Are building materials and installation labor for a project financed by an Industrial Development Agency exempt from New York sales and use tax?

Plain-English summary

Casabonne Bros., Inc., a contractor, asked how much of the tangible personal property and labor going into a structure partly funded by an Industrial Development Agency (IDA) is exempt from New York's state and local sales and use taxes (Articles 28 and 29).

The Department held the project's materials and installation labor are exempt.

• An IDA is treated as a government body. General Municipal Law § 874 says an IDA carries out a public purpose, performs a governmental function, and "shall be required to pay no taxes or assessments" on property it acquires, owns, controls, or supervises.
• So no tax on the property built into the project. No sales or use tax is imposed on tangible personal property incorporated into or used within a project financed in whole or in part by industrial development bonds — whether or not the property keeps its own identity or becomes part of the real property, and regardless of whether it was bought with bond proceeds or other funds — as long as the property becomes the property of the IDA (Wegmans v. Dept. of Taxation and Finance, 126 Misc. 2d 144 (1984)).
• And no tax on the installation labor. Labor to install IDA-owned property in an IDA-financed project is not taxable — whether or not the installation is a capital improvement, and whether or not the services and property were bought with bond proceeds.

What this means for you

IDA involvement can lift sales tax off an entire project. When an Industrial Development Agency owns the property going into a job, the usual questions — capital improvement or not, bond money or other money, property that stays identifiable or gets absorbed into the building — stop mattering. The IDA's governmental exemption controls, and the materials and installation labor come in tax-free.

The key condition is IDA ownership. The exemption rides on the property becoming the property of the IDA. Projects are typically structured so the IDA holds title (often leasing back to the operating company). If the property never becomes the IDA's, this exemption doesn't apply.

Paperwork still matters. In practice, IDA-financed purchases are made using the agency's exemption documentation. Keep the IDA's exemption certificates and the agent/agency authorization with your records so you can support treating the purchases as exempt.

Common questions

Q: Does it matter whether the materials were bought with IDA bond money?
A: No. The opinion says the exemption applies regardless of whether the property was purchased with industrial development bond proceeds or by any other funds — what matters is that the property becomes the IDA's.

Q: What if the materials become part of the building and lose their identity?
A: Still exempt. The Department applied the exemption whether the property retains its identity or becomes part of the real property.

Q: Is the installation labor taxable if it's not a capital improvement?
A: No. Labor to install IDA-owned property in an IDA-financed project is not taxable whether or not the installation results in a capital improvement.

Citations and references

Statute:

• General Municipal Law § 874 — an IDA performs a governmental function and pays no taxes or assessments on property it acquires, owns, controls, or supervises; its bonds, income, and property are exempt from taxation (except transfer and estate taxes)
• Tax Law Articles 28 and 29 — the state and local sales and use taxes at issue

Case cited:

• Wegmans v. Dept. of Taxation and Finance, 126 Misc. 2d 144 (1984), aff'd, 497 N.Y.S.2d 790 (1985), lv. denied (April 1, 1986)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_20s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(20)S
Sales Tax
May 28, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S850603A

On June 23, 1985, a Petition for Advisory Opinion was received from Casabonne Bros., Inc.,
70 123rd Street, Troy, New York 12182.
The issue raised is the extent to which tangible personal property and labor costs are exempt
from the sales and use taxes imposed under Articles 28 and 29 of the Tax Law when incorporated
into a structure partially funded by an Industrial Development Agency (IDA).
Section 874 of the General Municipal Law provides with respect to Industrial Development
Agencies that "(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."
Accordingly, no sales or use tax is imposed upon any tangible personal property incorporated
into or used upon or within any project financed in whole or in part by industrial development bonds
whether such tangible personal property retains its identity or becomes part of the real property as
long as such tangible personal property becomes the property of the IDA and regardless of whether
such tangible personal property was purchased with industrial development bond proceeds or by any
other funds. (Wegmans v. Dept. of Taxation and Finance, 126 Misc. 2d 144 (1984), aff'd, 497 NY
Supp 2d 790 (1985), lv denied, NY (April 1, 1986).

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-86(20)S
Sales Tax
May 28, 1986

Moreover, labor costs for the services of installing tangible personal property owned by an
IDA in connection with an IDA financed project are not subject to tax, whether or not the installation
results in a capital improvement and whether or not such services and such property are actually
purchased with industrial development bond proceeds in whole or in part.

DATED: May 28, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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