NY TSB-A-96(38)S, (16)C Sales Tax; Corporation Tax 1996-07-02

How are a utility's tolling fees for burning marketers' gas to produce the marketers' electricity, and the marketers' imported gas, taxed under sections 186, 186-a, 189 and the sales tax?

Short answer: Marketers that import out-of-state gas into Con Edison's system to be burned into their own electricity are section 189 gas importers, and Con Edison -- the public utility delivering the gas -- must collect the section 189/189-a/189-b tax from them; gas the marketers buy within New York is not imported and is not subject to section 189. Con Edison's fee for converting the marketers' gas into electricity is gross earnings subject to section 186 (and surcharges 186-b/188); because Con Edison does not own or sell that electricity, it is the profit from the fee that is gross income under section 186-a (and surcharges 186-c/188). The tolling fee is not subject to sales tax: gas is not tangible personal property except for the section 1105(b) tax, so the section 1105(c)(2) processing tax does not apply and the service is not otherwise enumerated.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Consolidated Edison entered tolling arrangements with gas/electricity marketers: the marketers deliver their own natural gas into Con Edison's system at the New York CityGate, Con Edison burns it to produce electricity that belongs to the marketers, and Con Edison charges a fee for the conversion. Con Edison never takes title to the gas or the electricity. The petition asked how the marketers' gas and Con Edison's fee are taxed under sections 189, 186, 186-a and the sales tax.

The Department answered question by question:

Section 189 (gas importer tax). Marketers that import gas from out of state for their own use (burning it into electricity in New York) are gas importers subject to section 189 (and surcharges 189-a/189-b). As the public utility delivering the gas, Con Edison must collect the tax from the marketers under section 189.3. Gas the marketers buy within New York is not imported, so no section 189 tax applies to it.
Section 186 (gross earnings). Con Edison's fee for producing electricity is gross earnings subject to section 186 (and surcharges 186-b/188).
Section 186-a (gross income). Because Con Edison does not own or sell the electricity, there is no electricity sale; instead it is the profit from the production fee that is gross income under section 186-a (and surcharges 186-c/188).
Sales tax. Gas is not tangible personal property except for the section 1105(b) tax (section 1101(b)(6)), so the section 1105(c)(2) tax on processing TPP does not apply to burning the gas; and because the service is not otherwise enumerated, Con Edison's tolling fee is not subject to sales/use tax.

What this means for you

Importing out-of-state gas for your own use triggers section 189 -- collected by the delivering utility

A marketer that brings out-of-state gas into New York to burn into its own electricity is a section 189 gas importer; the public utility that delivers the gas collects the importer tax (and surcharges). Gas bought within New York is not an import.

A utility's tolling fee is gross earnings (186) and the profit is gross income (186-a)

A fee for converting a customer's gas into the customer's electricity is section 186 gross earnings; because the utility neither owns nor sells the electricity, only the profit from the fee is section 186-a gross income.

Tolling a customer's gas is not a taxable sales-tax service

Gas is TPP only for the section 1105(b) tax, so burning a customer's gas is not the taxable "processing" of tangible personal property under section 1105(c)(2), and the service is not otherwise enumerated -- so the fee is not sales-taxed.

Common questions

Q: Are marketers that import gas to make electricity gas importers under section 189?
A: Yes, for gas purchased out of state and imported for their own use; the delivering public utility must collect the tax. Gas purchased within New York is not imported.

Q: How is the utility's production fee taxed?
A: As section 186 gross earnings; and because the utility does not own or sell the electricity, the profit from the fee is section 186-a gross income (each with its surcharges).

Q: Is the tolling fee subject to sales tax?
A: No. Gas is not TPP except for section 1105(b), so the section 1105(c)(2) processing tax does not apply, and the service is not otherwise enumerated.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 189 (gas importer privilege tax); sections 189-a, 189-b (surcharges); section 189.3 (public utility collects the tax)
- Tax Law section 186 (gross earnings); sections 186-b, 188 (surcharges)
- Tax Law section 186-a (gross income; profits from a transaction); section 186-c (surcharge)
- Tax Law section 1105(c)(2) (processing tangible personal property); section 1101(b)(6) (gas is TPP only for section 1105(b)); 20 NYCRR 527.4(d)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (38) S
Sales Tax
TSB-A-96 (16) C
Corporation Tax
July 2, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z951004A

On October 4, 1995, a Petition for Advisory Opinion was received from Consolidated Edison
Company of New York, Inc., 4 Irving Place - Room 200, New York, New York 10003.
The issues raised by Petitioner, Consolidated Edison Company of New York, Inc., concern
the taxes imposed under sections 186, 186-a, 186-b, 186-c, 188 and 189 of Article 9 of the Tax Law
and sales tax imposed under Article 28 of the Tax Law based on the facts presented.
Petitioner submits the following facts and questions as the basis for this Advisory Opinion.
Petitioner is an investor owned regulated public utility incorporated in New York State.
Petitioner supplies electricity and electric services in all of New York City (except part of Queens)
and most of Westchester County. It also supplies gas and gas services in Manhattan, the Bronx and
parts of Queens and Westchester County, as well as steam and steam services in Manhattan.
Petitioner has entered into agreements with several gas/electricity marketers ("marketers").
The marketers are, for the most part, non-regulated companies, but one company was a New York
regulated public utility. They are located throughout the continental United States. These marketers
deliver natural gas that they own into Petitioner's system for Petitioner to burn as fuel to produce
electricity that the marketers own. Petitioner receives a fee for this production of electricity.
Petitioner never takes title to the gas used in these transactions.
The natural gas is delivered into Petitioner's system through the New York CityGate. The
CityGate refers to the points of interconnection between the pipelines' facilities and Petitioner's
facilities. All of the interconnections are in New York State. Petitioner has two interconnections in
Manhattan and six in Westchester County. Brooklyn Union Gas ("BUG") has two interconnections
in Staten Island and the Long Island Lighting Company ("LILCO") has one interconnection in
Nassau Country and one in Suffolk County. Some of the gas involved in these transactions is
delivered through the interconnections of BUG and LILCO into Petitioner's system. The gas which
the marketers deliver into Petitioner's system is either imported into New York by the marketers
from out-of-state or bought by the marketers from sources within New York State.
The electricity which Petitioner generates from the burning of the marketers' gas
belongs to the marketers and is produced in direct proportion to the amount of gas delivered into
Petitioner's system by the marketers. Petitioner states that it does not sell electricity to the
marketers, but merely converts the marketer's gas into electricity for a fee. For purposes of the

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advisory opinion it is assumed that the transaction is structured in this manner. The amount of
energy generated is based upon the amount of gas provided. Generally, the electricity can be sold
by the marketers to a third party (commercial end-user, Independent Power Producers or utility), but
in many instances the electricity is sold to Petitioner. Petitioner, in turn, resells the electricity to its
customers.
Issue I - Sections 189, 189-a and 189-b of the Tax Law
Section 189.2 of the Tax Law imposes a monthly privilege tax on every gas importer for "the
privilege or act of importing gas services or causing gas services to be imported into this state for
its own use or consumption in this state."
Section 189.1(a) of the Tax Law defines "gas services" as gas delivered through mains or
pipes. Section 189.1(b) defines "gas importer" as:
every person who imports or causes to be imported into this state services which have
been purchased outside the state for its own use or consumption in this state,
provided such term does not include a public utility subject to the jurisdiction of the
public service commission as to the matter of rates on sales to customers.
Section 189.3 of the Tax Law provides that if the gas services are delivered in New York
State to the gas importer by a public utility, the public utility making the delivery is required to
collect the tax imposed by section 189 of the Tax Law.
Section 189-a of the Tax Law imposes a temporary metropolitan transportation tax surcharge
on every gas importer importing or causing gas service to be imported into New York State for its
own use or consumption in the metropolitan commuter transportation district.
Section 189-b of the Tax Law imposes a tax surcharge in addition to the tax imposed under
section 189 of the Tax Law.
Questions:
Imported Gas
(1) Are the marketers "gas importers" subject to the tax imposed under section 189, with regard to
the gas that they have purchased outside of New York State and that is delivered to Petitioner's
system for the purpose of producing electricity?
Answer: Yes. The marketers are gas importers subject to the tax imposed under section 189 of the
Tax Law. The marketers are purchasing natural gas outside New York State and importing
the gas into New York State for their own use in producing electricity in New York State.

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That is, the marketers are delivering the gas into Petitioner's system, in New York State, for
the purpose of burning the gas to produce the marketers' electricity.
(2) If the marketers are gas importers subject to tax under section 189, is Petitioner required to
collect, from the marketers, the tax imposed by this section?
Answer: Yes. Petitioner is a public utility that delivers the marketers imported gas from the New
York CityGate to Petitioner's facilities. This activity is separate from Petitioner's activity of
producing electricity for the marketers. Pursuant to section 189.3 of the Tax Law, Petitioner
is required to collect, from the marketers, the tax imposed under section 189.
(3) Are the marketers "gas importers" subject to the tax surcharges imposed under sections 189-a
and 189-b, with regard to the gas that they have purchased outside of New York State and that is
delivered to Petitioner's system for the purpose of producing electricity?
Answer: Yes. Same reason as in the answer to Question (1).
(4) If the marketers are "gas importers" subject to the tax surcharges imposed under sections 189-a
and 189-b, is Petitioner required to collect, from the marketers, the tax surcharges imposed by these
sections?
Answer: Yes. Both sections 189-a.2 and 189-b.2 of the Tax Law provide that the provisions
concerning payment and collection of tax in section 189.3 of the Tax Law are applicable to
these sections. See answer to Question (2).
Gas Purchased Within New York State
(5) Are the marketers "gas importers" subject to the tax imposed under section 189, with regard to
the gas that is purchased within New York State and that is delivered into Petitioner's system for the
purpose of producing electricity?
Answer: No. Since the marketers are purchasing the gas within New York State, there is no gas
importation.
(6) If the marketers are gas importers subject to the tax imposed under section 189 with regard to
their in-state purchases of gas, is Petitioner required to collect, from the marketers, the tax imposed
by this section?
Answer: No. See the answer to Question (5).
(7) Are the marketers "gas importers" subject to the tax surcharges imposed under sections 189-a
and 189-b, with regard to the gas that is purchased within New York State and that is delivered into
Petitioner's system for the purpose of producing electricity?

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Answer: No. Same reason as in the answer to Question (5).
(8) If the marketers are gas importers subject to the tax surcharges imposed under sections 189-a
and 189-b with regard to their in-state purchases of gas, is Petitioner required to collect, from the
marketers, the tax surcharges imposed by these sections?
Answer: No. See the answer to Question (5).
Issue II - Sections 186, 186-a, 186-b, 186-c and 188 of the Tax Law
Section 186 of the Tax Law imposes a franchise tax on every corporation formed for or
principally engaged in the business of supplying electricity, steam or gas when delivered through
mains or pipes. The tax is imposed for the privilege of exercising its corporate franchise or carrying
on its business in such corporate or organized capacity in New York State. The tax is based, in part,
upon gross earnings from all sources within New York State. The term "gross earnings" means all
receipts from the employment of capital without any deduction.
Section 186-a of the Tax Law imposes a tax on the "gross income" of every utility doing
business in New York State which is subject to the supervision of the Department of Public Service.
A "utility" includes every person "who sells gas ... delivered through mains [or] pipes ... or furnishes
gas ... by means of mains [or] pipes ... regardless of whether such activities are the main business
of such person or are only incidental thereto." "Gross income" is defined, in pertinent part, as
meaning and including (a) receipts received in or by reason of any sale, conditional or otherwise,
made or service rendered for ultimate consumption or use by the purchaser in New York State, and
(b) profits from any transaction (except sales for resale and rentals) within New York State.
Section 186-b of the Tax Law imposes a temporary metropolitan transportation business tax
surcharge on utilities doing business in the metropolitan commuter transportation district in addition
to the tax imposed by section 186 of the Tax Law.
Section 186-c of the Tax Law imposes a temporary metropolitan transportation business tax
surcharge on every utility doing business in the metropolitan commuter transportation district in
addition to the tax imposed by section 186-a of the Tax Law.
Section 188 of the Tax Law imposes a tax surcharge in addition to the taxes imposed under
section 186 and 186-a of the Tax Law.
Questions:
(9) Is the fee that Petitioner charges the marketers, to burn the marketers' gas to produce electricity,
"gross earnings" subject to the tax imposed under section 186?

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Answer: Yes. Section 186.1 of the Tax Law defines "gross earnings" as all receipts from the
employment of capital without any deduction.
(10) Is the fee that Petitioner charges the marketers, to burn the marketers' gas to produce electricity,
"gross earnings" subject to the tax surcharges imposed under sections 186-b and 1887
Answer: Yes. Same reason as in the answer to Question (9). Under sections 186-b and 188 of the
Tax Law, the tax surcharges imposed are computed as a percentage of the tax imposed under
section 186 of the Tax Law.
(11) Is the profit from the fee that Petitioner charges the marketers, to burn the marketers' gas to
produce electricity, "gross income" subject to the tax imposed under section 186-a?
Answer: Yes. Pursuant to section 186-a.2 of the Tax Law, gross income includes receipts from the
sale of electricity and the profits from any transaction within New York State that is not
enumerated in the definition. Since Petitioner does not own the electricity that it produces
for the marketers, Petitioner can not sell that electricity. Therefore, it is the profit from the
fee that Petitioner charges the marketers to produce the electricity that is included in gross
income under section 186-a of the Tax Law.
(12) Is the profit from the fee that Petitioner charges the marketers, to burn the marketers' gas to
produce electricity, "gross income" subject to the tax surcharges imposed under sections 186-c and
1887
Answer: Yes. Same reason as in the answer to Question (11). Under section 186-c and 188 of the
Tax Law, the tax surcharges imposed are computed as a percentage of the tax imposed under
section 186-a of the Tax Law.
Issue III - Sales Tax
Section 1105 of the Tax Law states in part:
Imposition of sales tax. On and after ... there is hereby imposed and there shall be
paid a tax ... upon:
(a) The receipts from every retail sale of tangible personal property, ....
(b) The receipts from every sale, other than sales for resale, of gas, electricity,
refrigeration and steam, and gas, electric, refrigeration and steam service of whatever
nature ....
(c) The receipts from every sale, except for resale, of the following services:
*

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(2) Producing, fabricating, processing, printing or imprinting tangible personal
property, performed for a person who directly or indirectly furnishes the tangible
personal property, not purchased by him for resale, upon which such services are
performed.
Section 527.4(d) of the Sales Tax Regulations defines processing as "the performance of any
service on tangible personal property for the owner which effects a change in the nature, shape, or
form of the property."
Section l101(b)(6) of the Tax Law defines the term "tangible personal property" in part as
follows:
Tangible personal property. Corporeal personal property of any nature. However,
except for purposes of the tax imposed by subdivision (b) of section eleven hundred
five, such term shall not include gas, electricity, refrigeration and steam ....
Question:
(13) Is the fee that Petitioner charges the marketers, to burn the marketers' gas to produce electricity,
subject to sales tax?
Answer: In this case, Petitioner neither owns the gas nor the electricity it produces by burning the
gas. Petitioner merely charges the owner of the gas (the Marketer) a fee for producing electricity by
burning the marketers' gas. Generally, the electricity can be sold by the marketer to a third party
(commercial end-user, independent power producers or utility), but in many instances the electricity
is sold to Petitioner.
By virtue of section l101(b)(6) of the Tax Law, the gas supplied to Petitioner by the
marketers is not considered to be tangible personal property. Therefore section 1105(c)(2) is not
applicable. The construction of section 1105(c) of the Tax Law is such that unless a service is
specifically subjected to tax, it is outside the scope of the Sales Tax Law and thus not subject to sales
tax. The fee that Petitioner charges the marketers to produce electricity by burning the marketers'
gas is outside the scope of the Sales Tax Law, and is not subject to the sales and compensating use
taxes.

DATED: July 2, 1996

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau
The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.