Can an IDA developer's construction company buy materials and rent equipment tax-free as the IDA's subagent?

Plain-English summary

Farash Corporation is Max Farash's wholly owned construction company. The County of Monroe Industrial Development Agency (COMIDA) — a public benefit corporation under Article 18-A of the General Municipal Law — entered inducement agreements appointing Max Farash as COMIDA's agent to acquire, construct, and equip IDA-financed facilities (collectively, "Corporate Place"). Max Farash performed the work through Farash Corporation and says he designated it as his subagent to buy the materials and rent the equipment for the projects. Farash Corporation asked whether that subagency exempted its purchases and rentals from sales tax.

The Department worked through three questions:

1. Was COMIDA's agency to Max Farash general enough to be delegated? Yes. The contract (Section 4.1E) and COMIDA's resolution appointed Max Farash "to do all things which may be requisite or proper... with the same powers and the same validity as the Issuer could do if acting in its own behalf." Under New York agency law (2 NY Jur 2d §§ 147-148), that is a general, unrestricted agency, which carries an implied right to reconfer authority on subagents.

2. Would designating Farash Corporation as subagent equal a COMIDA appointment? Yes, in principle. Max Farash's designation of Farash Corporation as subagent "would be the legal equivalent of COMIDA's designating Petitioner as agent to act on COMIDA's behalf."

3. Were Farash Corporation's purchases and rentals therefore exempt? Unresolved — because it never proved the designation. Farash Corporation did not submit a copy of any letter from COMIDA or Max Farash actually designating it as agent or subagent for the project. Without that, the Department could not conclude Farash Corporation held subagent status, and so could not conclude its purchases were exempt (citing Kilby Brothers, Inc., TSB-A-85(51)S, and The Pioneer Group, Tax App. Trib., Oct. 4, 1990).

Why agency status matters so much. Under § 541.3, a contractor that is not an IDA agent can buy exempt only the tangible personal property that actually becomes an integral component of the IDA's real property — its own construction machinery, tools, office and consumable supplies, and equipment rentals are taxable. But a contractor that is a designated IDA agent can buy all of that — incorporated materials and the equipment, tools, and supplies needed to perform the contract — tax-free, by giving suppliers a Contractors' Exempt Purchase Certificate plus a statement from the IDA designating the purchaser as its agent on each purchase order, with every purchase order and invoice identifying the purchaser as agent of the IDA and naming the project.

What this means for you

Agency status is the difference between full and partial exemption

For IDA construction, being a designated agent of the IDA is enormously valuable: it extends the exemption beyond incorporated materials to the contractor's equipment rentals, tools, and consumable supplies. A non-agent contractor pays tax on all of those. If you're building an IDA project, getting properly designated as the IDA's agent (or subagent) is worth real money.

Paperwork is not a formality — it's the exemption

Farash Corporation may well have been a valid subagent as a matter of law, but it lost the ruling on documentation. The exemption depends on actual designation letters from the IDA (or its general agent) and the § 541.3 purchase-order/invoice procedures. Without the letter identifying you as the IDA's agent for the specific project, the Department will not treat your purchases as exempt — no matter how broad the underlying agency.

General agents can appoint subagents — if the grant is broad

The opinion confirms that a sufficiently general IDA agency ("all things requisite or proper... with the same powers as the Issuer") can be delegated to subagents. A narrowly worded, personal agency might not be delegable. Draft the IDA agreement to expressly contemplate subagents, and then paper each subagent designation.

Common questions

Q: Can an IDA's agent make a construction company its subagent for tax-exempt buying?
A: Yes, if the IDA's agency to the agent is general and unrestricted (as here). Such an agency may be reconferred on a subagent, who is then treated as if appointed by the IDA directly.

Q: Why weren't Farash Corporation's purchases held exempt?
A: It never submitted a designation letter from COMIDA or Max Farash naming it as agent/subagent for the project, so the Department couldn't establish its agency status or the exemption.

Q: What can an IDA agent buy tax-free that a non-agent can't?
A: A non-agent contractor is exempt only on materials that become part of the IDA's realty. A designated agent is also exempt on equipment rentals, tools, and consumable supplies used to perform the contract — following the § 541.3 certificate and purchase-order procedures.

Citations and references

Statutes and regulations:

• Tax Law § 1116(a)(1) — government/IDA purchases exempt
• Tax Law § 1115(a)(15) — materials becoming an integral part of an exempt organization's realty are exempt
• Tax Law § 1115(a)(16) — same for maintaining/servicing/repairing exempt-organization realty
• 20 NYCRR § 541.3 — contracts with exempt organizations; agency contracts and required documentation

Cited authority:

• Kilby Brothers, Inc., TSB-A-85(51)S (Aug. 29, 1985)
• The Pioneer Group, Dec. Tax App. Trib., Oct. 4, 1990
• 2 NY Jur 2d §§ 147-148 (delegation of an agent's authority to a subagent)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_52s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (52)S
Sales Tax
October 23, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900628C

On June 28, 1990 a Petition for Advisory Opinion was received from Farash Corporation,
919 Winton Road South, Rochester, New York 14618.
The issues raised by Petitioner, Farash Corporation, are:
1.
Whether the agency conferred on Max Farash by the County of Monroe Industrial
Development Agency (hereinafter COMIDA) is a general and unrestricted agency under the law of
the State of New York and, as such, appropriately includes the right to reconfer such agency on other
entities (subagents).
2.
Whether Max Farash's designation of Petitioner as subagent was the legal equivalent
of COMIDA's appointment of Petitioner to act on its behalf.
3.
Whether the agency conferred on Petitioner by Max Farash was sufficient to exempt
from sales tax Petitioner's purchases of materials and rentals of equipment in connection with the
COMIDA projects.
COMIDA, a public benefit corporation established pursuant to the authority of Article 18-A
of the General Municipal Law of the State of New York, entered into inducement agreements with
Max M. Farash whereby Max M. Farash, as agent of COMIDA, would acquire, improve (i.e.,
construct), and equip certain IDA facilities known collectively as Corporate Place. Corporate Place
was constructed in multiple phases; each under the auspices of COMIDA; each pursuant to its own
set of Agreements; and each financed by separate issues of Industrial Development Revenue Bonds.
The language pertaining to the creation of an agency between COMIDA and Max M. Farash for the
two Corporate Place phases at issue is the same.
Max M. Farash performed his contracts with COMIDA through Petitioner, his wholly owned
construction company.
Petitioner contends that Max M. Farash designated Petitioner as a subagent for purposes of
making the purchases of materials and rentals of equipment and machinery requisite for the
construction and equipping of the respective COMIDA facilities and Petitioner so acted. When
COMIDA entered into inducement agreements with Max M. Farash, individually, it did so with the
full expectation that Max M. Farash himself would not physically perform the labor on the projects.
It was contemplated that one or more entities to be selected by Max M. Farash would do so, but the
identities of those entities were unknown at the time the contracts were being finalized.
The relevant language which appears in the contracts between COMIDA and Max M. Farash
entitled Section 4.1, Construction of the Facility, states in part:
TP-9 (9/88)

-2­
TSB-A-90(52)S
Sales Tax
October 23, 1990

B.
Title to all materials, equipment, machinery and other items of Property intended to
be incorporated or installed in the Facility shall vest in the Issuer immediately upon deposit on the
Land or incorporation or installation in the Facility, whichever shall first occur. Farash shall execute,
deliver and record or file all instruments necessary or appropriate to so vest title in the Issuer and
shall take all action necessary or appropriate to protect such title against claims of any third Persons.
E.
The Issuer hereby appoints Farash its true and lawful agent, and Farash hereby accepts
such agency: (i) to acquire, construct and equip the Facility in accordance with the Plans and
Specifications, (ii) to make, execute, acknowledge and deliver any contracts, orders, receipts,
writings and instructions with any other Persons, and in general to do all things which may be
requisite or proper, all for the acquisition, construction and equipping of the Facility with the same
powers and with the same validity as the Issuer could do if acting in its own behalf, (iii) to pay all
fees, costs and expenses incurred in the acquisition, construction and equipping of the Facility from
funds made available therefor in accordance with this Lease Agreement and (iv) to ask, demand, sue
for, levy, recover and receive all such sums of money, debts due and other demands whatsoever
which may be due, owing and payable to the Issuer under the terms of any contract, order, receipt,
or writing in connection with the acquisition, construction and installation of the Facility, and to
enforce the provisions of any contract, agreement, obligation, bond or other performance security.
On May 23, 1985 a resolution was adopted by COMIDA which states in part:
Section 4. [Max M.] Farash is hereby appointed the true and lawful agent of the Issuer (i) to acquire,
construct and equip the Facility, (ii) to make, execute, acknowledge and deliver any contracts, orders,
receipts, writing and instructions, as the stated agent for the Issuer, and (iii) in general to do all things
which may be requisite or proper for completing the Facility, all with the same powers and the same
validity as the Issuer could do if acting in its own behalf. In addition, Farash is hereby authorized to
advance such funds as may be necessary to accomplish such purposes and, to the extent permitted
by law, the Issuer agrees to reimburse Farash therefor out of the proceeds of the Bonds.
Section 541.3 of the Sales and Use Tax Regulations states in part:
Contracts with exempt organizations. [Tax Law, §§1115(a)(15), (16), 1116(a). . .] (a)
Governmental entities. When a contractor's customer is a governmental entity described in
section 1116(a)(l). . .of the Tax Law, the contract signed by the government representative
and the prime contractor is sufficient proof of the exempt status of purchases made for such
contract.
(1)

Such governmental entities include:

(i). . .(c) industrial development authorities. . .

-3­
TSB-A-90(52)S
Sales Tax
October 23, 1990

(d)
Contracts with exempt organizations.
(1). . .all tangible personal property incorporated
into real property owned by a governmental entity. . .is exempt. . .
(2)
Purchase for contracts (other than agency contracts). (i) Tangible personal property sold
to a contractor, subcontractor, or repairman for use in erecting, repairing, adding to, or altering a
structure or building owned by an exempt organization, described in section 1116(a) of the Tax Law,
is exempt when it is to become an integral part of such structure or building.
(ii)
Purchases of tangible personal property incorporated into the real property of an exempt
organization by subcontractors and repairmen are accorded the same treatment as purchases by the
prime contractor.
(iv)
Except for agency contracts, contractors' purchases of construction supplies which do not
become part of an exempt organization's real property and are used or consumed by the contractor,
as well as purchases of taxable services, such as electricity used by the contractor, are subject to the
tax. . . .
The following type of property and services are representative, but not intended to be all-inclusive,
of contractor's purchases which are subject to tax, irrespective of whether the contractor has a time
and material, lump sum, or other type of contract (except agency contract), with an exempt
organization:
(a)

construction machinery and equipment, including rentals and repair parts;

(b)

contractors' office supplies;

(c)
contractors' supplies, tools, and miscellaneous equipment, whether purchased or rented,
including materials to make forms and scaffolding; and
(d)
any other items purchased or rented by a contractor for his use in performing the contract and
not incorporated into the realty.
(v)
Documents. (a) If the customer is a governmental entity, copies of signed contracts and
government purchase orders are sufficient evidence to establish the exempt status of the job between
the governmental entity and the prime contractor. With respect to the documents required between
a prime contractor and the subcontractors, a signed document between them which identifies the
project, location and exempt owner, will form the basis for tax exemption of tangible personal
property purchased for incorporation into the exempt project when purchasing such tangible personal
property for the exempt project, the contractor or subcontractor will issue a properly completed
contractor exempt purchase certificate to the supplier. . . .

-4­
TSB-A-90(52)S
Sales Tax
October 23, 1990

When an IDA enters into an agency contract with the prime contractor and all subcontractors,
all purchases for such contract are exempt if the property and services are purchased by the
contractor or subcontractor as agent for the IDA.
To establish that all purchases are made by the IDA, the IDA and the prime contractor must
enter into a written agency contract and the IDA must also issue letters designating the prime
contractor and the subcontractors as its agents for a particular project. The contractors then may
purchase material tax exempt as follows:
1.
Present the supplier with a properly completed Contractors' Exempt Purchase
Certificate and a statement from the IDA designating the purchaser as their agent with each purchase
order.
2.
Each purchase order must identify the purchaser as agent of the IDA and indicate the
project for which the purchase is made.
3.
All invoices and bills are to be addressed to the purchaser as agent of the IDA and
must also identify the project.
In consequence, unless Petitioner is appointed an agent of the IDA, it can purchase exempt
only tangible personal property which is actually transferred to the IDA and becomes an integral
component part of the building or the real property.
However, if Petitioner is designated an agent of the IDA, it can purchase tax exempt all
material incorporated in the capital construction, and it can also buy or rent equipment, tools and
supplies necessary for the performance of the contract without paying the sales tax by following the
procedures outlined in paragraphs 1, 2 and 3, above. Re Kilby Brothers, Inc., Adv Op, Comm of T
& F, August 29, 1985, TSB-A(51)S.
The authority conferred upon an agent by a principal and the right of the agent to reconfer
such authority upon a subagent is discussed in New York Jurisprudence 2d, in part, as follows:
"It is a general rule that in all cases of delegated authority where personal trust or confidence
is reposed in the agent, and especially where the exercise and application of the power is made
subject to his judgment or discretion, the authority is purely personal and cannot be delegated to
another unless there is a special power of substitution either express or necessarily implied.
Consequently, an agent cannot transfer the authority conferred upon him personally unless there is
some manifestation of consent from the principal to such delegation.
Even though an agent has the power to appoint a subagent he can delegate no greater
authority than he himself has. . . ." 2 NY Jur2d §147
"The limitations which are placed by the law upon the delegation of the authority of an agent
are not so strict as to preclude any delegation of authority. Thus, there are certain well-defined cases

-5­
TSB-A-90(52)S
Sales Tax
October 23, 1990
in which the agent may be deemed to have the authority to delegate his authority to another. A
principal may, of course, give express authority to his agent to delegate the authority conferred on
him, and in such a case, the delegation is valid and a subagent represents the principal as if directly
appointed by him. An authority to delegate an agent's authority may also be implied from the nature
of the agency. If the nature of the business, the conduct of which is committed to an agent, is such
that it must be contemplated by the principal that the authority conferred on the agent will be
exercised through subagents, a power in the agent to delegate that authority will be implied. Thus,
the rule that an agency to collect and receive money is one of personal trust and confidence, and
therefore not to be delegated for another without authorization, is applicable to special authority but
not to a general agency to take charge of and manage the business of a principal. Also, if a principal
has actual notice or knowledge of a delegation of authority by his agent and recognizes the subagent
as his agent it is ordinarily a ratification of the delegation and equivalent to an original authorization
thereof. Such a result is reached where the principal agrees to pay the subagent commissions or
accepts the benefits of a contract knowingly negotiated by him." 2 NY Jur2d §148
Since the relevant language in Section 4.1E of the contract between COMIDA and Max M.
Farash and in Section 4 of the resolution adopted by COMIDA on May 25, 1985 grants Max M.
Farash general authority "to do all things requisite or proper" for acquisition, construction, equipping
and completing the facility, "with the same powers and the same validity as the Issuer could do if
acting in its own behalf", the agency conferred on Max M. Farash by COMIDA is considered to be
a general and unrestricted agency, with the right to reconfer such authority to subagents such as the
Petitioner. 2 NY Jur2d §§147 & 148, supra.
Accordingly, Max M. Farash's designation of Petitioner as subagent would be the legal
equivalent of COMIDA's designating Petitioner as agent to act on COMIDA's behalf. However, as
Petitioner has not submitted a copy of a letter from either COMIDA or Max M. Farash designating
Petitioner as an agent or subagent for the particular project at issue, it cannot be resolved within the
context of this Advisory Opinion that Max M. Farash reconferred authority to Petitioner as a
subagent. Re Kilby Brothers, Inc., Adv Op, Comm of T & F, August 29, 1985, TSB-A-85(51)S,
supra; The Pioneer Group, Dec, Tx App Trib, October 4, 1990.
Moreover, as it cannot be resolved that Petitioner was granted subagent status, neither can
it be resolved within the context of this Advisory Opinion that Petitioner's purchases of materials and
rentals of equipment in connection with the COMIDA projects were exempt from tax.

DATED: October 23, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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