INTERSTATE GAS PIPELINE COMPANIES are not overburdened by the New York franchise tax, a state appeals court said
New York taxes the “gross earnings from all sources within this state” of companies in certain businesses, including in the business of supplying gas delivered through mains or pipes. The tax is imposed under section 186 of the state tax code.
Texas Eastern owns 1,900 miles of gas pipeline, of which 2.5 miles run into New York to a meter and regulating station on Staten Island. The company had gross earnings during the period 1989 through 1991 of between $1.4 and $2.0 billion a year. New York claimed that 7% to 8% of this income was earned in New York. Texas Eastern complained that this allocation looked solely at receipts from sales of gas in New York while ignoring the transportation over long distances that had to occur to bring the gas to New York. The company said the tax acts as an obstacle to interstate commerce because of the way it is imposed in violation of the commerce clause in the US constitution.
A New York appeals court disagreed in October.