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News Briefings - State Taxes
The following article was taken from the 11/16/2009 issue of State & Local Taxes Weekly. 11/16/09 -- Pennsylvania High Court holds sales tax applies to delivery of electricity by Judith Richardson-Dunkley, Esq., Esq. (RIA)
The Pennsylvania Supreme Court has upheld a Commonwealth Court decision denying a refund of sales tax paid on "delivery" charges and other costs associated with the sale of electricity for commercial use, finding that the unbundling of electricity charges under the Competition Act did not affect the taxation of electricity under the Tax Code. (Spectrum Arena Limited
Separate charges. The taxpayer owns a sports and entertainment facility which purchased electricity from one provider that was delivered by another. The taxpayer paid sales tax on transmission services, distribution services, competitive transmission charges
Unbundled charges. The taxpayer appealed and argued that lower court ignored the impact of the Competition Act, which unbundled services for the delivery of electricity from the sale of electricity allowing consumers to purchase electricity from any provider they wished and have that electricity delivered by their local provider. The taxpayer also argued that the disputed charges met all the requirements necessary to qualify as "exempt" delivery charges under The Competition Act defines the retail sale of electricity as the "total value" of anything paid or delivered, or promised to be paid or delivered, whether in money or otherwise. The statute is plain and unambiguous, and the "total value" if electricity is not just the cost of the electricity itself, but all costs required for the energy to power the facility. The raw energy is not the end product, and cannot be utilized without some means of getting it to the consumer. In addition, the unbundling of the generation of electricity from the delivery of electricity under the Competition Act did not exempt delivery and transmission related charges from sales tax, but merely allowed consumers to choose an electrical provider in order to negotiate better rates and reduce costs. The taxpayer argued that the fact that the General Assembly made no corresponding amendment to the Tax Code means that the General Assembly did not intend for the delivery-related charges to be subject to sales tax. However, there was no amendment needed because the definition of "sale" already included the charges based on the definition set forth in the Public Utility Code. The Public Utility Code defines the "sale" of electricity as "[r]etail sales of electric generation, transmission, distribution or supply of electricity, dispatching services, consumer services, competitive transition charges, intangible transition charges and universal service and electricity conservation charges and such other retail sales in this Commonwealth." Since the Public Utility Code so clearly provides that the disputed charges are subject to sales tax, there was no need to modify the language of the Tax Code.
Case law. The taxpayer next argued that case law supports a finding that the legislature intended to exempt the disputed charges from sales tax. The taxpayer relied on PECO Energy
Exemption inapplicable. The taxpayer also argued that the disputed charges are clearly exempt under the plain language of
Disparate treatment. Lastly, the taxpayer argued that allowing the taxation of post deregulation delivery charges for electricity while exempting such charges with respect to natural gas improperly creates a disparate tax scheme. The taxpayer also pointed out that in the context of many other goods, delivery charges and similar incidental charges are not taxed, and that the General Assembly would not have intentionally created such a disparate tax scheme. However, |
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