Does the reduced residential sales-tax rate on energy apply to a homeowners association's energy used to maintain development common areas?

Plain-English summary

Windsor Square Homes Association — a homeowners association for 136 homeowners, incorporated under New York's Membership Corporation Law — asked whether the energy sources and services it buys to maintain the development's common areas qualify for the reduced residential sales-tax rate. The association owns and maintains the common areas (streets, private drives, pedestrian malls, play areas, a clubhouse, a swimming pool, and other recreational facilities) for the common use and enjoyment of the owners; each owner's right to use them passes with title to the lot. The development is restricted to residential dwellings, and no business activities are allowed.

The Department's answer, under Tax Law § 1105-A and Regulation § 527.13:

• There is a reduced rate for residential energy. Section 1105-A reduces the four-percent statewide sales and use tax rate on energy sources (fuel oil, coal, wood, propane, natural gas, steam, and gas/electric/steam services) when used for residential purposes. Energy used exclusively for residential purposes gets the reduced rate without certification.
• Common areas are social/athletic, not residential. Following Merrick Estates Civic Association v. State Tax Commission (65 A.D.2d 669) and Stratford RP, Inc. (TSB-A-87(40)S), the Department held that common areas like pools, tennis courts, recreational areas, roadways, and parking are used for social and athletic purposes — not residential ones.
• Result: the § 1105-A reduced residential rate does not apply to the association's energy for these common-area facilities. That energy is taxed at the full statewide rate.

What this means for you

Homeowners associations: common-area energy is taxed at the full rate

If your HOA buys gas, electric, or other energy to run shared amenities — pools, clubhouses, roads, recreation areas — that energy generally doesn't qualify for the reduced residential rate. Budget for the full statewide sales/use tax on it.

"Residential" means the place of abode, not the whole development

The reduced rate turns on energy used as a place of abode. Shared recreational and social facilities, even in a residential subdivision, are treated as social/athletic use — a different category from residential.

The reduced rate still applies to the homes themselves

This opinion is about the association's common-area energy. Energy used in the homeowners' own residences for residential purposes can still qualify for the reduced § 1105-A rate.

Accountants and tax professionals

The Department applied the Merrick Estates / Stratford RP line, which characterizes homeowner-association common facilities as social/athletic, to deny the § 1105-A residential-rate reduction for common-area energy under Regulation § 527.13.

Common questions

Q: Does an HOA get the reduced residential energy rate for its common areas?
A: No. Energy used to maintain common areas — pools, clubhouses, roads, recreation areas — is taxed at the full statewide rate, because those areas are used for social and athletic purposes.

Q: Why aren't the common areas "residential"?
A: Under Regulation § 527.13 and the Merrick Estates / Stratford RP decisions, shared recreational and social facilities are treated as social/athletic use, not as a place of abode.

Q: Do individual homeowners still get the reduced rate?
A: Yes, for energy used for residential purposes in their own homes. This opinion addresses only the association's common-area energy.

Q: Does it matter that the development is deed-restricted to residential use?
A: No. Even in a residential subdivision, the shared common-area facilities are treated as social/athletic, so their energy doesn't get the reduced residential rate.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105-A (reduction in the statewide sales/use tax rate on energy sources and services used for residential purposes)
• Sales and Use Tax Regulations § 527.13 (certain energy sources and services; definitions of residential, nonresidential, and common area)
• Tax Law §§ 1105(a), 1105(b), 1110(a) (statewide sales and use tax rates)
• Matter of Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 A.D.2d 669; Stratford RP, Inc., Adv. Op. Comm. T&F, Oct. 29, 1987, TSB-A-87(40)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_34s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (34)S
Sales Tax
April 16, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S911002A

On October 2, 1991, a Petition for Advisory Opinion was received from Windsor Square
Homes Association, 130 Linden Oaks Drive, Suite A, Rochester, New York 14625.
The issue raised by Petitioner, Windsor Square Homes Association, is whether the charges
for energy sources and services used by Petitioner to maintain common areas in a residential housing
development are subject to sales and compensating use taxes.
Petitioner is an organization of homeowners which is the vehicle to provide for the orderly
management and maintenance of common areas and facilities belonging to 136 homeowners.
Petitioner was incorporated on August 24, 1970 pursuant to the Membership Corporation Law of
the State of New York.
One of the purposes of the Petitioner is "To own, operate, maintain, preserve and provide
architectural control on a non-profit basis, the resident lots and common areas of the Windsor Square
development exclusively for the benefit of its members." It is further noted that, ". . .the corporation
shall not conduct or carry on any activities not permitted to be conducted or carried on by an
organization exempt under Section 501(c)(7) of the Internal Revenue Code. . ."
The Declaration of Covenants, Conditions and Restrictions under which the Petitioner must
operate limits members of the Petitioner to those who are owners of a lot and states that,
"Membership shall be appurtenant to and may not be separated from ownership of the lot." Further,
Section 1, Article VIII of the Covenants states in part, "Said property is hereby restricted to
residential dwellings for residential use." Section 5 of that same Article states in part, "No business
activities or any kind whatever shall be conducted in any building or in any portion of said Property."
The Covenants of Petitioner define the "Common Area" to mean "all real property and
improvements thereon owned by the Association for the common use and enjoyment of the owners."
The common area includes all streets and private drives, pedestrian malls, play areas, clubhouse and
other recreational facilities including the swimming pool and related equipment. The right and
easement of enjoyment to the common area is appurtenant to and passes with the title to every
homeowner. The common area is an extension of the homeowner's held in common.

TP-(9/88)

-2­
TSB-A-92 (34)S
Sales Tax
April 16, 1992

Section 527.13 of the Sales Tax Regulations provides, in part, as follows:
§527.13 Certain energy sources and services
(a)

Reduction in rate

(1)
Section 1105-A of the Tax Law provides for a reduction in the four-percent statewide sales
tax rate imposed under sections 1105(a) and 1105(b) of the Tax Law and in the four-percent
statewide compensating use tax rate imposed under section 1110(a) of the Tax Law, as set forth in
subdivision (c) of this section, on the receipts from every sale, other than for resale, used for
residential purposes of:
(i)

fuel oil (except diesel motor fuel);

(ii)

coal;

(iii)

wood (for heating purposes only);

(iv)

propane (except when sold in containers of less than 100 pounds);

(v)

natural gas;

(vi)

steam; and

(vii) gas, electric and steam services.
For purposes of this regulation, the term energy sources is used to describe the above mentioned
tangible personal property and services.
*
(d)

*

*

Definition

(1)
The term residential purposes means any use of a structure or part of a structure as a place
of abode, maintained by or for a person, whether or not owned by such person, on other than a
temporary or transient basis with the exclusion of accommodations subject to tax under subdivision
(e) of section 1105 of the Tax law.
(2)
The term nonresidential purposes means any use other than for residential purposes, as
defined in paragraph (1) of this subdivision, including any use in the conduct of a trade, business or
profession, whether such trade, business or profession is carried on by the owner of the structure or
some other person.

-3­
TSB-A-92 (34)S
Sales Tax
April 16, 1992

(3)
The term common area means any area of the premises of a structure used
without distinction for both residential and nonresidential purposes.
(e)

Certification and allocation

(1)
Purchases of energy sources used exclusively for residential purposes shall
receive the reduced tax rate without the necessity of certification. (emphasis added)
In the Matter of Merrick Estates Civic Association, Inc. v. State Tax Commission, 65 AD2d
669 the Court held that where residents of a particular residential section formed a corporation in
order to construct a community swimming pool and related facilities, where membership was limited
to homeowners living in defined residential sections, that the use of the facilities was deemed
"social" and, thus, sales tax could be imposed upon dues paid to a social club. (emphasis added)
Moreover, in Stratford RP, Inc., Adv Op Comm T&F, October 29, 1987, TSB-A-87(40)S the
Commissioner advised that common areas, such as tennis courts, recreational areas, roadways and
parking areas owned by the Stratford Green Homeowners Association were held to be used for social
and athletic purposes. (emphasis added)
In the instant case all the common areas which includes the streets and private drives,
pedestrian malls, play areas, clubhouse, swimming pools and other recreational facilities and related
equipment maintained by Petitioner are used for social and athletic, rather than residential purposes.
Merrick Estates Civic Association, Inc. v. State Tax Commission, supra, and Stratford RP, Inc.,
supra. Therefore, pursuant to Section 527.13 of the Sales and Use Tax Regulations a reduction in
the four-percent statewide sales tax rate provided by Section 1105-A of the Tax Law for structures
used exclusively for residential purposes does not apply to the charges for energy sources and
services used by Petitioner in connection with the aforesaid common area facilities and related
equipment.

DATED: April 16, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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