Were a Florida gas utility's charges for transporting customer-owned natural gas subject to the state gross receipts tax?

Plain-English summary

Florida drew the gross-receipts-tax line at whether the utility was selling natural gas or merely transporting gas the customer already owned.

After October 31, 1993, customers bought gas from outside suppliers and remained the owners while the interstate pipeline and local gas company transported it. The local utility charged a non-fuel rate for delivery service. The Department concluded those transportation receipts were separate from the sale of gas and were not subject to gross receipts tax.

The earlier period was different. From August 1, 1990 through October 31, 1993, the TAA says title to the gas transferred through the gas company. The company also recovered the interstate pipeline's transportation charges from its customers. Because that arrangement constituted a gas sale rather than transportation alone, the receipts were taxable and unavailable for refund.

The Department relied on City of Lakeland v. Amos, which described the tax as an excise on the privilege of conducting the utility business, measured by gross receipts from taxable utility sales—not a tax on every category of income a utility might earn.

For the post-1993 transportation tax that may have been paid in error, the Department said a possible refund could be available within the limitations period, but it needed more information before deciding which party, if any, was entitled to it.

What this means for you

Natural-gas utilities

Trace title and billing, not just the label on the charge. A non-fuel charge equal to the utility's cost-of-service component can be nontaxable when it pays only for transporting customer-owned gas.

Pipeline and transportation customers

Keep contracts and invoices showing who owns the gas at each stage and who bills the pipeline transportation. Those facts controlled the different pre- and post-November 1993 answers.

Accountants

Separate receipts from gas sales from receipts for transportation of customer-owned gas. The TAA rejects using the utility's entire income as the gross-receipts-tax base.

Refund claimants

The TAA did not award a refund. It said incorrectly paid post-1993 tax might be refundable within the limitations period, but further facts were needed to identify the entitled party.

Common questions

Q: Were all transportation charges exempt?
A: No. The August 1, 1990 through October 31, 1993 amounts were taxable because the arrangement involved a transfer of title and therefore a gas sale.

Q: What changed on November 1, 1993?
A: Pipeline restructuring made each transportation customer a direct pipeline customer, and the local utility then charged only its non-fuel delivery rate for customer-owned gas.

Q: Why were the later receipts not taxed?
A: The utility was paid to transport the customer's gas, not for the gas itself.

Q: Did using the same non-fuel rate as a sales customer make transportation taxable?
A: No. The Department focused on the nature of the service and ownership of the gas, not merely that the cost-recovery rate was the same.

Q: Did the Department approve a refund?
A: No. It identified a possible refund path for tax paid in error but required more information about who was entitled.

Citations and references

• Fla. Stat. § 203.01(1)(a), (6) — gross receipts tax on utility services and provider liability.
• Fla. Stat. § 203.012(9) — natural gas for light, heat, or power within the definition of utility service.
• Ch. 90-132, §§ 14 and 17, Laws of Florida — 1990 amendments quoted in the TAA.
• Ch. 91-112, § 11, Laws of Florida — 1991 amendment quoted in the TAA.
• City of Lakeland v. Amos, 143 So. 744 (Fla. 1932).
• TAA 92(B)-001 — prior advisement referenced by the requester; this TAA supplied the requested clarification.
• Fla. Stat. § 213.22 — Technical Assistance Advisements.
• Fla. Stat. ch. 119 — public-record disclosure with identifying details deleted.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-084

Original ruling text

Nov 18, 1998

Re: Technical Assistance Advisement No. 98A-084
Gross Receipts Tax - Transportation of Natural Gas
Sections 203.01(1)(a), (6) and 203.012(9), F.S.
XXX (hereinafter Gas Company)
XXX (hereinafter GT)

Dear :

Your letter of XX, requested a Technical Assistance Advisement
on the application of the Gross Receipts Tax to the above
referenced matter. This response to your request constitutes a
Technical Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under the authority of
s. 213.22, Florida Statutes.

TAXPAYER'S STATEMENT

Actions by the Federal Energy Regulatory Commission (FERC) over
the last several years have resulted in a major restructuring in
the natural gas industry, impacting both interstate pipelines
and local distribution companies, such as Gas Company. FERC has
indicated the traditional role of pipelines as gas merchant is a
hindrance to the development of a competitive gas market. GT,
the pipeline which serves Gas Company, revised its tariff to
allow for transportation of customer-owned gas effective August
1, 1990.

On April 8, 1992, FERC issued order No. 636, which required
further changes in the structure of the service provided by GT.
FERC intended Order No. 636 to complete the transition to a
competitive natural gas industry. As a result, GT was required
to restructure its services in the manner provided in the order.
GT's revised tariffs became effective November 1, 1993, and
essentially eliminated GT's previous roles as a gas merchant and
provided for the nondiscriminatory transportation of natural gas
on its pipeline. The changes in GT's services mandated by FERC
over the past several years have dramatically impacted Gas

Company's operations, services and revenues.

Prior to August 1, 1990, Gas Company purchased all of its gas
from GT, which delivered the gas to Gas Company at various
points of interconnection in Florida (gate stations) between
GT's pipeline and Gas Company's distribution system. Gas
Company then sold the gas to its customers at the Florida Public
Service Commission (FPSC) approved tariff rate.

The FPSC approved tariff rates per unit of gas sold (all of
which was subject to gross receipts tax) consisted of the
following components:

Non-fuel rate - represents the Company's recovery of its
cost to serve the customer plus allowed return on equity.

Fuel rate - equals the current cost of gas delivered to the
customer.

Gas Company collected and remitted gross receipts tax on the
total of all non-fuel and fuel revenues (exclusive of Public
Authority) received prior to August 1, 1990.

Effective August 1, 1990, Gas Company and GT began to provide a
different service to certain customers. Instead of buying gas
from Gas Company, a customer may now purchase a portion of its
gas from suppliers other than Gas Company or GT outside of the
state of Florida. GT then transports the customer-owned gas
from points outside Florida to the point of interconnect between
GT and Gas Company. Gas Company thereafter transports the
customer-owned gas and delivers it to the customer. Between
August 1, 1990, and October 31, 1993, Gas Company transported
natural gas "on behalf of" its customers. This distinction is
important, since GT billed Gas Company for the pipeline's
charges for transporting customer-owned gas. Gas Company, in
turn, recovered those costs from each transportation customer as
described below. In connection with this new service, Gas
Company's rate per unit of gas transported to the customer
during this period consisted of the following components.

Non-fuel rate - represents the Company's recovery of its
cost to serve the customer plus allowed return on equity
(equal to the non-fuel rate the customer would pay if it
was a sales customer).

GT demand and commodity rates - recovery of the cost
charged by GT to Gas Company for transportation of each
unit of customer-owned gas. Again, with respect to the
period August 1, 1990, through October 31, 1993, Gas
Company collected and remitted gross receipts taxes on the
total of Gas Company's non-fuel revenues derived from
transportation as well as the revenues derived from the
recovery of GT's transportation charges.

GT's implementation of its revised FERC tariff in November 1993
eliminated the ability for Gas Company to transport "on behalf
of" its customers on GT's pipeline. Each of Gas Company's
transportation customers has also become a customer of GT, which
bills the customer directly for demand and commodity charges
incurred for transportation of customers' gas on the pipeline.
Effective November 1, 1993, Gas Company's rate per unit of gas
transported is only the non-fuel rate discussed above which
represents the Company's recovery of its cost to serve the
customer plus an allowed return on equity and, as stated before,
is equal to the non-fuel rate the customer would pay if it was a
sales customer.

Again, with respect to the period beginning November 1, 1993,
and continuing to the present, Gas Company has collected and
remitted gross receipts taxes on all non-fuel revenues derived
from transportation.

ISSUES

To Gas Company's knowledge, no authoritative order or regulation
has been promulgated by any governmental authority, including
the FPSC, with respect to this issue. However, due to the
potential magnitude of the taxes paid in error by Gas Company
and the 36-month limit generally applicable to refunds, Gas
Company believes it necessary to request this Technical
Assistance Advisement without waiting for a decision to be

rendered by the FPSC.

REQUEST FOR TECHNICAL ASSISTANCE ADVISEMENT

As stated previously, since August 1, 1990, [Gas Company]
has been including all transportation revenues as gross
receipts for purposes of calculating the gross receipts
tax. Furthermore, our FPSC authorized non-fuel rates
include a component to collect gross receipts tax on
transportation service. Therefore, due to the uncertainty
as to the specific application of a prior Technical
Assistance Advisement, No. 92(B)-001 (TAA) we are
requesting further clarification of the application of
gross receipts tax to receipts derived from charges for
transporting customer-owned gas.

We hereby request a ruling as to the following:

(1) Since the non-fuel charges received by [Gas Company]
from either a transportation or sales customer represents
recovery of the same cost of service, should the non-fuel
charges received by [Gas Company] for recovery of the cost
to serve a transportation customer be treated differently
than the receipts derived from non-fuel charges to sales
customers? Specifically, should the non-fuel revenues
received by [Gas Company] from a transportation customer be
excluded from gross receipts taxation?

(2) Should the gross receipts derived from recovery of
[GT's] transportation charges paid by [Gas Company] on
behalf of its customers be excluded from gross receipts
taxation?

PENDING REFUND REQUEST

Since current statutes generally limit applications for a
refund of funds paid into the State Treasury through error
to three years after the right to the refund has accrued
and due to the potential magnitude of the refund dollars
involved, [Gas Company] is simultaneously requesting a
refund of gross receipts tax paid in error on

transportation receipts.

DISCUSSION AND ANALYSIS OF LAW

Prior to the changes in s. 203.01, F.S., implemented by the
Florida Legislature during the 1990 regular session, s. 203.01,
F.S., which had been in effect in substantially the same form
since 1931, read, in part as follows:

203.01 Tax on gross receipts for utility services.--

(1)(a) Every person, including a municipal corporation,
that receives payment for electricity for light, heat, or
power; for natural or manufactured gas for light, heat, or
power; or for telecommunication services shall report by
the last day of each month to the Department of Revenue,
under oath of the secretary or some other officer of such
person, the total amount of gross receipts derived from
business done within this state, or between points within
this state, for the preceding month and, at the same time,
shall pay into the State Treasury an amount equal to a 1.5
percent of such gross receipts....

Effective July 1, 1990, s. 203.01, F.S., was amended by s. 14,
Chapter 90-132, L.O.F., to read as follows:

203.01 Tax on gross receipts for utility services.--

(1)(a) Every person that receives payment for any utility
service shall report by the last day of each month to the
Department of Revenue, under oath of the secretary or some
other officer of such person, the total amount of gross
receipts derived from business done within this state, or
between points within this state, for the preceding month
and, at the same time, shall pay into the State Treasury an
amount equal to a percentage of such gross receipts at the
rate set forth in paragraph (b)....

In conjunction with this change, the same law, in section 17,
added subsection (9) to s. 203.012, F.S., to read as follows:

203.012 Definitions.

(9) The term "utility service" means electricity for light,
heat, or power; natural or manufactured gas for light,
heat, or power; or telecommunication services.

Further guidance as to the extent of a business's receipts being
subject to the gross receipts tax may be found in s. 203.01(6),
F.S., as amended by section 11, Chapter 91-112, L.O.F., which
reads:

(6) The tax is imposed upon every person for the privilege
of conducting a utility business, and each provider of the
taxable services remains fully and completely liable for
the tax, even if the tax is separately stately as a line
item or component of the total bill. (Emphasis supplied)

CONCLUSION

If the statute is considered in light of the language used in
the title and body of s. 203.01, F.S., as originally adopted in
1931, and as subsequently reenacted in essentially the same form
and language, the words must be given the meaning accorded them
in common usage. The tax is imposed on all persons receiving
payment "for" the privilege of conducting a utility service, and
not for any ancillary services separate and distinct from the
sale of natural gas.

Florida courts have interpreted the gross receipts tax to be an
excise tax "... for the privilege of engaging in the business or
occupation of selling electricity, etc., and not upon money
received for sales, though the excise is measured by references
to gross receipts from such sales." City of Lakeland v. Amos,
143 So. 744 (Fla. 1932) at 747. The court was not concerned
with taxing money received for sales, profits, earnings, or the
net income of the business but rather using the gross receipts
derived from the sale of gas as a means of measuring or
determining the amount of the tax. Implicit in this opinion is
the understanding that the term "gross receipts," as used in s.
203.01, F.S., does not include the total income of a business,

such as income derived from mere transportation of gas to a
destination within this state.

Based on the foregoing authority, it is the Department's
position that the gross receipts tax is not payable on gross
receipts derived from charges for the transportation of
customer-owned natural gas, as distinguished from the sale of
natural gas.

Since title of the gas transferred to the Gas Company for the
period August 1, 1990, through October 31, 1993, this would
constitute a sale of the gas and not just a charge for
transportation. Therefore, the amount received from August 1,
1990, through October 31, 1993, is subject to the gross receipts
tax and that amount would not be available for a refund. After
October 31, 1993, the amount received is for transportation,
since title to the gas does not change from the Gas Company to
the customer. Therefore, effective for the period after October
31, 1993, since the Gas Company is receiving payment for the
transportation of the customer's gas, and not for the gas
itself, the receipts are not subject to gross receipts tax. Any
taxes paid incorrectly would be available for a possible refund
within the statute of limitations of such refund. However,
further information is necessary before it can be determined
what party is entitled to a refund, if any.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to

identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

If you have further questions with regard to this matter and
wish to discuss them, you may contact Technical Assistance and
Dispute Resolution, Department of Revenue, P.O. Box 7443,
Tallahassee, Florida 32314-7443.

Sincerely,

Bruce H. Williams
Technical Assistance and Dispute
Resolution

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