Gas Intertie

GAS INTERTIE payments may not have to be reported as taxable income.

August 01, 2002

GAS INTERTIE payments may not have to be reported as taxable income.

A power company must usually pay the cost of a gas lateral or tapline to connect its power plant to an interstate pipeline so that it can receive gas. The pipeline insists on owning the lateral. A corporation must usually report the value of property paid for by someone else as taxable income. Consequently, pipelines usually insist on a “tax grossup” in addition to reimbursement for the cost of the new line. The grossup makes it more costly for independent generators to tap into gas pipelines.

US policy is to collect taxes whenever a pipeline receives interconnection payments from one of its customers. However, at a recent meeting, Internal Revenue Service officials confirmed that there are some fact patterns where no tax would have to be paid. An example is where the gas supplier pays the cost of the lateral so that a power company can receive gas from the supplier.

Keith Martin