Can a company building a facility through an Industrial Development Agency deal buy, lease, install, and maintain the project's property tax-free when it acts as the agency's disclosed agent?

Plain-English summary

MCI Telecommunications planned to build a telecommunications switching station in Elmsford, Westchester County. To attract the project, the County of Westchester Industrial Development Authority (the "IDA") agreed to provide it tax-exempt financial assistance through a "straight-lease" transaction under the General Municipal Law's Industrial Development Agency Act. Under the deal: MCI (as the IDA's disclosed agent) would arrange for construction of the building and improvements, and for purchase, installation, and maintenance of equipment ("Project Property"); the IDA would then lease that Project Property back to MCI for its business use; and MCI could later exercise an option to buy the Project Property from the IDA. All purchase orders, contracts, and invoices for Project Property were to identify the IDA (through MCI or another appointed agent) as the actual purchaser, lessor, or lessee. MCI asked whether (1) its agency purchases/leases/construction/maintenance of Project Property, (2) its lease payments to the IDA, and (3) its purchase-option payment (or the value of property transferred at lease-end) would be exempt from New York sales and use tax.

The Department answered yes to all three, subject to conditions, relying heavily on two earlier Wegmans Food Markets court decisions interpreting how far an IDA's tax exemption (General Municipal Law § 874) reaches:

• Purchases/leases as disclosed agent (issue 1): Exempt, but only if (i) the IDA is the actual owner/lessor/lessee, (ii) purchase documents name the IDA (not MCI) as the purchaser/lessor/lessee, and (iii) MCI is clearly disclosed as the IDA's agent on those documents.
• Capital improvements vs. non-capital-improvement work: The Department couldn't determine on this record whether MCI's building improvements were "capital improvements" under § 1101(b)(9). If they are, installation/construction charges are exempt regardless of the agency structure (materials themselves are still taxable to whoever buys them, unless the IDA is that buyer). If they're not capital improvements, the installation/construction charges are exempt only because of the IDA agency relationship -- take away the agency structure and they'd be taxable.
• Maintenance and repair: Exempt for equipment (with a useful life over one year, replacement parts included) and for maintaining the structural integrity of qualifying Improvements -- but explicitly not for consumables replaced in day-to-day operation (citing Wegmans II's line between preserving/repairing project property versus ordinary business operating costs), and not for utilities, fuels, or energy, which the Wegmans II court specifically excluded as unrelated to the IDA's financing function.
• Computer software services: Exempt under § 1115(o) regardless of the agency relationship, when the charge is reasonable and separately stated.
• Geographic limits: The IDA's authority (and thus the exemption) doesn't extend to property or services used outside Westchester County without the other jurisdiction's prior consent -- remote software access from outside the county is fine, but downloading/removing software (or property) for use outside the county without consent voids the exemption for that use.
• Lease payments and purchase option (issues 2-3): MCI's lease payments to the IDA, and its payment to exercise the purchase option (or the value of Project Property transferred to MCI when the lease ends), are exempt from sales and use tax.

The Department repeatedly stressed that all of these conclusions depend entirely on the parties actually following the documented agency structure and paperwork -- an advisory opinion doesn't resolve factual questions like whether a specific Improvement truly qualifies as a capital improvement.

What this means for you

Companies structuring an IDA-financed project

The exemption lives or dies on paperwork discipline: every purchase order, invoice, and contract for exempt Project Property must actually name the IDA (not your company) as the purchaser/lessor/lessee, with your company clearly disclosed as the IDA's agent. Sloppy documentation that names your company as the direct purchaser can defeat the exemption even if the underlying deal was structured correctly.

Businesses with IDA-financed facilities

Don't assume everything at an IDA-financed site is tax-exempt indefinitely. Following the Wegmans line of cases, ordinary operating costs -- utilities, consumable supplies replaced in daily use, general janitorial-type services -- stay taxable even at an IDA project; only genuine maintenance/repair of the project's structural integrity or qualifying equipment (done through the proper agency channel) is exempt.

Multi-state or multi-jurisdiction companies with property crossing county lines

If your IDA project's benefits could extend to a location outside the sponsoring county (or involve remote software use), get the other jurisdiction's prior consent under General Municipal Law § 854, and keep the two portions of the project clearly separated in your books -- unauthorized out-of-jurisdiction use forfeits the exemption for that portion.

Accountants and tax professionals

This is one of the more detailed treatments in this corpus of the agency-purchase mechanics under an IDA straight-lease deal, and it leans directly on the Wegmans I/Wegmans II line (interpreting General Municipal Law § 874 more broadly than Tax Law § 1116, but still limited to genuine project-preservation costs, not day-to-day business operating expenses). Useful as a reference for any client considering IDA financial assistance structured as a straight-lease agency transaction.

Common questions

Q: Does IDA agency financing make everything at the project site tax-exempt?
A: No. It exempts qualifying purchases, leases, and maintenance/repair of the actual Project Property when done through a properly documented agency relationship -- not ordinary operating expenses like utilities, consumable supplies, or general janitorial services.

Q: What's the single most important paperwork requirement?
A: Every purchase order, contract, and invoice for exempt property or services must show the IDA (not the company) as the purchaser, lessor, or lessee, with the company clearly disclosed as the IDA's agent.

Q: Are the company's lease payments to the IDA taxable?
A: No, lease payments under the Project Agreement are exempt from sales and compensating use tax.

Q: What about buying the property back at the end of the lease?
A: The payment to exercise a purchase option (or the value of property transferred at the IDA's expiration of the lease) is also exempt.

Q: Can another company with an IDA deal rely on this ruling directly?
A: Not automatically. This advisory opinion binds the Department only as to the petitioner and the specific documented agency structure described; an advisory opinion also doesn't resolve factual questions like whether particular improvements qualify as capital improvements.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(5) (definition of sale, selling or purchase)
• Tax Law § 1101(b)(6) (definition of tangible personal property)
• Tax Law § 1101(b)(9)(i) (definition of capital improvement)
• Tax Law § 1101(b)(14) (definition of prewritten computer software)
• Tax Law § 1105(a), (c)(3), (c)(5) (tax on tangible personal property; installing/maintaining/repairing tangible personal property and real property)
• Tax Law § 1109(a) (metropolitan commuter transportation district surcharge)
• Tax Law § 1110 (compensating use tax)
• Tax Law § 1115(o) (computer software services exemption)
• Tax Law § 1116(a) (governmental entity exemption)
• 20 NYCRR § 526.6(c) (resale exclusion, including services)
• 20 NYCRR § 541.3(a) (proof of exempt governmental status for contractors)
• General Municipal Law §§ 854, 858, 862, 874, 923-a (Industrial Development Agency Act)
• Wegmans Food Markets v. Dept. of Taxation and Finance, 126 Misc.2d 144, aff'd 115 AD2d 962, lv denied 67 NY2d 606 ("Wegmans I")
• Wegmans Food Markets v. Dept. of Taxation and Finance (Sup. Ct., Monroe Cnty., Jan. 10, 1992) ("Wegmans II")

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_72s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(72)S
Sales Tax
October 15, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S980401B

On April 1, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from MCI Telecommunications Corporation, 1133 19th
Street, N.W., Washington, D.C. 20036.
Petitioner, MCI Telecommunications Corporation, states the issues and facts
as follows:

1. Whether the purchase, lease, installation, construction, maintenance,
   and repair of Project Property (as hereinafter defined), by Petitioner as agent
   for the County of Westchester Industrial Development Authority (the “IDA”), or
   agents appointed by Petitioner pursuant to an authorization granted by the IDA
   to appoint such agents, are exempt from the New York State and local sales and
   compensating use taxes.
2. Whether Petitioner’s payments to the IDA for the lease of the Project
   Property are subject to New York State and local sales and compensating use
   taxes.
   3.
   Whether Petitioner’s payment to the IDA to exercise an option to
   purchase the Project Property, or the value of the Project Property transferred
   to Petitioner by IDA at the termination of the lease, is exempt from the New York
   State and local sales and compensating use taxes.
   This petition for an advisory opinion concerns the development of a
   telecommunications switching station by Petitioner (the “Project”). To induce
   Petitioner to locate the Project in Westchester County, New York, the IDA has
   made an agreement with Petitioner to grant financial assistance, as defined in
   section 854.14 of the General Municipal Law, to Petitioner through a
   straight-lease transaction, as defined in section 854.15 of the General Municipal
   Law.
   On December 3, 1996, the IDA passed an inducement resolution to establish
   the Project, which was subsequently amended on January 23, 1997.
   The IDA,
   pursuant to its statutory authority to promote the community interests within
   Westchester County, issued on May 8, 1997, a Sales Tax Letter to Petitioner
   representing their mutual agreement for the development of the Project at 401
   Fieldcrest Drive, Elmsford, Westchester County, New York (the “Project
   Premises”).
   As contemplated by the IDA and Petitioner, “Project Property” means (i) the
   Project Premises, a building to be built at the Project Premises (the “MCI
   Building”), improvements to the Project Premises and the MCI Building, and
   materials and fixtures to be installed in or on the Project Premises or MCI
   Building, as well as renovations, repairs and additions made to the Project
   Premises and the MCI Building (together, the “Improvements”) and (ii) machinery,
   equipment, furniture, furnishings, and other items of tangible and intangible

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personal property (including computer hardware and software, but excluding
exhaustible materials such as pencils, paper clips, and paper) which have a
useful life of one year or more and which are purchased, leased or maintained for
use on or at the Project Premises or in or at the MCI Building, including
equipment and expendable supplies used in constructing the Improvements (the
“Equipment”).
The scope of the exemption from taxes will include the
acquisition, improvement, installation, and maintenance of the Project Property.
Petitioner leases the Project Premises, pursuant to a net lease, from Baker
Properties, a Connecticut limited partnership, dated as of March 11, 1997.
Pursuant to the Agency Sublease Agreement, Petitioner will sublease the Project
Premises to the IDA; and the IDA will sub-sublease the Project Premises back to
Petitioner pursuant to the MCI Sublease Agreement. Pursuant to these documents
and the Project Agreement, (i) Petitioner as agent for the IDA will arrange for
the acquisition and construction of the Improvements and the acquisition,
installation, maintenance and repair of the Equipment, (ii) the IDA will lease
the Project Property to Petitioner, for use in Petitioner's business, and (iii)
at the expiration of the Agency Sublease Agreement or upon the exercise by
Petitioner of the purchase option under the Project Agreement, Petitioner will
acquire the Project Property (other than the Project Premises) from the IDA.
To exempt the Project Property from sales and compensating use taxes,
Petitioner will, as agent for the IDA, contract for the purchase, lease,
installation, construction, maintenance, and repair of the Improvements and the
Equipment. Petitioner, as agent of the IDA, will advance funds necessary for the
Project and will offset against the rent due to the IDA (“Base Improvement Rent”)
amounts advanced by Petitioner on behalf of the IDA.
The exemption from taxes resulting from the financial assistance will apply
to charges to purchase or lease Project Property, and to the installation,
maintenance and repair of Project Property. The exemption will apply only to
property which has a useful life of more than one year, except that it will also
apply to property used in the construction process with a useful life of one year
or less. The exemption will not apply to the purchase of consumable operational
property or services, such as telephone services, electricity, or office and
cleaning supplies and services.
To carry out the purchase, lease, installation, construction, maintenance,
and repair of the Project Property, Petitioner and agents of the IDA appointed
by Petitioner will follow a notice and documentation procedure for all
expenditures made for or upon Project Property, to ensure that they are properly
qualified for the exemption from taxes under the Sales Tax Letter issued by the
IDA. All purchase orders and contracts entered into relating to Project Property
will reflect that the sale is being made by the seller to the particular
purchasing entity (Petitioner or another appointed agent, such as a contractor
or subcontractor), as agent for the IDA. When a transaction involves Project
Property and non-Project Property, there will be a bifurcation of the transaction
and a clear indication of the portion which is part of the Project and exempt
from taxes pursuant to the agreement between Petitioner and the IDA, the Sales
Tax Letter issued by the IDA, and the nature and use of the property with respect
to which the transaction occurs.

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Petitioner has been given the authority to designate other persons to be
agents of the IDA for Project purposes, to act on behalf of the IDA pursuant to
the Sales Tax Letter issued by the IDA. All acquisitions of Project Property
made by Petitioner or by another agent, on behalf of the IDA, during the term of
the agreement will also be pursuant to the agency relationship with the IDA; and
such Project Property will also be leased to Petitioner under the general lease
agreement for the Project Property.
When a purchase or contract is made by Petitioner for or with respect to
Project Property, it will be entered into by Petitioner as agent for the IDA.
When a purchase is made by another entity which Petitioner has appointed as agent
of the IDA, such as a contractor, it will be as agent of the IDA as designated
by Petitioner.
All purchase orders, bills, contracts, invoices, and other documents
evidencing transactions entered into by Petitioner or by another entity which
Petitioner appointed as agent of the IDA, for which exemption from taxes is
intended, will identify that the transaction is made with and on behalf of the
IDA and that it specifically relates to the Project. All invoices and bills will
be addressed to Petitioner or such other entity, as the agent of the IDA.
Applicable Law and Regulations
Section 1101(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 1101(b)(6) of the Tax Law defines "tangible personal property" as:
Corporeal personal property of any nature ... Such term shall
also include prewritten 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 1101(b)(9)(i) of the Tax Law defines “capital improvement” as:
An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or
appreciably prolongs the useful life of the real property; and
(B) Becomes part of the real property or is permanently
affixed to the real property so that removal would cause material
damage to the property or article itself; and

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(C) Is intended to become a permanent installation.
Section 1101(b)(14) of the Tax Law defines "prewritten computer software"
as:
Computer software (including prewritten 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 prewritten computer software programs or
prewritten portions thereof does not cause the combination to be
other than prewritten computer software. Prewritten 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. Prewritten
software or a prewritten 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 prewritten 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 prewritten computer software.
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:
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*

(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...
*

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*

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Sales Tax
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(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 ... this chapter. ...
Section 1109(a) of the Tax Law provides, in relevant part:
(a) 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 1115(a) of the Tax Law provides, in part:
Receipts from the following shall be exempt from the tax on
retail sales imposed under subdivision (a) of section eleven hundred
five and the compensating use tax imposed under section eleven
hundred ten:
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*

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(15) Tangible personal property sold to a contractor,
subcontractor or repairman for use in erecting a structure or
building of an organization described in subdivision (a) of section
eleven hundred sixteen, or adding to, altering or improving real
property, property or land of such an organization, as the terms
real property, property or land are defined in the real property tax
law; provided, however, no exemption shall exist under this
paragraph unless such tangible personal property is to become an
integral component part of such structure, building or real
property.
(16) Tangible personal property sold to a contractor,
subcontractor or repairman for use in maintaining, servicing or
repairing real property, property or land of an organization
described in subdivision (a) of section eleven hundred sixteen, as
the terms real property, property or land are defined in the real
property tax law; provided, however, no exemption shall exist under
this paragraph unless such tangible personal property is to become
an integral component part of such structure, building or real
property.
*

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*

(28) Computer software designed and developed by the author or
creator to the specifications of a specific purchaser which is
transferred directly or indirectly to a corporation which is a
member of an affiliated group of corporations within the meaning of
subparagraph six of paragraph (b) of subdivision seventeen of
section two hundred eight of this chapter except for clauses (ii)
and (iii) of such subparagraph that includes such purchaser, or to
a partnership in which such purchaser and other members of such
affiliated group have at least a fifty percent capital or profits
interest (but only if the transfer is not in pursuance of a plan
having as its principal purpose the avoidance or evasion of tax
under this article), but in no case including computer software
which is pre-written, as defined in paragraph six of subdivision (b)
of section eleven hundred one of this article and available to be
sold to customers in the ordinary course of the seller’s business.
*

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*

(35) Computer system hardware used or consumed directly and
predominantly in designing and developing computer software for
sale.
Section 1115(o) of the Tax Law provides:
Services otherwise taxable under subdivision (c) of section
eleven hundred five or under section eleven hundred ten shall be
exempt from tax under this article where performed on computer

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software of any nature; provided, however, that where such services
are provided to a customer in conjunction with the sale of tangible
personal property any charge for such services shall be exempt only
when such charge is reasonable and separately stated on an invoice
or other statement of the price given to the purchaser.
Section 1116(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; ...
Section 526.6(c) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
(8) The resale exclusion also applies to a sale of service.
Example 12: A jeweler sends a customer's watch to a repairman for
servicing. The charge by the jeweler to the customer is taxable.
The charge to the jeweler by the repairman is not taxable because
the service was purchased for resale by the jeweler.
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:

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(1)

real property; ....

Section 529.2(a) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
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*

*

(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 1116(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:

(i) Pursuant to section 1116(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 854 of the General Municipal Law provides, in relevant part:
Definitions.
As used in this act, unless the context otherwise requires:
*

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*

(4) "Project" - shall mean any land, any building or other
improvement, and all real and personal properties located within the
state of New York and within or outside or partially within and
partially outside the municipality for whose benefit the agency was
created, . . . provided, however, no agency shall provide financial
assistance in respect of any project partially outside the
municipality for whose benefit the agency was created without the

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prior consent thereto by the governing body or bodies of all the
other municipalities in which any part of the project is, or is to
be, located.
Where a project is located partially within and
partially outside the municipality for whose benefit the agency was
created, the portion of the project outside the municipality must be
contiguous with the portion of the project inside the municipality.
*

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*

(14)
"Financial assistance" - shall mean the proceeds of
bonds issued by an agency, straight-leases, or exemptions from
taxation claimed by a project occupant as a result of an agency
taking title, possession or control (by lease, license or otherwise)
to the property or equipment of such project occupant or of such
project occupant acting as an agent of an agency.
(15) “Straight-lease transaction” - shall mean a transaction
in which an agency takes title, possession or control (by lease,
license or otherwise) to the property or equipment of a project
occupant, entitling such property or equipment to be exempt from
taxation according to the provisions of section eight hundred
seventy-four of this article, and no financial assistance in the
form of the proceeds of bonds issued by the agency is provided to
the project occupant.
Section 858 of the General Municipal Law provides, in relevant part:
... [E]ach agency shall have the following powers:
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(3) To acquire, hold and dispose of personal property for its
corporate purposes;
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(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

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(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 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.

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Section 923-a of the General Municipal Law establishes the Westchester
County 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. 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 whether tax exemption applied to operational
expenses incurred by plaintiff in the day-today 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 the plaintiff. In an earlier action,
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 (1986)("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 IDAs 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 project 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 operation 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 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,

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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 it structures were
financed with IDBs, that business would have an apparently
unintended, open-ended economic 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 security 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 18A (the New York State
Industrial Development Agency Act). The definition of "revenues" in
section 854, subpar. (7) 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, any building(s] or other improvement, and
all real and personal properties located within the state of New
York ... including, but not limited to, machinery, equipment and
other facilities deemed necessary or desirable in connection
therewith, or incidental thereto ... which shall be suitable for
manufacturing, warehousing, research, commercial or industrial
purposes ....
Opinion
Based on the structures under which the IDA proposes to make sales and
compensating use tax benefits available to Petitioner with respect to Project
Property, and based on the other facts presented in the petition, and in
accordance with the sections of law and regulations cited above and the decisions

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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. The
Department of Taxation and Finance of the State of N.Y., (Sup. Ct., Monroe
County, Jan. 10, 1992, Galloway, J.), and provided that all the terms and
conditions of the relevant documents are complied with, and that these terms and
conditions are consistent with Petitioners' description of them as set forth
above in the instant matter:

1. Petitioner’s purchase or lease from others of Project Property, made as
   agent for and on behalf of the IDA, will be exempt from sales and compensating
   use taxes, provided that (i) the IDA is the owner, lessor or lessee of such
   property, (ii) the purchase invoices, statements and contracts with vendors and
   suppliers provide that the IDA is the purchaser, lessor or lessee and (iii)
   Petitioner is the disclosed agent of the IDA.
   An advisory opinion does not determine factual issues. This Petition does
   not indicate to what extent Petitioner’s Improvements constitute capital
   improvements as defined in Section 1101(b)(9) of the Tax Law. Therefore, this
   opinion cannot conclude whether such Improvements are capital improvements. If
   the Improvements do constitute capital improvements, then Petitioner’s payments
   for installation or construction of these capital improvements will not be
   subject to sales and use tax imposed under Sections 1105, 1107, 1109 and 1110 of
   the Tax Law, whether or not Petitioner is an agent of the IDA. A purchaser’s
   payment of the purchase price of materials used to construct capital improvements
   would be subject to tax (see Section 1101(b)(4) of the Tax Law), unless otherwise
   exempt because the IDA or its agent is the purchaser of the tangible personal
   property, as discussed in the preceding paragraph.
   If an Improvement does not constitute a capital improvement under Section
   1101(b)(9) of the Tax Law, then the charges for installation or construction of
   such Improvement which does not constitute a capital improvement will be exempt
   from such taxes only if the purchaser is an agent of the IDA. Thus, the payments
   to install or construct Improvements which do not constitute capital improvements
   will be exempt from such taxes only where Petitioner or another person makes
   purchases as agent of and on behalf of the IDA.
   Petitioner’s purchases, made as agent for and on behalf of the IDA, (i) of
   the services of installation, maintenance and repair of the Equipment, with a
   useful life of one year or more, which is in use at the Project, including
   replacement 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), or (ii) of the services of
   maintenance and repair of those Improvements which constitute real property, will
   be exempt from the sales and compensating use taxes, to the extent that "(a)" the
   services and parts, with respect to Equipment, are necessary to maintain, repair
   or service such Equipment, used as part of the Project, and provided that the IDA
   is the owner, lessor or lessee of such Equipment, or "(b)" the services and
   tangible personal property, with respect to Improvements, are necessary to
   maintain the structural integrity of the Improvements, and provided that the IDA
   is the owner of such Improvements, and also provided that the purchase invoices,

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statements and contracts with vendors and suppliers for services described in
preceding clauses (i) and (ii) provide that the IDA is the purchaser, lessor or
lessee with respect to such services and such Equipment, and that the IDA is the
purchaser with respect to Improvements.
However, in any instance where Petitioner purchases a service of
maintaining, repairing or servicing exempt Equipment or Improvements which
results in the replacement of parts, materials or supplies that are consumed in
the daily ongoing operation of Equipment or Improvements, 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 sales and
compensating use taxes, as indicated 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.).
The purchase and use of fuels and energy and utility
services are not tax-exempt. Id.
Pursuant to section 1115(o) of the Tax Law, enhancements, modifications and
upgrades to computer software which constitute services described in section
1105(c) of the Tax Law are exempt from the taxes imposed by sections 1105, 1109
and 1110 of the Tax Law, whether or not the purchaser is an agent of the IDA;
provided, however, that where such services are provided to a customer in
conjunction with the sale of tangible personal property, any charge for such
services shall be exempt only when such charge is reasonable and separately
stated on an invoice or other statement of the price given to the purchaser.
It is noted that in a transaction where the charge is for both taxable
services and qualifying exempt services, the total charge will be subject to
sales and compensating use taxes, unless the portion of the charge applicable to
the qualifying exempt services is separately stated from the other charges or
otherwise reasonably allocated.
It is also noted that, pursuant to section 854(4) and (14) of the General
Municipal Law, the IDA may not offer financial assistance in the form of sales
and compensating use tax exemptions with respect to property, including software,
and services which are used outside Westchester County, without prior consent to
such use of such property and services from the jurisdiction in which the
property and services are to be used; and, in any case, any such project outside
Westchester County must be contiguous to the portion of the project inside
Westchester.
Thus, if property, including software, and services are used
outside Westchester County without such prior permission, such use would be
outside the scope of the IDA's authority and the property and services would be
subject to New York State and local sales and compensating use taxes. However,
any additional access of software by remote means (telephone lines/modem, for
example) from a location outside such jurisdiction should not lead to the
conclusion that such software loaded and used at the IDA project is used
impermissibly. This does not mean that the software can be downloaded to a
computer located outside such jurisdiction for use outside such jurisdiction.
Likewise, software could not be purchased as part of an IDA project exempt from
tax and removed from such jurisdiction without violating section 854(4) of the
General Municipal Law, unless the IDA obtains prior consent from any other
contiguous New York State municipality in which it will be used.

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To the extent that the term Equipment under the Project documents
specifically includes computer software, then holdings in this advisory opinion
with respect to Equipment would also be applicable to such computer software,
with such modifications as may be necessary to reflect the law relating to
computer software and services to computer software and to reflect differences
in the nature of software as compared to such equipment, provided that such
software is acquired in the manner that such equipment is acquired.
Transactions for the purchase, lease, installation, construction,
maintenance and repair of the Project Property, made by agents appointed by
Petitioner, as agent for and on behalf of the IDA, are afforded the same status
as purchases made by the Petitioner as agent of the IDA and will be exempt from
sales and compensating use taxes to the same extent and under the conditions
described above.

2. Petitioner’s lease payments to the IDA under the Project Agreement with
   respect to the Project Property will not be subject to sales and compensating use
   taxes.
3. Petitioner’s payments to the IDA to exercise the Option to Purchase
   Project Property will not be subject to sales or compensating use taxes; nor will
   the IDA’s transfer of the Project Property to Petitioner at the time such Option
   is exercised be subject to sales or compensating use taxes based on the value of
   the Project Property.
   All of the forgoing conclusions depend on compliance with the terms and
   conditions of all of the relevant Project documents, subject to any limitations
   set forth in such documents.

DATED:

October 15, 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.