THE NEW YORK GAS IMPORT TAX is unconstitutional, a New York appeals court said in May
New York collects taxes on natural gas consumed in the state. The tax is collected by the local distribution company. However, large industrial consumers of gas can avoid the tax by buying gas directly at the gas field and paying a pipeline to transport it. Therefore, the state imposed a separate gas import tax “on the privilege or act of importing gas services or causing gas services to be imported into this state for [the importer’s] own use of consumption in this state.” The tax is 4.25% of the gas price.
Tennessee Gas Pipeline Co. owns an interstate pipeline that runs through New York. The company draws on some of the gas it is transporting cross state to operate pumps or compressors along the pipeline. The state assessed it for $1.6 million in back taxes. The court said the tax was unconstitutional because it burdened interstate commerce. The pipeline company argued that there was no mechanism for giving it credit to the extent it had already paid taxes on the same gas to another state. The state legislature had foreseen this potential problem. The tax has a “savings clause” directing a court to interpret it in a way that allowed credit for taxes paid to other states if necessary to uphold the tax, but the appeals court said it was not its job to rewrite the tax.
Most power plant owners who are importing self-help gas into New York have filed protective refund claims with the state. The governor asked the state legislature in May to amend the tax retroactively to provide for a credit. The measure passed the state Assembly, but stalled in the Senate. The effort has now been put on hold.