A new administrative decision subjecting transportation ofelectricity to New York’s sales tax has the potential to underminethe state’s fledgling efforts to restructure its retail powermarkets, says the head of a trade group representing energymarketers and other suppliers.
In issuing the opinion over the holidays, counsel for New York’sDepartment of Taxation and Revenue repealed a decades-old energylaw exempting the transportation of electricity from the state’ssales tax, said Craig Goodman, president of the National EnergyMarketers Association (NEMA). The decision was based on theexistence, as of the end of 1998, of what counsel believed to be a “restructured environment” for electricity in the state.Specifically, it imposed an 8% tax on industrial and commercialtransporters of power and a 4% tax on residential transporterseffective Jan. 1.
For now, the ruling doesn’t apply to natural gas transportation,”but legally and technically it could, and it’s a concern to somepeople,” he noted. “We’re hoping that it will not be expanded toinclude the gas market.”
Goodman called the new energy tax a “real setback” to the adventof state-wide competition in New York’s retail power market. Hesaid it was a “very regressive” levy, meaning that it would hurtlower income consumers most, and directly would affect thoseelectricity consumers that elect their service providers, “which isexactly the opposite of what you want to do when you’re trying tostart a restructured program in the state.”
States shouldn’t change their energy tax programs until afterthey have fully implemented retail choice, said Goodman, an experton energy tax law. “And then there should be a full restructuringof all the taxes so that [they’re] fair and competitively neutral.”Choice in New York is still in the pilot stage.
The tax law, which is only 12 days old, already has begun totake its toll on NEMA members and their customers, he said. Onemember reported that the effect of the New York energy tax on just350 of his accounts has been $200 million so far, according toGoodman. “That is a huge impact, and would wipe out all the savingsof choice.”
As a result of the new tax, he also believes the state itselfwill be a big loser. “…[W]hen I did a quantitative analysis ofthese type of taxes, [I] found that the state lost more in revenuesby imposing this kind of a tax than they did by allowing energyprices to decline.” The lower revenues were largely owing to thedecreased profitability of businesses located within the state andlower consumer spending, Goodman said.
NEMA isn’t taking the new tax lying down. “We have a three-frontapproach: we’re appealing directly to the governor; we areappealing to the legislature; and we’re looking into legalmeasures,” he noted.
The trade group was created specifically to work with federaland state regulators and legislators, and consumer groups to devise”fair and effective ways” to implement restructuring of both thenatural gas and electricity markets. Some of its largest membersinclude Columbia Energy, Dynegy Inc., Amerada Hess, ConEdSolutions, PSE&G Technologies and The Williams Cos.
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