Natural Gas

Natural Gas

July 10, 2010

Natural gas purchased in Indiana by independent power companies for use in generating electricity is exempted from state gross receipts taxes, the Indiana tax court held in June.

Gross receipts taxes are equivalent to sales taxes. The taxes are collected only on retail sales as opposed to wholesale sales.

Mirant, a large US independent power company, argued that it should not have to pay gross receipts taxes on natural gas purchased from an out-of-state supplier to run its Sugar Creek power plant in Terre Haute, Indiana. The state argued the tax applied because Mirant was the end user of the gas. A “retail” sale — as distinguished from a wholesale sale — occurs when the product is not resold. The state argued that Mirant converted the gas into something else.

The state tax court agreed with Mirant. It said the tax is on “utility services.” Mirant bought a utility service — gas — and then resold one — electricity.

The case is Mirant Sugar Creek, LLC v. Indiana Department of State Revenue. The court rendered a decision in the case on June 16.

By Keith Martin