When a utility must give a mandated 3% rate reduction to certified businesses in an economic development zone, how should it compute its section 186-a gross receipts tax and claim the offsetting credit?

Plain-English summary

New York law requires certain regulated utilities to give a 3% discount on gas, electric, steam, or water charges to businesses certified within a designated economic development zone (and that have claimed a related wages tax credit) -- but retail enterprises don't qualify for the discount. To soften the cost of this mandated discount, the law lets the utility claim a credit against its own section 186-a gross receipts tax equal to 97% of the total dollars it reduced customers' bills by during the year.

Con Edison asked the Department to confirm its method for applying this rule. Its bills include a base commodity charge plus an add-on reflecting the utility's own state and city gross-receipts tax burden. Con Edison's approach: take the full pre-discount charge (commodity charge plus the tax pass-through add-on), cut that total by 3% for an eligible customer, and only then add sales tax on top of the discounted amount before billing the customer. Using a worked example (a $69.85 commodity charge plus a 6.87% tax factor, totaling $74.65, discounted by 3% i.e. $2.24 to $72.41, with 8.25% sales tax added after), Con Edison would then compute its own section 186-a tax using the $72.41 discounted figure as the base (yielding $2.17 of tax) and claim a credit of $2.17 (97% of the $2.24 reduction) -- exactly offsetting the tax on the discounted portion.

The Department confirmed this procedure is correct: reducing the bill by 3% before computing the section 186-a tax, and then claiming a 97% credit on the dollar amount of that reduction, properly implements the statute and leaves the utility's net tax position unaffected by the mandated discount. It expressly did not address how the same transaction should be handled for purposes of New York City's separate tax on the utility.

What this means for you

Regulated utilities operating in economic development zones

If you must give the mandated 3% rate reduction to certified zone businesses, compute your section 186-a tax base using the post-reduction (discounted) charge, and then claim a credit equal to 97% of the dollar reduction given -- that combination is designed to make the reduction revenue-neutral to the utility's state gross receipts tax liability.

Certified zone businesses and their accountants

The 3% reduction applies before sales tax is added to the bill, not as a separate rebate after the fact -- useful to know when reconciling utility charges against the certification benefit.

Common questions

Q: Does the 3% discount apply to all businesses in an economic development zone?
A: No -- only to certified businesses (certified under General Municipal Law Article 18-B) that have claimed the related wages tax credit, and retail enterprises are excluded entirely.

Q: Does this ruling say how the utility should handle New York City's tax on the same transaction?
A: No. The Department explicitly declined to address the NYC tax computation.

Q: Can another utility rely on this computation method?
A: No. This opinion binds the Department only as to this petitioner's specific facts and can't be relied on by other utilities, though the underlying statutory mechanics (3% reduction, 97% credit) apply to all covered utilities under section 186-a(8).

Citations and references

Statutes and regulations:

• Tax Law § 186-a and § 186-a(8) (mandated rate reduction and offsetting credit)
• General Municipal Law Article 18-B (economic development zone certification)
• Tax Law §§ 210.19, 606(k), 1456(e), 1511(g) (wages credit cross-references); § 210.12(k) (retail enterprise exclusion)
• TSB-M-86(13) Corporation Tax (November 24, 1986)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_29c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (29) C
Corporation Tax
December 2, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C870807A

On August 7, 1987, a Petition for Advisory Opinion was received from Consolidated Edison
Company of New York, Inc., 4 Irving Place-Room 208, New York, New York 10003.
At issue is the proper computation of the gross receipts tax imposed by section 186-a of the
Tax Law where reduced charges for electricity, gas, steam, and water, in an economic development
zone, are mandated pursuant to subdivision 8 of section 186-a.
Subdivision 8 of section 186-a provides that any utility subject to tax under such section and
subject to the supervision of the Department of Public Service, must provide, in addition to any other
discount, a reduction of three percent in the rate charged for gas, electricity, steam or water sold, or
gas, electric, steam or water service rendered, for ultimate consumption or use within an area
designated as an economic development zone pursuant to Article 18-B of the General Municipal Law
by a certified business, whether incorporated or unincorporated, which has been certified pursuant
to Article 18-B of the General Municipal Law, and which has claimed the wages credit (section
210.19, section 606(k), section 1456(e) or section 1511(g) of the Tax Law) during the previous 15
months, as evidenced by a certificate issued by the Tax Commission to such business. For purposes
of this rate reduction, retail enterprises, as defined in section 210.12(k) of Article 9-A of the Tax
Law, are not entitled to such reduction. Ninety-seven percent of the aggregate of such reductions
during the year may be applied as a credit against the tax imposed under section 186-a for that year.
Technical Services Bureau Memorandum, TSB-M-86(13) Corporation Tax, dated November 24,
1986.
Petitioner's rates include both a basic commodity charge as well as an additional amount
designed to reflect the various gross income taxes Petitioner is required to pay as a result of
providing utility services. Petitioner interprets subdivision 8 of section 186-a as requiring it to reduce
the final bill to an eligible customer by three percent. Petitioner would then add applicable sales
taxes to the reduced final bill. The following example illustrates this approach.
Example
Assume a New York City commercial customer with an April, 1987 electric usage of 500
kilowatt hours. The customer's basic commodity charge for the month, including the fuel adjustment,
would be $69.85. To this would be added the tax factor discussed above to cover the State and City
gross income taxes, including the applicable MTA surcharge, at a rate of 6.87%, for a total charge,
before sales taxes, of $74.65. This amount would be reduced by 3% ($2.24) to $72.41, to which the
8.25% sales tax would be added before rendering a bill to the customer. (Because Petitioner merely
acts as the collector of the customer's sales tax obligation, these computations are irrelevant to the
example and are not detailed.)

-2­
TSB-A-87 (29) C
Corporation Tax
December 2, 1987

When computing its State and City gross income tax liability, Petitioner would record $72.41
as the base on which to compute the tax. With respect to the 3% tax imposed by section 186-a, its
liability in the example would be $2.17. At the same time, it would be entitled to a credit of $2.17
(97% of $2.24), thus making Petitioner whole for the mandated three percent reduction in its rates.
Conclusion
Petitioner's procedure outlined in the above example conforms with the requirements of
subdivision 8 of section 186-a and achieves a proper result. The credit provided under subdivision
8 of section 186-a equals the gross receipts tax imposed where the gross receipts are derived from
sales or services rendered for ultimate consumption or use within an economic development zone.
No opinion is rendered with regard to the computation of the New York City tax.

DATED: December 2, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.