When the Port Authority charged an airline its pro-rata share of common-area guard services and a federally mandated armed 'Boarding Security Program' at JFK Airport's international terminal, were those charges subject to sales tax?

Plain-English summary

Before May 13, 1997, the Port Authority of New York & New Jersey (PA) controlled JFK Airport's International Arrivals Building (IAB) and its two wing buildings, leasing "exclusive space" (check-in counters, offices, lounges) to airlines like Japan Airlines while itself maintaining and securing all the shared "common areas" (passageways, gates, lavatories, concession areas) as landlord. Under its lease, Japan Airlines paid the PA a per-passenger, per-aircraft share of two things: general guard/security services in the common areas (performed by a PA-hired security contractor), and a separate "Boarding Security Program" charge covering armed law enforcement officers the PA was federally required to station at security checkpoints under FAA regulations, ready to respond to weapons, explosives, or other incidents during boarding.

Two different tax theories applied to these two charges. The common-area guard-service charge was structured under the lease as part of the tenants' pro-rata share of common-area operating costs -- the same kind of arrangement the Department has long treated (for shopping malls, per its own TSB-M-84(9)S memorandum) as "additional rent" rather than a separately taxable service, since it's billed as part of the overall rental relationship rather than as a standalone protective-service purchase. Because charges for the rental of real property (including additional rent components) aren't subject to sales tax, this charge escaped tax.

The Boarding Security Program charge was analyzed differently: the PA, as a government agency, is generally exempt from tax on sales of property/services "not ordinarily sold by private persons," even though sales of things governments sell that ARE ordinarily sold privately (like typical security-guard services) can still be taxable. Because federal aviation regulations specifically required these particular officers to have real arrest authority, be armed, and complete law-enforcement training -- a genuine police function -- the Department found this was a governmental service not ordinarily provided by private security companies, so it qualified for the government exemption and wasn't taxable either.

What this means for you

Airlines and other tenants at government-operated facilities

Common-area security or maintenance charges billed to you as part of your overall rent (a pro-rata share of the landlord's operating costs) are generally treated as additional rent, not a separately taxable service purchase -- but this depends on how the charge is structured in your lease, not just what the underlying service is.

Airport authorities, port authorities, and other government facility operators

Charges for genuine law-enforcement/police-type functions you're required to provide (armed officers with real arrest authority, specialized training) can qualify for the government exemption as services "not ordinarily sold by private persons" -- but ordinary commercial-grade guard/patrol services you provide are more likely to be treated as the kind of service private security firms also sell, and thus potentially taxable.

Accountants and tax professionals

This ruling illustrates two independent escape routes for government-facility security charges: (1) the additional-rent characterization under TSB-M-84(9)S for common-area cost-sharing arrangements, and (2) the § 1116(a)(1) government exemption for services genuinely "not ordinarily sold by private persons," which turns on regulatory specifics (here, FAR Part 107's arrest-authority and training requirements) rather than just labeling the service "security."

Common questions

Q: Are all charges from a government landlord for security services exempt from sales tax?
A: No. It depends on whether the specific service is one "not ordinarily sold by private persons" (exempt) or an ordinary commercial-type service the government happens to provide (potentially taxable), and separately on how the charge is structured (rent vs. a standalone service charge).

Q: Does labeling a charge as "additional rent" in a lease guarantee it escapes sales tax?
A: Not automatically, but a genuine pro-rata common-area cost-sharing arrangement structured as additional rent, consistent with the Department's shopping-mall guidance, is generally treated as exempt real-property rental income rather than a taxable service charge.

Q: Can another airline or tenant rely on this ruling?
A: No. It binds the Department only as to this petitioner and the specific lease/facility arrangement described, which applied only to the period before the PA transferred control of these facilities to a private operator in 1997.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(8) (tax on protective and detective services, including guard/patrol/watchman services)
• Tax Law § 1116(a)(1) (exemption for governmental entities as vendor of services not ordinarily sold by private persons)
• 20 NYCRR § 529.2(c)(2) (sales by governmental entities of a kind ordinarily sold by private persons are taxable)
• 14 C.F.R. § 107.15, § 107.17 (Federal Aviation Regulations requiring armed law enforcement officers for airport security)
• TSB-M-84(9)S, May 7, 1984 (charges by shopping mall operators; common-area charges as additional rent)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(10)S
Sales Tax
February 28, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990121C

On January 21, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Japan Airlines Co., LTD., 655 Fifth Avenue, New York, New York 10022.
Petitioner, Japan Airlines Co., LTD., submitted additional information on March 15, 1999, and
subsequently on October 20, 1999.
The issue raised by Petitioner is whether guard services and the Boarding Security Program
provided to it by the Port Authority of New York & New Jersey are subject to sales and
compensating use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner utilizes the International Arrivals Building ("IAB") as a passenger terminal at John
F. Kennedy International Airport ("JFK"). Technically the IAB is a central building to which is
attached two additional buildings referred to as "wing buildings." One wing building is the East
Wing Building and the other is called the West Wing Building.
Until May 13, 1997, the IAB and the wing buildings were under the control of the Port
Authority of New York and New Jersey ("PA") which leased space in the wing buildings to various
airlines, including Petitioner. On May 13, 1997, the PA turned control of the IAB and the wing
buildings over to a private group, JFK International Air Terminal LLC (hereinafter IAT) which took
over the duties and responsibilities of operating these facilities from the PA. Both wing buildings
are virtually the same; the front of each building is rented to various airlines. This space is referred
to as "exclusive space." This exclusive space contains the check-in facilities, as well as offices,
lounges and other space under the exclusive control of the various airline tenants. Airlines that rent
this exclusive space often sublease part of it to other airlines. This Advisory Opinion only addresses
the services described below that were provided by the PA prior to May 13, 1997, when the PA
controlled the IAB and wing buildings.
Petitioner was a direct tenant in the East Wing Building, i.e., it leased exclusive space
directly from the PA, and in turn subleased a portion of the space to other airlines. Petitioner was
responsible for the repair and upkeep of its exclusive space. The PA was responsible for all repairs
and services in the common areas of the IAB and acted as the landlord.
The primary use of Petitioner’s exclusive space was to furnish facilities for handling its
passengers and those of its sub-tenants, who would be departing on international flights. The
exclusive space was also used to house various administrative airline functions, passengers, lounges,

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etc. Other than miscellaneous rentals to some concessionaires (duty free shops, restaurants, etc.) the
entire rear portion of the wing buildings, as well as the entire IAB, consist solely of common areas
and were solely controlled by the PA prior to May 13, 1997.
Passengers flying on Petitioner’s aircraft entered Petitioner’s exclusive space in the East
Wing Building, passed through security provided by Petitioner to the check-in counter where all the
paperwork necessary to board the aircraft would be completed. Some passengers would also have
spent time in Petitioner’s lounges, provided for passengers of both Petitioner and its sub-tenants,
before leaving Petitioner’s exclusive space.
In order to board the aircraft, passengers left Petitioner’s exclusive space, entered the East
Wing Building common space (rear of the building) and went to the appropriate gate. Many
passengers will have availed themselves of some of the facilities (lavatories, restaurants, duty free
and souvenir shops, etc.) located in the common area controlled by the PA. The PA provided general
security in the common area. All facilities in the common area were under the control and
responsibility of the PA. Petitioner had nothing to do with the maintenance or security of the
common area.
The IAB itself was also under the sole control of the PA. The IAB receives passengers on
in bound (primarily international) flights to the U.S. On arrival at the IAB, passengers go through
Customs, Immigration, etc. As with the East Wing Building’s common space, Petitioner had no
control over this facility.
The agreement whereby airlines such as Petitioner paid for the utilization of the common
space in both the wing buildings and the IAB provided for the PA to estimate the cost of the various
services which were tentatively allocated on a per passenger or per aircraft basis. Thus, for
December 1993, Petitioner paid forty-five (.45) cents per passenger and forty (.40) cents per
passenger, respectively, for guard service and Boarding Security Program (BSP). These services
included general security provided by the PA in the common areas of the wing buildings and the
IAB, which were performed by a security contractor hired by the PA, and airport security services
provided by Port Authority Police pursuant to Part 107 of the Federal Aviation Regulations ("FAR").
Such Part 107 requires airport operators to have law enforcement officers available to respond to a
summons from a security screening point upon the discovery of a weapon or explosive device or the
occurrence of another type of incident during the boarding process. These charges had nothing to
do with the operation or security of the exclusive space rented by Petitioner. These amounts were
estimates and were adjusted annually to reflect the actual cost of the PA in furnishing these various
services.
Petitioner’s lease with the PA provides, in part:
Section 7. Other Charges

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*

*

*

(n) The Lessee shall pay to the Port Authority its pro rata share of the cost
to the Port Authority of providing the guard service as set forth in paragraph 41(j)
hereof. The Lessee’s pro rata share of the cost to the Port Authority of providing
such guard service shall be that portion of said costs as the number of passengers on
the Lessee’s outbound aircraft bears to the total number of passengers on all
outbound aircraft of all lessees of the East and West Wing Buildings.
*

*

*

Section 10. Use of Premises and Areas A-1, A-2, A-3 and A-4
*

*

*

II. (a) Area A-1: Public Circulation Areas and Passenger Lounges
. . The Port Authority shall operate and maintain the departure information
and television monitoring systems as part of Area A-1. The Port Authority shall from
time to time establish and segregate certain portions of area A-1 which shall be called
"Departure Hold Areas." The Lessee shall have the right to use Area A-1 as
passageways and circulation areas and as passenger lounges in common with the
other lessees of the East and West Wing buildings for the accommodation of both the
lessee’s and such other lessee’s employees, passengers, guests and patrons, it being
understood however that the Departure Hold Areas shall be used only by the Lessee’s
employees and departing passengers and by the employees and departing passengers
of other lessees of the East and West Wing buildings. Area A-1 may also be used by
other persons when such use is authorized by the Port Authority (except as provided
in paragraph (j) of Section 41, the Port Authority shall, however, have no obligation
to police Area A-1).
*

*

*

Section 41. Other Services by the Port Authority
*

*

*

(j)(1) The Port Authority shall provide a guard service (hereinafter called "the
guard service") to serve such portions of Area A-1 as may be designated from time
to time by the Port Authority.

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*

*

*

(3) The Lessee shall pay to the Port Authority as hereinbefore provided in
Section 7(n) its pro rata share of the cost to the Port Authority of providing the guard
service.
Applicable Law
Section 1105(c)(8) of the Tax Law imposes a tax upon:
Protective and detective services, including, but not limited to, all services
provided by or through alarm or protective systems of every nature, including, but not
limited to, protection against burglary, theft, fire, water damage or any malfunction
of industrial processes or any other malfunction of or damage to property or injury
to persons, detective agencies, armored car services and guard, patrol and watchman
services of every nature other than the performance of such services by a port
watchman licensed by the waterfront commission of New York harbor, whether or
not tangible personal property is transferred in conjunction therewith.
Section 1116(a) of the Tax Law provides, in part:
Except as otherwise provided in this section, any sale or amusement charge
by or to any of the following or any use or occupancy 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 (including a public corporation created pursuant to agreement or
compact with another state or Canada) 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 529.2(c)(2) of the Sales and Use Tax Regulations provides, in part:
Sales by New York State governmental entities of tangible personal property
or services of a kind which are ordinarily sold by private persons, except trash
removal services as described in paragraph (3) of this subdivision, are subject to the
sales and use tax. . . .
Section 107.15(a) of the Federal Aviation Regulations provides:

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Each airport operator shall provide law enforcement officers in the number
and in a manner adequate to support–
(1) Its security program; and
(2) Each passenger screening system required by part 108 or § 129.25 of this
chapter.
[Part 108 and Section 129.25 of the Federal Aviation Regulations require domestic and
foreign airlines, respectively, to screen passengers before boarding aircraft.]
Section 107.17 of the Federal Aviation Regulations provides, in part:
(a) No airport operator may use, or arrange for response by, any person as a
required law enforcement officer unless, while on duty on the airport, the officer–
(1) Has the arrest, authority described in paragraph (b) of this section;
(2) Is readily identifiable by uniform and displays or carries a badge or other
indicia of authority;
(3) Is armed with a firearm and authorized to use it; and
(4) Has completed a training program that meets the requirements in
paragraph (c) of this section.
(b) The law enforcement officer must, while on duty on the airport, have the
authority to arrest, with or without a warrant, for the following violations of the
criminal laws of the State and local jurisdictions in which the airport is located:
(1) A crime committed in the officer’s presence.
(2) A felony, when the officer has reason to believe that the suspect has
committed it.
(c) The training program required by paragraph (a)(4) of this section must
provide training in the subjects specified in paragraph (d) of this section and either–
(1) Meet the training standards, if any, prescribed by either the State or the
local jurisdiction in which the airport is located, for law enforcement officers
performing comparable functions; or

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(2) If the State and local jurisdictions in which the airport is located do not
prescribe training standards for officers performing comparable functions, be
acceptable to the Administrator.
Opinion
The PA is a governmental entity exempt from tax under Section 1116(a)(1) of the Tax Law.
Sales by the PA of tangible personal property or services of a kind not ordinarily sold by private
persons are not subject to sales tax. Sales by the PA of tangible personal property or services that
are of a kind ordinarily sold by private persons may be subject to sales tax. See Section 529.2(c)(2)
of the Sales and Use Tax Regulations. While the sales tax is imposed upon the receipts from the sale
of tangible personal property and certain enumerated services, including protective services, it is not
imposed on receipts from either the sale or rental of real property.
Technical Services Bureau Memorandum, TSB-M-84(9)S, dated May 7, 1984, entitled
Charges by Shopping Mall Operators, provides, in part:
Lease agreements between shopping mall operators and tenants generally
provide for a fixed rental charge plus additional rental charges. The additional rental
charges may include a tenant’s pro rata share of expenses for maintenance, utilities,
snow plowing, landscaping, security, insurance, administration and overhead costs
incurred by the mall owner in relation to the operation of the "common area" of the
shopping mall. The "common area is the area within and outside of the mall (other
than the fixed rental space) available to the tenants and their customers and necessary
for access to the tenants’ businesses.
To provide for an equitable rental charge, the lease agreement generally
provides that common area expenses are to be billed to each tenant based on a share
formula (i.e. leased square footage). The parties agree that the costs will be estimated
at the beginning of each year, with the tenant paying his share in 12 monthly
installments. At the end of the year the actual costs are determined and the tenant
either pays an additional amount or receives a credit, if payments exceed actual costs.
Common area charges which are designated as "additional rent" or similarly
provided for by specific provisions in the lease agreement are considered to be
receipts from the rental of real property and are not subject to sales tax when billed
to tenants. . . .
The agreement between Petitioner and the PA provides that Petitioner as well as other tenants
will pay to the PA their pro rata share of certain expenses that are related to services (including
security services) provided by the PA to the common areas of the leased property. Consequently,

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pro rata charges made to Petitioner for the security services described in this Advisory Opinion
which were a part of the common area charges are considered to be charges for additional rent and
not subject to sales and use tax. It should be noted that this conclusion does not apply to security
services that may be provided directly to Petitioner’s leased premises.
In addition to the common area security services, the PA provided boarding security services
that were required under Part 107 of the Federal Aviation Regulations. Sections 107.15 and 107.17
of these regulations required the PA to use law enforcement officers to perform these services who
had the power to make arrests, with or without a warrant, for a crime committed in an officer’s
presence, or for a felony when an officer has reason to believe that a suspect has committed it. The
law enforcement officers providing the boarding security services were performing a police service
of a kind not ordinarily sold by private persons. Therefore, under the facts of this Advisory Opinion,
these services provided by the PA were exempt from sales and use tax under Section 1116(a)(1) of
the Tax Law.
In conclusion, based upon the facts specified in the Petition for Advisory Opinion, the
charges by the PA to Petitioner for the guard services and the Boarding Security Program were not
subject to sales and use tax.

DATED: February 28, 2000

NOTE:

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

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