Is fuel oil a property owner buys to heat a city-owned building tax-exempt as a resale to the city or a purchase as the city's agent?

Plain-English summary

Tamas Friedman owns a building at 1881-3 Pitkin Avenue, Brooklyn. Its furnace also heats an adjacent building (1873-5 Pitkin Avenue) owned by the New York City Housing Preservation and Development Administration (HPDA). Under a December 14, 1979 agreement, Friedman bought fuel in his own name to run the furnace and was reimbursed by HPDA for one-half of the fuel and repair costs (the arrangement ended October 19, 1980). He claimed the reimbursed half of his fuel purchases was exempt — either as a purchase for resale to the City, or as a purchase made as the City's agent.

The Department rejected both theories — the fuel was taxable.

• Not a resale. New York taxes retail sales of tangible personal property (§ 1105(a)), but § 1101(b)(4)(i) excludes purchases for resale. Here the agreement required Friedman to supply heat and hot water to HPDA's building — he provided heat, he did not sell fuel to HPDA. So his fuel purchases were not for resale.
• Not an exempt agency purchase. § 1116(a)(1) exempts sales to New York political subdivisions (the City is one), and a purchase by the City's agent could fall within it. But Friedman never transferred the fuel to the City, and the indicia of agency were missing: there was no explicit designation of him as the City's purchasing agent, and the fuel was not bought with City money drawn from a special fund created for that purpose.
• Result: Friedman's fuel purchases for heating HPDA's building were subject to sales tax under Article 28.

What this means for you

Selling heat is not selling fuel. If your contract obligates you to deliver a result — heat and hot water — rather than to sell the commodity (the oil) itself, you are the consumer of the fuel and owe tax on it. Reimbursement of your fuel costs by the party you serve doesn't turn your purchase into a tax-free resale.

Buying "for" a government body doesn't make you its agent. The exemption for sales to a city runs to genuine agency purchases. Courts and the Department look for real indicia of agency — an explicit designation as the government's purchasing agent, and buying with the government's own funds (often from a dedicated account) — plus an actual transfer of the property to the government. Buying in your own name and being reimbursed later doesn't meet that test.

Structure matters if you want the exemption. A landlord or operator that wants government purchases to be tax-exempt generally needs a documented agency arrangement and to have the government take title to the goods — not just a cost-sharing reimbursement deal.

Common questions

Q: The city reimburses half my heating oil — isn't that half a tax-free resale to the city?
A: No. Because your agreement is to supply heat and hot water (not to sell the oil), you provide heat and consume the fuel yourself. That's not a resale under § 1101(b)(4)(i), so the fuel is taxable even though the city reimburses part of the cost.

Q: Can I claim I bought the fuel as the city's agent, so it's exempt?
A: Not on these facts. You never transferred the fuel to the city, and the signs of agency were absent — no explicit designation as the city's purchasing agent and no purchase with city funds from a special fund. Section 1116(a)(1) didn't apply.

Q: What would it take to make such purchases exempt?
A: A genuine agency relationship — an explicit designation as the government's purchasing agent, buying with the government's own money, and an actual transfer of the goods to the government — or a true sale of the commodity to the exempt government body.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from retail sales of tangible personal property
• Tax Law § 1101(b)(4)(i) — defines "retail sale" and excludes purchases for resale (as such or as a physical component part)
• Tax Law § 1116(a)(1) — exempts sales to New York State and its political subdivisions (including New York City); a purchase by a genuine agent of the government can qualify

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_43s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(43)S
Sales Tax
March 4, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S8008l2A

On August 12, 1980 a Petition for Advisory Opinion was received from Tamas
Friedman, 1873-5 Pitkin Avenue, Brooklyn, New York.
The issue raised is whether sales tax is due on one half of certain
purchases of fuel oil. Petitioner contends that such purchases are exempt either
because he purchased the heating oil as an agent of the City of New York or
because he purchased the oil for resale to the City of New York.
Petitioner owns property at 1881-3 Pitkin Avenue. A furnace in Petitioner's
building furnishes heat and hot water for his building and for 1873-5 Pitkin
Avenue, a building owned by the City of New York Housing Preservation and
Development Administration (HPDA). Petitioner purchased fuel, in his own name,
to operate the furnace and was reimbursed by HPDA for one half of the cost of the
fuel and any repairs and maintenance of the heating system. Such arrangement
terminated as of October 19, 1980.
Section 1105(a) of the Tax Law imposes a tax on receipts from retail sales
of tangible personal property. Section 1101(b)(4)(i) of the Tax Law defines the
term "retail sale," in relevant part, as "A sale of tangible personal property
to any person for any purpose, other than (A) for resale as such or as a physical
component part of tangible personal property...." Consequently, receipts from a
purchase for resale would not be subject to the tax imposed under section
1105(a). In the present instance, however, the applicable agreement between HPDA
and Petitioner, dated December 14,1979, provides that Petitioner was to supply
heat and hot water to HPDA's building, and in return was to be reimbursed for one
half of his oil bills and boiler and burner repair bills. Petitioner did not sell
fuel to HPDA, but rather provided its building with heat and hot water.
Petitioner's purchases of fuel consequently were not purchases for resale and
thus do not come within the exclusion contained in section 1101(b)(4)(i) of the
Tax Law, quoted above.
Petitioner contends in the alternative that the purchases of fuel oil were
made by him as agent of the City of New York. Section 1116(a)(1) of the Tax Law
provides that sales to political subdivisions of New York State are not subject
to sales tax. The City of New York is such a political subdivision of New York
State. Purchases for the City by an agent thereof would thus fall within the
ambit of this exemption provision. However, inasmuch as Petitioner did not
transfer the fuel oil itself to the City of New York Petitioner's contention that
he purchased the fuel as agent for the City is not tenable. Further, even if
there had been such a transfer of the property in question the Petitioner's
statement of facts and his evidentiary submissions would not support a finding
of agency, inasmuch as many of the important indicia of agency are not present.
For example, nowhere is there demonstrated an explicit designation of Petitioner
as agent for the City in buying the fuel oil, nor were such purchases made with
the City's money drawn from a special fund created by the City for that purpose.
Accordingly, Petitioner's purchases of fuel for use in providing HPDA's
building with heat and hot water were not exempt from the sales tax imposed by
Article 28 of the Tax Law.
DATED: February 18,1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR