Can an Industrial Development Agency's leasing subsidiary buy and lease equipment and resell services tax-free through resale certificates on the agency's behalf?

Plain-English summary

This ruling supplements a 1995 Advisory Opinion (TSB-A-95(36)S) describing a New York City Industrial Development Agency (IDA) project involving Donaldson, Lufkin & Jenrette, Inc. (DLJ). Like other IDA "PILOT"-style arrangements, the structure lets DLJ's business locations get the benefit of the IDA's own sales-tax-exempt status by having the IDA formally hold title to (or act as lessee of) equipment, software, and services used at DLJ's approved premises, with various DLJ-affiliated entities ("Group Agents," including a leasing subsidiary called "Leasing Corp.") acting as the IDA's disclosed agents when buying things.

DLJ asked the Department to confirm three new acquisition methods it wanted the flexibility to use, beyond what the original 1995 opinion described: (1) some equipment ("IDA-Equipment") can now be purchased directly by a Group Agent as the IDA's agent, rather than always being bought by Leasing Corp. for resale; (2) Leasing Corp. can lease equipment from outside vendors using a resale certificate (rather than buying it outright) and then re-lease that "DLJ-Leased Equipment" to the other Group Agents; and (3) Leasing Corp. can contract with outside vendors for installation, maintenance, and repair services (again using a resale certificate) and resell those services to the Group Agents. DLJ also wanted confirmation that services installing this personal property at its approved premises are covered.

The Department confirmed all of it, subject to the same conditions that run through every IDA-agent ruling of this kind: the IDA must remain the true owner, lessor, or lessee of the equipment, software, or Improvements at every step; every purchase invoice, lease, and service contract must disclose that the purchasing entity (Leasing Corp. or another Group Agent) is acting as the IDA's agent; and resale certificates must actually be used where Leasing Corp. is buying or leasing for resale rather than its own use. As in the companion Travelers Group ruling issued the same day (TSB-A-97(70)S), consumable parts replaced during normal operation (like a toner cartridge) stay taxable even within an otherwise exempt service contract, mixed taxable/exempt invoices must separately state the exempt portion or lose the exemption entirely, and computer software gets the same exemption regardless of delivery medium or which entity's equipment it runs on -- as long as the IDA remains its owner, lessor, or lessee. The same geographic limit applies too: property or software used outside New York City without the outside municipality's prior consent falls outside the IDA's authority and becomes taxable.

What this means for you

Companies restructuring how they acquire equipment and services through an IDA project

An IDA project's original agreement doesn't lock you into one acquisition method -- the Department will extend the same tax exemption to new procedures (direct agent purchases, resale-certificate leasing, resold service contracts) as long as the IDA's ownership/lessee status and the agency disclosure requirements are maintained at each step.

Leasing subsidiaries and intermediary entities in an IDA structure

A leasing company can buy or lease property and services from third parties using a resale certificate and pass them along to other project participants tax-free, provided it's genuinely reselling (not using the property itself) and each contract in the chain discloses the ultimate agency relationship back to the IDA.

Accountants and tax professionals structuring multi-entity IDA arrangements

This ruling (and its same-day companion, TSB-A-97(70)S) is a useful template for adding new acquisition/resale mechanics to an existing IDA sales-tax-exemption structure without needing to unwind the whole project -- but the recurring conditions (IDA ownership, disclosed agency, separately stated consumable/taxable charges, and the New York City territorial limit) apply regardless of which mechanic is used.

Common questions

Q: Can a leasing subsidiary buy equipment for an IDA project without paying sales tax if it later leases that equipment to someone else?
A: Yes, if it uses a properly completed resale certificate, genuinely leases the equipment on to another Group Agent rather than using it itself, and the IDA remains the ultimate owner, lessor, or lessee.

Q: Does adding a new acquisition method to an existing IDA project require a whole new sales-tax exemption approval?
A: Not necessarily -- as this ruling shows, the Department will confirm new procedures added to an existing project as long as they meet the same ownership, agency-disclosure, and documentation conditions as the original structure.

Q: Are installation, maintenance, and repair services covered the same way as equipment purchases in an IDA project?
A: Yes -- services can be resold through Leasing Corp. using a resale certificate the same way equipment can, and the final exempt charge to the Group Agents is protected as long as the agency relationship is disclosed and consumable-parts charges are separated out.

Q: Does this ruling apply to my company's IDA leasing or service-contract structure?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your project's own agreements and disclosures would need their own analysis.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_71s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(71)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S960529A

On May 29, 1996, the Department of Taxation and Finance received a Petition
for Advisory Opinion from Donaldson, Lufkin & Jenrette, Inc., 277 Park Avenue,
New York, NY 10172.
Petitioner, Donaldson, Lufkin & Jenrette, Inc., states the issues and facts
as follows.
A. (1) Whether purchases of IDA-Equipment by Leasing Corp. (or by one or
more of the other Group Agents), as agent for and on behalf of the IDA, pursuant
to the Exemption Letter and Project Agreement, will be exempt from the taxes
imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law.
(2) Whether Leasing Corp.'s lease of DLJ-Leased Equipment from third
parties for resale to the Group Agents will be exempt from taxes imposed under
sections 1105, 1107, 1109 and 1110 of the Tax Law.
(3)
Whether Leasing Corp.'s purchase of services under Service
Contracts from third parties for resale to the Group Agents will be exempt from
taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law.
(4)
Whether rent payments paid to Leasing Corp. for IDA-Equipment
by one or more Group Agents, as agents for and on behalf of the IDA, pursuant to
the Master Lease, Exemption Letter and Project Agreement will be exempt from the
taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax Law.
(5)
Whether rent payments paid to Leasing Corp. for DLJ-Leased
Equipment by one or more Group Agents, as agents for and on behalf of the IDA,
pursuant to the Master Lease, Exemption Letter and Project Agreement, will be
exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax
Law.
(6) Whether payments made to third parties or to Leasing Corp. under
Exempt Service Contracts by the Group Agents, as agents for and on behalf of the
IDA for the purchase of the service of installing tangible personal property or
of maintaining, servicing or repairing tangible personal or real property,
consisting of the Improvements, IDA-Equipment, Equipment, Leased Equipment, and
DLJ-Leased Equipment, with a useful life of one year or more, and which comprises
part of or is in use at the Approved Premises, including replacement parts, but
not including parts (e.g., a toner cartridge) that contain materials or
substances consumed in operating the property and that are replaced when the
part, material or substance is consumed, but not including contracts for general
services (e.g., janitorial services), will be exempt from the taxes imposed under
sections 1105, 1107, 1109 and 1110 of the Tax Law.

-2­
TSB-A-97(71)S
Sales Tax

B.
(1)
Whether the acquisition, leasing, subleasing, licensing or
sublicensing of Computer Software by the Group Agents, on behalf of and as agents
of the IDA, in an intangible medium (e.g., by electronic transmission) will be
exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110 of the Tax
Law.
(2)
Whether the acquisition, leasing, subleasing, licensing or
sublicensing of Computer Software by the Group Agents, on behalf of and as agents
of the IDA, for use in computers and other equipment not previously or
concurrently acquired by the Group Agents on behalf of and as agents of the IDA
will be exempt from the taxes imposed under sections 1105, 1107, 1109 and 1110
of the Tax Law.
(3) Whether payments made under Exempt Service Contracts entered into
by the Group Agents, on behalf of and as agents of the IDA, with respect to
Computer Software acquired, leased, subleased, licensed, or sublicensed by the
IDA (which Exempt Service Contracts may include the providing of upgrades to such
Computer Software) will be exempt from the taxes imposed under sections 1105,
1107, 1109 and 1110 of the Tax Law.
(4) Whether the determinations with respect to issues presented in
Advisory Opinion 95(36) or in this petition applicable to Equipment, IDAEquipment, Leased Equipment or DLJ-Leased Equipment which is not otherwise
expressly made applicable to Computer Software herein shall be applicable to
Computer Software provided such Computer Software is acquired in the same manner
as any other item of Equipment, IDA-Equipment, Leased Equipment or DLJ-Equipment.
This petition for advisory opinion concerns a transaction (the "Project")
between the New York City Industrial Development Agency (the "IDA") and
Donaldson, Lufkin and Jenrette, Inc. ("DLJ") and is intended to supplement
Donaldson, Lufkin & Jenrette, Inc., Adv Op Comm T & F, August 18, 1995, TSB-A­
95(36)S (the "Advisory Opinion 95(36)") wherein the Project is fully described.
Except where otherwise indicated, (i) each capitalized term used but not defined
herein shall have the meaning assigned to such term in Advisory Opinion 95(36)
and (ii) the statement of Facts in Advisory Opinion 95(36) is hereby incorporated
into this opinion by reference.
Acquisition Procedures
Certain aspects of the description of the Project in Advisory Opinion
95(36) require revision or clarification as a result of developments subsequent
to the date of Advisory Opinion 95(36). In particular, DLJ seeks the flexibility
to adopt three additional acquisition procedures, described below, which were not
contemplated at the time of Advisory Opinion 95(36). In addition, DLJ seeks to
clarify that installation procedures with respect to personalty will be exempt
from the New York State and New York City sales and use taxes.
First, certain purchases of equipment may not be made outright by Leasing
Corp. for re-lease, i.e., using a Resale Certificate. Instead, some purchases
of furniture, furnishings, machinery, equipment, or other personalty used at the
Approved Premises may be made by one or more Group Agents (directly or through
a contractor acting on behalf of and as agent of such Group Agents in their

-3­
TSB-A-97(71)S
Sales Tax

capacity as agents of the IDA), as agent(s) for and on behalf of the IDA pursuant
to the Exemption Letter and Project Agreement (such personalty, as purchased by
one or more Group Agents, as agents for and on behalf of the IDA, including any
replacements, enhancements and additions thereto, collectively, the "IDAEquipment"). Thus, the IDA will always acquire title to the IDA-Equipment. In
those cases where Leasing Corp. is the Group Agent purchaser of IDA-Equipment,
as agent for and on behalf of the IDA, such IDA-Equipment may be re-leased to one
or more of the other Group Agents, also as agents for and on behalf of the IDA
pursuant to the Exemption Letter and Project Agreement.
Second, DLJ may have Leasing Corp. enter into some or all equipment leases
with third parties in connection with the Project; such leases would not be
entered into by Leasing Corp. for its own use. In such cases, Leasing Corp. will
(i) lease personalty from third party vendors using a Resale Certificate (such
personalty leased from third party vendors by Leasing Corp. directly, including
any replacements, enhancements and additions thereto, collectively, the "DLJLeased Equipment") and (ii) re-lease such DLJ-Leased Equipment to the Group
Agents, as agents for and on behalf of the IDA, pursuant to the Master Lease,
Exemption Letter and Project Agreement.
Third, DLJ may have Leasing Corp. enter into some or all contracts for
installation, maintenance, service and repair services with third parties in
connection with the Project; such contracts would not be entered into by Leasing
Corp. for its own use.
In such cases, Leasing Corp. will (i) enter into
contracts with third parties using a Resale Certificate (a) for installation,
maintenance, service and repair services to tangible personal property
(consisting of the Equipment, the IDA-Equipment, the Leased Equipment and the
DLJ-Leased Equipment) and (b) for maintenance, service and repair services to
real property (consisting of the Improvements)(together, the "Service Contracts")
and (ii) resell the services which are the subject of such Service Contracts to
the Group Agents, as agents for and on behalf of the IDA, pursuant to the Master
Lease, Exemption Letter and Project Agreement (the contracts by which the Group
Agents purchase services from third parties or from Leasing Corp., on behalf of
and as agents of the IDA, with respect to installation, repair, service and
maintenance of the Equipment, the IDA Equipment, the Leased Equipment and the
DLJ-Leased Equipment, with a useful life of one year or more and the Improvements
in use at or comprising part of the Approved Premises, including replacement
parts, but not including parts (e.g., a toner cartridge) that contain materials
or substances consumed in operating the property and that are replaced when the
part, material or substance is consumed, but not including contracts for general
services (e.g., janitorial services) (together, the "Exempt Service Contracts")).
Fourth, in addition to the other services described in Advisory Opinion
95(36), the Project documents authorize the Group Agents to purchase installation
services, on behalf of and as agents of the IDA, with respect to personalty
(consisting of the Equipment, the IDA-Equipment, the Leased Equipment and the
DLJ-Leased Equipment) in use at the Approved Premises.

-4­
TSB-A-97(71)S
Sales Tax

Structure.
The following description clarifies how these changes will be incorporated
into the structure described in Advisory Opinion 95(36).
IDA-Equipment (i) One or more of the Group Agents, acting on behalf of and
as agent of the IDA (directly or through contractors acting on behalf of and as
agents of such Group Agents, in their capacity as agents of the IDA), will
purchase IDA-Equipment pursuant to the Exemption Letter and Project Agreement
and, where Leasing Corp. is the purchaser of such IDA-Equipment, Leasing Corp.
will lease the IDA-Equipment to the Group Agents, acting on behalf of and as
agents of the IDA, pursuant to the Master Lease, Exemption Letter and Project
Agreement for fair market value rent. (ii) The IDA will then lease such IDAEquipment back to the Group Agents pursuant to the Financing Lease for the Debt
Service Payments.
DLJ-Leased Equipment (i) Leasing Corp. will enter into leases for DLJLeased Equipment with third party vendors pursuant to a Resale Certificate and
then lease such DLJ-Leased Equipment to the Group Agents, acting on behalf of and
as agents of the IDA, pursuant to the Master Lease, Exemption Letter and Project
Agreement, for fair market value rent. (ii) The IDA will then lease such DLJLeased Equipment back to the Group Agents pursuant to the Financing Lease, for
the Debt Service Payments.
Service Contracts (i) Leasing Corp. will enter into Service Contracts with
third parties pursuant to a Resale Certificate and then resell the services which
are the subject of such Service Contracts to the Group Agents, acting on behalf
of and as agents of the IDA, pursuant to the Master Lease, Exemption Letter and
Project Agreement for the fair market value of such services. (ii) The IDA will
then sell the services which are the subject of such Service Contracts back to
the Group Agents pursuant to the Financing Lease for the Debt Service Payments.
Computer Software
As currently drafted, the Project documents do not authorize a sales tax
exemption for certain computer software subject to sales tax. For example, the
Exemption Letter authorizes exemption for computer software,
(only] if such software shall be in a tangible form (i.e.,
diskettes, magnetic tape, etc.) . . . and only if such software
shall be purchased concurrently with a computer which is being (or
shall previously have been) acquired or leased by the (IDA) pursuant
to this (Exemption Letter).
At DLJ's request, the IDA has agreed to amend the Project documents as
necessary to authorize the same exemption for computer software that is
determined through this petition to be available to the IDA under the applicable
law (pursuant to the Letter Agreement with Respect to Modifications to Sales Tax
Exemptions between the IDA and DLJ dated as of August 18, 1995.)

-5­
TSB-A-97(71)S
Sales Tax

Depending on the terms of the Project documents, Acquisitions in connection
with the Project could include computer software not limited as to any of the
following: (i) the medium by means of which conveyed (including tangible media,
e.g., computer disk, compact disc or magnetic tape, as well as intangible media,
e.g., electronic transmission), (ii) the kind of equipment for which acquired
(including computers, e.g., mainframe computers and peripherals, work stations,
personal computers or networks, as well as related equipment, e.g., modems,
printers, copiers, scanners, facsimile machines, equipment for video/multimedia
teleconferencing or other telecommunications equipment) and (iii) whether such
software is used on equipment in which the IDA has an interest (such computer
software as not so limited, including any replacements, enhancements and
additions thereto, collectively, "Computer Software"). Such Computer Software
will generally be acquired as Equipment, as Leased Equipment or as DLJ-Leased
Equipment.
Applicable Law and Regulations
Section 1101(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 (including, with respect
to computer software, merely the right to reproduce), 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 1101(b)(6) of the Tax Law defines "tangible personal property" as:
Corporeal personal property of any nature ... Such term shall also
include prewritten computer software, whether sold as part of a
package, as a separate component, or otherwise, and regardless of
the medium by means of which such software is conveyed to a
purchaser...
Section 1101(b)(14) of the Tax Law defines "prewritten computer software"
as:
Computer software (including prewritten upgrades thereof) which is
not software designed and developed by the author or other creator
to the specifications of a specific purchaser. The combining of two
or more prewritten computer software programs or prewritten portions
thereof does not cause the combination to be other than prewritten
computer software.
Prewritten software also includes software
designed and developed by the author or other creator to the
specifications of a specific purchaser when it is sold to a person
other than such purchaser.
Where a person modifies or enhances
computer software of which such person is not the author or creator
such person shall be deemed to be the author or creator only of such
person's modifications or enhancements. Prewritten software or a
prewritten portion thereof that is modified or enhanced to any
degree, where such modification or enhancement is designed and

-6­
TSB-A-97(71)S
Sales Tax

developed to the specifications of a specific purchaser, remains
prewritten software; provided, however, that where there is a
reasonable, separately stated charge or an invoice or other
statement of the price given to the purchaser for such modification
or enhancement, such modification or enhancement shall not
constitute prewritten computer software.
Section 1105 of the Tax Law provides, in relevant part:
...there is hereby imposed and there shall be paid a tax of four
percent upon:
(a) The receipts from every retail sale of tangible
property, except as otherwise provided in this article.
*
(c) The receipts from
following services:
*

*
every

*
sale,

*

personal

except

for

resale,

of

the

*

(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 ... this chapter. ...
Section 1107(a) of the Tax Law provides, in relevant part:
On the first day of the first month following the month in which a
municipal assistance corporation is created under article ten of the
public authorities law for a city of one million or more, in
addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten, there is hereby imposed ... within the
territorial limits of such city, and there shall be paid, additional
taxes, at the rate of four percent, which except as provided in
subdivision (b) of this section, shall be identical to the taxes
imposed by sections eleven hundred five and eleven hundred ten.
Such sections and the other sections of this article, including the
definition and exemption provisions, shall apply for purposes of the

-7­
TSB-A-97(71)S
Sales Tax

taxes imposed by this section in the same manner and with the same
force and effect as if the language of those sections had been
incorporated in full into this section and had expressly referred to
the taxes imposed by this section.
Section 1109(a) of the Tax Law provides, in relevant part:
In addition to the taxes imposed by sections eleven hundred five and
eleven hundred ten of this article, there is hereby imposed within
... the metropolitan commuter transportation district ... and there
shall be paid, additional taxes, at the rate of one-quarter of one
percent, which shall be identical to the taxes imposed by sections
eleven hundred five and eleven hundred ten of this article....
Section 1110 of the Tax Law provides, in relevant part:
(a) 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 (other than computer software
used by the author or other creator) 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 paragraphs (1), (7) and (8) of subdivision (c)
of section eleven hundred five, (D) of any tangible personal
property ... not acquired for purposes of resale, upon which any of
the services described in paragraphs (2), (3) and (7) of subdivision
(c) of section eleven hundred five have been performed ....
Section 1115(a)(28) of the Tax Law provides:
Computer software designed and developed by the author or creator to
the specifications of a specific purchaser which is transferred
directly or indirectly to a corporation which is a member of an
affiliated group of corporations within the meaning of subparagraph
six of paragraph (b) of subdivision seventeen of section two hundred
eight of this chapter except for clauses (ii) and (iii) of such
subparagraph that includes such purchaser, or to a partnership in
which such purchaser and other members of such affiliated group have
at least a fifty percent capital or profits interest (but only if
the transfer is not in pursuance of a plan having as its principal

-8­
TSB-A-97(71)S
Sales Tax

purpose the avoidance or evasion of tax under this article),
but in no case including computer software which is pre-written, as
defined in paragraph six of subdivision (b) of section eleven
hundred one of this article and available to be sold to customers in
the ordinary course of the seller’s business.
Section 1115(o) of the Tax Law provides:
Services otherwise taxable under subdivision (c) of section eleven
hundred five or under section eleven hundred ten shall be exempt
from tax under this article where performed on computer software of
any nature; provided, however, that where
such services are
provided to a customer in conjunction with the sale of tangible
personal property any charge for such services shall be exempt only
when such charge is reasonable and separately stated on an invoice
or other statement of the price given to the purchaser.
Section 1116(a) of the Tax Law provides, in relevant part:
... 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 526.6(c) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
(8) The resale exclusion also applies to a sale of service. Example
12: A jeweler sends a customer's watch to a repairman for servicing.
The charge by the jeweler to the customer is taxable. The charge to
the jeweler by the repairman is not taxable because the service was
purchased for resale by the jeweler.
Section 526.7(a) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
(1) The words sale, selling or purchase mean any transaction in
which there is a transfer of title or possession, or both, of
tangible personal property for a consideration.
(2) Among the transactions included in the words sale, selling, or
purchase are exchanges, barters, rentals, leases or licenses to use
or consume tangible personal property.

-9­
TSB-A-97(71)S
Sales Tax

Section 526.7(c)(2) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
Where a lease ... with an option to purchase has been entered into,
and the option is exercised, the tax will be payable on the
consideration given when the option is exercised, in addition to the
taxes paid or payable on each lease payment.
Section 526.8(c) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
Tangible personal property does not include:
(1)

real property; ....

Section 529.2(a) of the New York State Sales and Use Tax Regulations
provides, in relevant part:
*

*

*

A public corporation as used in this section means any
(2)
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 New York State Sales and 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.
(1)

Such governmental entities include:

(i) Pursuant to section 1116(a)(1) of the Tax Law the State of New
York, or any of its agencies, instrumentalities, public corporations
(including a public corporation created pursuant to agreement or
compact with another state or Canada), or political subdivisions.
This group includes, but is not limited to:
*

*

*

(c) industrial development authorities.
Section 854 of the General Municipal Law provides, in relevant part:
Definitions.
As used in this act, unless the context otherwise requires:

-10­
TSB-A-97(71)S
Sales Tax

*

*

*

(4)
"Project" - shall mean any land, any building or other
improvement, and all real and personal properties located within the
state of New York and within or outside or partially within and
partially outside the municipality for whose benefit the agency was
created, . . . provided, however, no agency shall provide financial
assistance in respect of any project partially outside the
municipality for whose benefit the agency was created without the
prior consent thereto by the governing body or bodies of all the
other municipalities in which any part of the project is, or is to
be, located.
Where a project is located partially within and
partially outside the municipality for whose benefit the agency was
created, the portion of the project outside the municipality must be
contiguous with the portion of the project inside the municipality.
*

*

*

(14)
"Financial assistance" - shall mean the proceeds of bonds
issued by an agency, straight-leases, or exemptions from taxation
claimed by a project occupant as a result of an agency taking title,
possession or control (by lease, license or otherwise) to the
property or equipment of such project occupant or of such project
occupant acting as an agent of an agency.
Section 858 of the General Municipal Law provides, in relevant part:
... [E]ach agency shall have the following powers:
*

*

*

(3)
To acquire, hold and dispose of personal property for its
corporate purposes;
*

*

*

(10) To acquire, construct, reconstruct, lease, improve, maintain,
equip or furnish one or more projects; ...
Section 862(2) of the General Municipal Law provides as follows:
(2)(a) Except as provided in paragraph (b) of this subdivision, no
financial assistance of the agency shall be provided in respect of
any project where facilities or property that are primarily used in
making retail sales to customers who personally visit such
facilities constitute more than one-third of the total project cost.
For the purposes of this article, retail sales shall mean: (i) sales
by a registered vendor under article twenty-eight of the tax law
primarily engaged in the retail sale of tangible personal property,
as defined in subparagraph (i) of paragraph four of subdivision (b)
of section eleven hundred one of the tax law; or (ii) sales of a
service to such customers.
Except, however, that tourism

-11­
TSB-A-97(71)S
Sales Tax

destination projects and projects operated by not-for-profit
corporations shall not be prohibited by this subdivision. For the
purpose of this paragraph, "tourism destination" shall mean a
location or facility which is likely to attract a significant number
of visitors from outside the economic development region as
established by section two hundred thirty of the economic
development law, in which the project is located.
(b)
Notwithstanding the provisions of paragraph (a) of this
subdivision, financial assistance may, however, be provided to a
project where facilities or property that are primarily used in
making retail sales of goods or services to customers who personally
visit such facilities to obtain such goods or services constitute
more than one-third of the total project cost, where (i) the project
occupant would, but for the assistance provided by the agency,
locate the related jobs outside the state, or (ii) the predominant
purpose of the project would be to make available goods or services
which would not, but for the project, be reasonably accessible to
the residents of the city, town, or village within which the
proposed project would be located because of a lack of reasonably
accessible retail trade facilities offering such goods or services,
or (iii) the project is located in a highly distressed area.
(c) With respect to projects authorized pursuant to paragraph (b)
of this subdivision, no project shall be approved unless the agency
shall find after the public hearing required by section eight
hundred fifty-nine of this chapter that undertaking the project will
serve the public purposes of this
article by preserving permanent, private sector jobs or increasing
the overall number of permanent, private sector jobs in the state.
Where the agency makes such a finding, prior to providing financial
assistance to the project by the agency, the chief executive officer
of the municipality for whose benefit the agency was created shall
confirm the proposed action of the agency.
Section 874(1) and (2) of the General Municipal Law provides as follows:
(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.

-12­
TSB-A-97(71)S
Sales Tax

Section 917-a of the General Municipal Law establishes the New York City
Industrial Development Agency as an industrial development agency in general
having the powers of industrial development agencies under Article 18-A of the
General Municipal Law.
CS First Boston Corporation, Adv Op Comm T & F, December 21, 1995,
TSB-A-95(43)S, concluded (i) that leases of tangible personal property, and
contracts for installation, maintenance, service and repair services to tangible
personal property and for maintenance, service and repair services to real
property, entered into for resale using a resale certificate are exempt from
sales and use taxes and (ii) that payments made on behalf of and as agent of the
IDA with respect to Computer Software (as defined herein) are exempt from sales
and use taxes.
Opinion
Based on the structures under which the IDA proposes to make sales and
compensating use tax benefits available to Petitioner with respect to IDAEquipment, DLJ-Leased Equipment, Service Contracts and Exempt Service Contracts,
and Computer Software, and based on the other facts, as described by Petitioner
in its petition, and in accordance with the sections of law and regulations cited
above and the decisions in Wegmans Food Markets v. Department of Taxation and
Finance (126 Misc. 2d 144, aff'd 115 AD2d 962, lv to app den 67 NY2d 606) and
Wegmans Food Markets v. The Department of Taxation and Finance of the State of
N.Y., (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway, J.), and provided that
all the terms and conditions of the relevant documents, as amended, are complied
with, and that these terms and conditions, as amended, are consistent with
Petitioner's description of them as set forth above, in the instant matter:
A. (1) Leasing Corp.'s purchases of IDA-Equipment (and purchases by one
or more of the other Group Agents of IDA-Equipment), as agent for and on behalf
of the IDA, pursuant to the Exemption Letter and Project Agreement, will be
exempt from sales and use taxes, provided that (i) the IDA is the owner, lessor
or lessee of such property, (ii) the purchase invoices, statements and contracts
with vendors and suppliers provide that the IDA is the purchaser, lessor or
lessee and (iii) Petitioner is the disclosed agent of the IDA.
(2) Leasing Corp.'s lease of DLJ-Leased Equipment from third party
vendors for resale to the Group Agents, will be exempt from sales and use taxes,
provided that Leasing gives the third party vendors a properly completed Form ST­
120, Resale Certificate, as discussed in sections 526.6(c), 526.7(a) and 526.7(c)
of the Sales and Use Tax Regulations, that the DLJ-Leased Equipment is re-leased
as described above and that Leasing Corp. makes no other use of such property
itself.
(3) Leasing Corp.'s purchase of services under Service Contracts from
third parties for resale to Group Agents will not be subject to sales and use
taxes, provided that Leasing Corp. gives the third party a properly completed
Form ST-120, Resale Certificate, as discussed in sections 526.6(c), 526.7(a) and
526.7(c) of the Sales and Use Tax Regulations, that the services are resold to
the Group Agents, as described above and that Leasing Corp. makes no other use
of such services itself.

-13­
TSB-A-97(71)S
Sales Tax

(4) The Group Agents' rent payments, as agents for and on behalf of
the IDA, paid to Leasing Corp. for IDA-Equipment, pursuant to the Master Lease,
Exemption Letter and Project Agreement, will be exempt from sales and use taxes,
provided that the IDA is the lessee of the IDA-Equipment, and the IDA-Equipment
is leased as described above.
(5) The Group Agents' rent payments, as agents for and on behalf of
the IDA, paid to Leasing Corp. for DLJ-Leased Equipment, pursuant to the Master
Lease, Exemption Letter and Project Agreement, will be exempt from sales and use
taxes, provided that the IDA is the lessee of the DLJ-Leased Equipment, and the
DLJ-Leased Equipment is leased as described above.
(6) Payments made to third parties or to Leasing Corp. under Exempt
Service Contracts by the Group Agents, as agents for and on behalf of the IDA,
(i) for purchases of the services of installing, maintaining, servicing and
repairing tangible personal property, consisting of the IDA-Equipment, Equipment,
Leased Equipment, and DLJ-Leased Equipment, with a useful life of one year or
more, which is in use at the Approved Premises, including replacement parts, but
not including parts (e.g., a toner cartridge) that contain materials or
substances consumed in operating the property and that are replaced when the
part, material or substance is consumed, but not including contracts for general
services (e.g., janitorial services), or (ii) for purchases of the services of
maintaining, servicing and repairing the Improvements which constitute real
property, will be exempt from the sales and use taxes, to the extent that "(a)"
the Exempt Service Contracts, services and parts, with respect to IDA-Equipment,
Equipment, Leased Equipment, and DLJ-Leased Equipment, are necessary to maintain,
repair or service such IDA-Equipment, Equipment, Leased Equipment, and DLJ-Leased
Equipment, used as part of the Project, and provided that the IDA is the owner,
lessor or lessee of such IDA-Equipment, Equipment, Leased Equipment, and DLJLeased Equipment, or "(b)" the Exempt Service Contracts, services and tangible
personal property, with respect to Improvements, are necessary to maintain the
structural integrity of the Improvements, and provided that the IDA is the owner
of such Improvements, and also provided that the purchase invoices, statements
and contracts with vendors and suppliers for services described in preceding
clauses (i) and (ii) provide that the IDA is the purchaser, lessor or lessee with
respect to such Exempt Service Contracts and such IDA-Equipment, Equipment,
Leased Equipment, and DLJ-Leased Equipment, and that the IDA is the purchaser
with respect to Improvements, and that the Group Agents are disclosed agents of
the IDA.
In any instance where the installation, maintenance, servicing or
repair service results in the replacement of parts, materials or supplies that
are consumed in the ongoing operation of the Improvements, IDA-Equipment,
Equipment, Leased Equipment, or DLJ-Leased Equipment, where such parts, materials
or supplies must be replaced when consumed, the portion of the charges applicable
to such parts, materials or supplies will be subject to sales and use taxes, as
indicated in Wegmans Food Markets v. The Department of Taxation and Finance of
the State of N.Y. (Sup. Ct., Monroe County, Jan.10, 1992, Galloway, J.) supra.
The purchase and use of fuels and energy and utility services are not tax­
exempt.Id.

-14­
TSB-A-97(71)S
Sales Tax

However, it is noted that in a transaction where the charge is for both
taxable maintenance and repair services and qualifying exempt services under an
Exempt Services Contract, the total charge will be subject to sales and use
taxes, unless the portion of the charge applicable to the qualifying exempt
services under the Exempt Service Contract is separately stated from the other
charges or otherwise reasonably allocated.
B. (1) & (2) The Group Agents' acquisition, leasing, subleasing, licensing
or sublicensing of Computer Software, on behalf of and as agents of the IDA,
pursuant to the Exemption Letter, and, as applicable the Project Agreement and
other Project documents, will be exempt from sales and use taxes provided that
(i) the IDA is the owner, lessor or lessee of such property, (ii) the purchase
invoices, statements and contracts with vendors and suppliers for such Computer
Software provide that the IDA is the purchaser, lessor or lessee with respect to
the Computer Software and (iii) the Group Agents are disclosed agents of the IDA.
This is so where the Computer Software is purchased in an intangible medium
(e.g., by electronic transmission), as well as where the Computer Software is for
use in computers and other equipment not previously or concurrently acquired by
the Group Agents on behalf of and as agents of the IDA.
(3) The Group Agents' payments, on behalf of and as agents of the IDA,
under Exempt Service Contracts entered into by the Group Agents on behalf of and
as agents of the IDA, with respect to Computer Software acquired, leased,
subleased, licensed, or sublicensed by the IDA (which Exempt Service Contracts
may include the providing of upgrades to such Computer Software) where the
Computer Software is in use at the Approved Premises will be exempt from sales
and use taxes to the extent that such payment's are for the purchase of the
services of installing, maintaining, repairing or servicing such Computer
Software, or for other services to such software described in section 1105(c) of
the Tax Law, provided that, where such services are provided to the Group Agents,
on behalf of and as agents of the IDA, or to the IDA, in conjunction with the
sale of tangible personal property, any charge for such services shall be exempt
only when such charge is reasonable and separately stated on an invoice or other
statement of price given to the Group Agents or the IDA (see section 1115(o) of
the Tax Law). Notwithstanding the limitation regarding reasonable and separately
stated charges in the prior sentence, where the Group Agents, on behalf of and
as agents of the IDA, purchase tangible personal property under such Exempt
Service Contracts, with respect to Computer Software acquired, leased, subleased,
licensed or sublicensed by the IDA, the purchase of such tangible personal
property under such circumstances will be exempt from sales and use taxes where
it is used as part of the Project, provided that the IDA is the owner, lessor or
lessee of the Computer Software and also provided that the purchase invoices,
statements and contracts with vendors and suppliers for the Exempt Service
Contracts provide that the IDA is the purchaser, lessor or lessee with respect
to the Computer Software and that the Group Agents are the disclosed agents of
the IDA.
In any instance where the installation, maintenance, servicing or
repair service results in the replacement of parts, materials or supplies that
are consumed in the ongoing operation of the Computer Software, where such parts,
materials or supplies must be replaced when consumed, the portion of the charges

-15­
TSB-A-97(71)S
Sales Tax

applicable to such parts, materials or supplies will be subject to sales and use
taxes, as indicated in Wegmans Food Markets v. The Department of Taxation and
Finance of the State of N.Y. (Sup. Ct., Monroe County, Jan. 10, 1992, Galloway,
J.) supra.
As indicated, enhancements, modifications and upgrades to computer software
which constitute services described in section 1105(c) of the Tax Law are exempt
from the taxes imposed by sections 1105, 1107, 1109 and 1110 of the Tax Law
pursuant to section 1115(o) of the Tax Law, provided that, however, where such
services are provided to a customer in conjunction with the sale of tangible
personal property, any charge for such services shall be exempt only when such
charge is reasonable and separately stated on an invoice or other statement of
the price given to the purchaser.
It is noted that in a transaction where the charge is for both taxable
services and qualifying exempt services, the total charge will be subject to
sales and use taxes, unless the portion of the charge applicable to the
qualifying exempt services is separately stated from the other charges or
otherwise reasonably allocated.
It is also noted that, pursuant to section 854(4) and (14) of the General
Municipal Law, the IDA may not offer financial assistance in the form of sales
and compensating use tax exemptions with respect to property, including software,
and services which are used outside the City of New York, without prior consent
to such use of such property and services from the jurisdiction in which the
property and services are to be used; and, in any case, any such project outside
the City of New York must be contiguous to the portion of the project inside the
City of New York. Thus, if property, including software, and services are used
outside the City of New York without such prior permission, such use would be
outside the scope of the IDA's authority and the property and services would be
subject to New York State and local sales and use taxes. However, any additional
access of software by remote means (telephone lines/modem, for example) from a
location outside such jurisdiction should not lead to the conclusion that such
software loaded and used at the IDA project is used impermissibly. This does not
mean that the software can be downloaded to a computer located outside such
jurisdiction for use outside such jurisdiction. Likewise, software could not be
purchased as part of an IDA project exempt from tax and removed from such
jurisdiction without violating section 854(4) of the General Municipal Law,
unless the IDA obtains prior consent from any other contiguous New York
municipality in which it will be used.
(4)
To the extent that the terms Equipment, IDA-Equipment, Leased
Equipment or DLJ-Leased Equipment under the Project documents, specifically
includes Computer Software, then holdings in this advisory opinion with respect
to Equipment, IDA-Equipment, Leased Equipment or DLJ Leased Equipment would also
be applicable to such Computer Software, with such modifications as may be
necessary to reflect the law relating to computer software and services to
software and to reflect differences in the nature of software as compared to such
equipment, provided that such software is acquired in the manner that such
equipment is acquired.

-16­
TSB-A-97(71)S
Sales Tax

All of the forgoing conclusions depend on compliance with the terms and
conditions of all of the relevant Project documents, as amended, subject to any
limitations set forth in such documents.

DATED: November 20, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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