If my company submeters and bills tenants for the electricity they use, am I a vendor that must collect sales tax — and do I owe tax on electricity I buy but don't resell?

Plain-English summary

Owners & Tenants Electric Company Inc. is in the business of submetering electricity for landlords: it meters each commercial tenant's usage, bills the tenants, collects the money (net of sales tax), forwards it to the landlord or manager, and files the sales tax returns on its clients' behalf. It noted that discrepancies often arise among the amount metered for its own self-use, the amount metered to tenants, and the amount Consolidated Edison (the general supplier) charges. It asked whether it has a fiduciary (vendor) responsibility for the sales tax it collects, and whether use tax is due on any difference between what it buys and what it bills.

The Department held the firm is a vendor that must collect and remit sales tax — and must pay tax on the electricity it buys but does not resell.

• It is making taxable sales of electricity. Section 1105(b) taxes the receipts from every sale of electricity other than a sale for resale. When the firm bills tenants for the electricity they consume, those are taxable retail sales.
• That makes it a vendor. Under 20 NYCRR 526.10, a person making sales of taxable property or services is a "vendor." An independent contractor who represents a vendor is also a vendor, and both the representative and the principal are jointly responsible for collecting and remitting the tax and filing returns (526.10(a)(8), (f)). So the firm must collect and remit sales tax on what it bills.
• Unresold electricity is taxable to the firm. A purchase of a utility service that is not resold is a taxable retail purchase (20 NYCRR 527.2(e)). Where the firm buys more power than it resells to customers — its own self-use, or the metered shortfall — it must pay sales/use tax on that portion as the consumer.

What this means for you

Submetering and rebilling electricity is a taxable sale, not a pass-through. If your company meters tenants and bills them for their electricity use, you are selling electricity at retail under § 1105(b). You are a vendor: you must register, collect sales tax from the tenants, remit it, and file returns — and you can be held responsible for the tax even when you collect it "on behalf of" a landlord client.

Everyone in the chain can be on the hook. Because a representative and its principal are jointly responsible, both the submetering firm and the landlord/client it acts for can be liable for the tax that should have been collected. Handle the collection carefully rather than assuming the other party carries the risk.

You owe tax on the power you don't resell. Electricity you buy but keep for your own use — or that shows up as the gap between what the utility supplies and what you bill out — is a taxable purchase you must pay tax on as the end user.

Common questions

Q: We just collect the tax and pass it to the landlord. Are we still responsible?
A: Yes. As the vendor making the sale, you are responsible for collecting and remitting the tax, and you and your principal are jointly responsible. Passing the money along does not shift that duty.

Q: Do we owe tax on electricity we use ourselves or that we can't bill to a tenant?
A: Yes. Any electricity you purchase that is not resold to a customer is a taxable retail purchase, and you pay tax on it as the consumer.

Q: Is billing tenants for electricity a "sale" even though we're not the utility?
A: Yes. Reselling electricity you buy — including through submetering — is a taxable sale of electricity unless it is a genuine sale for resale by the buyer.

Citations and references

Statute and regulations:

• Tax Law § 1105(b) — taxes receipts from every sale, other than a sale for resale, of gas and electricity
• 20 NYCRR 526.10(a)(1)(i) — defines "vendor" as a person making taxable sales
• 20 NYCRR 526.10(a)(8), (f) — an independent contractor representing a vendor is a vendor; representative and principal jointly responsible
• 20 NYCRR 527.2(e) — a purchase of a utility service that is not resold is a taxable retail purchase

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_32s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-87(32)S
Sales Tax
September 21, 1987

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S870402A

On April 2, 1987, a Petition for Advisory Opinion was received from Owners & Tenants
Electric Company Inc., 71 West 23rd St., New York, New York 10010.
The issue raised is whether a firm which is engaged in the business of metering and billing
commercial tenants for their use of electricity has a fiduciary responsibility for the sales tax collected
by it. In addition, if there is a difference between the amount of utilities purchased and the amount
billed, Petitioner asks whether a use tax is due on such difference.
Petitioner meters electricity use for landlords. It bills the tenants, collects the monies and
forwards the monies to the landlord or management firm. These monies are net of sales tax and cover
the sales tax returns that Petitioner files on behalf of its clients. Many times there are discrepancies
between the amount metered for self-use of Petitioner, the amount that shows as being metered to
the tenants, and the amount metered or charged by Consolidated Edison, the general supplier of
utilities in Manhattan.
Section 526.10 of the sales tax regulations states that "The term 'vendor' includes: (1)(i) A
person making sales of tangible personal property or services, the receipts of which are subject to
tax." (20 NYCRR 526.10(a)(1)(i)) Additionally, an independent contractor who represents a vendor
of taxable goods or services is a vendor for sales tax purposes. Both the representative and his
principal are jointly responsible for the collection and remitting of the taxes and the filing of returns.
20 NYCRR 526.10(a)(8),(f).
Section 1105(b) of the Tax Law imposes a tax on "[t]he receipts from every sale, other than
sales for resale, of gas, electricity .... "(Emphasis supplied).
A purchase of a utility service which is not resold is subject to tax as a purchase at retail (20
NYCRR 527.2 (e)).
Accordingly, Petitioner is making sales which are subject to tax and is a vendor required to
collect and remit sales tax on such sales. In addition, Petitioner must pay the sales tax on those
purchases of utilities which are not resold to the customers of Petitioner's clients.

DATED: September 21, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)