Must a gas vendor include in its section 186-a gross receipts the money it receives from selling natural gas to an independent power producer that burns the gas to generate electricity?
Plain-English summary
Mirant America's Energy Marketing, L.P., a utility under section 186-a, sells natural gas to Mirant Bowline, LLC, an independent power producer that burns the gas to generate electricity for the wholesale/deregulated market. Bowline is not a PSC-regulated utility. Title and possession pass to Bowline in New York. The vendor asked whether its receipts from these gas sales are part of its gross income/gross operating income under section 186-a.
The Department held yes. The vendor's receipts from selling gas to Bowline for use in generating electricity in New York are taxable receipts under section 186-a -- the full charge, with no deduction for the vendor's own 186-a tax expense that is built into the charge. As in TSB-A-05(1)C, the vendor may include and separately state its 186-a tax in the price (section 186-a.6), but that does not impose the tax on Bowline; the incidence of the section 186-a tax is on the selling utility (following New York Telephone v. Nassau, Sempra, and Brooklyn Union Gas).
What this means for you
Selling gas to a power generator is a taxable utility receipt
A gas vendor that is a section 186-a utility owes the gross receipts tax on its gas sales to an independent power producer, even though the buyer burns the gas to make electricity. The receipts include the entire charge, with no deduction for the vendor's own 186-a tax folded into the price.
Passing the tax through does not tax the buyer
The vendor may build its 186-a tax into the price and separately state it (section 186-a.6). That is recovery of the vendor's own expense -- the incidence stays on the selling utility, and the power producer is not being directly taxed.
Same incidence logic across utility taxes
This mirrors the electric-transmission result in TSB-A-05(1)C: a supplier's 186-a tax is the supplier's burden recovered through price, not a direct tax on the customer.
Common questions
Q: Are a gas vendor's sales to an independent power producer taxable under section 186-a?
A: Yes. The vendor's receipts from selling gas to a power producer that generates electricity in New York are taxable gross receipts -- the full charge.
Q: Can the vendor deduct its own 186-a tax from the receipts?
A: No. The taxable receipts include the entire charge, with no deduction for the vendor's 186-a tax expense built into the price.
Q: Does separately stating the tax shift it to the buyer?
A: No. The incidence stays on the selling utility; passing the tax through in the price does not impose it on the power producer.
Citations and references
Statutes, regulations, and authorities:
- Tax Law section 186-a (gross receipts tax on utilities)
- Tax Law section 186-a.6 (separately stating the tax on the bill)
- New York Telephone Company v. County of Nassau, 122 AD2d 124; Sempra Energy Trading Corp.
- Brooklyn Union Gas Company v. Commissioner of Taxation and Finance, 255 AD2d 80
- Mirant America's Energy Marketing, L.P., TSB-A-04(9)C (May 24, 2004)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2004.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a04_9c.pdf
Original ruling text
New York State Department of Taxation and Finance
Office of Tax Policy Analysis
Technical Services Division
TSB-A-04(9)C
Corporation Tax
May 24, 2004
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C031118A
On November 18, 2003, a Petition for Advisory Opinion was received from Mirant
America’s Energy Marketing, L.P., 1155 Perimeter Center West, Atlanta, Georgia 30338-5416.
The issue raised by Petitioner, Mirant America’s Energy Marketing, L.P., is whether a
vendor of natural gas must include its receipts from the sale of natural gas to a company that uses
the gas in the generation of electricity for sale to customers in the vendor’s gross income or gross
operating income under section 186-a of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Mirant Bowline, LLC (Bowline) is an independent power producer. Bowline operates a
natural-gas fired electricity generation facility located in Rockland County in New York State.
Bowline produces electricity that will be sold in the wholesale and the deregulated electricity
marketplace. Bowline is not a utility that is subject to regulation by the New York Public Service
Commission (PSC).
Petitioner sells natural gas to Bowline, which Bowline uses to power turbines that produce
electricity. Title to, and possession of, the gas transfers from Petitioner to Bowline in New York
State. Petitioner is a utility under section 186-a of the Tax Law.
Applicable law and regulations
Section 186-a of the Tax Law imposes a tax on the furnishing of utility services, and
provides, in part:
1. Notwithstanding any other provision of this chapter, or of any other law,
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(b) a tax equal to (1) ... two and one hundred twenty-five one thousandths percent
from January first, two thousand four through December thirty-first, two thousand four and
two percent commencing January first, two thousand five and thereafter of that portion of
its gross income derived from the transportation, transmission or distribution of gas or
electricity by means of conduits, mains, pipes, wires, lines or the like and (2) ... four-tenths
of one percent from January first, two thousand four through December thirty-first, two
thousand four and zero percent commencing January first, two thousand five of all of its
other gross income, is hereby imposed upon every utility not taxed under paragraph (a) of
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this subdivision doing business in this state which is subject to the supervision of the state
department of public service ...; and
(c) a tax equal to ... four-tenths of one percent from January first, two thousand four
through December thirty-first, two thousand four and zero percent commencing January
first, two thousand five of its gross operating income is hereby imposed upon every other
utility doing business in this state ... which taxes shall be in addition to any and all other
taxes and fees imposed by any other provision of law for the same period.
2. As used in this section,
(a) the word “utility” includes every person ... subject to the supervision of the state
department of public service ... and also includes every person (whether or not such person
is subject to such supervision) who sells gas, electricity, steam, water or refrigeration,
delivered through mains, pipes or wires, or furnishes gas, electric, steam, water or
refrigerator service, by means of mains, pipes, or wires; regardless of whether such activities
are the main business of such person or are only incidental thereto...;
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(c) the words “gross income” mean and include receipts received in or by reason of
any sale, conditional or otherwise, (except sales hereinafter referred to with respect to which
it is provided that profits from the sale shall be included in gross income) made or service
rendered for ultimate consumption or use by the purchaser in this state, ...
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(d) the words “gross operating income” mean and include receipts received in or by
reason of any sale, conditional or otherwise, made for ultimate consumption or use by the
purchaser of gas, electricity, steam, water or refrigeration, or in or by reason of the
furnishing for such consumption or use of gas, electric, steam, water or refrigerator service
in this state, ...
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- The tax imposed by this section shall be charged against and be paid by the utility
and may be added as a separate item to bills rendered by the utility to customers. Upon
request the utility shall furnish a statement of the amount of tax imposed by this section to
its customers for bills rendered on or after January first, two thousand.
Section 45.9(a) of the Tax on the Furnishing of Utility Services Regulations (section 186-a
Regulations) promulgated with respect to section 186-a of the Tax Law provides, in part:
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Receipts from sales or services for ultimate consumption or use by the purchaser in
this State are taxable, but receipts from sales for resale, as distinguished from sales for
consumption, are not taxable.
Opinion
In this case, Petitioner is a utility subject to the tax imposed under section 186-a of the Tax
Law. It is not clear from the facts whether Petitioner is taxable on its gross income or its gross
operating income. However, in either case, its receipts from sales of natural gas for ultimate
consumption or use in New York State are taxable receipts.
The natural gas that is used to power a natural-gas fired turbine that produces electricity is
used or consumed in the electric generation process, and does not become a component of the
electricity generated. Therefore, for purposes of section 186-a of the Tax Law, the sale of natural
gas that is used for such purpose in New York State is a sale for ultimate consumption or use by the
purchaser in New York State. Under section 45.9(a) of the section 186-a Regulations the sale of
natural gas that is consumed or used in the electric generation process is not a sale for resale.
The sales of natural gas by Petitioner to Bowline for use in the generation of electricity that
Bowline will sell to its customers are sales of natural gas by Petitioner for ultimate use or
consumption in New York State by Bowline. Since the incidence of the tax imposed under section
186-a of the Tax Law is on the seller, Petitioner’s receipts from the sale of natural gas to Bowline
for use or consumption by Bowline in the generation of electricity in New York State are taxable
receipts of Petitioner under section 186-a of the Tax Law.
In New York Telephone Company v County of Nassau, 122 AD2d 124, the defendant, Nassau
County, did not pay that portion of its telephone bills attributable to three taxes imposed upon the
plaintiff, New York Telephone Company, by New York State and local governments, asserting that
the policy of allowing the plaintiff to recover these tax payments from the consumer as an operating
expense was impermissible since New York State municipalities are exempt from taxation unless
otherwise stated. The Appellate Division held that the tax imposed under section 186-a of the Tax
Law on a utility constitutes a part of the operating costs of the utility, and held that the “imposition
of surcharges upon the defendant to recover these additional operating expenses is not the equivalent
of directly taxing the municipality.”
In Sempra Energy Trading Corp., Adv Op Comm T&F, December 18, 2002,
TSB-A-02(23)C, it was held that receipts from the sale of natural gas to the Power Authority for
consumption by the Power Authority were taxable receipts of Sempra under section 186-a of the Tax
Law. Pursuant to the Public Authorities Law, the tax imposed under section 186-a may not be
imposed on the Power Authority. However, it was determined that the tax was imposed on Sempra
Energy as a sale for ultimate consumption or use by the Power Authority, but the tax was not
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imposed on the Power Authority even though the amount of tax imposed on Sempra was a
separately stated item on the bill rendered to the Power Authority for its purchase of the gas.
Following New York Telephone, supra, and Sempra, supra, the tax imposed under section
186-a of the Tax Law on the receipts of a utility selling gas to end users is an expense of the utility
that may be included in the price that the utility charges for the sale of the gas, and may be
separately stated on the bill rendered to the purchaser pursuant to section 186-a.6 of the Tax Law.
However, the inclusion of such expense in the amount charged for the gas sold is not the equivalent
of directly taxing the purchaser of such gas. The incidence of the tax imposed under section 186-a
of the Tax Law is on the selling utility. (See also Brooklyn Union Gas Company v Commissioner
of Taxation and Finance, 255 AD2d 80.)
Petitioner’s receipts from the sale of natural gas to Bowline for use or consumption by
Bowline in the generation of electricity in New York State are taxable receipts of Petitioner under
section 186-a of the Tax Law. The taxable receipts include the total charge for the sale of such
natural gas, without any deduction or exclusion for the expense of Petitioner attributable to the tax
imposed on Petitioner under section 186-a of the Tax Law that is included in such total charge. The
tax imposed under section 186-a of the Tax Law on Petitioner is an expense of Petitioner that may
be included in the amount charged for the sale of natural gas that is sold to Bowline. However, the
inclusion of such expense does not result in the imposition of such section 186-a tax on Bowline
itself. See New York Telephone, supra, and Sempra, supra.
DATED: May 24, 2004
NOTE:
/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division
The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.