When a social services agency commits to pay a public-assistance client's electric bill directly, is the utility's sale of that electricity an exempt sale to a government agency?

Plain-English summary

This is a Modified Advisory Opinion that adds to an Advisory Opinion the Department issued to Consolidated Edison on August 31, 1987 — TSB-A-87(27)S, issued on the same Petition No. S870602C — by covering a factual situation not treated in the original: Con Edison's new "Direct Vendor" program with the New York State Department of Social Services. (The original opinion held that ordinary public-assistance sales, ordered by and billed to the individual recipients, remain taxable; this modification addresses a different structure.)

Under the program, an eligible public-assistance client gives Con Edison a form from the Human Resources Administration (HRA) in New York City, or the Westchester County Department of Social Services (WCDSS), committing that agency to pay the client's future utility bills. Con Edison flags the client's account; a notice (or a computer tape/bill) of the charges goes to the agency; and the agency pays Con Edison directly. The question: is that an exempt sale to a government agency?

The Department held these Direct Vendor sales are exempt under § 1116(a)(1).

• The exemption for government purchases. Tax Law § 1116(a)(1) exempts sales to the State and its agencies, instrumentalities, and political subdivisions.
• Order, bill, and payment all run through the agency. In each version of the program, the Department concluded that the order for service is deemed placed by an agency or instrumentality of the state or a political subdivision, the bill is deemed prepared in that agency's name, and payment is made by that agency.
• Result: exempt. Because the transaction is, in substance, a purchase by the government agency, it is exempt from sales tax under § 1116(a)(1).

What this means for you

A true "the agency pays the vendor directly" arrangement can be an exempt government purchase. When a government social services agency commits to pay a provider directly — ordering the service, being billed in its own name, and paying the bill itself — the sale can qualify as an exempt sale to that agency, even though the individual benefits from the service.

Structure is what carries the exemption. The exemption here rests on the agency, not the client, standing in as the purchaser across all three steps — order, billing, and payment. Programs where the client remains the buyer and merely receives a subsidy would not fit this holding.

This is a narrow modification. It resolves only the specific Direct Vendor fact patterns described. Other utility-assistance arrangements have to be measured against the same order/bill/payment analysis.

Common questions

Q: The client uses the electricity — how can it be a sale to the government?
A: Because under the program the agency orders the service, is billed in its own name, and pays the utility directly. The Department treats that as a purchase by the agency, which is exempt under § 1116(a)(1).

Q: Does a government subsidy paid to the client also make the utility's sale exempt?
A: Not under this opinion. The exemption here depends on the agency itself being the purchaser — ordering, being billed, and paying directly — not merely funding the client.

Q: What is a "Modified Advisory Opinion"?
A: It supplements an earlier Advisory Opinion — here, the August 31, 1987 Con Edison opinion — by adding analysis of facts the original did not address.

Citations and references

Statutes:

• Tax Law § 1116(a)(1) — exempts sales to the State and its agencies, instrumentalities, and political subdivisions
• Tax Law Articles 28 and 29 — state and local sales and use taxes

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_30_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(30.1)S
Sales Tax
February 8, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. S870602C

On August 31, 1987, an Advisory Opinion was issued to Consolidated Edison Company of
New York, Inc., 4 Irving Place, Room 208, New York, New York 10003. Such Advisory Opinion
is modified by appending thereto the following discussion of factual situations not treated therein.
The issue raised is whether Petitioner's sales of service to public assistance customers under
the alternative circumstances described herein constitutes a sale to an exempt organization for
purposes of the sales and use tax imposed under Articles 28 and 29 of the Tax Law.
Petitioner, in cooperation with the New York State Department of Social Services, has
instituted a new "Direct Vendor" program with regard to certain public assistance clients located in
New York City and Westchester County. Petitioner describes this program as follows:
A.

Direct Vendor Program - New York City
(1) An eligible client presents Petitioner with a form issued by the Human Resources
Administration, (hereinafter "HRA") which notifies Petitioner that HRA has made
a commitment to pay the future utility bills of the client.
(2) Petitioner encodes the client's account to specifically identify such client as a
Direct Vendor Customer.
(3) A notice is sent informing the client of both the cost and the amount of
consumption with a further statement that the bill will be paid by HRA.
(4) A computer tape with the same information is forwarded to HRA.
(5) HRA pays the bill directly to Petitioner.

B.

Direct Vendor Program - Westchester County
(1) An eligible client presents Petitioner with a form issued by Westchester County
Department of Social Services, (hereinafter "WCDSS") which notifies Petitioner that
WCDSS has made a commitment to pay the future utility bills of the client.
(2) Petitioner will encode the client's account to specifically identify such client as
a Direct Vendor Customer.
(3) A bill (rather than a tape) is forwarded to WCDSS.

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

-2­
TSB-A-87(30.1)S
Sales Tax
February 8, 1988
(4) WCDSS pays the bill directly to Petitioner.
Under each of the programs described in this modified advisory opinion, the order for
services is deemed to be placed by an agency or instrumentality of the state or a political subdivision
thereof. Similarly, the bill for services rendered is deemed to be prepared in the name of such an
agency or instrumentality. Finally, payment for the services is clearly made by such an agency or
instrumentality.
Accordingly, it is concluded that the transactions described in this modified advisory opinion
are exempt from sales tax pursuant to the exemption provided under section 1116(a)(1) of the Tax
Law.

DATED: February 8, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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