When did you last review your New York sales tax rate on energy costs for your residential property? New York’s sales tax rules on utility purchases can be challenging for landlords managing multiple tenants.
New York sales tax mistakes are common for busy landlords, resulting in financial consequences. This begs the question: Are you overpaying sales tax on your ownership of New York residential properties?
The New York Department of Taxation and Finance recently issued Advisory Opinion TSB-A-24(26)S, addressing whether a landlord's electricity and natural gas purchases for residential apartment buildings qualify for a reduced state sales tax rate. This opinion offers insight into how landlords can proactively claim these benefits by establishing their eligibility with energy suppliers.
Are you taking the right steps to ensure tax compliance and minimize overpayments? If you’re a residential or mixed-use landlord, consulting with a New York sales tax professional will help you ensure tax compliance and keep money in your pocket, rather than New York’s pocket.
The Petitioner’s Case
The petitioner owns several residential apartment buildings in New York State, including Onondaga, Oswego, Warren, and Madison Counties. The buildings are solely residential properties with certain shared rooms and amenities for tenant use.
Each building has a single electricity meter and a single natural gas meter, and all energy usage is billed directly to the petitioner. Utilities are included in the tenants’ rent, and the petitioner does not bill the tenants separately for energy use. Petitioner’s rental offices are located in separate buildings, each with utility meters distinct from those in the residential buildings.
Seeking clarity on the tax treatment of energy purchases, the petitioner posed the following two questions:
- Are electricity and natural gas purchases for residential apartment buildings eligible for the reduced state sales tax rate?
- If so, what steps must the petitioner take to ensure that energy suppliers charge the reduced rate at the time of purchase?
Residential Energy Use and Reduced Sales Tax Eligibility
Under New York tax law, the sale of electricity, natural gas, and related services is generally subject to a 4% state sales tax. Tax Law § 1105-A reduces the state sales tax rate to 0% for energy sources and services used for residential purposes.
The distinction between "residential purposes" and "nonresidential purposes" is determinative. According to 20 NYCRR 527.13, "residential purposes" include any use of a structure as a place of abode, regardless of ownership. Conversely, "nonresidential purposes" encompass any use outside residential living, such as business or trade activities.
Tax Law § 1105(b)(1)(A) ensures that residential energy use is exempt from state-imposed sales taxes. However, local taxes will apply unless a municipality has opted for an exemption or reduced rate. See Tax Law § 1210(a)(3)
The Department’s Opinion
The New York Department of Taxation and Finance opined that Petitioner’s energy purchases qualified for the reduced state sales tax rate because the properties were used exclusively for residential purposes. They emphasized that residential energy use includes common areas of apartment buildings, provided the units are leased solely for residential purposes.
The Department further clarified that while the State rate is reduced to 0%, the local tax treatment varies by jurisdiction. Onondaga, Oswego, and Warren counties have elected to exempt residential energy use from local sales tax, while the City of Oneida imposes a 2% sales tax on such purchases. Thus, Petitioner is subject to a 2% local sales tax in Oneida.
Applying for Form TP-385 for Residential Energy Exemptions
Landlords and property owners must complete and submit Form TP-385: Certification of Residential Use of Energy Purchases to their energy suppliers to qualify for New York State's sales tax exemption on residential energy purchases.
To apply Using Form TP-385:
- Download Form TP-385 from the New York State Department of Taxation and Finance website.
- Complete the form with your name, address, and contact information, as well as the supplier’s details and your energy account number.
- Calculate the percentage of energy used for residential purposes. For mixed-use properties, determine the residential portion by dividing the square footage used for residential purposes by the total square footage (excluding common areas).
- Sign and date the form to certify the accuracy of the information provided.
- Submit the form to your energy supplier to notify them of your eligibility for the exemption.
Ensuring the exemption is applied correctly can be complex, particularly where local tax rates apply. Consulting a New York sales tax professional can help avoid compliance concerns and ensure you don’t miss out on this significant tax-saving opportunity.
Take Control of Your Energy Savings Today!
If you are a landlord the owns a multitude of residential properties in New York state, you may have previously overpaid on your residential user energy purchases. Don’t leave money on the table. Simplifying your tax obligations and maximizing your savingsare what our tax professional are here to assist with. Whether managing a single property or an extensive portfolio, working with a skilled New York tax professional makes a difference.
Our dedicated New York tax professionals can help you understand Form TP-385, address related concerns, verify your eligibility for other exemptions, and ensure you get the tax breaks you’re entitled to.
Start saving today and secure your competitive edge in property management! Contact a New York sales tax expert to ensure you’re not paying more than needed.
The full New York sales and use tax advisory opinion is listed below for reference:
Advisory Opinion: TSB-A-24(26)S
Sales Tax
August 5, 2024
Office of Counsel
The Department of Taxation and Finance received a Petition for Advisory Opinion from [ redacted ] (“Petitioner”). Petitioner asks: (i) whether purchases of electricity and natural gas used by his residential apartments are eligible for the reduced state sales tax rate; and (ii) if eligible, how to establish such eligibility so that suppliers charge the reduced tax rate at the time of purchase.
We conclude that receipts from the sale of energy used for residential purposes in Petitioner’s apartment buildings are eligible for the reduced State sales tax rate. To receive this reduced residential rate at the time of purchase, Petitioner should furnish his energy suppliers with a properly completed Form TP-385 -- Certification of Residential Use of Energy Purchases for each eligible meter.
Facts
Petitioner is the landlord of several residential apartment buildings located in New York State in the Counties of Onondaga, Oswego and Warren, and in the City of Oneida in Madison County. Each building contains multiple units Petitioner leases to residential tenants. Petitioner does not lease any units to commercial tenants. In addition to the apartments, the buildings contain hallways and staircases, a laundry room and storage area for tenants’ use, and a mechanical room. Each building has one electricity meter and one natural gas meter and the usage is billed directly to Petitioner. Gas and electric services are included as part of the tenants’ leases and Petitioner collects only a rent charge from tenants. Petitioner’s rental offices are in separate buildings from the tenants and those buildings have separate meters.
Analysis
Tax Law § 1105(b)(1)(A) imposes, in part, a 4% State sales tax rate on the receipts from every sale of gas and electricity, and gas and electric service (“energy sources and services”). Tax Law § 1105-A provides for a reduction in the State sales tax rate on energy sources and services to zero percent on the receipts from such energy sources and services used for residential purposes. See also 20 NYCRR 527.13. However, the taxes imposed by a county or city pursuant to the authority of Tax Law Art. 29 apply to residential energy sources and services unless the county or city has elected to impose tax on residential energy sources and services at a reduced rate. See Tax Law § 1210(a)(3); 20 NYCRR 527.13(a)(2).
The term “residential purposes” means any use of a structure as a place of abode that is maintained by or for a person, regardless of ownership. See 20 NYCRR 527.13(d)(1). The term “nonresidential purposes” means any use other than for residential purposes, including any use in the conduct of a trade, business or profession by the owner of the structure or some other person. See 20 NYCRR 527.13(d)(2).
Petitioner’s apartment buildings, which are leased exclusively to residential tenants, are used exclusively for residential purposes. See, e.g., TSB-A-00(31)S. Therefore, the energy sources and services billed on the meters for Petitioner’s residential buildings are eligible for the zero percent State sales tax rate. See 20 NYCRR 527.13(e). The counties of Onondaga, Oswego and Warren have elected to exempt residential energy sources and services from their local sales taxes. Accordingly, the energy sources and services provided to Petitioner’s residential buildings in those counties are also exempt from local sales tax. Madison County has also elected to exempt residential energy sources and services. However, the City of Oneida imposes sales tax at the rate of 2% and has not elected to exempt energy sources and services or to tax them at a reduced rate. Receipts from energy sources and services provided to Petitioner’s residential building in the City of Oneida are subject to the City’s tax at the rate of 2%. Additional information about local tax rates on residential energy sources and services may be found in Publication 718-R – Local Sales and Use Tax Rates on Residential Energy, or on the jurisdiction rate lookup available on the Department’s website.
Where Petitioner’s purchase of energy sources and services are eligible for the zero percent State rate, or a local exemption, or both, but the energy supplier has not classified a meter as residential, Petitioner should furnish the supplier with a properly completed Form TP-385 -- Certification of Residential Use of Energy Purchases for each eligible meter. See 20 NYCRR 527.13(f)(4), (g)(2). However, the meters associated with Petitioner’s rental offices, which are in separate buildings not occupied by residential tenants, are not eligible for the zero percent State rate or the local exemptions and Petitioner may not submit Form TP-385 for those meters.
DATED: August 5, 2024
Mary Ellen Ladouceur
Principal Attorney
Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.