We're an investor-owned utility. Years ago, a state energy authority issued bonds to finance pollution-control facilities at our power plants, backed by our first mortgage bonds, and the Department ruled that arrangement was exempt from mortgage recording tax. Now the authority wants to refinance (refund) those bonds with new ones, requiring us to amend and restate the same mortgage bonds. Does the exemption still apply to this refunding transaction?

Plain-English summary

In 1985, the New York State Energy Research and Development Authority (NYSERDA) issued bonds to finance pollution-control, solid-waste, and sewage-disposal facilities at Niagara Mohawk Power Corporation's Nine Mile Point Unit No. 2 nuclear plant and its Dunkirk Steam Station. Niagara Mohawk backed those bonds by issuing its own "first mortgage bonds" under a blanket mortgage trust indenture dating back to 1937, which were assigned to the bond trustee and used to guarantee Niagara Mohawk's debt-service payments would flow through to NYSERDA's bondholders. The Department had already ruled in TSB-A-94(1)R that recording the mortgage supporting that structure was exempt from mortgage recording tax, because NYSERDA — a tax-exempt public benefit corporation — was the real beneficiary of the mortgage even though a trustee held it.

By 1998, NYSERDA wanted to refund (refinance) the outstanding 1985 bonds with $75 million of new refunding bonds at better terms. That required amending and restating Niagara Mohawk's existing first mortgage bonds to match the new refunding bonds' terms, evidenced by a new "Supplemental Indenture" recorded against Niagara Mohawk's real property — again for NYSERDA's benefit, not the refunding bondholders' benefit directly. Niagara Mohawk asked whether this refinancing transaction preserved the mortgage recording tax exemption.

The Department confirmed it did, for the same reasons as the original 1994 ruling. Tax Law § 252 generally forbids MRT exemptions arising from statutes other than the mortgage recording tax article itself, but New York courts have long recognized that state agencies and public benefit corporations carry tax immunity independent of § 252 — because taxing a public authority's mortgage is effectively taxing the authority itself. NYSERDA's own enabling statute (Public Authorities Law § 1861) exempts its property, income, and operations from taxation. Since NYSERDA remained the beneficial mortgagee (through the trustee) under the restated first mortgage bonds, just as it had been under the original 1985 bonds, refunding the bonds and restating the mortgage bonds to match didn't change the underlying exempt relationship — so the Supplemental Indenture's recording stayed exempt.

What this means for you

Utilities and other private companies financing through public authority bonds

If your company's mortgage bonds back a public authority's tax-exempt bond issuance, and the Department has already ruled that structure MRT-exempt, a later refunding or refinancing of the authority's bonds that requires amending and restating your mortgage bonds generally preserves the exemption — as long as the public authority remains the real beneficiary of your mortgage throughout, and the amendment doesn't change who that beneficiary is.

Bond counsel and public authority finance attorneys

This ruling is a useful precedent for any "refunding preserves the prior MRT ruling" argument: the Department's analysis didn't re-derive the exemption from scratch, it simply confirmed the refunding transaction didn't disturb the facts that made the original ruling correct — same authority, same beneficial-mortgagee relationship, same real property. Cite the prior company-specific ruling (here, TSB-A-94(1)R) directly if you have one on point.

Accountants and tax professionals

This sits in the same governmental-instrumentality "pass-through mortgagee" family as rulings involving RIOC, the Port Authority, Battery Park City Authority, and various § 1411 local development corporations — the exemption flows from the public authority's own tax immunity, not from any special mortgage recording tax provision.

Common questions

Q: Does refinancing or refunding a public authority's bonds automatically preserve a prior MRT exemption on the supporting mortgage?
A: Not automatically, but it did here because NYSERDA remained the beneficial mortgagee throughout, exactly as before. If the beneficiary or the underlying relationship changed materially, the analysis could differ.

Q: Why doesn't Tax Law § 252's general "no exemption from other statutes" language block this?
A: Because state agency and public-authority tax immunity is treated as independent of § 252 — rooted in the constitutional/common-law principle that taxing a state instrumentality's mortgage is effectively taxing the instrumentality itself, not in any exemption "contained in any other statute" that § 252 targets.

Q: Can another company relying on a public authority's bonds use this specific ruling?
A: No. It binds the Department only as to Niagara Mohawk and these facts, though the reasoning (and the underlying NYSERDA/state-instrumentality immunity doctrine) is likely to apply to similarly structured refundings.

Citations and references

Statutes:

• Tax Law §§ 253(1), (1-a), (2) (mortgage recording tax imposition)
• Tax Law § 252 (general rule against MRT exemptions arising from other statutes)
• Public Authorities Law § 1852(1) (NYSERDA is a public benefit corporation)
• Public Authorities Law § 1861 (NYSERDA property, income, and operations exempt from taxation)

Case law and prior opinions cited:

• Williamsburg Power Plant Corp. v. City of New York, 255 A.D. 214, aff'd 280 N.Y. 551 (later specific enactment governs earlier general enactment)
• First National Bank and Trust Co. v. Village of Saltaire, 256 A.D. 156
• Matter of City of New York v. Tully, 88 A.D.2d 701 (NYS Employees' Retirement System's Waldorf-Astoria mortgage exempt; state agency immunity independent of Tax Law § 252)
• Riverton Properties, Inc., TSB-H-81(17)M (mortgage for the benefit of the US government, via a trustee, exempt)
• TSB-A-94(1)R (Niagara Mohawk's original 1985 first mortgage bonds/NYSERDA structure -- the ruling this opinion directly extends)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a98_4r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(4)R
Mortgage Recording Tax
October 30, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M981013B

On October 13, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Niagara Mohawk Power Corporation, 300 Erie
Boulevard West, Syracuse, New York 13202.
The issue raised by Petitioner, Niagara Mohawk Power Corporation, is
whether the mortgage recording taxes imposed by and pursuant to the authority of
Article 11 of the Tax Law will be due upon the recording of a Supplemental
Mortgage Indenture to be entered into in conjunction with (i) the issuance by the
New York State Energy Research and Development Authority (the "Authority") of
certain refunding revenue bonds as described herein and (ii) the concurrent
amendment and restatement of certain underlying first mortgage bonds of
Petitioner.
Petitioner submits the following facts as a basis for this Advisory
Opinion.
Petitioner is an investor-owned public utility company incorporated in New
York and is primarily engaged currently in the generation, transmission,
distribution and sale of electricity and the distribution of natural gas in New
York.
In 1985, the Authority issued a single series of bonds (the "Prior Bonds")
to finance the acquisition, construction and installation of certain pollution
control, solid waste and sewage disposal facilities at Unit No.2 of the Nine Mile
Point Nuclear Station, a nuclear generating facility located in Oswego, New York
("Unit No. 2"), and certain water pollution control facilities at Petitioner's
Dunkirk Steam Station, a fossil fuel electric generating station located near
Lake Erie, New York. The Prior Bonds were used to finance a portion of the costs
of construction at Unit No. 2, but only to the extent of Petitioner's forty-one
percent ownership interest in Unit No. 2. The Prior Bonds were issued pursuant
to Indentures of Trust dated as of October 1, 1984, and November 1, 1985, (the
"Prior Indentures"), between the Authority and Bankers Trust Company, as trustee
(the "Prior Trustee").
In support of the Prior Bonds, first mortgage bonds (the "First Mortgage
Bonds") were issued by Petitioner pursuant to certain supplemental indentures to
a blanket Mortgage Trust Indenture between Petitioner and Bankers Trust Company
(successor to Marine Midland Bank, N.A.), as trustee (the "Mortgage Trustee"),
dated as of October 1, 1937, and thereafter supplemented and amended (the
mortgage trust indenture, as so supplemented and amended, the "Mortgage"). Upon
issuance, the First Mortgage Bonds were assigned to the Prior Trustee. The terms
of the First Mortgage Bonds paralleled the terms of the Prior Bonds, and under
the provisions of certain Participation Agreements entered into as of October 1,
1984 and November 1, 1985, each between the Authority and Petitioner
(collectively, the "Prior Participation Agreement"), Petitioner was required to
make payments of principal and interest on the First Mortgage Bonds to the Prior
Trustee on or before the due date for the corresponding payment on the Prior
Bonds.
To refund the outstanding Prior Bonds, the Authority has agreed to issue
a single series of refunding bonds (the "Refunding Bonds") in the aggregate

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Mortgage Recording Tax
October 30, 1998

principal amount of $75,000,000, the amount currently outstanding under the Prior
Bonds.
The Refunding Bonds will be issued by the Authority pursuant to an
Indenture of Trust, dated on or about October 15, 1998, (the "Indenture"),
between the Authority and The Bank of New York, as Trustee (the "Trustee"). Upon
the issuance of the Refunding Bonds, the proceeds of the sale thereof will be
deposited with the Trustee and then remitted to the Prior Trustee, enabling the
Prior Trustee, which will then be holding sufficient funds to refund the Prior
Bonds, to concurrently deliver the existing First Mortgage Bonds to the Trustee.
Concurrently with that receipt by the Trustee, the First Mortgage Bonds will be
delivered to, and amended and restated by, the Mortgage Trustee to parallel the
provisions of the Refunding Bonds. The First Mortgage Bonds, as so amended and
restated, will then be delivered to the Trustee to be held in support of the
Refunding Bonds.
The First Mortgage Bonds, as amended and restated, will continue to be
secured under the Mortgage, as evidenced by a consolidated, amended and restated
Supplemental Indenture, to be entered into on or about October 15, 1998 (the
"Supplemental Indenture"). The Supplemental Indenture will impose the lien of
the mortgage on real property owned by Petitioner solely for the benefit of the
Authority and not for the benefit of the holders of the Refunding Bonds.
A Participation Agreement, which consolidates, amends and restates the
Prior Participation Agreement, will be entered into between the Authority and
Petitioner on or about October 15, 1998 (the "Participation Agreement"). The
Participation Agreement provides, as did the Prior Participation Agreement, that
payments by Petitioner on the First Mortgage Bonds will be made to the Trustee
on or before the due date for the corresponding payments under the Refunding
Bonds.
Applicable Law
Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law impose the mortgage
recording tax on the recording of a mortgage of real property in the State
measured by the principal debt or obligation, which is, or under any contingency,
may be secured at the date of the execution thereof or at any time thereafter.
Section 252 of the Tax Law provides, with certain exceptions, that "no
mortgage of real property situated within this state shall be exempt, and no
person or corporation owning any debt or obligation secured by mortgage of real
property situated within this state shall be exempt, from taxes imposed by this
article by reason of anything contained in any other statute ...."
Section 1852(1) of the Public Authorities Law provides that the Authority
"shall be a body corporate and politic, constituting a public benefit
corporation."
Section 1861 of the Public Authorities Law provides that the
property of the Authority and its income and operations shall be exempt from
taxation.
Opinion
Notwithstanding the language of Section 252 of the Tax Law, the Department
of Taxation and Finance has considered claims for exemption from various
authorities in New York State based on tax exemptions in their creating statutes
and has ruled in certain cases that the recording of the mortgages the
authorities issued were exempt from the tax imposed by Article 11 of the Tax Law,
despite the fact that Section 252 on its face makes no provision for such an
exemption.
This position is consistent with the general rule that where a

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October 30, 1998

conflict or variance exists between two enactments relating to the same general
subject matter, a later special statute takes precedence against a general
statute and the prior general statute must yield to the later specific or special
statute. (Williamsburg Power Plant Corp. v. City of New York, 255 App Div 214,
affd 280 NY 551; First National Bank and Trust Co. v. Village of Saltaire, 256
App Div 156).
In Matter of City of New York v Tully (88 AD2d 701, lv to app den 57 NY 2d
606), the court confirmed the State Tax Commission's determination that a
mortgage given to the New York State Employees' Retirement System was exempt from
the mortgage recording tax, concluding that the Retirement System, as a State
Agency, enjoyed an immunity from taxation "independent of the exemptions from
taxation set forth in section 252 of the Tax Law." Citing this case, section
644.1(a)(1) of the mortgage recording tax regulations provides an exemption from
the mortgage recording tax for "mortgages where the mortgagee is New York State
or any of its agencies, instrumentalities or political subdivisions, to the
extent immune from such taxation" (20 NYCRR 644.1(a)(1)).
In Riverton Properties, Inc., Dec St Tx Comm, November 6, 1981, TSB-H­
81(17)M, the Commission held that an Indenture of Mortgage and Deed of Trust
executed by a private party to a trustee in respect of debentures guaranteed by
the United States government was not subject to mortgage recording taxes since
the United States government by way of its contingent economic interest, was
party to the mortgage.
In its decision, the Commission concluded that the
mortgage for the private party to the trustee constituted a mortgage for the
benefit of the United States - - notwithstanding that it was held by the trustee
and inured, in the first instance, to the benefit of the debenture holders.
Applying these principles to similar circumstances involving Petitioner,
an earlier advisory opinion concluded that a mortgage for the benefit of the
Authority was exempt from mortgage recording tax (Niagara Mohawk Power
Corporation, Adv Op Comm T&F, January 28, 1994, TSB-A-94(1)R).
The opinion
stated, in part:
... the recordation of the Supplemental Mortgage Indenture is
being undertaken for the benefit of the Authority. The Authority is
the obligor under the Prior Indenture and the Indenture, for the
benefit of which the First Mortgage Bonds were, and continue to be,
provided.
Further, the First Mortgage Bonds evidence and secure
Petitioner's obligation to make payments to the Authority, thereby
assuring the Authority that its obligations under the Prior Bonds
and the Refunding Bonds would be timely met. The Trustee, in turn,
is acting on behalf of the Authority and holding the First Mortgage
Bonds for the benefit of the Authority. Moreover, the Authority is
beneficially through the Mortgage Trustee the mortgagee under the
Mortgage. Accordingly, since the Authority is a governmental agency
exempt for taxation pursuant to Section 1861 of the Public
Authorities Law and it has either a direct or indirect interest in
the mortgages to be recorded, pursuant to Williamsburg Power Plant
Corp. v. City of New York, supra, Hotel Waldorf-Astoria Corp. v.
State Tax Commission, supra, and Riverton Properties, Inc., supra,
the amendment and restatement of First Mortgage Bonds and the
concurrent recordation of the Supplemental Mortgage Indenture are
not subject to the mortgage recording taxes imposed pursuant to
Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law.
As in Niagara Mohawk Power Corporation, supra, and for the same reasons
stated therein, the Authority is considered to be a mortgagee under Supplemental

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Mortgage Indenture. Therefore, in accordance with Williamsburg Power Plant Corp.
v. City of New York, supra, Matter of City of New York v. Tully, supra, Riverton
Properties, Inc., supra, and Niagara Mohawk Power Corporation, supra, the
restatement of the First Mortgage Bonds and the concurrent recordation of the
Supplemental Mortgage Indenture are not subject to the mortgage recording tax.

DATED:

October 30, 1998

NOTE:

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

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