The letter said fees paid to power marketers for delivery of electricity are subject to state sales tax. This reverses a position the state took in 1997.

New York subjects to sales tax “receipts from every sale...of gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam service of whatever nature.” Sales for resale are exempted. The state ruled in 1985 that “contract carriage” of natural gas is not subject to sales tax. The contract carriage in the 1985 ruling was transportation by a pipeline company of natural gas owned by a consumer. The pipeline company never took title to the gas; it simply provided transportation services. Essentially the same ruling was issued for electricity in January 1997.

New York has now decided the electricity ruling was wrong. Steven U. Teiltelbaum, deputy commissioner of taxes, explained in a January 1 letter that electric utilities used to provide bundled services and collect sales tax on the entire charge to the consumer. The state does not see why the result should be different now that services are unbundled. The letter fails to explain why electricity transportation should be treated any differently than gas transportation has been historically.

The tax department is expected to issue a longer memorandum on the subject in the coming weeks. The change takes effect on April 1.

Keith Martin