Does the section 189.6 exemption from the gas-importer tax apply where the same entity both owns/operates the qualifying co-generation facility and is itself the thermal energy host?

Plain-English summary

Buffalo Paperboard Corporation makes paperboard at Lockport, New York and runs a co-generation "qualifying facility" (as defined by section 201 of the federal Public Utility Regulatory Policies Act of 1978) that produces electricity and steam -- which Buffalo Paperboard then uses in its own operations, making it the thermal energy host as well. Section 189 taxes gas importers on gas brought into New York for consumption; section 189.6 exempts gas imported by a qualifying co-generation facility and used to generate electricity/steam for a thermal energy host at or near the site. The question: does the exemption apply when one company is both the facility owner/operator and the thermal host?

Yes. An earlier opinion to the same company (TSB-A-95(3)C) had assumed Buffalo Paperboard would form a subsidiary (Buffalo Power Corporation) to own the facility while remaining the thermal host, and held the exemption applied. Here, with Buffalo Paperboard itself owning and operating the facility and being the thermal host, it still meets section 189.6. The exempt portion of imported gas is set by the statutory BTU formula: total gas used by the facility, multiplied by a fraction whose numerator is the BTU value of the steam plus electricity used by the host, over the total BTU value of all useful steam and electricity the facility produces.

What this means for you

One entity can be both facility and host

Section 189.6 does not require the qualifying facility and the thermal energy host to be separate companies. A manufacturer that runs its own co-generation facility and consumes the output qualifies.

The exemption is partial, set by a BTU formula

Only the share of imported gas tied to host-used energy is exempt. The exempt fraction is host-used steam+electricity BTUs divided by total useful steam+electricity BTUs produced.

The facility must be a PURPA "qualifying facility"

The exemption keys to the federal definition of a co-generation qualifying facility under section 201 of PURPA.

Common questions

Q: Do I need a separate subsidiary to own the co-generation facility?
A: No. The exemption applies whether a subsidiary or the company itself owns the facility, as long as the host uses the energy.

Q: Is all the imported gas exempt?
A: No -- only the portion determined by the section 189.6 BTU formula tied to energy used by the thermal host.

Q: What makes a facility 'qualifying'?
A: It must be a co-generation qualifying facility under section 201 of the federal Public Utility Regulatory Policies Act of 1978.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 189 (4 1/4% tax, plus surcharges, on every gas importer for gas imported for consumption)
- Tax Law section 189.6 (exemption for gas imported by a qualifying co-generation facility used by a thermal energy host; BTU proration formula)
- Public Utility Regulatory Policies Act of 1978 (Public Law 95-617), section 201 (co-generation qualifying facility)
- Buffalo Paperboard Corporation, TSB-A-95(3)C (prior opinion to the same company assuming a separate subsidiary owner)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a96_2c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (2) C
Corporation Tax
January 8, 1996

STATE OF NEW YORK
COMMISSIONER 0F TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C950824A

On August 24, 1995, a Petition for Advisory Opinion was received from Buffalo Paperboard
Corporation, 470 Ohio Street, Lockport, New York 14094.
The issue raised by Petitioner, Buffalo Paperboard Corporation, is whether a "co-generation
facility" or a "qualifying facility" which is a "co-generation facility," as these terms are used in
section 189.6 of the Tax Law, which is owned and operated by an entity which is also the thermal
energy host, is exempt from the tax imposed under section 189 of the Tax Law on the importation
of gas services for consumption.
Petitioner is a New York corporation that is principally engaged in the manufacture,
distribution and sale of gypsum grade paperboard. In connection with its operations, Petitioner
maintains and operates a "qualifying facility" which is a "co-generation facility," as that term is
defined by section 201 of the Public Utility Regulatory Policies Act of 1978, at its facilities located
in Lockport, New York. The electricity and steam produced by the Petitioner's co-generation facility
are also used by Petitioner at its facilities located in Lockport, New York. Consequently, Petitioner
states that it is also a thermal energy host within the meaning of section 189.6 of the Tax Law.
In an Advisory Opinion issued to Petitioner dated February 24, 1995, TSB-A-95(3)C, the
Commissioner of Taxation and Finance analyzed the application of the exemption provided by
section 189.6 of the Tax Law based on a statement of facts that assumed that Petitioner would form
a wholly-owned subsidiary corporation, Buffalo Power Corporation, to own the co-generation facility
while Petitioner remained the thermal host. Under such facts, it was held that Buffalo Power
Corporation would meet the requirements of section 189.6 of the Tax Law and that the portion of
natural gas imported into New York State by Buffalo Power Corporation that would be exempt from
the tax imposed under section 189 of the Tax Law would be determined by the formula contained
in section 189.6.
Section 189 of the Tax Law imposes a tax on every gas importer at the rate of 4 1/4% (plus
applicable surcharges) of the consideration given or contracted to be given for gas services imported
or caused to be imported into New York State.
Section 189.6 of the Tax Law provides an exemption for gas services imported by a
qualifying facility which is a co-generation facility pursuant to section 201 of the Public
Utility Regulatory Policies Act of 1978 (Public Law 95-617), and used to generate electricity and/or
steam that is used by a thermal energy host located at or near the project site. The portion of natural
gas services which is exempt is determined by multiplying the total amount of natural gas used by
the co-generation facility by a fraction, the numerator of which is the BTU value of
TP-9 (9/88)

-2­
TSB-A-96 (2) C
Corporation Tax
January 8, 1996

the steam used by the host plus the BTU value of the electricity used by the host and the denominator
of which is the total BTU value of all the useful steam and electricity produced by the co-generation
facility.
In this case, Petitioner states that it maintains and operates a qualifying facility which is a co­
generation facility, as that term is defined by section 201 of the Public Utility Regulatory Policies
Act of 1978, at its facilities located in Lockport, New York and that the electricity and steam
produced by the co-generation facility are also used by Petitioner in its paperboard operations at its
facilities located in Lockport, New York. Consequently, Petitioner is also a thermal energy host
within the meaning of section 189.6 of the Tax Law.
Accordingly, Petitioner will meet the requirements of section 189.6 of the Tax Law and the
portion of natural gas imported into New York State by Petitioner's co-generation facility that will
be exempt from the tax imposed under section 189 of the Tax Law is determined by the formula
contained in such section 189.6 of the Tax Law.

DATED: January 8, 1996

NOTE:

s/DORIS S. BAUMAN
Director
Technical Services Bureau

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