We're building a new power plant and selling all its output to the New York Power Authority (NYPA) under a 20-year Tolling Agreement. NYPA will be a co-mortgagee alongside our private lenders on the plant's mortgage, with the right to foreclose if we default. Is that mortgage exempt from recording tax?

Plain-English summary

The petitioner, a Delaware LLC, planned to build and operate a new power plant converting natural gas owned by the New York Power Authority (NYPA) into electricity. Under a 20-year Tolling Agreement, the petitioner would sell 100% of the plant's output to NYPA (which would control all output decisions) in exchange for a conversion fee — part of NYPA's mission to relieve documented electricity shortages in the New York City area. The petitioner planned to fund much of construction through private lenders, secured by a mortgage on the plant. Separately, the Tolling Agreement required the petitioner to grant NYPA its own mortgage on the plant, securing the petitioner's Tolling Agreement obligations, with NYPA authorized to foreclose if the petitioner breached. These two mortgages would be combined, naming NYPA and a collateral agent for the private lenders as co-mortgagees, secured on a pari passu (equal-ranking) basis under an inter-creditor agreement.

Article 11 of the Tax Law (§ 253) taxes mortgage recording generally, and none of the statute's enumerated exemptions (§§ 252, 252-a, 253.3) applied here. But New York courts have long recognized common-law tax immunity for state agencies independent of any statute — taxing a mortgage held by a state agency is treated as an indirect tax on the agency, forbidden by its immunity (see Hotel Waldorf-Astoria Corp. v. State Tax Commission, where a $45 million mortgage held by the NYS Employees' Retirement System was MRT-exempt). This is codified in 20 NYCRR § 644.1(a)(1): recording is exempt where the mortgagor or mortgagee is a state agency/instrumentality/political subdivision, to the extent that entity is immune from taxation. NYPA is such an entity (Public Authorities Law § 1002).

The Department concluded the recording of the combined mortgage on the power plant — given to private lenders and NYPA as co-mortgagees — is exempt from MRT, conditioned on four facts all being true: all the plant's power is sold to NYPA; NYPA is a co-mortgagee (regardless of whether the others are private); NYPA has actual foreclosure rights if the petitioner defaults; and the mortgage genuinely furthers the plant's development and construction, including securing both the Tolling Agreement and the private construction financing.

What this means for you

Power plant developers financing NYPA-tolling projects

Structuring NYPA as a genuine co-mortgagee with real foreclosure rights — not just a nominal party — can extend mortgage recording tax exemption to the entire combined financing, including the portion securing private lenders.

Private lenders co-secured with NYPA or similar state authorities

Being a co-mortgagee alongside a tax-immune state agency doesn't disqualify the instrument from exemption, but the exemption depends on the state agency's role being real and substantive (actual foreclosure rights, genuine project nexus) — not merely nominal.

Common questions

Q: Does the exemption require that ALL the plant's output go to NYPA?
A: Yes — this was one of the four conditions the Department specified; a plant selling only part of its output to NYPA might not qualify on these same terms.

Q: Does NYPA need to be the sole mortgagee?
A: No — being a co-mortgagee alongside private lenders is fine, as confirmed here and in the companion opinion TSB-A-11(1)R for a NYPA transmission system.

Q: Can another power developer rely on this specific opinion for a similar deal?
A: No. It binds the Department only as to this petitioner and these facts, though the Department applied the same reasoning again in TSB-A-11(1)R for a related NYPA transmission project.

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law §§ 252, 252-a, 253.3 (enumerated statutory exemptions, none applicable)
• 20 NYCRR § 644.1(a)(1) (common-law state-agency/instrumentality/political-subdivision immunity codified)
• Public Authorities Law § 1002 (NYPA as a body corporate and politic, political subdivision of the state)
• Public Authorities Law § 1001-a (NYPA mandate expanded to cover NYC-area electricity production)

Case law and prior opinions cited:

• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330 (3d Dep't 1982); City of New York v. Tully, 88 A.D.2d 701 (3d Dep't 1982) (common-law state-agency immunity doctrine)
• 1982 Opinion of the State Comptroller No. 82-188 (industrial development agency legal-title mortgages exempt)
• TSB-A-93(4)R, TSB-A-2(6)R (NYS Urban Development Corporation); TSB-A-02(6) (Port Authority) — prior opinions applying the same immunity principle

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a09_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(3)R
Mortgage Recording Tax
August 18, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M090311A

The Petitioner, name redacted (a Delaware limited liability company), asks whether the
mortgage recording taxes (MRTs) imposed by Article 11 of the Tax Law and Chapter 26 of the New York
City Administrative Code are due upon the recording of a mortgage on Petitioner’s new electric generating
power plant. The mortgage will secure both private-party lenders that provide capital to construct the plant
and Petitioner’s obligations to the Power Authority of the State of New York (NYPA) under a Tolling
Agreement to sell to NYPA all the power generated by the plant.
Answer: If (1) all power generated by the power plant will be sold to NYPA, (2) NYPA is a comortgagee on the mortgage (whether or not the other co-mortgagee or co-mortgagees are private entities), (3)
NYPA has authority under the terms of the mortgage to foreclose on the power plant in the event that
Petitioner’s obligations are breached, and (4) the mortgage is entered into in furtherance of the development
and construction of the Power Plant, including, without limitation, to secure the obligations of Petitioner
under the Tolling Agreement and to secure loans made by private lenders to Petitioner to fund the
development and construction of the power plant, the recording of the mortgage will be exempt from the
MRTs.
Facts
Petitioner plans to construct and operate a new power plant to convert natural gas owned by NYPA
into electricity for distribution by NYPA. Pursuant to a Tolling Agreement signed by Petitioner and NYPA,
all the power from the new plant will be sold by Petitioner to NYPA for 20 years. Petitioner will be paid a
fee for converting natural gas into electricity for NYPA which will control all the decisions with respect to
the output of the plant.
NYPA is “a body corporate and politic, a political subdivision of the state [of New York], exercising
governmental and public powers….” (Section 1002 of the Public Authorities Law.) As such, NYPA is
generally exempt from state and local taxes imposed in the State of New York. NYPA was originally
established to provide power from hydroelectric facilities along the Niagara and St. Lawrence waterways.
When the New York Legislature found that there was a severe shortage of electricity in New York City,
NYPA’s mandate was expanded to cover the production of electricity in the New York City area (Section
1001-a of the Public Authorities Law). As part of its obligation to alleviate the power shortages in the
New York City area, NYPA entered into the Tolling Agreement with Petitioner.
Petitioner will fund a significant portion of the cost to develop and construct the power plant by
borrowing from private lenders. The debt will be secured by, inter alia, a mortgage on the power plant. The
Tolling Agreement provides that Petitioner will grant NYPA a mortgage on the power plant to secure
Petitioner’s obligations under the Tolling Agreement. The mortgage states that NYPA may foreclose on the
power plant if Petitioner breaches its obligations under the Tolling Agreement. The mortgage to NYPA will
be combined with the mortgage to the lenders. Petitioner and the lenders will be secured on a pari passu
basis, and there will be an inter-creditor agreement between the parties governing their respective rights.

-2-

TSB-A-09(3)R
Mortgage Recording Tax
August 18, 2009

When the mortgage is granted by Petitioner, it is anticipated that NYPA and a collateral agent for the lenders
will be named as co-mortgagees.
Analysis
Article 11 of the New York State Tax Law imposes taxes on the recording of mortgages on real
property, based on the principal debt or obligation secured by the mortgage being recorded. Tax Law §253. The
mortgage recording tax statute enumerates certain exemptions (Tax Law §§252, 252-a, 253.3), none of which is
applicable here, but some other exemptions arise under the common law. It is well established that State agencies
enjoy immunity from taxation, independent of the statutory exemptions, for property used in the public interest,
on the theory that imposition of a tax on a mortgage held by a State agency is tantamount to a tax on the
agency itself in violation of its immunity from taxation.1 This principle has been applied in exempting from
the mortgage recording tax the recording of mortgages on property for which the legal title is held by an
industrial development agency and the beneficial ownership is held by a non-exempt private party. See 1982
Opinion of the State Comptroller No. 82-188, p 240. In Hotel Waldorf-Astoria Corp. v. State Tax
Commission2, the Court concluded that a $45 million mortgage secured by the Waldorf-Astoria hotel was
exempt from the mortgage recording tax because the mortgagee (the New York State Employees’ Retirement
System) was a New York State agency. The court stated: “as a State agency, the Retirement System enjoys an
immunity from taxation independent of the statutory exemptions listed in Section 252 of the Tax Law.” The
MRT regulations follow this principle: Where the mortgagor or mortgagee is New York State or any of its
agencies, instrumentalities, or political subdivisions, the recording of a mortgage is exempt to the extent
the New York State entity is immune from such taxation. 20 NYCRR §644.1(a)(1).
We conclude that the recording of a mortgage on Petitioner’s power plant, given to private lenders
and NYPA as co-mortgagees, is exempt from the New York State MRTs.

DATED: August 18, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

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.

1

See also, City of New York v. Tully, 88 A.D.2d 701, 451 N.Y.S.2d 265 (3d Dept. 1982) (companion case to Hotel
Waldorf Astoria Corp. supra), TSB-A-93(4)R (NYS Urban Development Corporation); TSB-A-2(6)R (NYS Urban
Development Corporation); TSB-A-02(6) (Port Authority).
2

86 A.D.2d 330, 334; 451 N.Y.S.2d 261 (1982).