Does sales tax apply to a convention center's charges for additional electrical, telephone, and plumbing hookups ordered by trade show exhibitors and managers on top of its basic license fee?

Plain-English summary

The New York Convention Center Operating Corp. runs the Jacob K. Javits Convention Center, licensing exhibition space to trade show managers and event organizers, who in turn frequently sublicense space to individual exhibitors. Basic utilities -- general lighting, heat, and the like -- are already bundled into the license fee. But show managers and exhibitors often order and separately pay for "additional utility services": special electrical hookups, telephone lines, and plumbing (including compressed air). The Center bills these as flat packages (labor, power, and equipment together for electrical work; no separate labor charge for telephone or plumbing), doesn't meter actual usage, and sets its rates by the type and number of connections requested rather than by consumption. Despite all this, the Center's actual practice was to charge sales tax on every one of these additional utility charges. It asked the Department whether that practice was correct.

The Department said no. It leaned on two New York Court of Appeals cases -- Debevoise & Plimpton and Empire State Building Co. -- holding that when a landlord bills a commercial tenant for overtime heat, air conditioning, or electricity outside the building's standard hours, that charge is really just additional rent, not a separate taxable sale of utility service, because the tenant isn't buying utilities as such but is paying more for its license to use the space. The Department found the Center's situation squarely analogous: because the basic utilities are already folded into the trade-show and special-event license agreements, the "additional" utility charges for extra connections during otherwise-normal operating hours are functionally the same as those overtime charges -- an add-on to the underlying license fee, not a standalone utility sale. Even though the Center separately states these charges on order forms, it isn't reselling the utilities; it's consuming them itself in the course of providing the licensed space, exactly like the landlords in the Court of Appeals cases. So all of the additional utility charges -- electric, telephone, and plumbing alike -- are part of the license fee and are not subject to sales tax, contrary to what the Center had actually been charging.

What this means for you

Convention centers, trade show venues, and event spaces

Charging tax on "additional" utility hookups that exhibitors or show managers order isn't automatically correct just because they're separately billed. If those charges are functionally an add-on to your underlying license/rental fee -- unmetered, priced by connection type rather than usage, and not resold as a standalone utility service -- they may actually fall under the nontaxable license-to-use-real-property umbrella.

Commercial landlords charging for overtime or special utility services

The Debevoise & Plimpton / Empire State Building line of cases treats overtime or special utility charges tied to a real property license or lease as additional rent, not a taxable utility sale -- as long as you're the one consuming the utility to provide the service, rather than reselling metered usage to the tenant.

Anyone who has been charging sales tax on similar utility add-ons

If this analysis applies to your facility, review whether tax has been over-collected on comparable additional-utility charges going forward, and consider whether a refund process is appropriate for amounts already collected and remitted.

Common questions

Q: Are convention center utility hookup fees always exempt from sales tax?
A: Not automatically -- this turned on the fact that basic utilities were already part of the underlying license agreement, the additional charges weren't metered or usage-based, and the Center was consuming (not reselling) the utilities in providing its licensed space.

Q: What made these charges different from an ordinary metered utility sale?
A: The Center didn't meter actual usage or pass through its own utility costs directly; instead, it priced additional services by the type and number of connections, folding them into the overall license arrangement the same way an overtime HVAC charge gets folded into rent.

Q: Does separately stating a charge on an order form make it taxable?
A: Not by itself -- the Department found that even separately stated, these charges remained an integral part of the underlying license fee because the Center was consuming the utilities itself rather than reselling them.

Q: Does this ruling apply to my venue or leasing arrangement?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else.

Citations and references

• Tax Law § 1105(b) (gas, electric, refrigeration, steam, and telephone/telegraph service)
• Tax Law § 1105(c) (enumerated services)
• 20 NYCRR § 526.8(c)(1) (license to use real property)
• Debevoise & Plimpton v New York State Dept. of Taxation and Finance, 80 NY2d 657
• Empire State Building Co. v New York State Dept. of Taxation and Finance, 81 NY2d 1002
• Matter of Penfold v. State Tax Commission, 114 AD2d 696

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(38)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S961118A

On November 18, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from the New York Convention Center Operating
Corp., 655 West 34th Street, New York, New York 10001-1188.
The issue raised by Petitioner, New York Convention Center Operating Corp.,
is whether certain utility services provided by Petitioner are subject to sales
tax.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is a public benefit corporation under Title 27 of the Public
Authorities Law charged with operating and maintaining the Jacob K. Javits
Convention Center ("the Center").
The Center hosts trade and public shows,
conventions, meetings and other special events.
These events are typically
organized by show managers with whom Petitioner enters into license agreements.
The show managers in turn frequently sublicense space to trade show exhibitors.
Petitioner submitted samples of a trade show license agreement, a special
events license agreement, and order forms for electrical, telephone and plumbing
services.
Basic utility services such as general lighting, heat, etc., are
included in the trade show license agreement while other such services
("additional utility services") including special electrical requirements,
telephone service and plumbing must be ordered and paid for separately. The
Center's public show license agreement is identical in this respect. The license
fee for special events includes not only the basic utility services as provided
in the trade show license agreement, but also certain additional utility services
enumerated in the agreement.
As with the trade and public show license
arrangements, however, other additional utility services are frequently ordered
and paid for separately.
Additional utility services are ordered from the Center both by the show
manager and by the individual exhibitors, and are billed to the party that placed
the order. The installation and dismantling of facilities for these services are
provided by Petitioner's employees. The electrical services are generally sold
as a package; that is, labor, electric power and, in the case of Javits-owned
flood lights, the equipment itself, are all included in the price. Under certain
circumstances, however, such as where more than six exhibitor-owned fixtures are
installed, separate labor charges are imposed. Telephone services and plumbing
services, with the exception of overhead venting, are sold as a package; the
Center does not bill for the actual labor utilized.

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Sales Tax

In setting its prices for electric and telephone services, the Center does
not separately meter the use of those services nor does it make any other attempt
to pass through directly to its customers their portion of the costs of these
services.
The order form for electrical services submitted by Petitioner
contains a rate schedule for these services. In Petitioner's sample form, the
rates charged for providing electric service connections increase based on the
number and type of connections made available. Similarly, in setting its prices
for additional telephone services, the Center does not charge on a per call or
usage basis or otherwise pass through directly to customers their portion of the
telephone service costs.
The rates charged by the Center for additional
telephone services vary, depending on whether the Center provides single
lines/sets, multi-lines/sets or modem lines/sets. The Center's current practice
is to charge sales tax on all additional utility services. Such services include
electric, telephone and plumbing (including compressed air) services.
Relevant sections of Petitioner's sample agreements read as follows:
Trade show license agreement
8: UTILITIES.
Licensor will furnish without charge during the
operating hours of the Event Period general lighting, normal
electricity, ventilation and heating or air conditioning on written
order submitted with the Plan of Operation, provided the amounts so
specified shall not exceed the capacity of available equipment with
a proportionate reserve for other portions of the Center.
9: SERVICES. A. Licensor reserves the exclusive right to provide
telephone, telecommunication, water, waste water, plumbing,
electrical services and compressed air.
Such services shall be
provided on written order submitted with the Plan of Operation at
the established rates of Licensor for such services.
Special event license agreement
FOURTH: FEES.
A. License Fee: The License Fee will be $19,805.06, which includes:
1 -

Room rental and set up will be theater style (semi circle) of
2,400 chairs.

2 -

Sixteen (16)-16" risers, and one (1)-60" Riser.

3 -

Twenty (20) 8X30 draped tables and chairs.

4 -

Carpentry labor.

5 -

Electric Estimate:

a)- Equipment to include:
one (1) microphone complimentary.
six (6) microphones- 1st day.

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Sales Tax

one (1) microphone- 2nd day.
one (1) large sound system-1st and 2nd day.
one (1) medium sound system-1st and 2nd day.
b) - Power to include:
Two (2)-500w outlets.
c) - Labor to include:
Friday, September 20, 1996: two (2) men from 7:30 A.M. to 3:00 P.M.
to set audio system.
Sunday, September 22, 1996: one (1) man from 7:30 A.M. to 3:00 P.M.
to adjust and test audio system, and one (1) man from 3:00 P.M. to
9:30 P.M. to operate audio system.
Monday, September 23, 1996: one (1) man from 7:30 A.M. to 8:00 P.M.
to operate audio system.
Tuesday, September 24, 1996: two (2) men for two (2) hours to remove
all equipment.
B. Other Charges: All other additional services such as: electrical
power/labor, carpentry labor, audio/visual, paramedics, equipment,
water, food and beverage, ticket takers, security, decorations, coat
check, and any other requirements necessary to the success of your
Event are not included.
NINTH: SERVICES.
A.
Licensor reserves the exclusive right to provide telephone,
telecommunication, water, waste water, plumbing, electrical services
and compressed air.
Such services shall be provided on written
order submitted with the Plan of Operation at the established rates
of Licensor for such services.
APPLICABLE LAW
Section 1105(b) of the Tax Law imposes a tax on "[t]he receipts from every
sale, other than sales for resale, of gas, electricity, refrigeration and steam,
and gas, electric, refrigeration and steam service of whatever nature, and from
every sale, other than sales for resale, of telephony and telegraphy and
telephone and telegraph service of whatever nature except interstate and
international telephony and telegraphy and telephone and telegraph service and
from every sale, other than sales for resale, of a telephone answering service."
Section 1105(c) of the Tax Law imposes a tax on the receipts from sales,
other than sales for resale, of certain enumerated services.
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
commercial premises and not the sale of a refrigeration and steam service and,
therefore, not subject to the sales tax pursuant to section 1105(b) of the Tax
Law.

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Sales Tax

In Empire State Building Co. 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 1105(b) of the Tax Law.

OPINION
In Debevoise & Plimpton, supra and Empire State Building Co., supra,
charges for overtime heating, ventilation and air conditioning, and electricity,
that the landlord was responsible for providing were considered an increase in
the rent when the tenant required them outside of certain established hours. In
the present case the charge for basic utilities is included within the trade show
(or public show) license agreement for the Center. Payments for the license to
use real property are not subject to sales and use taxes (see Section 526.8(c)(1)
of the Sales and Use Tax Regulations). Petitioner supplies unmetered additional
utilities (electric, telephone and plumbing services), under a rate schedule
based on the number and type of connections made available, to meet special
requirements of a licensee during the normal established hours of the Center.
The additional utility charges are similar to the overtime charges at issue in
Debevoise & Plimpton and thus are not subject to sales tax.
Even though Petitioner may separately state certain charges for services,
it is not reselling these services but is consuming them in providing its license
to use its property. See Debevoise & Plimpton, supra; Matter of Penfold v. State
Tax Commission, 114 AD2d 696. Consequently, the charges made by Petitioner over
and above the charges in its basic license agreement are considered to be an
integral part of such agreement and are not subject to tax.

DATED: May 21, 1997

NOTE:

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

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