Is a utility's charge to install a new residential natural gas line subject to New York State and local sales tax?

Plain-English summary

Thomas E. Lawrence, a Nassau County homeowner, paid his local gas utility for installing a new natural gas line to his residence, and the utility charged him sales tax at the full combined state-and-local rate of 8.5%. The utility's contract stated that title to the gas mains and related equipment stays with the utility even after installation, and the charge was set under tariffs filed with and approved by the Public Service Commission. Lawrence asked whether that installation charge should really have been taxed at all.

The Department explained that this installation doesn't qualify for the ordinary "capital improvement" exclusion that normally applies to permanent installations on real property -- there's a specific carve-out in the law that keeps a utility's installation charges taxable as utility service rather than exempting them as capital improvements, precisely because the utility (not the customer) keeps ownership of the equipment. But that's not the end of the story: because the charge is legally a charge for "gas service," it qualifies for New York's special reduced rate for residential energy -- which, since October 1, 1980, has been zero percent for state tax, and Nassau County had also reduced its own local rate on residential energy to zero. So even though the utility billed 8.5%, the correct combined state-and-county tax on this installation is actually zero, unless the home happens to fall within certain school districts (here, Glen Cove or Long Beach) that impose their own separate 3% utility tax, which isn't affected by the county's or state's zero-rate reduction.

What this means for you

Homeowners billed sales tax on utility installation or hookup charges

If you're a residential customer in a jurisdiction that has reduced its local tax on residential energy sources to zero, and your utility charged you a standard combined sales tax rate on an installation, hookup, or similar service charge, you may have been overcharged -- check whether your locality has adopted the zero (or reduced) residential energy rate, and consider a refund claim (within the three-year window under Tax Law § 1139) if it applied and wasn't used.

Utilities billing residential installation and hookup charges

Even though your installation charge doesn't qualify for the ordinary capital-improvement exclusion (since your company, not the customer, retains title to the installed equipment), that same charge is still treated as gas/electric/utility "service" for rate purposes -- meaning it should get whatever reduced or zero residential energy rate your state, county, or city has adopted, not necessarily the full standard combined rate.

Accountants and tax professionals

This is a useful reminder that a "reduced rate" analysis (Tax Law § 1105-A, § 1210) is a distinct question from the "is this taxable at all" analysis (capital improvement exclusion under § 1105(c)(3)) -- a charge can fail the capital-improvement exclusion and still end up untaxed (or minimally taxed) once the applicable residential energy rate reduction is applied. Also note that school-district utility taxes under § 1212 are NOT subject to the same rate-reduction authority that counties and cities have under § 1210, so a school-district utility tax can survive even where state and county/city tax is zeroed out.

Common questions

Q: Why isn't the gas line installation treated as an exempt capital improvement?
A: A specific provision excludes a utility's installation of property at a customer's premises, for use in connection with the utility's own taxable service, from the capital-improvement exclusion -- so it's taxed (or rate-reduced) as utility service instead.

Q: If the rate is zero, why did the customer get charged 8.5%?
A: The opinion doesn't explain the utility's billing error, but confirms the correct rate (absent an applicable school-district utility tax) is zero for a Nassau County residential customer, based on the county's adoption of the zero-percent residential energy rate.

Q: Does every county and city have this zero-percent residential energy rate?
A: No -- Tax Law § 1210 only authorizes counties and cities to reduce the rate; each locality decides independently whether and how much to reduce it, so the actual rate depends on where the customer lives.

Citations and references

Statutes and regulations:

• Tax Law § 1105(b), (c)(3) (imposition on gas/utility service; installation services; capital-improvement exclusion)
• Tax Law § 1105-A (reduced/zero rate for residential energy sources and services)
• Tax Law § 1139 (refunds)
• Tax Law § 1210(a), (b) (local rate authority)
• Tax Law § 1212 (school district utility tax)
• 20 NYCRR § 527.2(a)(3) (utility installation charges billed under tariff)

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_85s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(85)S
Sales Tax
December 11, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S961219B

On December 19, 1996, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Thomas E. Lawrence, 277 Bridle Path Lane, Mill Neck, NY 11765.
The issue raised by Petitioner, Thomas E. Lawrence, is whether the charge by a utility
company for installation of a new residential gas service at the Petitioner's house is subject to New
York State and local sales and use taxes.
Petitioner submits the following facts as the basis for this Advisory Opinion. Petitioner is
a Nassau County residential customer of the local utility and paid sales tax to the utility in
connection with the utility's charges for the installation of a new natural gas line at Petitioner's
residence. The utility collected sales tax from Petitioner on this installation service at the combined
State and local sales tax rate in Nassau County of 8½ percent.
The utility company's contract with Petitioner states, "It is understood and agreed that title
to all gas mains and their appurtenances installed under this agreement and to their accompanying
easements or rights-of-way shall be and remain with the Company, its successors or assigns, at all
times."
The utility company's "Proposal for New Residential Gas Service" states, "Please be advised
that all computations are based upon tariffs which are filed with and approved by the Public Service
Commission. Any applicable tariff change become [sic] part of this agreement and may affect your
bill."
Applicable Law and Regulations
Section 1105 of the Tax Law states in part:
Imposition of sales tax . . . there is hereby imposed and there shall be paid a
tax of four percent upon:
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(b) The receipts from every sale, other than for resale, of gas, . . . and gas .
. . service of whatever nature, . . . .

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Sales Tax
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(c) The receipts from every sale, except for resale, of the following services:
(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . except:
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(iii) for installing property which, when installed, will constitute an addition
or capital improvement to real property, property or land, as the terms real property,
property or land are defined in the real property tax law as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter, . . .
The unnumbered paragraph at the end of 1105(c)(3) relating to the exclusion for capital
improvements states:
Provided, however, that nothing contained in this paragraph three shall be
construed to exclude from tax under this paragraph or under subdivision (b) of this
section any charge, made by a person furnishing service subject to tax under
subdivision (b) of this section, for installing property at the premises of a purchaser
of such taxable service for use in connection with such service.
Section 527.2(a)(3) of the Sales and Use Tax Regulations provides as follows:
A charge for installing equipment, such as transmission equipment, which a
gas, electric, or telephone or telegraph company makes, according to a tariff, to a real
property developer is deemed to be a charge for gas, electric, telephone or telegraph
service. The charge may be for reimbursement of the company's cost of doing the
work itself, or for the cost the company incurred in having a contractor perform the
work.
Section 1105-A of the Tax Law provides in part:
Reduced tax rate on certain energy sources and services. (a) Notwithstanding
any other provisions of this article, but not for purposes of the taxes imposed by
section eleven hundred seven or eleven hundred eight or authorized pursuant to the
authority of article twenty-nine of this chapter, the taxes imposed by subdivision (a)
or (b) of section eleven hundred five on the receipts from the retail sale of fuel oil and
coal used for residential purposes; the receipts from the retail sale of wood used for

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residential heating purposes; and the receipts from every sale, other than for resale,
of propane (except when sold in containers of less than one hundred pounds), natural
gas, electricity, steam and gas, electric and steam services used for residential
purposes shall be paid at the rate of . . . zero percent on and after October first,
nineteen hundred eighty . . . .
In accordance with section 1210(a) and (b) of the Tax Law, counties and cities are authorized
to reduce the tax rate imposed on certain energy sources and related services used for residential
purposes. Nassau County is one of the localities which reduced its local tax on certain energy
sources for residential use to zero percent. However, school districts which impose a tax on utility
services pursuant to section 1212 of the Tax Law are not authorized to reduce the tax rate imposed
on residential energy sources and related services.
Section 1139 of the Tax Law states in part:
Refunds.-(a) In the manner provided in this section the tax commission shall
refund or credit any tax, . . . erroneously, illegally or unconstitutionally collected or
paid if application therefor shall be filed with the tax commission (i) in the case of
tax paid by the applicant to a person required to collect tax, within three years after
the date when the tax was payable by such person to the tax commission . . . (ii) in
the case of a tax, . . . paid by the applicant to the tax commission, within three years
after the date when such amount was payable under this article, . . . .
Opinion
Petitioner's purchase of the service of installing a new residential gas service does not qualify
for the capital improvement exclusion under section 1105(c)(3)(iii) of the Tax Law. The
unnumbered paragraph at the end of section 1105(c)(3) provides that this exclusion is not applicable
under the facts described above, where a utility installs property at a customer's premises for use in
connection with utility services. However, the utility company's installation charge is a charge for
gas service within the meaning of section 1105(b) of the Tax Law and section 527.2(a)(3) of the
Sales and Use Tax Regulations. This charge is eligible for the "zero percent" rate of State and local
taxes imposed on gas services used for residential purposes under section 1105-A of the Tax Law
and pursuant to the authority of section 1210 of the Tax Law. It should be noted, however, if
Petitioner’s house is within the boundaries of either the Glen Cove or Long Beach School Districts,

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a 3 percent tax would be applicable to such installation charges. Therefore, there is no sales tax on
the transaction (other than the school district tax, if applicable).

DATED: December 11, 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.