement"), between the IDA and each of DTC, NSCC and PTC (the "Companies"), and a Project
Agreement dated as of November 1, 1995 (the "Project Agreement"), between the IDA and the
Companies, the IDA has authorized DTC to act as its agent (and, as indicated below, has authorized
NSCC and PTC to act as its limited agents) to acquire, lease, install, equip and maintain certain
commercial facilities in the City of New York (the "Project") and to acquire (whether by lease or by
purchase), equip, furnish, install, lease, sublease, repair, replace and maintain, from time to time,
machinery, equipment, trade fixtures, furniture, furnishings and other items of tangible personal
property (the "Equipment"), at all or any of 55 Water Street, New York, NY; 7 Hanover Square, New
York, NY; 1 Liberty Plaza, New York, NY; 40 Rector Street, New York, NY; 77 Washington Street,
Brooklyn, NY; and 45 Washington Street, Brooklyn, NY (collectively, the "Project Premises"), to
the extent used by DTC, NSCC, PTC or any of the Eligible Companies for the business of providing
securities clearance, settlement and custodial services within the City of New York (such use by any
of the Eligible Companies will be for no consideration). "Eligible Companies" is defined in the
Project Agreement to mean ISCC, MBSCC and GSCC.
The Project Agreement will provide that payments made to acquire and lease the Equipment
and to purchase related maintenance contracts for Qualified Maintenance, defined below, will be
exempt from sales and compensating use taxes. These tax benefits will be received by the
Companies over the period commencing on August 31, 1995 (the date of the Pre-Bond Issuance
Sales Tax Letter hereinafter mentioned) and ending on December 31, 2012.
The proposed structure of the transaction will be as follows:
(i) The IDA will acquire title to, or a leasehold interest in, the Equipment and will
lease (or sublease, as the case may be) the Equipment to the Companies under and
pursuant to the Lease Agreement between the IDA and the Companies;
(ii) The IDA and a banking institution designated by the IDA (the "Bond Trustee")
will enter into a trust indenture which will provide for the issuance from time to time
by the IDA of its special obligation revenue bonds (the "Bonds") to finance the costs
of the Equipment to be acquired or leased from time to time;
(iii) The Bonds will not be sold to any of the Companies, but will be sold to an
affiliate of one of the Companies; and
(iv) The Companies and the IDA will enter into additional agreements, which will
not contravene or alter any of the facts material to the transactions outlined herein.

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Under the Project Agreement, DTC will be authorized to act as agent for the IDA in making
acquisitions or entering into leases of the Equipment and in entering into maintenance agreements
with respect thereto (all of the foregoing, collectively, "Acquisitions") for the benefit of the
respective Companies and Eligible Companies. Each of NSCC and PTC will also be authorized to
act as the IDA's limited agent in making Acquisitions, except that these limited agents shall only act
as such through their appointment of DTC as their agent for the above purposes. Each of DTC,
NSCC and PTC, as agent for the IDA, is herein called an "Agent". When an Agent makes an
Acquisition, it generally will pay the vendor directly. In some cases, payments for such Acquisitions
will be made to the vendor by the Bond Trustee from Bond proceeds. All Acquisitions will be made
in accordance with the Pre-Bond Issuance Sales Tax Letter dated August 31, 1995, as extended and
supplemented, and the Sales Tax Letter and the procedural requirements of Section 3.1 of the Project
Agreement. The Equipment will then be leased (or subleased) by the IDA to the Companies under
the Lease Agreement. Equipment will include not only the original Equipment, but also
replacements, enhancements and additions thereto made from time to time over the term of and in
accordance with the Project Agreement.
Exhibit A of the Project Agreement provides a listing of the transactions which the IDA
intends to be exempt from sales and compensating use tax as follows:
Exemptions from sales or use tax relating to the following categories:

1. the acquisition of machinery, equipment, trade fixtures, furniture, furnishings and
   other tangible personal property (including any maintenance, repair, replacement,
   enhancement and additions required with respect to such items) for use at the Project
   Premises, including computers (and peripherals), telecommunications equipment,
   business machines and software, but excluding art, plants, objects d'art and other
   similar decorative items, rolling stock and ordinary office supplies such as pencils,
   paper clips and paper;
2. the leasing or subleasing of machinery, equipment, trade fixtures, furniture,
   furnishings and other tangible personal property (including any maintenance, repair,
   replacement, enhancement and additions required with respect to such items) for use
   at the Project Premises, including computers (and peripherals), telecommunications
   equipment, business machines and software, but excluding art, plants, objects d'art
   and other similar decorative items, rolling stock and ordinary office supplies such as
   pencils, paper clips and paper; and
3. maintenance, repair and service contracts to be used at the Project Premises for
   any of the items described in 1 and 2 above; provided, however, that (i) the purchase
   of any software under any of the above three categories may only be effected if such
   software shall be embodied in a tangible form (i.e., diskettes, magnetic tape, etc.) and

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shall be capitalized or capable of being capitalized under generally accepted
accounting principles, and only if such software shall be purchased concurrently with
a computer which is being (or shall previously have been) acquired or leased by the
[IDA] pursuant to the [Sales Tax Letter or Pre-Bond Issuance Sales Tax Letter] and
(ii) any maintenance shall only be for "Qualified Maintenance". "Qualified
Maintenance" shall mean, with respect to any of the above categories of property
having a useful life of one year or more, the replacement of parts (other than parts
that contain materials or substances that are consumed in the operation of such
property (e.g., a toner cartridge) where such parts must be replaced whenever the
substance is consumed) or the making of repairs, but shall not include maintenance
of the type as shall constitute janitorial services.
To finance the Acquisitions (exclusive of interest under leases of Equipment as described
below and payments under or for maintenance contracts), the IDA will issue Bonds semiannually.
The Lease Agreement will require DTC to make rental payments for the Equipment leased from the
IDA equal to the debt service on the Bonds ("Debt Service Payments"). Although all Bonds will
mature on December 31, 2012, Bonds of each series may be prepaid after 3 years from the date of
issuance, subject to certain conditions. As required by the IDA, Bond proceeds may not be used to
finance payments under or for maintenance contracts, or, to the extent that the IDA, through DTC,
enters into any lease of Equipment, the portion of any rental payments under such lease not
attributable to the deemed "principal portion" of such lease payments.
Pursuant to the Project Agreement, except for certain permitted reasons (including
obsolescence, uselessness, and good faith operational or business reasons), the Equipment may not
be removed from one of the Project Premises sites to a location other than another Project Premises
site prior to the expiration of three years from the date of installation or location of such Equipment
at a Project Premises site (the "Retention Period"). After the expiration of the Retention Period, such
Equipment may be removed from the Project Premises, provided that the original cost of the
remaining Equipment will not fall below specified amounts. In such event, DTC or one of the other
Companies will have the right ("Option 1") to acquire such Equipment from the IDA for the nominal
consideration of $1.00.
In addition, upon payment in full of the Bonds, the Equipment may be acquired by DTC or
one of the other Companies as DTC may designate for the price of $1.00 ("Option 2").
If Equipment is removed from one of the Project Premises sites prior to the expiration of the
Retention Period for reasons other than certain permitted reasons, DTC or one of the other
Companies must pay to the IDA an amount (the "Premature Removal Penalty") equal to the sales
tax NPV that would have been payable at the time of the original purchase (based upon its fair
market value at the time of the removal) but for the Pre-Bond Issuance Sales Tax Letter or the Sales
Tax Letter. "NPV" is defined in the Project Agreement as meaning, as to a specified or ascertainable
dollar amount, (i) the future value, as of the Lease Commencement Date (as defined in the Lease

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Agreement), of a future dollar amount or amounts discounted from June 30 of the calendar year in
which such amounts are paid, taken, incurred or realized at the annual compounded rate of 7.5% per
annum. DTC or one of the other Companies will pay the IDA a purchase price of $1.00, in addition
to the Premature Removal Penalty.
The Project will not exceed the allowable one-third retail facilities restriction of Section 862
of the General Municipal Law.
Applicable Law and Regulations
Section l101(b)(5) of the Tax Law defines "sale, selling or purchase" as:
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 l101(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 l101(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.

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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 l107(a) of the Tax Law provides, in relevant part:
On the first day of the first month following the month in which a municipal
assistance corporation is created under article ten of the public authorities law for a
city of one million or more, in addition to the taxes imposed by sections eleven
hundred five and eleven hundred ten, there is hereby imposed ... within the territorial
limits of such city, and there shall be paid, additional taxes, at the rate of four
percent, which except as provided in subdivision (b) of this section, shall be identical
to the taxes imposed by sections eleven hundred five and eleven hundred ten. Such
sections and the other sections of this article, including the definition and exemption
provisions, shall apply for purposes of the taxes imposed by this section in the same
manner and with the same force and effect as if the language of those sections had

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been incorporated in full into this section and had expressly referred to the taxes
imposed by this section.
Section l109(a) of the Tax Law provides, in relevant part:
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 ....
Section ll16(a) of the Tax Law provides, in relevant part:
... any sale ... by or to any of the following or any use ... by any of the following shall
not be subject to the sales and compensating use taxes imposed under this article:
(1) The state of New York, or any of its agencies, instrumentalities, public
corporations ... or political subdivisions where it is the purchaser, user or consumer,
or where it is a vendor of services or property of a kind not ordinarily sold by private
persons; ...

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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 ll16(a)(1)
... of the Tax Law, the contract signed by the government representative and the
prime contractor is sufficient proof of the exempt status of purchases made for such
contract.
(1) Such governmental entities include:

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(i) Pursuant to section ll16(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.
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

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predominant purpose of the project would be to make available goods or services
which would not, but for the project, be reasonably accessible to the residents of the
city, town, or village within which the proposed project would be located because of
a lack of reasonably accessible retail trade facilities offering such goods or services,
or (iii) the project is located in a highly distressed area.
(c) With respect to projects authorized pursuant to paragraph (b) of this subdivision,
no project shall be approved unless the agency shall find after the public hearing
required by section eight hundred fifty-nine of this chapter that undertaking the
project will serve the public purposes of this article by preserving permanent, private
sector jobs or increasing the overall number of permanent, private sector jobs in the
state. Where the agency makes such a finding, prior to providing financial assistance
to the project by the agency, the chief executive officer of the municipality for whose
benefit the agency was created shall confirm the proposed action of the agency.
Section 874(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 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

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the plaintiff. In an earlier action, Wegmans Food Markets v. Department of Tax and Finance of the
State of N.Y., 126 Misc. 2d 144, aff'd 115 A.D.2d 962, lv to app den 67 NY2d 606, ("Wegmans I")
the section 874 tax exemption was held to be broader than the exemption provided by section 1116
of the Tax Law. The court in Wegmans II stated in part:
The IDA's 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 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

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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 for the IDBs. Ownership of property, real and
personal -as distinguished from operation of the business -- was clearly within the
express, contemplated function and authority of IDAs under the (General Municipal
Law).
In (Wegmans I), the Court stated:
The Legislature very carefully included all revenues received by an IDA within the
purposes of article 18-A. The definition of "revenues" in subdivision (7) of section
854 of the General Municipal Law is all inclusive: "All rents, revenues, fees, charges
and other sources of income derived by the agency from the leasing, sale or other
disposition of a project or projects."
The term "projects" was also made all-embracing. Subdivision (4) of section 854 of
the General Municipal Law defines "Project[s]" as "any land, and building[s] or other
improvement, and all real and personal properties located within the state of New
York ....
Opinion
Based on the structure under which the IDA proposes to make sales and compensating use
tax benefits available to Petitioner with respect to Acquisitions, 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. Department of Taxation
and Finance of the State of N.Y., (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J.) supra, and
provided that all the terms and conditions of the relevant documents are complied with, and that such
terms and conditions are consistent with Petitioner's description of them as set forth above, in the
instant matter:
(a) Amounts paid by one of the Companies to purchase Acquisitions, as Agent for and on
behalf of the IDA, pursuant to the Pre-Bond Issuance Sales Tax Letter and the Sales Tax Letter,
whether the payments are made directly to vendors by an Agent, or whether the Bond Trustee uses
Bond proceeds to pay such amounts to vendors on behalf of one of the Companies as Agent for the
IDA, will be exempt from sales and use taxes as follows:
(1) With respect to purchases (including leases) of Equipment, such amounts paid will be
exempt from such taxes, provided that (i) the IDA is the owner, lessor or lessee of the property, (ii)
the purchase invoices, statements and contracts with vendors and suppliers provide that the IDA is

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the purchaser, lessor or lessee and (iii) one of the Companies effecting the purchase (including a
lease) is the disclosed Agent of the IDA.
(2) With respect to maintenance agreements for Equipment, such amounts paid to purchase
the service of maintaining, repairing or servicing tangible personal property consisting of Equipment,
with a useful life of one year or more, and which is in use at the Project Premises, including
replacement of parts, but not including parts (e.g. a toner cartridge) that contain materials or
substances consumed in operating the property and that are replaced when the part, material or
substance is consumed, but not including contracts for general services (e.g., janitorial services), will
be exempt from such taxes provided that such maintenance agreements, services and parts, are
necessary to maintain, repair or service Equipment used as part of the Project, and provided that the
IDA is the owner, lessor or lessee of the Equipment and that the purchase invoices, statements and
contracts with vendors and suppliers provide that the IDA is the purchaser, lessor or lessee and that
one of the Companies effecting such purchase is the disclosed Agent of the IDA. In any instance
where the maintenance, repair or servicing results in the replacement of parts, materials or supplies
that are consumed in the ongoing operation of the Equipment where such parts, materials or supplies
must be replaced when consumed, the portion of the charges applicable to such parts, materials or
supplies will be subject to the taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax
Law, as indicated in We Gmans Food Markets Inc v. The Department of Taxation and Finance of
the State of N.Y. (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J.) supra.
However, it is noted that in a transaction where the charge is for both taxable and exempt
services or taxable or exempt parts, tools or supplies, the total charge will be subject to the tax
imposed under sections 1105, 1107, 1109 or 1110 of the Tax Law, unless the portion of the charge
applicable to the exempt services or parts, tools or supplies is separately stated from the other
charges or otherwise reasonably allocated.
(b) Debt Service Payments made to the IDA by DTC under the Lease Agreement will not
be subject to sales and use taxes.
(c) The option price paid by any one of the Companies to the IDA at the time either Option
1 or Option 2 under the Lease Agreement is exercised will not be subject to sales and use taxes.
(d) The amount paid to the IDA as a Premature Removal Penalty by one of the Companies
will not be subject to sales and use taxes.

DATED: June 5, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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