New York – Landlord’s Charges for Condenser Water Provided to Tenants Not Taxable

SALT Report 1247 – The New York Commissioner of Taxation and Finance has issued an Advisory Opinion regarding charges made by a commercial office building landlord to his tenants for condenser water. The water is used in the tenant’s air-conditioning system to cool the areas in the building that the tenant occupies. The landlord considered the condenser water charges a sale of utilities and therefore subject to state sales tax.

The Commissioner however, ruled that these charges are not subject to New York state and local sales or use tax because of NY Tax Law §1115(a)(2) which “exempts water when delivered to the consumer through mains or pipes” from sales and use taxes. In this case, the landlord transfers the condenser water through pipes to the tenant therefore, the exemption in Tax Law §1115(a)(2) would apply and sales tax should not be imposed.
To the extent that the landlord collected sales tax on his charges to his tenants for the condenser water, the landlord is required to pay and report any amount he collected from his tenants on his sales tax returns. The landlord may refund those charges to his tenants and then apply for a refund or credit from the Department under Tax Law §1139(a). The refund is available only for the amount that the landlord can prove he refunded to his tenants.
Alternatively, the tenant that paid the money can file an application for a refund or credit with the Department for the amount he paid to the landlord under section 1139(a).
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