Is a tax-exempt nonprofit's charge for maintenance and repair services on low-income housing projects, billed to for-profit property-owning partnerships, subject to New York sales tax?

Plain-English summary

Housing Visions Construction Co., Inc. is a nonprofit formed to build low- to moderate-income housing, and is a tax-exempt § 501(c)(3)/§ 1116(a)(4) organization. Its sole member, Housing Visions Unlimited, Inc. ("HVU"), develops these housing projects, which are typically owned by separate, single-purpose for-profit partnerships or LLCs where HVU or an affiliated nonprofit serves as general partner or managing member. After construction, HVU (or an affiliate) often also manages the properties and hires Housing Visions Construction to handle routine maintenance and repairs — HVAC, electrical, plumbing, roofing, painting — billing the for-profit property owner hourly. Materials are purchased directly by the property owner, not by Housing Visions Construction.

The core question was whether being paid by a for-profit entity (rather than a fellow nonprofit) strips away the tax-exempt treatment of these maintenance and repair services. The Department said no: New York's exempt-organization rules (§ 1116) only require § 1116(a)(4) organizations to collect sales tax on three specific things — retail shop sales, restaurant/tavern meals, and parking/garaging services. Selling taxable maintenance/repair services (under §§ 1105(c)(3) and (c)(5)) isn't on that short list, so an exempt organization performing those services doesn't have to collect sales tax on them, regardless of whether its customer is a for-profit entity. The Department flagged two important caveats: (1) if particular work (like replacing an HVAC system or a roof) actually qualifies as a "capital improvement," it's separately exempt anyway; and (2) this whole analysis assumes Housing Visions Construction's for-profit-facing work doesn't amount to a "substantial nonexempt purpose" that would jeopardize its underlying § 501(c)(3)/§ 1116(a)(4) tax-exempt status in the first place — a question the opinion expressly did not decide.

What this means for you

Nonprofit affiliates of for-profit housing or property partnerships

Your exempt organization's sales of maintenance and repair SERVICES are not subject to New York's collection requirement even when billed to a for-profit property owner — that requirement only reaches retail shop sales, restaurant meals, and parking receipts under § 1116(b). But keep documenting that your for-profit-facing work doesn't threaten your organization's broader exempt-purpose status.

Property managers and low-income housing developers

If your maintenance contractor is a § 1116(a)(4) exempt nonprofit affiliate, don't assume you'll be charged sales tax on its labor — confirm whether the work is being billed as a taxable service (which the contractor isn't required to collect tax on here) or could even qualify as an exempt capital improvement.

Accountants and tax professionals

This ruling is a clean confirmation of the narrow scope of § 1116(b)'s "must collect tax" carve-outs (shop sales, restaurant meals, parking) versus the much broader universe of taxable services a § 1116(a)(4) organization can sell without a collection obligation. Also flag the express caveat about substantial-nonexempt-purpose risk under IRS case law (Better Business Bureau of Washington, D.C. v U.S.) whenever a nonprofit does significant paid work for for-profit affiliates.

Common questions

Q: Does a tax-exempt nonprofit have to collect sales tax on maintenance and repair services it sells to a for-profit customer?
A: No, based on this ruling. Section 1116(b) only requires exempt organizations to collect sales tax on shop sales, restaurant/tavern meals, and parking — not on taxable services like maintenance and repair.

Q: Could any of this maintenance work instead be a tax-exempt capital improvement?
A: Possibly. The Department noted that work like replacing an HVAC system or roof, depending on the facts, could independently qualify as a capital improvement, which is separately exempt from tax regardless of who performs it.

Q: Does doing paid work for for-profit affiliates put a nonprofit's tax-exempt status at risk?
A: It could, if the work becomes a "substantial" nonexempt activity — the opinion explicitly assumes, without deciding, that this isn't happening here, citing federal case law on the point.

Q: Can another nonprofit housing affiliate rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to Housing Visions Construction Co., Inc. and the facts it described. A different nonprofit's fact pattern, especially around how much for-profit-facing work it does, should get its own review.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(3) (installing, maintaining, servicing, or repairing tangible personal property)
• Tax Law § 1105(c)(5) (maintaining, servicing, or repairing real property)
• Tax Law § 1116(a)(4) (charitable/educational organization exemption)
• Tax Law § 1116(b)(1), (2), (3) (taxable sales by exempt organizations)
• 20 NYCRR 529.1(g), (j)(7); 529.7(g)(3), (h)(4) (exempt organization certificate misuse/revocation)

Prior authority cited:

• Alfred University, Adv Op Comm T&F, July 24, 1990, TSB-A-90(36)S
• Better Business Bureau of Washington, D.C. v U.S., 326 US 279, 283 (1945)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(18)S
Sales Tax
July 26, 2007

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S031023A

On October 23, 2003, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Housing Visions Construction Co., Inc., 1201 East Fayette Street,
Syracuse, New York 13210. Petitioner, Housing Visions Construction Co., Inc., provided
additional information pertaining to the Petition on May 24, 2005.
The issue raised by Petitioner is whether charges for maintenance and repair services for
low-income housing projects that are owned by separate for-profit entities are subject to sales
tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a New York not-for-profit corporation under section 402 of the New York
Not-for-Profit Corporation Law. Petitioner was formed for the specific purpose of providing
construction services in connection with building low- to moderate-income housing projects in
order to halt the physical and economic deterioration of urban areas. The sole member of
Petitioner is Housing Visions Unlimited, Inc. ("HVU"), a separate New York not-for-profit
corporation that was formed in 1990 to develop low- to moderate-income housing projects.
HVU is a tax-exempt organization pursuant to section 501(c)(3) of the Internal Revenue Code
and has been granted exempt organization status pursuant to section 1116(a)(4) of the Tax Law.
Petitioner was added to the HVU group exemption by the federal government in 2002, and,
accordingly, Petitioner is also a tax-exempt organization pursuant to section 501(c)(3) of the
Internal Revenue Code. Petitioner only performs services for these low- to moderate-income
housing projects. Petitioner states that it does not offer or provide services to the general public
and that it would lose its tax-exempt status if it were to offer services to the general public.
Petitioner has also been granted exempt organization status pursuant to section 1116(a)(4) of the
Tax Law.
To date, HVU has developed a number of low-income housing projects in upstate
New York. The typical low-income housing project developed by HVU (or one of its affiliates)
consists of three or more multi-unit residential properties. In each of these projects, the
properties are owned by single-purpose, for-profit general partnerships or limited liability
companies of which HVU or one of its affiliated not-for-profit entities serves as the general
partner or managing member.
On most of these low-income housing projects, HVU or one of HVU's affiliated not-for­
profit entities also serves as the managing agent for the low-income rental units after
construction has been completed. Among the responsibilities of the managing agent are leasing
the rental units and providing for the ongoing maintenance and repair of those units. The

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managing agent often retains Petitioner to provide routine maintenance and repair services as
necessary for these projects.
Petitioner provides a range of maintenance and repair services for each of the low-income
housing projects that HVU (or one of its affiliates) manages, including without limitation, repairs
to the HVAC, electrical, and plumbing systems; roof and exterior repairs; painting; and other
routine services that are typical for residential rental units. Petitioner bills the property owner (a
for-profit entity) for its services on an hourly basis. Any materials or supplies that are needed on
a specific project are purchased directly by the property owner.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. On and after June first, nineteen hundred seventy­
one, there is hereby imposed and there shall be paid a tax of four percent upon:
*

*

*

(c) The receipts from every sale, except for resale, of the following
services:
*

*

*

(3) Installing tangible personal property, excluding a mobile home, or
maintaining, servicing or repairing tangible personal property, including a mobile
home, not held for sale in the regular course of business, whether or not the
services are performed directly or by means of coin-operated equipment or by any
other means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:
*

*

*

(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;
*

*

*

(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

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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 capital improvement is defined in paragraph nine of subdivision (b) of
section eleven hundred one of this article , . . .
Section 1116 of the Tax Law provides, in part:
Exempt organizations. (a) 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:
*

*

*

(4) Any corporation, association, trust, or community chest, fund, foundation, or
limited liability company, organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary or educational purposes, or to foster national
or international amateur sports competition (but only if no part of its activities involve the
provision of athletic facilities or equipment), or for the prevention of cruelty to children
or animals, no part of the net earnings of which inures to the benefit of any private
shareholder or individual, no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting to influence legislation, (except as otherwise
provided in subsection (h) of section five hundred one of the United States internal
revenue code of nineteen hundred fifty-four, as amended), and which does not participate
in, or intervene in (including the publishing or distributing of statements), any political
campaign on behalf of any candidate for public office;
*

*

*

(b) Nothing in this section shall exempt:
(1) retail sales of tangible personal property by any shop or store operated by an
organization described in paragraph (4), paragraph (5) or paragraph (6) of subdivision (a)
of this section;
(2) sales of food or drink in or by a restaurant, tavern or other establishment
operated by an organization described in paragraph (1), paragraph (4), paragraph (5) or
paragraph (6) of subdivision (a) of this section, other than sales exempt under paragraph
(ii) of subdivision (d) of section eleven hundred five, from the taxes imposed hereunder,
unless the purchaser is an organization exempt under this section;
(3) sales of the service of providing parking, garaging or storing for motor
vehicles by an organization described in paragraph (4) or paragraph (5) of subdivision (a)

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of this section operating a garage (other than a garage which is part of premises occupied
solely as a private one or two family dwelling), parking lot or other place of business
engaged in providing parking, garaging or storing for motor vehicles; . . .
Section 529.1(g) of the Sales and Use Tax Regulations provides:
An officer, employee or member of any organization described in this Part may
not make tax exempt purchases or sales for the benefit of a nonexempt private entity. For
example, an officer, employee or member of an organization described in this Part who,
pursuant to law, acts in the capacity of a receiver to rehabilitate or liquidate a nonexempt
private entity or who purchases tangible personal property or services with the funds of
the nonexempt private entity is not an agency or instrumentality of the organization
described in this Part with respect to the exemptions from the sales and compensating use
tax.
Section 529.1(j)(7) of the Sales and Use Tax Regulations provides:
An exempt organization certificate applies only to the organization which
requested and was granted such exemption. The use of an exempt organization certificate
by any person or any organization that was not issued the exemption is a misuse of such
certificate. Such misuse can result in the revocation of the exempt status previously
granted to the organization.
Section 529.7(g)(3) of the Sales and Use Tax Regulations provides:
An exempt organization certificate may be revoked for any reason constituting
misuse of the exemption granted, or if it is discovered that the organization’s application
contained misleading or deceptive information, or if the organization has changed its
purposes, activities, or organizational structure without notifying the bureau as provided
by this subdivision. Where the Department of Taxation and Finance determines it to be
appropriate, for example in the case of fraud, intentional misuse and other similar
misuses, such revocation may be effective retroactively to the date of such misuse or
deception.
Section 529.7(h)(4) of the Sales and Use Tax Regulations provides:
Sales to any member, officer or employee of an exempt organization are subject
to the sales and use tax when the sales are for the personal use of the purchaser rather
than the organization.

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Opinion
Petitioner is a New York not-for-profit corporation under section 402 of the New York
Not-for-Profit Corporation Law. Petitioner was formed for the specific purpose of providing
construction services in connection with the building of low- to moderate-income housing
projects. The sole member of Petitioner is Housing Visions Unlimited, Inc. ("HVU"), a
New York not-for-profit corporation, which was formed to develop low- to moderate-income
housing projects. HVU and Petitioner are exempt from sales tax pursuant to section 1116(a)(4)
of the Tax Law.
In the typical project, the properties are owned by single-purpose, for-profit general
partnerships or limited liability companies of which HVU or one of its affiliated not-for-profit
entities serves as general partner or managing member. On most of these projects, after
construction has been completed, HVU or one of HVU's affiliated not-for-profit entities also
serves as the managing agent for the low-income rental units and retains Petitioner to provide
maintenance and repair services as necessary in connection with its management responsibilities.
Petitioner bills the property owner, a for-profit entity, for its services on an hourly basis. Any
materials or supplies that are needed on a specific project are purchased directly by the property
owner.
Many of the services Petitioner may be contracted to perform, such as routine painting;
electrical and plumbing repairs; repairs to the heating, ventilation, and air conditioning
equipment, etc., constitute the services of installing, maintaining, servicing, or repairing tangible
personal property subject to sales tax under section 1105(c)(3) of the Tax Law or the services of
maintaining, servicing, or repairing real property subject to tax under section 1105(c)(5) of the
Tax Law. Pursuant to section 1116(a) of the Tax Law, exempt organizations are granted
exemptions from sales tax on their purchases of tangible personal property and services.
However, exempt organizations described in section 1116(a)(4) are required to collect sales tax
on their sales of tangible personal property at the organization’s shop or store, meals at a
restaurant or tavern operated by the exempt organization, and parking and garaging of motor
vehicles. See section 1116(b)(1), (2), and (3) of the Tax Law. The provisions of section 1116(b)
of the Tax Law that an exempt organization is required to collect sales tax on these specified
sales do not require organizations exempt under section 1116(a)(4) to collect sales tax on their
sales of services subject to tax under sections 1105(c)(3) and 1105(c)(5) of the Tax Law. See
Alfred University, Adv Op Comm Tax & Fin, July 24,1990, TSB-A-90(36)S. Thus Petitioner is
not required to collect sales tax on the receipts from its sales of maintenance and repair services.
It should be noted that, depending on the nature and extent of the work to be performed
and the reasons and necessity therefore, certain of the services performed by Petitioner, such as
replacing heating, ventilation, and air conditioning systems and replacing roofs, might constitute
capital improvements to real property. Services resulting in a capital improvement to real
property are not subject to sales tax. See sections 1105(c)(3)(iii) and 1105(c)(5) of the Tax Law.

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The above analysis assumes, without deciding, that in selling maintenance services to a
for-profit partnership Petitioner is not engaging in substantial non-exempt activities that would
be inconsistent with its exempt status under Internal Revenue Code section 501(c)(3) and section
1116(a)(4) of the Tax Law (see Better Business Bureau of Washington, D.C. v U.S., 326 US 279,
283 (1945) ["presence of a single [nonexempt] purpose, if substantial in nature, will destroy the
exemption regardless of the number or importance of truly [exempt] purposes."]). If the
performance of such services constitutes misuse of its exempt status, or Petitioner's application
for exempt status was otherwise misleading, Petitioner's exempt status may be revoked effective
retroactively to the date of such misuse or deception. (see section 529.7(g)(3) of the Sales and
Use Tax Regulations).

DATED: July 26, 2007

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.