On August 5, 2024, the New York Department of Taxation and Finance’s Office of Counsel published Advisory Opinion: TSB-A-24(26)S. addressing an important sales tax issue for residential landlords. The opinion was issued in response to a petition by a landlord asking the Department whether purchases of electricity and natural gas used by his residential tenants are eligible for the reduced state sales tax rate offered by Tax law 1105-A and if eligible, how to establish that eligibility so that suppliers charge the lower tax rate.

Sales Tax on the Sale of Gas and Electricity

Pursuant to Tax Law 1105(b)(1)(A) there is a statewide 4% sales tax on the receipts from every sale of gas and electricity and gas and electric service. However, Tax Law 1105-A provides for a reduction in that rate to zero percent for all energy sources and services used for residences.

Eligibility for the Reduced Rate

The advisory opinion addressed the petitioner’s eligibility for the reduced rate based on his situation. The petitioner owned several apartment buildings in New York used exclusively to house residential tenants with no commercial units in the petitioner’s buildings. As such, the Department advised that this particular petitioner’s buildings qualify for the reduced tax rate. However, state tax law also permits any New York county or city to impose their own sales tax on energy sources and services. If the local tax law has a sales tax on energy and it does not specifically mention an exemption for residences, then the local tax applies even though the statewide 4% does not. In the petitioner’s case, one building was located in the City of Oneida, which imposes a 2% tax rate and does not exempt residential purchasers. As such the petitioner is still obligated to pay the 2% rate. 

Further, the Department stated that should the petitioner purchase energy sources and services in the regions where the buildings are exempt, and the seller has not classified a meter as residential, the onus is on the petitioner to provide the supplier with a completed Form TP-385 – Certification of Residential Use of Energy Purchases for each eligible meter. 

Sales tax laws can be confusing but understanding the rules can save you substantial money. If you believe that your properties may be eligible for a reduced sales tax rate for energy sources and services, please contact one of our trusted attorneys.