When a landlord buys electricity and its transportation separately and resells both to submetered tenants, is the entire charge taxable even if the components are separately stated?

Plain-English summary

A landlord currently buys electricity and its transportation from the same utility and resells it to submetered tenants with a markup, collecting sales tax on the whole charge. The landlord was considering a new arrangement: buying the electricity itself from a different supplier ("Company A") while still arranging and paying the utility separately for transportation, then either billing tenants one combined charge or itemizing electricity, transportation, and the markup separately. An attorney asked the Department whether, under this new arrangement, the transportation portion of the tenant's bill could be treated as a nontaxable service.

The Department said no -- the entire charge stays taxable, itemized or not. The tenants aren't contracting directly with the utility for transportation or with Company A for electricity; they're buying electric service as a package from the landlord, who is the one purchasing and combining both pieces before reselling them. Tax Law § 1105(b) taxes electric service "of whatever nature," and § 1101(b)(3) specifically includes delivery charges in taxable receipts regardless of whether they're separately stated. So all of it -- electricity, transportation, and the landlord's markup -- is part of one taxable electric-service sale to the tenant. The landlord itself, however, can still buy the electricity tax-free from Company A with a resale certificate, since it's reselling that electricity to tenants, and its own purchase of transportation service from the utility isn't taxed to the landlord.

What this means for you

Landlords billing submetered tenants for utilities

Splitting your utility bill into separately stated line items for electricity, delivery/transportation, and markup does not make any portion of a tenant's bill nontaxable -- if you're reselling a bundled electric service to the tenant, the whole thing is taxed as electric service, regardless of how you break it out on the invoice.

Landlords restructuring their utility supply arrangements

You can still buy your electricity tax-free from any supplier using a resale certificate, since you're reselling it, through submetering, to your tenants. Changing suppliers or transportation arrangements doesn't change how tenants are billed.

Accountants and property managers

This ruling reinforces that "separately stated" only matters when the item separately stated is independently nontaxable in the purchaser's hands -- here, since the tenant is buying one bundled taxable product (electric service), separately stating its components doesn't carve any of it out.

Common questions

Q: Can a landlord avoid sales tax on the transportation portion of a submetered electric bill by itemizing it?
A: No. Because the tenant is buying electric service as a package from the landlord, not contracting separately with the utility, the entire charge, including transportation and any markup, is taxable, itemized or not.

Q: Can the landlord buy the electricity tax-free?
A: Yes, with a valid resale certificate, since the landlord is reselling the electricity to its tenants.

Q: Does this apply to a tenant who contracts directly with the utility instead of through the landlord?
A: This ruling addresses only the situation where the landlord purchases and resells electric service to submetered tenants; a tenant with its own direct utility account is in a different position.

Q: Can another landlord rely on this ruling for their own building?
A: No. It binds the Department only as to the facts the petitioner described, though it reflects a consistently applied principle for submetering.

Citations and references

• Tax Law § 1101(b)(3) (receipt; delivery/shipping charges included regardless of separate statement)
• Tax Law § 1105(b) (tax on electric service)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(58)S
Sales Tax
August 6, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S980409B

On April 9, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Robert D. Plattner, Esq., 75 State Street,
P.O. Box 459, Albany, New York, 12201-0459.
The issue raised by Petitioner, Robert D. Plattner, Esq., is whether the
entire charge by a landlord to submetered tenants for electric service is subject
to sales tax when the transportation of the electricity and the electricity
itself are purchased by the landlord from separate vendors and charges for these
services are separately stated on the landlord’s bills to its tenants.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Landlord currently purchases electricity and transportation of this
electricity from Utility and subsequently resells the electricity to its
submetered tenants, imposing a surcharge of X% of the amount paid by the landlord
to the Utility. Landlord provides Utility with a resale certificate and pays no
tax to the Utility. Landlord collects sales tax from its tenants on its total
charge to tenants for electricity and electric service, including the surcharge.
Landlord is contemplating purchasing its electricity from Company A rather
than the Utility. Landlord would purchase electricity from Company A and arrange
for and purchase transportation of such electricity from the Utility. Landlord
would either impose a single charge on its tenants for electricity,
transportation of such electricity and the surcharge, or separately state the
individual charges.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes
imposed by subdivisions (a), (b), (c), and (d) of section eleven
hundred five and by section eleven hundred ten, the following terms
shall mean:
*
*
*
(3) Receipt. The amount of the sale price of any property and
the charge for any service taxable under this article, valued in
money, whether received in money or otherwise, including any amount
for which credit is allowed by the vendor to the purchaser, without
any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or
delivery regardless of whether such charges are separately stated in
the written contract, if any, or on the bill rendered to such
purchaser and regardless of whether such shipping or delivery is

-2­
TSB-A-98(58)S
Sales Tax
August 6, 1998

provided by such vendor or a third party, but excluding any credit
for tangible personal property accepted in part payment and intended
for resale.
Section 1105(b) of the Tax Law imposes tax on the following:
The receipts from every sale, other than sales for resale, of
gas, electricity, refrigeration and steam, and gas, electric,
refrigeration and steam service of whatever nature, and from every
sale other than sales for resale, of telephony and telegraphy and
telephone and telegraph service of whatever nature except interstate
and international telephony and telegraphy and telephone and
telegraph service.
Opinion
Landlord is currently purchasing electric service from the Utility and
reselling it to its tenants, with a surcharge.
Landlord is contemplating
purchasing the electricity from another vendor, Company A, and contracting with
the Utility for the purchase of the transportation service. Petitioner inquires
whether Landlord, under this new purchasing arrangement, would be required to
collect tax from its tenants on the total charge for electric service, or whether
the portion of Landlord’s charge to its tenants attributable to transportation
of the electricity is not subject to tax.
In this instance, Landlord’s tenants are purchasing the electric service
from Landlord. The tenants are not contracting directly with the Utility for
transportation or directly with Company A for electricity.
Landlord is
purchasing both the transportation and the electricity and reselling them
together to its tenants as electric service. Therefore, Landlord’s tenants are
not purchasing a nontaxable transportation service from Landlord but are
purchasing an electric service. Section 1105(b) of the Tax Law imposes sales tax
on every sale, other than resale, of electricity and electric service of whatever
nature.
Taxable receipts include any charges by the vendor for shipping or
delivery, regardless of whether these charges are separately stated. See Section
1101(b)(3) of the Tax Law.
Accordingly, all charges made by Landlord for
electricity, transportation of electricity and surcharges are subject to sales
tax, whether separately stated or not.
Since Landlord is making purchases of
the electricity for resale, Landlord may continue to purchase the electricity
exempt from sales tax with a properly completed resale certificate. Landlord’s
purchase of transportation service from the Utility would not be subject to sales
tax.

DATED: August 6, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau
The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.