When a Florida city imposes its public service tax on metered natural gas, which charges on the customer's bill count toward the tax base, and which do not?

Plain-English summary

The City of Gulf Breeze runs its own natural-gas utility and imposes a 7.5% municipal public service tax under section 166.231, Florida Statutes. Section 166.231(1)(a) authorizes the tax on "the purchase of metered natural gas," at a rate not exceeding 10% of "the payments received by the seller of the taxable item from the purchaser for the purchase of such service." The City's question was: which line items on the customer's bill count as "payments received…for the purchase of such service"?

Senior Assistant Attorney General Teresa L. Mussetto answered with a fairly clean rule based on the legal incidence of each charge:

1. Natural gas commodity charges, transportation, delivery, transmission, and distribution charges: included. Section 203.012 (which defines "utility service" for the state gross receipts tax) explicitly bundles these together as components of natural-gas utility service. EIA price data (which Florida law cross-references) defines retail-consumer natural-gas prices as "total prices paid by end-users per thousand cubic feet of natural gas in the respective sectors, inclusive of all tax, delivery, commodity, demand and other charges." Industry practice and the City's franchise agreement with Escambia County (Ordinance No. 2013-23) treat all of these as part of the gas-utility service.

2. State gross receipts tax: included if itemized on the bill. The legal incidence of the gross receipts tax falls on the utility (the "seller"), not the consumer. Section 203.01(5) makes the provider liable for the tax even if it is shown as a line item. So when the gross receipts tax is included on a customer's bill, it is part of what the customer pays the seller "for the purchase of such service." P.R. Marketing Grp., Inc. v. GTE Fla. Inc. describes the practical structure: the gross receipts tax, when itemized, becomes part of the utility's gross receipts that are then taxed again at the gross-receipts rate.

3. Pro rata franchise fee: included if itemized. The franchise fee is a charge to the utility for the right to operate, much like the gross receipts tax. When the utility passes the fee through to the consumer as a line item, it is part of the payments received for the service. Florida Administrative Code Rule 12B-6.0015(2)(a)3. follows the same approach for the gross-receipts-tax base.

4. State sales tax: not included. Sales tax is collected from the consumer by the seller as the consumer's tax, with the seller acting as a conduit between the consumer and the state (Cash v. State; Seminole Tribe of Fla. v. Stranburg). The legal incidence falls on the consumer, not the utility. The same is true for the municipal public service tax itself; including the tax in its own base would be a circular calculation.

The general principle: the legal incidence test (does the law place liability on the seller, or only require the seller to collect the tax from the consumer?) determines whether a charge is part of the public-service-tax base. When the tax falls on the seller, the customer's payment to cover it is "for the purchase of such service." When the tax falls on the consumer, the customer is paying the tax, not the service.

Currency note

This opinion was issued in 2018. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The municipal public service tax (often called the utility tax or franchise tax) is a major source of revenue for many Florida cities. Section 166.231 authorizes municipalities to levy the tax on purchases of electricity, metered or bottled natural gas, manufactured gas, and water service, at rates up to 10% (or higher in specified circumstances under paragraph (c)).

The phrase "payments received by the seller of the taxable item from the purchaser for the purchase of such service" is the statutory base. Chapter 166 does not define "metered natural gas service," so the AG had to construct the meaning from related statutes, industry practice, the City's own ordinance, and the franchise agreement.

Section 203.012, the gross-receipts-tax statute, defines "utility service" to include "natural or manufactured gas for light, heat, or power, including transportation, delivery, transmission, and distribution of the…natural or manufactured gas." That bundle is what the AG read into the public-service-tax base, with one statutory exclusion (the "fuel adjustment charge" in section 166.231(1)(b)).

The legal-incidence analysis comes from sections 203.01(5) (gross receipts tax) and 212.07 (sales tax), as elaborated in Seminole Tribe of Fla. v. Stranburg, P.R. Marketing Grp., and Cash v. State. The "dispositive language of legal incidence" rule is from Stranburg, quoting Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450 (1995): a clear declaration of legal incidence or a mandatory pass-through provision settles the question.

The Florida Department of Revenue's administrative interpretation reinforces the AG's analysis. Rule 12B-6.0015(4) excludes sales tax and municipal public service tax from the gross-receipts-tax base when those taxes are separately itemized on the bill. The same logic applies to the municipal-public-service-tax base.

Common questions

Q: Why does it matter whether a charge is included in the tax base?
A: Higher tax base equals higher tax dollars. A 7.5% tax on a $100 bill is $7.50; a 7.5% tax on a $90 bill is $6.75. With thousands of natural-gas customers across a city, the base-definition decisions move real money.

Q: What about local franchise fees that the city imposes on itself?
A: The City of Gulf Breeze runs its own gas utility. The franchise relationship in the opinion is between the City utility and Escambia County, where the gas service is delivered. Different facts, different analysis, but the same general principle: a franchise fee included on the customer's bill, where the fee is a charge to the utility passed through to the consumer, is part of the public-service-tax base.

Q: Does the AG opinion address fuel adjustment charges?
A: Indirectly. Section 166.231(1)(b) explicitly excludes the fuel adjustment charge from the public-service-tax base. The AG cites this as the one statutory exclusion. Other charges that look like fuel adjustments but are differently named would be analyzed under the legal-incidence framework.

Q: What is the test for whether a tax's legal incidence falls on the seller or the consumer?
A: From Stranburg and Chickasaw Nation: a clear declaration of legal incidence in the statute, or a mandatory pass-through provision requiring the tax to be passed on to the consumer, controls. The Florida gross receipts tax under section 203.01(5) explicitly imposes the tax on the seller and lets the seller add it to the bill, but the seller remains "fully and completely liable." So the legal incidence is on the seller. The Florida sales tax under section 212.07(1)(a) is "measured by retail sales" and "shall be collected by the dealers from the purchaser or consumer." So the legal incidence is on the purchaser.

Q: Are there exemptions from the municipal public service tax?
A: Yes, in section 166.231 itself and elsewhere. The AG opinion does not analyze them. Common exemptions include sales to the United States, sales to certain religious or charitable organizations, and various utility-specific carveouts.

Citations

Statutes and rules:

• §§ 166.231(1)(a), 166.231(1)(b), Fla. Stat. (2017)
• §§ 203.01, 203.012, Fla. Stat. (2017) (state gross receipts tax)
• §§ 212.02, 212.07, Fla. Stat. (2017) (state sales tax)
• Fla. Admin. Code R. 12A-1.045; 12B-6.0015

Cases:

• Dade Cty. v. AT & T Info. Sys., 485 So. 2d 1302 (Fla. 3d DCA 1986)
• Fla. Dep't of Revenue v. New Sea Escape Cruises, Ltd., 894 So. 2d 954 (Fla. 2005)
• Hechtman v. Nations Title Ins. of New York, 840 So. 2d 993 (Fla. 2003)
• Jones v. ETS of New Orleans, Inc., 793 So. 2d 912 (Fla. 2001)
• Harbor Ventures, Inc. v. Hutches, 366 So. 2d 1173 (Fla. 1979)
• P.R. Mktg. Grp., Inc. v. GTE Fla. Inc., 806 So. 2d 597 (Fla. 2d DCA 2002)
• Seminole Tribe of Fla. v. Stranburg, 799 F.3d 1324 (11th Cir. 2015)
• Cash v. State, 628 So. 2d 1100 (Fla. 1993)
• Dominion Retail, Inc. v. Pennsylvania Pub. Util. Comm'n, 831 A.2d 810 (Pa. Commw. Ct. 2003)

Source

• Landing page: https://www.myfloridalegal.com/ag-opinions/municipal-public-service-tax-metered-natural-gas
• Original PDF: https://www.myfloridalegal.com/print/pdf/node/8024

Original opinion text

Mr. Michael Stebbins

Counsel for City of Gulf Breeze

504 North Baylen Street

Pensacola, Florida 32501

Dear Mr. Stebbins:

On behalf of the City of Gulf Breeze (“City”), you have requested an opinion clarifying what payments are intended to be comprised by the phrase, “payments received by the seller of the taxable item from the purchaser for the purchase of such service[,]” as used in section 166.231(1)(a), Florida Statutes (2017). As applicable here, that statute authorizes the City to levy a tax on the purchase of metered natural gas service. Specifically, section 166.231(1)(a) provides, in pertinent part:

“166.231?Municipalities; public service tax.—

(1)(a) A municipality may levy a tax on the purchase of electricity, metered natural gas, liquefied petroleum gas either metered or bottled, manufactured gas either metered or bottled, and water service. Except for those municipalities in which paragraph (c) applies, the tax shall be levied only upon purchases within the municipality and shall not exceed 10 percent of the payments received by the seller of the taxable item from the purchaser for the purchase of such service.”

In implementing the tax authorized by this statute, the City asks whether the Public Service Tax may be imposed only on the City’s “charges for the volume of natural gas purchased or consumed by its customers,” or may include other charges?[1] The City also asks if it is authorized to charge a public service tax on “the amount of Gross Receipts Tax imposed per Section 203.01, Florida Statutes,” or “the amount of sales taxes imposed per Chapter 212, Florida Statutes”? Attorney General Bondi has asked that I respond to your letter.

Are Payments for Transportation, Delivery, Transmission, and Distribution Potentially Included in “Payments Received by the Seller of the Taxable Item from the Purchaser for the Purchase of Such Service”?

As quoted above, section 166.231(1)(a) authorizes a municipality to levy a “public service tax” on “the purchase of…metered natural gas…service.” (Emphasis added.) With certain exceptions,[2] the tax “shall be levied only upon purchases within the municipality and shall not exceed 10 percent of the payments received by the seller of the taxable item from the purchaser for the purchase of such service[.]” (Emphasis added.) Except for expressly excluding “any fuel adjustment charge” from this calculation,[3] chapter 166 contains no definition of “metered natural gas service.” Thus, one “must resort to…well-settled rules of statutory construction to aid in determining the definition” of “metered natural gas service,” as used in section 166.231.[4]

“Legislative intent is the polestar by which a court must be guided in interpreting the provisions of a law. In ascertaining the legislative intent, a court must consider the plain language of the statute, give effect to all statutory provisions, and construe related provisions in harmony with one another.”[5]

Here, in section 166.231, the Legislature has repeatedly made clear its intent that the municipal tax may be levied on customer purchases of enumerated utility services. While Florida’s public service tax statute does not define the various utility services, section 203.012, Florida Statutes—which provides for the state gross receipts tax—defines “utility service,” in pertinent part, as follows:

“(3) ‘Utility service’ means…natural or manufactured gas for light, heat, or power, including transportation, delivery, transmission, and distribution of the…natural or manufactured gas. This subsection does not broaden the definition of utility service to include separately stated charges for tangible personal property or services which are not charges for the…natural or manufactured gas or the transportation, delivery, transmission, or distribution of…natural or manufactured gas.” [6]

This definition is compatible with what appears to be a common industry understanding regarding the component parts of a utility “service.” For example, again pursuant to chapter 203, Florida Statutes, the state imposes a “gross receipts tax” on the “exercise of [the] privilege” to sell natural or manufactured gas to retail consumers.[7] The statute provides that “the tax levied on the distribution company's receipts for the sale or transportation of natural or manufactured gas shall be determined by dividing the number of cubic feet delivered by 1,000, multiplying the resulting number by the index price, and applying the rate in subparagraph (b)1. to the result.”[8]

The “index price,” in turn, is defined as “the Florida price per 1,000 cubic feet for retail consumers in the previous calendar year as published in the United States Energy Information Administration Natural Gas Monthly and announced by the Department of Revenue on June 1 of each year to be effective for the 12-month period beginning July 1 of that year.”[9] In looking more closely at this definition, Tax Information Publication No: 17B06-01 (May 26, 2017)[10] is instructive. It provides:

“Every year on July 1, the index prices used by distribution companies to calculate the gross receipts tax on the sale or transportation of natural or manufactured gas to retail consumers are adjusted as provided by law. Beginning with customer bills dated on or after July 1, 2017, distribution companies must use the index prices listed below when completing the Gross Receipts Tax Return (Form DR-133).

The source for Florida natural gas index prices is the U.S. Department of Energy Information Administration (EIA) Natural Gas Monthly. The natural gas prices were published as part of the May 2017 Natural Gas Monthly.”

For its part, the EIA describes its natural gas price data as follows:

“Notes: Prices are in nominal dollars. Data for 2013 through 2015 are final. All other data are preliminary unless otherwise indicated. Geographic coverage is the 50 states and the District of Columbia. Published residential, commercial, and industrial prices are considered to be total prices paid by end-users per thousand cubic feet of natural gas in the respective sectors, inclusive of all tax, delivery, commodity, demand and other charges.”[11]

This interpretation of utility service is not narrowed by the City’s ordinance implementing its public service tax (which, like section 166.231, contains no definitions),[12] and is consistent with the terms of the franchise agreement between the City and Escambia County. Section 2 of Escambia County Ordinance No. 2013-23 (reflecting the franchise agreement) authorizes the City—in providing “natural gas utility services”—to transport, distribute, and sell natural gas to the County, its inhabitants, and the public.[13]

Based on the foregoing, it appears that (subject to the circumstances described herein) the City’s municipal public service tax may be imposed based on payments the City receives from its utility service customers for natural gas used for light, heat, or power, including, as applicable, transportation, delivery, transmission, and distribution of

the natural gas.

Are Gross Receipts Tax, Sales Tax, and Franchise Fee Payments Made by the

Customer Included in “Payments Received” for the “Purchase of Such Service”?

To determine whether the gross receipts tax, sales tax, and franchise fee payments made by the natural gas service customer to the City may be included in calculating the “payments received by the seller of the taxable item from the purchaser for the purchase of such service[,]” it is necessary to consider the character of these charges. Looking by analogy at how the gross receipts tax is calculated, if the charge is imposed on the City as a prerequisite to its sale of natural gas service to its customers, then, when itemized on the customer’s bill, it may properly be considered part of the payments received to purchase such service. Applying that logic, the gross receipts tax and pro rata franchise fee payments may potentially be included in calculating the basis for the municipal public service tax. The sales tax (and the municipal public service tax, itself) would not.

These conclusions find support in the statutory framework of the two taxes. The gross receipts tax on “gross receipts from utility services that are delivered to a retail consumer in this state” is imposed “upon every person for the privilege of conducting a utility or communications services business, and each provider of the taxable services remains fully and completely liable for the tax, even if the tax is separately stated as a line item or component of the total bill.”[14] Thus, even though the service provider may include the tax as a line item on the customer’s bill, by law, the legal incidence of the tax falls on the service provider, and not on the purchaser.[15]

In contrast, the sales tax, which is “measured by retail sales,” “shall be collected by the dealers from the purchaser or consumer.”[16] Even though the service provider will be liable for payment of the sales tax if it fails to collect that tax from the purchaser or consumer,[17] by law, the legal incidence of the tax falls not on the service provider, but on the purchaser or consumer.[18] The service provider essentially acts as a conduit between the consumer and the state, collecting and holding the sales tax funds in trust until they are remitted to the state as required by law.[19]

The franchise fee is another charge to the service provider which is prerequisite to its right to provide utility service. It is unsurprising, then, that, where a pro rata fee is included in the consumer’s bill as an itemized part of the total charge for taxable services, it is included in the calculation of the gross receipts tax.[20] By analogy, it would be equally reasonable to include such charge in calculating the municipal public service tax.

In sum, subject to the circumstances described herein, consumer payments for natural gas service (comprising natural gas and, as applicable, its transportation, delivery, transmission, and distribution) may be included in calculating a customer’s municipal public service tax liability. Where included as line items on the customer’s bill, the gross receipts tax and the pro rata franchise fee may also be included. However, state sales tax (and the municipal public service tax, itself) would not be included. I trust that these informal comments will be helpful.

Sincerely,

Teresa L. Mussetto

Senior Assistant Attorney General

TLM/tsh

[1] In these informal comments, no attempt is made to ascertain the character or correct classification of specific charges reflected in the City’s itemized billing practices. See generally Frequently Asked Questions About Attorney General Opinions (“General Nature and Purpose of Opinions”) (“Attorney General Opinions are intended to address only questions of law, not questions of fact, mixed questions of fact and law, or questions of executive, legislative or administrative policy.”) (available at: http://myfloridalegal.com/

pages.nsf/Main/dd177569f8fb.0f1a85256cc6007b70ad) (last visited April 24, 2018)). For this reason, the City’s questions have been revised slightly to make them more “generic.”

[2] The statute enumerates certain exceptions to and exemptions from imposition of the tax. These are not addressed by this analysis.

[3] See § 166.231(1)(b), Fla. Stat. (2017).

[4] Cf. Dade Cty. v. AT & T Info. Sys., 485 So. 2d 1302, 1304 (Fla. 3d DCA 1986) (applying settled rules of statutory construction in determining the definition of “telephone service” as used in § 166.231).

[5] Fla. Dep't of Revenue v. New Sea Escape Cruises, Ltd., 894 So. 2d 954, 957 (Fla. 2005) (quoting Hechtman v. Nations Title Ins. of New York, 840 So. 2d 993, 996 (Fla. 2003) (citation omitted)); accord, Jones v. ETS of New Orleans, Inc., 793 So. 2d 912, 914–15 (Fla. 2001). Tax statutes must be construed “in favor of taxpayers where an ambiguity may exist.” Harbor Ventures, Inc. v. Hutches, 366 So. 2d 1173, 1174 (Fla. 1979).

[6] § 203.012, Fla. Stat. (2017). Consistent with this definition, § 212.02, Fla. Stat. (regarding state sales tax), defines "sales price" to mean "the total amount paid for tangible personal property, including any services that are a part of the sale." Rule 12A-1.045 of the Florida Administrative Code further clarifies that transportation charges are not subject to sales tax only when both of the following conditions are met: (1) the charge is separately stated on an invoice or bill of sale; and (2) the charge can be avoided by a decision or action solely on the part of the purchaser.

[7] § 203.01(e)1., Fla. Stat. (2017).

[8] Id.

[9] § 203.01(e)2., Fla. Stat. (2017).

[10] Available at: https://revenuelaw.floridarevenue.com/LawLibraryDocuments/2017/05/

TIP-121141_TIP%2017B06-01%20FINAL%20RLL.pdf (last visited April 24, 2018).

[11] (Emphasis added.) Available at: https://www.eia.gov/naturalgas/monthly/pdf/ngm_all.

pdf. See also Dominion Retail, Inc. v. Pennsylvania Pub. Util. Comm'n, 831 A.2d 810, 812 (Pa. Commw. Ct. 2003) (identifying the three main parts of natural gas service as “Commodity, Transmission and Distribution”); Carl W. Ulrich, Unbundling Natural Gas Sales Services - Is the FERC Throwing the Baby Out with the Bath Water?, Pub. Util. Fort., October 13 1988, at 19 (describing the components of traditional gas sales service which may potentially be “unbundled” as including “at least” “gas cost, transmission capacity, gathering capacity, storage, and at the local level, distribution capacity.”).

[12] A copy of Ordinance No. 07-15 was included with your opinion request. It reflects, simply, that a “Municipal Public Service Tax authorized under Section 166.231(1)(a), Florida Statutes, for the City of Gulf Breeze is hereby established at a rate of 7.5%.”

[13] A copy of Ordinance No. 2013-23 was included with your opinion request.

[14] § 203.01(5), Fla. Stat. (2017).

[15] § 203.01(5), Fla. Stat. (2017). Further, § 203.01(4) specifies that the gross receipts tax may be added as a component part of the total charge for taxable services, and that, if such charge is unpaid, it is “recoverable at law in the same manner as any other part of the charge for such taxable services.” For this reason, such charge is included as part of the utility’s gross receipts in the Department of Revenue’s calculation of the gross receipts tax. See P.R. Mktg. Grp., Inc. v. GTE Fla. Inc., 806 So. 2d 597, 598 (Fla. 2d DCA 2002) (noting “that for years these administrative methods and interpretations have been used to implement the applicable statutes” whereby, inter alia, “the 2.5 percent gross receipt tax charged to the customer became part of the gross receipts of the utility which was then once again taxed at 2.5 percent[,]” and that, if “the DOR administrative interpretation of the legislative mandate is not what the legislature intended, it is up to our legislature to investigate and change or clarify the statutes”).

[16] § 212.07(1)(a), Fla. Stat. (2017).

[17] See § 212.07(3)(a), Fla. Stat. (2017). Additionally, any dealer who “fails, neglects, or refuses” to collect the tax “commits a misdemeanor of the first degree.” Id.

[18] “A clear declaration of legal incidence or a mandatory ‘pass through’ provision requiring a tax to be passed on to the consumer is ‘dispositive language’ of legal incidence.” Seminole Tribe of Fla. v. Stranburg, 799 F.3d 1324, 1346 (11th Cir. 2015) (quoting Commission v. Chickasaw Nation, 515 U.S. 450, 451 (1995)).

[19] Cf. Cash v. State, 628 So. 2d 1100, 1101 (Fla. 1993) (finding that the gasoline retailer served as the state’s “agent” in collecting the local option fuel tax from purchasers and remitting the tax funds to the state for transfer to the Local Option Fuel Tax Trust Fund). Consistent with this rationale, rule 12B-6.0015(4) of the Florida Administrative Code provides that “any sales tax imposed…on the sale…of…energy is not included in the charge upon which the gross receipts tax is computed when the…sales tax is separately itemized on a customer's bill, invoice, statement, or other evidence of sale.” The same rule applies to “municipal public service tax” charges. Fla. Admin. Code R. 12B-6.0015.

[20] See Fla. Admin. Code R. 12B-6.0015(2)(a)3. (“Each and every fee imposed by a political subdivision of the State of Florida on the distribution company, such as a franchise fee, is included in the charge upon which the gross receipts tax is computed, when the fees are passed on to the customer and separately itemized on a customer's bill, invoice, statement, or other evidence of sale.”).