Settlement Program for Landlords Providing Utility Services to Tenants

Published: October 28, 1999
Source: R & H Letter to Clients & Friends

We have previously brought to your attention the amendments to New York's utility taxes (Chapter 536 of the Laws of 1998) and the provision that eliminates State and City gross receipts tax liability for landlords who supply utilities and utility services to their tenants. This amendment applies to all types of utilities and utility services covered by the State and City utility taxes, and eliminates the landlord's responsibility to charge utility taxes on, for example, electric rent inclusion, submetering, chilled water and overtime HVAC. Instead, utility companies selling utilities or utility services to landlords will now impose the State and City utility taxes on the sales to the landlord. If, however, a gross receipts tax is not imposed when utilities are purchased by the landlord (for example, where utility services are purchased outside of the state), then the landlord is required to file a return and pay tax, based on the landlord's cost (including any associated transportation/transmission cost), when the landlord resells such utilities to its tenants. The effective date of these provisions is January 1, 1998.

In view of the tortured history of this issue, including many years when the City did not assert utility tax, followed by an aggressive audit program and litigation that is still ongoing [Sage Realty Corp. v. O'Cleireacain], Roberts & Holland and the Real Estate Board of New York have negotiated with the City and arrived at an industry-wide policy to resolve landlords' exposure for utility tax on unmetered electricity provided to tenants for periods prior to January 1, 1998.

The settlement, which is embodied in a Statement of Audit Procedure issued by the Department of Finance on October 20, 1999, [SAP- 99-2 UTX], provides as follows:

  • Landlords will file utility tax returns and pay tax as provided below for the period from January 1, 1997 through and including December 31, 1997, plus statutory interest to the date of payment.
  • The tax on electricity furnished by a landlord on a rent inclusion basis will be computed using the methodology set forth in Sage Realty Corp. v. O'Cleireacain (i.e., the full amount paid to the supplier of the utility service is deducted in determining the profit on the service subject to the utility tax to be paid by the landlord).
  • The Department of Finance agrees not to assert utility tax against a landlord furnishing utility services to its tenants and participating in this program for any period prior to January 1, 1997.
  • Any audits performed under this resolution are limited to the period January 1, 1997 through and including December 31, 1997, and will treat the entire calendar year as one tax period.
  • All cases are included in this resolution, including taxpayers currently under audit and in Conciliation or Tribunal proceedings.
  • Taxpayers participating in this program must identify themselves by March, 2000 and pay by June, 2000 to be part of this resolution.

Although not stated in the SAP, the City also has agreed to settle the question of utility tax on charges received by a landlord identified as chilled water or condenser water. Under this settlement, we understand the City will accept payment equal to 25% of the potential tax for the period January 1, 1997 through and including December 31, 1997. There will be no utility tax on charges for HVAC.

We are working together with REBNY to arrange a similar settlement with the State Tax Department, so that landlords can be sure that any liability for New York State Gross Receipts Tax (Tax Law Search7RH186-a) also is resolved. At this time, although there is no firm agreement, the State has indicated it will also settle cases on the same terms as the City except that the State will not require any tax payment with respect to chilled water.


Landlords who provide submetered electricity to tenants, have given remission certificates to the utility company, but have not filed City utility tax returns or State gross receipts tax returns are not, at present, eligible for this proposed resolution. We are continuing, along with REBNY, to discuss with both the State and City tax officials a possible settlement for those with submetered premises.