New York State and City Extend Sales Tax to Energy Sales by Exempt Organizations

Client Advisory

June 13, 2008

Effective September 1, 2008, sales of electricity, gas and other energy sources and services by religious, charitable and other tax-exempt organizations will be subject to state and local sales tax.  This will result in taxation of electricity charges and certain other payments received by tax-exempt property owners from tenants under commercial and residential leases.

Section 1105(b) of the New York Tax Law imposes a tax on receipts from the sale, other than sale for resale, of “gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam service of whatever nature,” as well as sales of certain telephone and telegraph activities and services (for convenience, “energy sales”). Section 11-2002(b) of the New York City Administrative Code imposes a separate tax on energy sales made in New York City.

Section 1116(a)(4) of the New York Tax Law and Section 11-2007 of the New York City Administrative Code, however, have provided an exemption for sales by organizations organized and operated exclusively for religious, charitable or similar purposes.  Under current law, therefore, exempt organizations, unlike taxable entities, are not required to collect or pay sales taxes on energy sales, even when the sales are unrelated to the exempt purposes of the organizations. 

For instance, if a university owns real estate in New York City which it leases to commercial or residential tenants, it may sell energy to its tenants without having to collect or pay state or city sales taxes on the amount received. A non-exempt landlord, by contrast, would have to collect and pay the tax. 

Under the new measure, signed into law by Governor Paterson on April 23, 2008, both taxable and exempt landlords will be required to collect and pay tax on energy sales. The new law will go into effect on September 1, 2008.

Questions regarding this client advisory may be directed to Dan Pittman at (212-238-8854, or Macculloch M. Irving (212-238-8714,

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2020 Carter Ledyard & Milburn LLP.
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