Is equipment installed at an IDA-financed facility exempt from sales/use tax when purchased as the IDA's agent with title passing to the IDA?

Plain-English summary

American Linen Supply Co. operates a Buffalo facility that it renovated in 1978 using industrial revenue bond financing through the Erie County Industrial Development Agency (IDA). Under that lease, tangible personal property at the facility became the IDA's property, and replacement equipment is to be acquired in the IDA's name. In 1986, American Linen installed a new wash aisle, discontinued dry cleaning, removed two dry-cleaning machines, and — because removing them increased wastewater pollution — installed a Memtek wastewater treatment system as replacement equipment. It asked whether that system qualifies for the sales-tax exemption under Tax Law § 1116(a)(1).

The Department's holdings:

• IDAs are exempt public corporations. An IDA is a public corporation under 20 NYCRR § 529.2(a), and property purchased by (or for) it is exempt under Tax Law § 1116(a)(1). General Municipal Law § 874 makes an IDA's activities a governmental function exempt from taxation, and § 891-a establishes the Erie County IDA.
• IDA-financed project property is exempt (Wegmans). Under Wegmans Food Markets, Inc. v. Department of Taxation and Finance, no sales or use tax is imposed on tangible personal property incorporated into or used within an IDA-financed project — whether or not it keeps its identity or becomes part of the real property — so long as it becomes the property of the IDA (and regardless of whether IDA bond proceeds or other funds paid for it).
• So the wastewater system is exempt — if two conditions hold. American Linen's purchase and/or installation of the wastewater treatment system is exempt from New York State and local sales and use tax provided that (1) the system was purchased by American Linen as agent of the Erie County IDA, and (2) title to the equipment was transferred to the IDA under Article VIII, § 8.10 of the lease.
• If title stays with the company, the tax applies. If the equipment was installed so that it did not become part of the real property and title remained with American Linen (under Article VI, § 6.2 of the lease) rather than passing to the IDA, then American Linen is liable for sales or use tax on the total cost of the equipment, including any installation charge.

What this means for you

An IDA deal can make equipment purchases sales-tax exempt

Because an IDA is an exempt public corporation, property bought for the IDA and incorporated into an IDA-financed project escapes sales and use tax — a significant benefit of industrial development agency financing. This holds even for replacement equipment acquired years after the original bond deal, as the lease here allowed.

The exemption hinges on agency + title passing to the IDA

Two things must actually happen: the company must buy the item as the IDA's agent, and title must transfer to the IDA. The exemption follows the IDA's ownership. Wegmans confirms it doesn't matter whether the property stays movable or becomes part of the building, or whether bond proceeds or company funds paid for it — what matters is that it becomes IDA property.

If title stays with you, you owe the tax — including installation

The same lease can let a company retain title to equipment it installs (and keep it out of the real property). If that path is taken, the exemption is lost and the company owes sales/use tax on the full cost of the equipment plus installation. Documenting agency and the transfer of title to the IDA is what preserves the exemption.

Keep the paperwork

For government/IDA contracts, the signed contract can itself be proof of exempt status (20 NYCRR § 541.3(a)), and IDAs are expressly recognized as able to purchase exempt (20 NYCRR § 529.2(a)). Records identifying the equipment as the IDA's (per the lease) are what back up the exemption on audit.

Common questions

Q: Is equipment for an IDA-financed facility automatically exempt from sales tax?
A: Not automatically. It's exempt only if it's purchased as the IDA's agent and title passes to the IDA. Meet both, and it's exempt (Tax Law § 1116(a)(1); Wegmans).

Q: Does it matter that this was replacement equipment installed years later?
A: No. The lease allowed substituting replacement equipment, and the exemption still applies as long as the agency and title-transfer conditions are satisfied.

Q: What if the company keeps title to the equipment?
A: Then the exemption doesn't apply. If the item didn't become part of the real property and title stayed with the company, it owes sales/use tax on the total cost, including installation.

Q: Does it matter whether bond proceeds or the company's own money paid for it?
A: No. Under Wegmans, the funding source doesn't matter — what matters is that the property becomes the IDA's.

Citations and references

Statutes and regulations:

• Tax Law § 1116(a)(1) — exempts the State, its agencies, instrumentalities, and public corporations (including IDAs) as purchaser/user.
• Tax Law § 1101(b)(4), (b)(5) — retail sale to a contractor improving real property; definition of sale.
• Tax Law § 1105(a), (c)(3), (c)(5); § 1110 — tax on tangible personal property, installation/servicing services, and compensating use tax (the general rules that would otherwise apply).
• Tax Law § 1115(a)(15), (a)(16) — exemptions for property becoming an integral component part of an exempt organization's real property.
• 20 NYCRR § 529.2(a) — a public corporation is one created by an act of the Legislature for a public purpose; IDAs may purchase exempt.
• 20 NYCRR § 541.3(a) — a contract signed by a § 1116(a)(1) government entity is sufficient proof of exempt status.
• General Municipal Law § 874 — an IDA performs a governmental function and pays no taxes; § 891-a establishes the Erie County IDA.

Case applied:

• Wegmans Food Markets, Inc. v. Department of Taxation and Finance, 126 Misc 2d 144, aff'd 115 AD2d 962, lv denied 67 NY2d 606 — no sales/use tax on property incorporated into an IDA-financed project that becomes IDA property.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_56s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (56)S
Sales Tax
August 15, 1991

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910422A

On April 22, 1991, a Petition for Advisory Opinion was received from American Linen
Supply Co., 8 Lord Street, Buffalo, New York 14240.
The issue raised by Petitioner, American Linen Supply Co., is whether the exemption from
sales tax provided under Section 1116(a)(1) of the Tax Law applies to a wastewater treatment system
which Petitioner installed as replacement equipment in lieu of dry cleaning equipment where such
replacement was made in accordance with the terms of an agreement previously entered into between
Petitioner and the Erie County Industrial Development Agency.
On July 1, 1978 Petitioner and the Erie County Industrial Development Agency entered into
an agreement to finance the renovation of the facility located at 8 Lord Street in Buffalo, New York.
The terms of this industrial revenue bond financing state that all tangible personal property located
at the facility on July 1st became the property of the Erie County Industrial Development Agency
and all equipment purchased to replace said property is to be in the name of the Erie County
Industrial Development Agency.
In 1986, a new wash aisle was installed at the Buffalo facility. At that time, the existing wash
aisle was replaced with new equipment. As a result of this new equipment, the plant decided to
discontinue dry cleaning activity and removed the two American Dry Cleaning machines, the
elimination of which dramatically increased the pollution emitted from the wastewater. To reduce
the increased wastewater pollution, Petitioner has installed a Memtek Wastewater System.
The Lease Agreement entered into between Petitioner and the Erie County Industrial
Development Agency, states, in part:
THIS LEASE AGREEMENT, dated as of July 1, 1978, by and between ERIE COUNTY
INDUSTRIAL DEVELOPMENT AGENCY, a public benefit corporation of the State of New York
having its office at 107 Delaware Avenue, Buffalo, New York 14202 (the "Issuer"), and
AMERICAN LINEN SUPPLY CO., a business corporation duly organized and existing under the
laws of the State of Delaware having its principal office at 47 South 9th Street, Minneapolis,
Minnesota 55402, and authorized to do business in the State of New York (the "Company").
Article IV, Section 4.1(e), of the Lease Agreement states, in part:
The Issuer confirms the appointment of the Company as its agent and the
Issuer hereby appoints the Company to continue to act as its true and lawful agent,
and the Company hereby accepts such agency, (i) to acquire, improve 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

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proper, all for improving the Project and acquiring and installing the Equipment 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 improvement of the Project and the acquisition and
installation of the Equipment from funds made available therefor in accordance with this Agreement
and (iv) to ask, demand, sue for, levy, recover and receive all such sums of money, debt, dues 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 improvement and completion of the Project
and the acquisition and installation of the Equipment, and to enforce the provisions of any contract,
agreement obligation, bond or other performance security.
Article VI, Section 6.1 of the Lease Agreement states, in part:
Maintenance and Modifications of Facility by Company.
*

*

*

(b) The Company from time to time may make any structural additions,
modifications or improvements to the Facility or any part thereof which it may deem
desirable. All such structural additions, modifications or improvements so made by
the Company shall become a part of the Facility. The Company agrees to deliver to
the Issuer all documents which may be necessary or appropriate to convey to the
Issuer title to, or other satisfactory interest in, such Property.
Section 6.2 of Article VI states, in part:
Installation of Additional Equipment. The Company from time to time may
install additional machinery, equipment or other personal property in the Facility
(which may be attached or affixed to the Facility), and such machinery, equipment
or other personal property shall not become, or be deemed to become, a part of the
Facility. The Company from time to time may remove or permit the removal of such
machinery, equipment and other personal property from the Facility and may create
or permit to be created any Lien on such machinery, equipment or other personal
property; provided that any such removal of such machinery, equipment or other
personal property shall not breach any agreement between the Company and the Bank
and shall not adversely affect the structural integrity of the Facility or impair the
overall operating efficiency of the Facility for the purposes for which it is intended
and provided further that if any damage is occasioned to the Facility by such removal,
the Company agrees to promptly repair such damage at its own expense.
Article VIII, Section 8.10 of the Lease Agreement states, in part:
Identification of Equipment. All Equipment which is or may become the
property of the Issuer pursuant to the provisions of this Agreement shall be properly
identified by the Company by such appropriate records, including computerized
records, as may be approved by the Bank. In this regard all improvements,

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machinery, equipment and other Property of whatever nature affixed or attached to
the Land or used by the Company in connection with the Land or the Project shall be
deemed presumptively to be owned by the Issuer, rather than the Company, unless
the same were installed by the Company and title thereto was retained by the
Company as provided in Section 6.2 of this Agreement and such improvements,
machinery, equipment and other Property were properly identified by such
appropriate records as were approved by the Bank.
Article IX, Section 9.2 of the Lease Agreement states, in part:
Removal of Equipment. (a) The Issuer shall not be under any obligation to
remove, repair or replace any inadequate, obsolete, worn out, unsuitable, undesirable
or unnecessary item of Equipment. In any instance where the Company determines
that any item of Equipment has become inadequate, obsolete, worn out, unsuitable,
undesirable or unnecessary, the Company may remove such item of Equipment from
the Facility and may sell, trade in, exchange or otherwise dispose of the same, as a
whole or in part, free from the Lien of the mortgage, provided that:
(1) Such removal will not materially impair the efficient operation of the
Facility for the purpose for which it is intended, and
(2) the Company shall either
(a) substitute for such removed item of Equipment and install
in the Facility other machinery, equipment or related property having
equal or greater value in the operation of the Facility (but not
necessarily having the same function), all of which substituted
machinery, equipment or related property shall be free of all Liens,
other than Permitted encumbrances, and shall become a part of the
Equipment. . .
Section 11O1(b)(4) of the Tax Law defines the term "retail sale" in part, as: "A sale of any
tangible personal property to a contractor, subcontractor or repairman for use or consumption in
erecting structures or buildings, or building on, or otherwise adding to, altering, improving,
maintaining, servicing or repairing real property, property or land. . .is deemed to be a retail sale
regardless of whether the tangible personal property is to be sold as such before it is so used or
consumed."
Section 11O1(b)(5) of the Tax Law defines "sale, selling or purchase" as: "Any transfer of
title or possession or both, exchange or barter, rental, lease or license to use or consume, conditional
or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement
therefor, including the rendering of any service, taxable under this article, for a consideration or any
agreement therefor."
Section 1105 of the Tax Law provides, in relevant part:

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Imposition of sales tax. - . . .there is hereby imposed and there shall be paid a tax of
four percent upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
(3) Installing tangible personal property. . .or maintaining, servicing or repairing
tangible personal property. . .not held for sale in the regular course of business,
whether or not the services are performed directly. . .or by any other means, and
whether or not any tangible personal property is transferred in conjunction therewith.
..
(5) maintaining, servicing or repairing real property, property or land, as such terms
are defined in the real property tax law, whether the services are performed in or
outside of a building, as distinguished from adding to or improving such real
property, property or land, by a capital improvement as such term. . .is defined in
paragraph 9 of subdivision (b) of section eleven hundred one of this chapter. . . .
Section 1110 of the Tax Law provides, in relevant part:
Except to the extent that property or services have already been or will be subject to
the sales tax under this article, there is hereby imposed on every person a use tax for
the use within this state. . ., (A) of any tangible personal property purchased at retail,
(B) of any tangible personal property manufactured, processed or assembled by the
user, (i) if items of the same kind of tangible personal property are offered for sale
by him in the regular course of business or (ii) if items are used as such or
incorporated into a structure, building or real property by a contractor, subcontractor,
or repairman in erecting structures or buildings, or building on, or otherwise adding
to, altering, improving, maintaining, servicing, or repairing real property, property
or land, as the terms real property, property or land are defined in the real property
tax law, if items of the same kind are not offered for sale as such by such contractor,
subcontractor or repairman or other user in the regular course of business, (C) of any
of the services described in paragraph (1) of subdivision (c) of section eleven
hundred five, and (D) of any tangible personal property. . .not acquired for purposes
of resale, upon which any of the services described under paragraphs (2) and (3) of
subdivision (c) of section eleven hundred five have been performed. . . .
Section 1115 of the Tax Law provides, in relevant part:
Exemptions from sales and use taxes.-­

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(a) Receipts from the following shall be exempt from the tax on retail sales imposed
under subdivision (a) of section eleven hundred five and the compensating use tax
imposed under section eleven hundred ten:
(15) Tangible personal property sold to a contractor, subcontractor or repairman for
use in erecting a structure or building of an organization described in subdivision (a)
of section eleven hundred sixteen, or adding to, altering, improving real property,
property or land of such an organization,. . .; provided, however, no exemption shall
exist under this paragraph unless such tangible personal property is to become an
integral component part of such structure, building or real property.
(16) Tangible personal property sold to a contractor, subcontractor or repairman for
use in maintaining, servicing or repairing real property, property or land of an
organization described in subdivision (a) of section eleven hundred sixteen,. . .;
provided, however, no exemption shall exist under this paragraph unless such
tangible personal property is to become an integral component part of such structure,
building or real property.
Section 1116 of the Tax Law provides, in relevant part:
(a). . .any sale. . .by or to any of the following or any use. . .by any of the
following shall not be subject to the sales and compensating use taxes imposed under
this article:
(1) The State of New York, or any of its agencies, instrumentalities, public
corporations. . .or political subdivisions where it is the purchaser, user or consumer,
or where it is a vendor of services or property of a kind not ordinarily sold by private
persons. . . .
Section 529.2(a) of the New York State Sales and Use Tax Regulations provides, in relevant
part:
(2) A public corporation as used in this section means any corporation created by an
act of the Legislature for a public purpose. . . .
Example

.
.
.
Industrial
Development Agencies are public
corporations and may purchase
tangible personal property exempt
from the sales and use taxes.

Section 541.3(a) of the Sales an Use Tax Regulations provides, in relevant part:
". . .When a contractor's customer is a governmental entity described in section
1116(a)(1). . .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.

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(1) Such governmental entities include:
(i). . .(c) industrial development authorities. . . ."
Section 874 of the General Municipal Law which sets forth the law with reference to
industrial development agencies provides:
(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.
Section 891-a of the General Municipal Law establishes the Erie County Industrial
Development Agency.
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 Food Markets, Inc. v. Department of Taxation and Finance (126 Misc 2d 144, aff'd
115 AD2d 962 lv denied 67 NY2d 606)
In the instant case, Petitioner removed two dry cleaning machines. As allowable pursuant to
Article IX, Section 9.2 of the Lease Agreement between Petitioner and the Erie Country Industrial
Development Agency, Petitioner elected to install a wastewater treatment system as replacement
equipment in lieu of replacing the two dry cleaning machines with equipment of a like nature.
Therefore, in accordance with the sections of law and regulations cited above and the
decision in Wegmans Food Markets, Inc. v. Department of Taxation and Finance, supra, Petitioner's
purchases and/or installation of the wastewater treatment system will be exempt from New York
State and Local Sales and Use Tax provided that such system was purchased by Petitioner as agent
of the Erie County Industrial Development Agency, and provided that title to such equipment was
transferred to the Erie County Industrial Development Agency in accordance with Section 8.10,
Article VIII of the Lease Agreement.

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However, it is noted that if such equipment was installed in a manner that did not result in
the equipment becoming part of the real property and if title to such equipment was not transferred
to the Erie County Industrial Development Agency but remained with Petitioner in accordance with
Section 6.2, Article VI of the Lease Agreement, Petitioner will be liable for sales or use tax on the
total cost of such equipment including any charge for installation.

DATED: August 15, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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