§ 1174-n. Exemption from taxes, assessments and certain fees; payments
in lieu of taxes. 1. It is hereby determined that the creation of the
authority and the carrying out of its corporate purposes is in all
respects for the benefit of the people of the state and is a public
purpose, and the authority shall be regarded as performing a
governmental function in the exercise of the powers conferred upon it by
this title and shall not be required to pay any taxes, special ad
valorem levies or special assessments upon any real property owned by it
or any filing, recording or transfer fees or taxes in relation to
instruments filed, recorded or transferred by it or on its behalf.

2. The authority may pay, or may enter into agreements with any
municipality to pay, a sum or sums annually or otherwise or to provide
other considerations to such municipality with respect to real property
owned by the authority located within such municipality and constituting
a part of its water system.

3. Any bonds issued pursuant to this title together with the income
therefrom shall be exempt from taxation. The revenues, moneys and all
other property and all activities of the authority shall be exempt from
all taxes and governmental fees or charges, whether imposed by the state
or any municipality, including without limitation real estate taxes,
franchise taxes, sales taxes or other excise taxes. For purposes of this
subdivision, the phrase "exempt from taxation" means exempt from direct
taxation in conformity with established judicial interpretation of the
tax exempt status of the obligations of the state and its agencies,
entities, authorities and political subdivisions and thus, the meaning
of such phrase is in conformity with the legislative intent expressed by
section twenty-two of chapter one hundred sixty-six of the laws of
nineteen hundred ninety-one regarding the tax exempt status of
obligations of the state and its agencies.

4. The state hereby covenants with the purchasers and with all
subsequent holders and transferees of bonds issued by the authority
pursuant to this title that the interest thereon shall be exempt from
taxation. The state further covenants with the holders of such bonds
that all revenues, moneys, and other property pledged to secure the
payment of such bonds shall at all times be free from such taxes. For
purposes of this subdivision, the phrase "exempt from taxation" means
exempt from direct taxation in conformity with established judicial
interpretation of the tax exempt status of the obligations of the state
and its agencies, entities, authorities and political subdivisions and
thus, the meaning of such phrase is in conformity with the legislative
intent expressed by section twenty-two of chapter one hundred sixty-six
of the laws of nineteen hundred ninety-one regarding the tax exempt
status of obligations of the state and its agencies.

5. Notwithstanding the above, nothing herein shall prevent the state
from assessing a tax or surcharge against the water customers based on
their water consumption, provided, however, that all such taxes and
surcharges and the authority's obligation to collect and pay such taxes
and surcharges shall be subordinate to the rights of holders of all of
the authority's bonds and notes and to the payment of principal,
premiums if any, and interest thereon.