LEXIS-NEXIS® Academic Universe-Document

LEXIS-NEXIS® Academic

April 21, 2000, Friday, CITY EDITION

SECTION: LOCAL, Pg. 1C

LENGTH: 887 words

HEADLINE: LOCAL TAX CHARGED ON UTILITY DELIVERY

BYLINE: BRIAN MEYER; News Business Reporter

BODY:

Residential customers who buy electricity and gas from independent marketers will have to start paying local sales taxes on utility delivery services, a revelation that is taking many consumers by surprise and is being assailed by some as a blow to deregulation.

Thousands of letters were mailed this week by Niagara Mohawk and New York State Electric & Gas informing customers that as a result of a recent state ruling, they must begin collecting the local sales tax on the portion of utility bills that cover delivery services.

The levy varies by municipality. For example, in Erie, Allegany and Orleans counties, residential customers will pay an extra 4 percent on the energy delivery portion of their bills. Customers in Niagara, Chautauqua and Cattaraugus counties will pay 3 percent. However, some school districts also impose 3 percent local levies, including Lackawanna, Niagara Falls and Batavia. While the impact will vary by community, usage patterns and fluctuations in the energy industry, many residential consumers will likely see their monthly electric bills and gas bills each increase by $ 1 to $ 2 as a result of the change.

"Everyone I know was under the impression that only businesses would be affected -- not homeowners," said one Town of Tonawanda resident who contacted The Buffalo News after receiving a letter from her utility. "You have to be a Philadelphia lawyer to understand what's going on. It's just ridiculous."

The confusion stems from a ruling issued earlier this month by the state Department of Taxation and Finance that determined that third-party delivery of electricity and natural gas services are subject to sales tax, reversing a 1997 opinion. Non-manufacturing businesses that signed on with independent energy marketers had to start paying sales tax, just as those companies who stayed with major utilities have to do.

Even with the change, New York continues to exempt residential and manufacturing customers from paying the 4 percent state sales tax. However, utility officials said the ruling means that companies must begin collecting local sales taxes on those accounts that have signed up with third-party marketers, just as they have always collected those taxes on accounts that have used the utilities for both supply and delivery of energy.

Critics have pointed out that the change comes as the Pataki administration and state legislators consider proposals for reducing energy costs, including a number of proposals for eliminating or scaling back the gross receipts tax.

Marc Carey, a state Tax Department spokesman, defended the recent decision and stressed that any increases in residential bills are the result of local sales taxes.

"That's not the state's money -- that's localities' money," said Carey. "We took this action because we had to close a loophole that was creating an unlevel playing field between energy marketers and the utilities."

State Assemblyman Robin Schimminger, D-Kenmore, agreed that many people were unaware that the recent state action would affect residential utility bills. He said he still holds out hope that as the state budget process moves into its final phases, steps will be taken to deal with a number of energy-related concerns.

"Any way you look at it, this is another tax on many residential customers, not to mention thousands of businesses across the state," said Schimminger, who is chairman of the Assembly Committee on Economic Development.

Schimminger is sponsoring energy-reform legislation that includes a phaseout of the gross receipts tax and would prohibit the imposition of sales tax on the transmission and delivery of energy.

The region's two major electricity providers sent letters to customers this week notifying customers of the changes. New York State Electric & Gas Co. recently mailed a letter to customers that said the state's "about-face" will cause energy delivery bills to increase by up to 8 percent.

"While NYSEG has frozen or reduced energy prices -- and aggressively promoted your ability to shop among competitive energy suppliers -- the state is now increasing your energy taxes. It just doesn't make sense," the letter stated.

National Fuel Resources, an unregulated energy supplier that has about 29,000 customers, said Thursday it is waiting to see how the final phases of the state budget process may affect energy taxes.

"Any additional tax that reduces customers' savings could impact on our program and hurt the momentum of deregulation," said Kevin D. Cotter, manager of new business development.

Donna L. DeCarolis, assistant vice president of marketing and corporate communications for National Fuel, said the utility is in discussions with third-party energy suppliers. She concurred that officials are worried that the recent state ruling and a number of pending proposals could have a negative impact on energy deregulation in New York.

About 12 percent of the residential customers in National Fuel's service territory have switched to independent marketers for their gas, significantly higher than the 7 percent statewide average.

"The state has been encouraging utilities to provide commodity choice. We're worried that policy shifts could seriously impede efforts to encourage a competitive marketplace," DeCarolis said.

LOAD-DATE: April 24, 2000