Can a commercial landlord avoid sales tax on trash removal, painting, maintenance, and water-leak repair charges just by billing them to the tenant as 'additional rent'?

Plain-English summary

Newsweek Inc. leases office space in a New York City building. Under the lease, base rent covers normal operating costs, but the landlord separately bills Newsweek -- as "additional rent" -- for seven categories of charges: overtime freight elevator service, overtime heating, daily wet trash removal from the cafeteria, overtime air conditioning tower cleaning, miscellaneous painting, general maintenance, and repairs for water leakage into lower floors. Newsweek's lease specifically requires it to keep the space and building systems in good condition, obligates it to pay a third-party cleaning contractor directly for excess trash removal, and states that the landlord isn't obligated to do any maintenance or repair work beyond what's expressly listed -- but if the landlord does agree to do such work, it gets billed as "additional rent."

The Department applied two controlling Court of Appeals precedents, Debevoise & Plimpton and Empire State Building Company, which both held that certain landlord charges (overtime heat/ventilation/AC, an electricity rent-inclusion factor) are untaxed because they're genuinely INCIDENTAL to the rental of the commercial space -- not separate sales of a utility or repair service. Applying that same logic, the Department found that Newsweek's overtime elevator, overtime heating, and overtime AC tower cleaning charges fit the same "incidental to rent" pattern and are untaxed.

But the other charges are fundamentally different, and the label "additional rent" doesn't save them. The lease itself shows these charges aren't just baked-in rent: the tenant is required to pay a third-party contractor DIRECTLY for extra cleaning/trash removal (not through the landlord as rent at all), and the lease expressly says the landlord has no underlying OBLIGATION to perform maintenance or repair work -- it's optional, billed only if actually requested and performed. Because these services (daily wet trash removal, painting, maintenance, and water-leak repairs) are genuinely separate taxable services -- maintaining/servicing/repairing real property under § 1105(c)(5), or tangible personal property under § 1105(c)(3) -- calling them "additional rent" in the lease doesn't change their tax character. They remain subject to New York State and local sales tax, including New York City's local tax under § 1107.

What this means for you

Commercial landlords

Simply labeling a charge as "additional rent" in your lease doesn't exempt it from sales tax if the underlying service is genuinely separate from -- not incidental to -- the space rental. Look at whether the lease actually obligates you to perform the service (suggesting it's baked into the rent relationship) versus whether it's optional/on-request work you bill separately, and whether the tenant pays a third-party contractor directly for some services (a strong sign they're not "rent" at all).

Commercial tenants

Don't assume every charge labeled "additional rent" on your invoice is tax-free -- charges for maintenance, repairs, painting, and non-incidental cleaning/trash removal are typically taxable services, while charges genuinely incidental to your use of the space (like overtime HVAC or elevator service, per this and the Debevoise/Empire State Building precedents) are not.

Accountants and tax professionals

This opinion is a useful line-drawing tool distinguishing which "additional rent" charges survive the Debevoise & Plimpton/Empire State Building Co. "incidental to rent" exemption and which don't -- the key signals here were (1) whether the lease creates a genuine landlord OBLIGATION to perform the service versus optional/on-request work, and (2) whether the tenant pays a third party directly rather than the landlord.

Common questions

Q: Why are overtime elevator, heating, and AC tower cleaning charges treated differently from trash removal and painting?
A: The opinion treats overtime elevator, heating, and AC tower cleaning as incidental to the base rental relationship (following the Debevoise/Empire State Building line), while trash removal, painting, general maintenance, and leak repairs are independent taxable services under § 1105(c)(5) that the lease doesn't actually obligate the landlord to perform.

Q: Does it matter that the lease calls all of these charges "additional rent"?
A: No -- the opinion explicitly states that characterizing a charge as "additional rent" "does not change the nature of the transactions referred to or their taxability" under the Sales and Use Tax Law.

Q: Can another landlord or tenant rely on this ruling?
A: No. This advisory opinion binds the Department only with respect to Newsweek Inc. and the specific lease language and facts it described.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (definition of sale, selling or purchase)
• Tax Law § 1105(b) (tax on gas, electricity, refrigeration, steam, and related services)
• Tax Law § 1105(c)(3) (tax on installing/maintaining/servicing/repairing tangible personal property)
• Tax Law § 1105(c)(5) (tax on maintaining/servicing/repairing real property)
• Tax Law § 1107 (New York City local sales tax)

Prior rulings and cases referenced:

• Debevoise & Plimpton v. New York State Dept. of Taxation and Finance, 80 NY2d 657
• Empire State Building Company v. New York State Dept. of Taxation and Finance, 81 NY2d 1002
• Midtown Realty Company, Adv Op Comm T&F, May 2, 1996, TSB-A-96(26)S

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_69s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (69) S
Sales Tax
November 1, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S951121A

On November 21, 1995, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Newsweek Inc., 333 Route 46 Mountain Lakes, New Jersey 07046.
The issue raised by Petitioner, Newsweek Inc., is whether a landlord is required to charge a
tenant sales tax on certain services provided when these charges are billed as additional rent.
Petitioner submits the following facts as the basis for this Advisory Opinion. Petitioner leases
space in a building located in New York City. The landlord is charging for: 1) overtime freight
elevator service (with and without an engineer), 2) overtime heating, 3) daily wet trash removal
(from the cafeteria), 4) overtime a/c tower cleaning costs (extra charges to periodically clean the air
conditioning tower servicing the entire building, which must be done on weekends), 5)
miscellaneous painting, 6) maintenance and 7) repairs due to water leakage into lower floor spaces.
The lease specifies that the base rent covers normal operating costs of which Petitioner is required
to pay a fixed percentage. All other charges are billed as additional rent.
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 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)

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Sales Tax
November 1, 1996

51. 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.
52. 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.
53. 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)
    Applicable Law
    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 l105(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 for resale, of telephony and telegraphy and

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Sales Tax
November 1, 1996

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 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
furnishing of utilities or utility services," and therefore, not subject to tax as a sale of utility services
under Section l105(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 services outside of certain established hours. Other
than overtime elevator, overtime heat and overtime a/c tower cleaning, the transactions described

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by Petitioner are fundamentally different. The additional services received 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.
The charges for overtime elevator freight service, overtime heating and overtime a/c tower
cleaning costs are considered payments of real property rent because these services are incidental to
the rental of the commercial premises. The charges for daily wet trash removal, and miscellaneous
painting, maintenance charges and repairs due to water leakage into lower floors, however, cannot
be considered payments for real property rent merely because the landlord chooses to characterize
the charges for these services as additional rent. These services are taxable under Section 1105(c)(5)
of the Tax Law. To the extent services to tangible personal property are involved, they would be
taxable under section 1105(c)(3) rather than section 1105(c)(5). Consequently, charges to Petitioner
for these services are subject to New York State and local sales taxes, including the sales tax
imposed in New York City under Section 1107 of the Tax Law. See: Midtown Realty Company, Adv
Op Comm T & F, May 2, 1996, TSB-A-96(26)S.

DATED: November 1, 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.