How are an out-of-state natural-gas marketer's sales to New York end-users taxed under the Article 9 utility taxes, Article 9-A, and the sales tax, when title passes outside New York and the marketer arranges transportation as the customer's agent?

Plain-English summary

Cullen and Dykman asked how the receipts of an unregulated natural-gas Marketer are taxed across several scenarios. In each, the Marketer buys gas outside New York, sells it to a New York end-user, and -- as the end-user's agent -- arranges interstate-pipeline and local-distribution transportation to the burner-tip. In Scenarios 1 and 2 title, possession, and risk of loss pass to the end-user outside New York; Scenario 3 mixes out-of-state and in-state sales. The opinion (issued jointly as a Corporation Tax and Sales Tax advisory opinion) addresses Article 9 (sections 186, 186-a, 189), Article 9-A, and the sales tax (Articles 28-29).

Classification (Articles 9 vs. 9-A). Because more than 50% of the Marketer's receipts come from selling gas, it is classified under section 186 (gross-earnings tax on a company supplying gas through mains/pipes) and is therefore not subject to Article 9-A (section 209.4). As a person selling gas through mains/pipes but not supervised by the Public Service Commission, it is also a utility of the second class under section 186-a, taxed on its gross operating income from gas sold for New York consumption.

Section 189 gas-importer tax. This falls on the party that imports gas for its own use -- here the end-user, not the Marketer.

Where is the sale? (the pivotal factual question). Whether a sale occurs in New York -- which determines section 186/186-a inclusion and sales tax -- turns on where title, possession, and risk of loss pass, which is a question of fact an advisory opinion cannot finally resolve (following Mark S. Klein, Niagara Mohawk, and Doyle).

• Sale outside New York (Scenarios 1, 2, part of 3): the gas receipt is not New York gross earnings (section 186) or gross operating income (section 186-a); the Marketer's agent fee for arranging transportation is incidental and likewise not taxed; and transportation fees the Marketer merely collects and remits for the end-user are conduit amounts, not its receipts (Consolidated Edison, TSB-A-86(22)C). No sales tax applies because no sale/use of the gas occurs in New York. (But the sale may be pulled into New York if the agency arrangements are not at arm's length / not at third-party prices.)
• Sale in New York (part of Scenario 3): the entire receipt -- the gas commodity plus the delivery/agent charge -- is subject to the section 1105(b) sales tax (the delivery charge is part of "receipt" under section 1101(b)(3)) and is in section 186 gross earnings; for section 186-a, the gas receipt is in gross operating income, though as a second-class utility the Marketer's separate transportation-arrangement charge is not.

Gas is taxed under the sales tax only via section 1105(b) (not as ordinary tangible personal property); residential, R&D, and production uses may be exempt (sections 1105-A, 1115(b)(ii), 1115(c)).

What this means for you

A gas marketer is an Article 9 utility taxpayer, not Article 9-A

If more than 50% of its receipts come from selling gas, the marketer is taxed under section 186 (gross earnings) and, as an unregulated second-class utility, under section 186-a (gross operating income) -- and is outside Article 9-A.

Where title and ownership pass decides New York taxation

The taxability of each sale -- for sections 186/186-a and for the sales tax -- depends on where title, possession, and risk of loss transfer. If they pass outside New York, the sale (and the incidental transportation-arranging fee) is not New York-taxable; if they pass in New York, the whole receipt, including delivery, is taxable.

Agent / conduit transportation fees are not the marketer's receipts

When the marketer, as the customer's agent, merely collects transportation charges and remits them to the pipeline or local utility, those amounts are conduit pass-throughs, not the marketer's taxable receipts -- but the arrangement must be genuinely arm's-length.

The gas-importer tax is the end-user's

The section 189 tax applies to the end-user that imports gas for its own New York use, not to the marketer that sold it outside the State.

Common questions

Q: Is a natural-gas marketer taxed under Article 9 or Article 9-A?
A: Under Article 9 -- section 186 (gross earnings) and section 186-a (gross operating income, as a second-class utility) -- if more than 50% of its receipts are from selling gas. Section 209.4 then keeps it out of Article 9-A.

Q: When is the gas sale subject to New York tax and sales tax?
A: When the sale occurs in New York, judged by where title, possession, and risk of loss pass. Sales completed outside New York are not New York gross earnings, gross operating income, or sales-taxable.

Q: Are the transportation fees the marketer collects taxable to it?
A: No, where it acts only as the customer's agent and remits the fees to the carriers -- those are conduit amounts. The agent arrangement must be arm's-length and at third-party prices, or the sale may be treated as occurring in New York.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 186 (tax on companies supplying gas through mains/pipes; gross earnings); section 186-a (utility tax; gross operating income; second-class utility not under PSC supervision)
- Tax Law section 189 (gas-importer privilege tax on the end-user); section 209.4 (corporation liable under sections 183-186 is not subject to Article 9-A)
- Tax Law section 1105(b) (sales tax on gas and gas service); section 1101(b)(3) (receipt includes delivery charges); sections 1105-A, 1115(b)(ii), 1115(c) (residential/R&D/production exemptions)
- Mark S. Klein, TSB-A-91(11)C; Niagara Mohawk Power Corporation, TSB-A-95(8)C; Christopher L. Doyle, TSB-A-96(13)C / TSB-A-96(29)S; Consolidated Edison, TSB-A-86(22)C (agent/conduit fees)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a96_85s_28c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (85) S
Sales Tax
TSB-A-96 (28) C
Corporation Tax
December 26, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z960404C

On April 4, 1996, a Petition for Advisory Opinion was received from Cullen and Dykman,
177 Montague Street, Brooklyn, New York 11201.
The issue raised by Petitioner, Cullen and Dykman, is whether any portion of the revenues
derived from the natural gas transactions described in each of the scenarios set forth below is subject
to tax under (1) sections 186, 186-a or 189 of Article 9 of the Tax Law, (2) Article 9-A of the Tax
Law, and (3) Articles 28 and 29 of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion. The petition
presents various scenarios involving the distribution of natural gas. An advisory opinion addresses
the particular set of facts raised by the petitioner (Tax Law, §171, subd Twenty-fourth, 20 NYCRR
2376.1[b]) and it is presumed for purposes of the opinion that the described transactions comply
with, and are treated consistently for purposes of, applicable tariffs and contractual agreements
among the parties as well as Federal and State (including other States) regulatory and tax
requirements.
Scenario 1: An unregulated gas marketing company ("Marketer") is incorporated and headquartered
in a state other than New York. Marketer does not maintain an office in New York. However, it
solicits business in New York by mail and telephone, and its salesmen periodically visit New York
to solicit business. More than 50 percent of Marketer's receipts are derived from sales of natural gas
to end-users, including sales to end-users located in New York.
Marketer's transactions with its New York customers are typically structured as follows: Marketer
procures and takes title to natural gas from a producer or other supplier outside New York and, in
turn, sells the commodity to a New York end-user for ultimate consumption in New York. The gas
sales agreement ("Agreement") between Marketer and the end-user provides that the gas will be sold
to the end-user at a location outside New York (i) where the quantity of gas sold will be measured,
(ii) where the end-user will take title to, and possession of the gas, and (iii) where the end-user will
assume the risk of loss respecting the gas; i.e., all indicia of ownership transfer to the end-user
outside New York.
Pursuant to other provisions of the Agreement, the New York end-user designates Marketer as the
end-user's agent for arranging and administering transportation of the customer-owned gas (i) via
interstate pipeline from the out-of-state point of sale to the point of interconnection ("city-gate") with
a local distribution company ("LDC") and (ii) via the LDC from the city-gate to the burner-tip. The
Agreement will expressly designate Marketer as the end-user's agent for arranging and administering
delivery of the gas, and Marketer will hold itself out to the interstate pipeline and the LDC as the
end-user's agent. To the extent permitted by the pipeline and LDC tariffs, Marketer will enter into

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both interstate and local transportation contracts as agent for the end-user. The end-user will be a
principal party to, and have independent rights under, the transportation contracts with both the
interstate pipeline and the LDC. Aside from its agency functions, Marketer will have no contractual
obligation to the end-user, the interstate pipeline, or the LDC under either of the transportation
agreements. Marketer will not own, lease or operate facilities for the transportation of natural gas.
Marketer's Agreement with the New York end-user will impose separate charges for (i) sale of the
gas commodity and (ii) the service of acting as the end-user's agent for arranging and administering
interstate and local transportation services via interstate pipeline and LDC respectively. The end­
user is liable directly to the interstate pipeline and LDC for transportation fees. However, the
Marketer, as agent, may collect such fees from the end-user and remit those fees to the transportation
companies, acting merely as a conduit.
Scenario 2: Assume the same facts as in Scenario "1", except that, Marketer will charge a single fee
for (i) the sale of the gas commodity and (ii) the service of arranging and administering, as the
customer's agent, interstate and local transportation of the gas.
Scenario 3: Assume the same facts as in Scenario "1" with the following variations. Marketer is a
foreign corporation authorized to do business in New York, as well as other states, and has an office
and salespersons in New York. Marketer's customers include both New York and out-of-state end­
users. Marketer sells gas to New York end-users in transactions where physical delivery and transfer
of title and all incidents of ownership occur in New York. Marketer also sells gas to New York end­
users at points outside New York, (as described in Scenario "1"), where title, possession, risk of loss
and all other indicia of ownership transfer from Marketer to the end-user. As in Scenario "1",
Marketer does not own, lease, or operate facilities for the delivery of gas. When Marketer sells gas
to New York end-users at points outside New York, it also arranges and administers, as the end­
user's agent, transportation of the customer-owned gas (i) via interstate pipeline to the city-gate and
(ii) via LDC from the city-gate to the burner-tip.
Articles 9 and 9-A of the Tax Law
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax on domestic
or foreign corporations for the privilege of exercising a corporate franchise, doing business,
employing capital, owning or leasing property in a corporate or organized capacity, or maintaining
an office in New York State. Section 209.4 of the Tax Law, provides that a corporation liable for
tax under sections 183 through 186 of Article 9 of the Tax Law is not subject to tax under Article
9-A of the Tax Law.
Section 186 of the Tax Law imposes a tax on "[e]very corporation, joint-stock company or
association ... formed for or principally engaged in the business of supplying ... gas, when delivered

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through mains or pipes .... " The tax is imposed for the privilege of exercising its corporate franchise
or carrying on its business in a corporate or organized capacity in New York State and is based, in
part, upon gross earnings from all sources within New York State. The term "gross earnings" as used
in this section means all receipts from the employment of capital without any deduction.
To determine the classification and proper taxability of a corporation under either Article 9
or Article 9-A of the Tax Law, an examination of the nature of the corporation's activities is
necessary, regardless of the purpose for which the corporation was organized. See, Matter of
McAllister Bros. v Bates, 272 AD 511, 517. Ordinarily, a corporation is deemed to be principally
engaged in the activity from which more than 50 percent of its receipts are derived. See, e.g., Re
Joseph Bucciero Contracting Inc., Adv Op St Tax Comm, July 23, 1981, TSB-A-81(5)C.
In this case, Petitioner states that more than 50 percent of Marketer's receipts are derived
from sales of natural gas to end-users. Accordingly, when Marketer carries on business in New York
State, Marketer would be classified as a corporation subject to the franchise tax imposed under
section 186 of Article 9 of the Tax Law and would not be subject to franchise tax under Article 9-A
of the Tax Law. Marketer's tax would be based, in part, on its gross earnings from all sources within
New York State.
Section 186-a of the Tax Law provides, in part:
1. Notwithstanding any other provision of this chapter, or of any other law, a tax
equal to three and one-half per centum of its gross income is hereby imposed upon
every utility doing business in this state which is subject to the supervision of the
state department of public service [utility of the first class] ... and a tax equal to three
and one-half per centum of its gross operating income upon every other utility [utility
of the second class] doing business in this state ... which taxes shall be in addition to
any and all other taxes and fees imposed by any other provision of law for the same
period.
2. As used in this section, (a)(i) the word "utility" includes ... every person (whether
or not such person is subject to [the department of public service] supervision) who
sells gas ... delivered through mains [or] pipes ... or furnishes gas ... by means of
mains [or] pipes ... regardless of whether such activities are the main business of such
person or are only incidental thereto ... (b) the word "person" means ... corporations
... (d) the words "gross operating income" mean and include receipts received in or
by reason of any sale, conditional or otherwise, made for ultimate consumption or use
by the purchaser of gas ... or in or by reason of the furnishing for such consumption
or use of gas ... service in this state ... without any deduction ....
In this case, Marketer is not subject to the supervision of the Department of Public Service.

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Therefore, when Marketer does business in New York State, Marketer would be subject to tax under
section 186-a of the Tax Law as a utility of the second class. Marketer's tax would be based on its
gross operating income and would include receipts received from the sale in New York State of
natural gas to end-users for ultimate consumption or use by the end-user in New York State.
Section 189.2 of the Tax Law imposes, on every gas importer, a monthly privilege tax equal
to four and one-quarter percent of the consideration given or contracted to be given by the gas
importer for the gas services imported or caused to be imported into New York State by the gas
importer for its own use or consumption in New York State.
Section 189.1 of the Tax Law provides as follows:
(a) The term "gas services" means gas delivered through mains or pipes.
(b) The term "gas importer" means every person who imports or causes to be
imported into this state services which have been purchased outside the state for its
own use or consumption in this state, provided such term does not include a public
utility subject to the jurisdiction of the public service commission as to the matter of
rates on sales to customers.
(c) The term "person" includes an individual, partnership, society, association, joint
stock company, corporation ....
In this case, it appears that Marketer is not importing gas services into New York State for
its own use or consumption in New York State. Therefore, Marketer would not be subject to the tax
imposed under section 189 of the Tax Law. However, where Marketer sells natural gas to end-users
outside of New York state, and the end-user imports gas services or causes gas services to be
imported into New York State for its own use or consumption in New York State, the end-user may
be subject to the tax imposed under section 189 of the Tax Law.
The Department of Taxation and Finance has issued several advisory opinions regarding the
taxability of the receipts from the sale of natural gas by marketers to New York State end-users.
In Mark S, Klein, Adv Op Comm T & F, April 29, 1991, TSB-A-91(11)C, a foreign
corporation is principally engaged in the business of supplying natural gas to end-users. The foreign
corporation's requirements contracts with its suppliers provide that the delivery point of the natural
gas is the point of sale. At the point of sale, both legal possession and title passes to the foreign
corporation and that same point of sale is the point the end-user takes possession and title. The
Advisory Opinion holds that the foreign corporation is subject to tax under section 186 of the Tax
Law on its gross earnings from the sale of natural gas where the point of sale is located within New
York State. However, if the foreign corporation sells natural gas to an end-user where the

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point of sale is in Louisiana, the gross earnings from such sale are not form a source in New York
State. The end-user's subsequent contract with a pipeline company to transport the purchased natural
gas to its destination, even if such destination is in New York State, is not relevant in determining
the taxability of the foreign corporation selling the natural gas outside New York State.
In Niagara Mohawk Power Corporation, Adv Op Comm T & F, April 20, 1995, TSB-A­
95(8)C, one of the issues raised was whether a marketer's receipt from the sale of natural gas to a
consumer is taxable under sections 186, 186-a and 189 of the Tax Law under five scenarios. The
Advisory Opinion holds that the determination of where the marketer's sale of natural gas occurs in
each of the scenarios is a factual matter not susceptible of determination in an advisory opinion.
However, the opinion discusses each scenario to aid in making a determination for purposes of
sections 186, 186-a and 189 of the Tax Law. The situations in scenarios three, four and five are
similar to the facts in this case. In scenario three of the Niagara Mohawk advisory opinion,
marketer acquires gas outside New York State. Marketer transfers title to the consumer at a point
outside New York State. However, the contract price includes the cost of shipping the gas to the city­
gate in New York. Risk of loss transfers from marketer to the consumer at the city-gate. The
marketer has a separate transportation contract with an interstate pipeline company to transport the
gas to the city-gate. The consumer has no independent control over, or rights to service under, the
transportation contract. With respect to scenario three, the opinion provides that the facts are
conflicting because title transfers outside New York State but delivery, risk of loss, control, etc.
indicate a sale within New York State. Therefore, pending more specific information regarding the
proposed transactions and the relationships of the parties and their past dealings, the situs of the sale
will be presumptively placed in New York State.
In scenario four of the Niagara Mohawk, supra, advisory opinion, marketer acquires gas
outside New York State. Marketer transfers title to the consumer at a point outside New York State,
and the contract price includes the cost of shipping the gas to the title transfer point. Risk of loss
transfers to consumer at the title transfer point. In a separate transaction, marketer transfers its
transportation rights with the interstate pipeline that are sufficient to permit the consumer to transport
all the gas purchased from the title transfer point to the city-gate in New York. The consumer pays
marketer directly for the gas commodity and pays the interstate pipeline company for the
transportation service. The pipeline company then credits marketer's account for the amount paid
by the consumer. With respect to scenario four, the opinion provides that absent any other
information, it appears that transfer of title and possession occur outside of New York State, and the
sale for New York State tax purposes occurs outside New York State.
In scenario five of the Niagara Mohawk, supra, advisory opinion, marketer acquires gas
outside New York State. The marketer transfers title to the consumer at a point outside New York,
and the contract price includes the cost of shipping the gas to the title transfer point. Risk of loss
transfers from the marketer to the consumer at the title transfer point. Interstate transportation of
the gas into New York is accomplished under a contract directly between the

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interstate pipeline and the consumer. The marketer has no control over, or rights to service under,
the transportation contract. With respect to scenario five, the opinion provides that absent any other
information, it appears that transfer of title and transfer of possession occurs outside of New York
State and that the sale occurs outside New York State for New York State tax purposes.
In Christopher L. Doyle. Esq., Adv Op Comm T & F, May 8, 1996, TSB-A-96(13)C and
TSB-A-96(29)S, the issues raised were whether a marketer's receipts from the sales of natural gas
to New York end-users pursuant to a specific sales agreement were taxable under sections 186 and
186-a of Article 9 and Articles 28 and 29 of the Tax Law, and whether the end-users were subject
to the tax imposed under section 189 of the Tax Law. The advisory opinion, citing Mohawk, supra,
holds that the determination of where the sale of natural gas occurs is a factual matter not susceptible
of determination in an advisory opinion. However, the opinion provides that it appears that under
the terms of the agreement described, title, risk of loss and transportation responsibility for the gas
will pass from the marketer to the New York end-user at sales points outside New York State. Under
the agreement, the end-user may appoint the marketer as the end-user's agent to arrange for
transportation and delivery of the gas from the sales points outside New York State to the
downstream transportation nomination point designated by the end-user. Marketer's fee for acting
as the end-user's agent is included in the sales price of the natural gas sold to the end-user. The
opinion provides that like Mark S Klein, supra, and Niagara Mohawk, supra, it appears that the sale
of the natural gas for New York State tax purposes occurs outside New York State. Additionally,
when the marketer acts as the end-user's agent to arrange for the delivery and transportation of the
natural gas to a transportation nomination point in New York pursuant to the agreement, the sale of
the natural gas for New York State tax purposes may occur within New York State. For instance,
the sale may occur in New York State if the activities of the marketer while acting as agent for an
end-user are not conducted at arms-length or if the cost of the transportation services arranged by
the marketer is not at unrelated third-party prices consistent with the industry.
As stated in Niagara Mohawk, supra, and Christopher L. Doyle, supra, the determination of
where the sale of natural gas occurs for purposes of sections 186, 186-a and 189 of the Tax Law is
a factual matter not susceptible of determination in an advisory opinion. An advisory opinion merely
sets forth the applicability of pertinent statutory and regulatory provisions to a "a specified set of
facts." Tax Law, §l71.Twenty-fourth; 20 NYCRR 2376.1(a).
Accordingly, it is not within the scope of this advisory opinion to determine whether any
portion of the revenues derived from sale of the natural gas in the transactions described in Scenarios
"1", "2" and "3" above are (i) includible in Marketer's "gross earnings" from the sale of natural gas
within New York State under section 186 of the Tax Law or "gross operating income" from the sale
of natural gas delivered into New York State through mains or pipes for ultimate use or consumption
by the end-user under section 186-a of the Tax Law, (ii) from importing gas services or causing gas
services to be imported into New York State by the end-user for its own use or consumption in New

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York State under section 189 of the Tax Law or (iii) are subject to sales tax under Articles 28 and
29 of the Tax Law (see, Articles 28 and 29 of the Tax Law, infra).
However, it appears that in this case, under Scenario "1", title, risk of loss and transportation
responsibility for the gas will pass from Marketer to the New York end-user at locations outside New
York State. Like Mark S. Klein, supra, Niagara Mohawk, supra and Christopher L. Doyle, supra, it
appears that the sale of this natural gas for New York State tax purposes occurs outside New York
State. Like Christopher L. Doyle, supra, where Marketer acts as the end-user's agent to arrange for
the delivery and transportation of the natural gas to a burner-tip in New York State, the sale of such
natural gas for New York State tax purposes may occur within New York State. This would occur
if the activities of Marketer while acting as agent for an end-user are not conducted at arms-length
or if the cost of such transportation services arranged by Marketer is not at unrelated third-party
prices consistent with the industry. Where the sale of the natural gas occurs outside New York State,
the Marketer's receipt from the sale of the gas is not included in gross earnings from sources within
New York State under section 186 of the Tax Law, or in gross operating income under section 186-a
of the Tax Law. Marketer's services of acting as the end-user's agent in making the transportation
arrangements are incidental to the sale of the natural gas. Therefore, where the sale of the natural
gas occurs outside New York State, Marketer's receipts for acting as agent in arranging the
transportation services are not included in gross earnings from sources within New York State under
section 186 of the Tax Law or in gross operating income under section 186-a of the Tax Law. Where
Marketer, as agent of the end-user, collects the transportation fees from the end-user and remits those
fees to the transportation companies, Marketer is acting merely as a conduit and those fees are not
receipts of Marketer for purposes of section 186 and 186-a of the Tax Law. (See, Consolidated
Edison Company of New York, Adv Op St Tax Comm, December 1, 1986, TSB-A-86(22)C.)
Where the sale of the natural gas to the end-user occurs outside New York State, and the end-user
imports gas service into New York State for its own use or consumption, the end-user may be subject
to the tax imposed under section 189 of the Tax Law.
Scenario "2" is similar to Scenario "1" except that Marketer charges a single fee for both the
sale of the gas and the service of acting as agent for the transportation of the gas to the burner-tip.
This is similar to L. Doyle, supra, in that the fee for acting as agent for the end-user is included in
the sales price of the natural gas to the end-user. Therefore, the taxability of the receipts from the
sale of natural gas to the end-user, is the same as described in the previous paragraph relating to
Scenario "1".
Under Scenario "3", Marketer sells gas to end-users at points in New York State where all
indicia of ownership transfer from Marketer to the end-user, and at points outside New York State
where all indicia of ownership transfer from Marketer to the end-user. In all cases, Marketer acts
as an agent for the end-user for the transportation of the gas from the sales point to the burner-tip.
Where the sale occurs outside of New York State, the taxability of the receipt from the sale of natural
gas to the end-user and the receipt for making the transportation arrangements, as the end-user's

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agent, are the same as described above relating to Scenario "1". Where the sale of the natural gas
occurs in New York State, the receipt from the sale of the natural gas to the end-user and the receipt
for making the transportation arrangements, as the end-user's agent, are included in gross earnings
from sources within New York State under section 186 of the Tax Law. Where the sale of the
natural gas occurs in New York State, the receipt from the sale of the natural gas to the end-user is
included in gross operating income under section 186-a of the Tax Law. However, as a utility of the
second class, Marketer's receipts for making the transportation arrangements are not includible in
gross operating income under section 186-a of the Tax Law. Where Marketer, as agent of the end­
user, collects transportation fees from the end-user and remits those fees to the transportation
companies Marketer is acting merely as a conduit and those fees are not receipts of Marketer for
purposes of section 186 and 186-a of the Tax Law. (See, Consolidated Edison, supra.)
Articles 28 and 29 of the Tax Law
Section 1105(b) of the Tax Law imposes sales tax, in part, on "[t]he receipts from every sale,
other than sales for resale, of gas ... and gas ... service of whatever nature ...." Except for purposes
of this tax, gas is not defined in the Tax Law as tangible personal property for purposes of the sales
and compensating use taxes. Moreover, section 1110 of the Tax Law does not incorporate by
reference or contain any language similar to that contained in section 1105(b). (See, Penn York
Energy Corporation, Dec Tax App Trib, October 1, 1992, TSB-D-92(71)S and Christopher L. Doyle.
Esq., supra.) Accordingly, except for the tax imposed by section l105(b) of the Tax Law, the sale
or use of gas in New York State is not subject to the sales tax imposed under section 1105 or the
compensating use tax imposed under section 1110 of the Tax Law.
In general, the sales tax is a destination tax. That is, the location at which the sale takes place
determines both the incidence of tax and the rate at which the tax is imposed (see, 20 NYCRR
525.5).
As noted, the determination of where the sale of natural gas occurs is a factual matter not
susceptible of determination in an advisory opinion. Under Scenarios "1" and "2" (and, in part,
Scenario "3"), however, where it appears that the indicia of ownership of the gas transfer from
Marketer to the end-user outside of New York State, no sale or use of tangible personal property
occurs in the State and neither the receipt from the sale of the natural gas by Marketer nor the use
of the gas by the end-user is subject to the State and local sales or compensating use taxes imposed
by and pursuant to the authority of Articles 28 and 29 of the Tax Law. (As noted, the sale may occur
in New York State if the activities of Marketer while acting as agent for an end-user are not
conducted at arms-length or if the cost of the transportation services arranged by Marketer is not at
unrelated third-party prices consistent with the industry.) In addition, if the sale occurs outside of
New York State, the fee for the service of arranging and administering the transportation of the gas
as an agent for the end-user is not includable in any taxable "receipt" or "consideration given," and
the service itself is not included among the enumerated services subject to sales or compensating use

-9­
TSB-A-96 (85) S
Sales Tax
TSB-A-96 (28) C
Corporation Tax
December 26, 1996
taxes. Thus, this fee is not subject to tax regardless of whether Marketer charges separate fees for
the sale of the gas and this service or charges a single fee.
However, under Scenario "3" where it appears that the indicia of ownership of the natural gas
transfer from Marketer to the end-users in New York State, the entire receipt from the sale of the gas
commodity including the fee for the service of arranging and administering the transportation of the
gas as an agent for the end-user is subject to the State tax imposed under section 1105(b) of the Tax
Law and any State and local taxes imposed within the jurisdiction where the delivery of the
commodity takes place. For sales tax purposes, the subject fee is a charge for shipping or delivery
of the natural gas and falls within the statutory definition of "receipt."
Section l101(b)(3) of the Tax Law defines "receipt," in part, as follows:
The amount of the sale price of any property and the charge for any service
taxable under this article, valued in money, whether received in money or otherwise,
including any amount for which credit is allowed by the vendor to the purchaser,
without any deduction for expenses or early payment discounts and also including
any charges by the vendor to the purchaser for shipping or delivery regardless of
whether such charges are separately stated in the written contract, if any. or on the
bill rendered to such purchaser and regardless of whether such shipping or delivery
is provided by such vendor or a third party, but excluding any credit for tangible
personal property accepted in part payment and intended for resale .... (emphasis
supplied)
It is noted that the State and local taxes imposed on receipts from the sale of gas and gas
services by Article 28 and pursuant to the authority of Article 29 of the Tax Law are also influenced
by the purpose for which the gas is purchased by the end-user. Although beyond the scope of the
scenarios presented by Petitioner, gas and gas service may be exempt from sales tax if used for
residential purposes, used in research and development, or used in production. (See, sections 1105A, 1115(b)(ii) and 1115(c) of the Tax Law.)

DATED: December 26, 1996

NOTE:

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

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