97-054
Response
October 8, 1997
August
20, 1997
RE: Municipal Energy Sales & Use Tax Act
Dear
Commissioners:
On
behalf of COMPANY A("COMPANY A"), we request a ruling on the proper
application of the Utah Sales & Use Tax Act ("the Sales Tax Act")
and the Municipal Energy Sales & Use Tax Act (the "Energy Tax
Act") to sales of electricity by COMPANY A to its customers.
As
you know, Utah Code Ann. §59-l-103(1)(c) ("UCA") imposes sales tax on
"the amount paid or charged" for electricity sold for commercial use
and §59-12-103(d) imposes sales tax, at a lesser rate, on "the amount paid
or charged" for electricity sold for residential use.
UCA
§10-1-304 authorizes a municipality to
levy a municipality Energy Sales and Use Tax on the delivered value of taxable
energy. Delivered value is specifically defined to exclude the amount of any
sales or use tax paid. See UCA §10-1-303(3)(b).
Although
COMPANY A, as an energy supplier, is required to collect the Energy Tax
pursuant to §10-1-307, it is clear that the tax is not being paid to COMPANY A
for electricity. COMPANY A must forward the tax either to the Commission
pursuant to §10-1-307(1) or directly to the municipality pursuant to
§10-1-307(3). Thus, the municipal energy sales and use tax is not "an
amount paid or charged" by the seller for electricity. It is an amount charged by the CITY. a
governmental entity, as an excise tax for the privilege of purchasing and using
taxable energy within the CITY.
Because
the legal incidence of the Energy Tax falls very clearly on the consumer of the
energy, the Tax Commission's prior practice concerning the old contractual
utility franchise fees is irrelevant. Utility franchise fees and taxes are
imposed directly on the utilities themselves. The utilities paid the taxes or
fees, but the Public Service Commission authorized them to include and
separately
itemize an amount equal to that tax in the sales price they charged their
customers for electricity. Nevertheless, the legal incidence of the tax in that
case fell on the utilities. It did not fall on the energy consumer. Thus,
residences, businesses, exempt charities, and the local, state and federal
government all paid a price for the electricity that included the utility
franchise fee or tax.
The
Energy Tax, however, is clearly a tax imposed on the consumer. It is not
included in the purchase price of the underlying electricity itself. The
federal government does not pay the tax, nor is the amount of the tax included
in the amount paid by the federal government or charged to the federal
government. UCA §10-1-305(2)(b)(ii). Nor is the tax included in the amount paid
or charged for electricity sold for resale, for use in compounding other
energy, for use outside the municipality, or for uses other than as fuel or
energy. UCA §10-1-305(2)(b)(iii), (iv), (vi) and (vii). Yet all these consumers
pay the same rates for the electricity itself.
The
imposition of the Sales Tax on the Energy Tax would be an impermissible tax on
a tax, not a tax on the sale or use of taxable energy. The Act itself,
precludes this possibility. The Energy Tax is imposed on "delivered
value." UCA §10-1-304. "Delivered value" is, ordinarily, the
"arm's length sales price." UCA § l0-1-306(2)(a). An arm's length
sales price is also normally the price on which the Sales Tax is imposed.
"Delivered value", however, is defined also to exclude state and
local sales and use tax. See UCA §10-1-301(3)(b). Thus, it is clear that the
legislature contemplated that an arm's length price would be the base for both
the Sales Tax and the Energy Tax. The Sales Tax base is not increased by the
Energy Tax paid and the Energy Tax Base is not
increased
by the Sales Tax paid.
Accordingly,
we respectfully request a ruling that the sales tax base on which the state and
local sales and use tax must be collected, does not include the Municipal
Energy Sales and Use tax.
Because
the CITY has already imposed a Municipal Energy Sales and Use Tax, COMPANY A is currently billing and collecting that
tax along with state and local sales
taxes. It is essential, therefore, that guidance be received as soon as
possible. Accordingly, we request your prompt attention to this matter.
If
the Commission has any questions regarding this matter or contemplates an
unfavorable ruling for any reason, we respectfully request the opportunity to meet with you prior to
issuance of such a ruling.
Very
truly yours,
NAME
October
8, 1997
NAME
ADDRESS
CITY
STATE ZIP
Advisory
Opinion - Tax base used for calculating sales tax and municipal energy sale and
use tax.
Dear
NAME,
We have received your request for
sales tax guidance pertaining to taxable sales of electricity. We offer the following guidance:
Under section 10-1-304 of the Utah
Code, a municipality may levy a on energy sales and use. The tax base is the “delivered value of the
taxable energy.” “Delivered value” is
defined in section 10-1-303 of the Utah Code as the fair market value of the
energy, plus transportation and other customer charges, but excludes sales tax
imposed pursuant to Title 59, Chapter 12, Parts 1 and 2. In other words, sales and use tax assessed
under Title 59 are not to be included in the amount upon which the municipal
tax is levied.
With regard to other local sales and
use taxes imposed by local governments, Utah Code section 59-12-204 bars the
inclusion of sales tax imposed under Title 59, Chapter 1, Part 1 (“Part 1 tax”)
in the amount on which sales tax is calculated. Additionally, in most cases the legislature has carefully worded
the statutes which authorize local taxes under Part 2 (“Part 2 taxes”) so as to
avoid the imposition of one tax on the other.
For instance, the resort communities tax authorized by section 59-12-401
is imposed in addition to other sales taxes. From a functional standpoint, the tax rates are added together
and applied to the purchase price.
We find no specific statutory
guidance on the issue of whether the amount charged as municipal energy tax becomes part of the tax
base for purposes of calculating Part 1 taxes. However, the legislature has generally contemplated that the
various sales taxes will be added to
one
another in determining an overall tax rate.
Therefore, in the absence of legislative direction to the contrary, it
is our position that the amount charged for the municipal energy tax is not
subject to Part 1 sales tax as part of the tax base.
Please let us know if you have other
questions or concerns.
For
the Commission,
Joe
B. Pacheco,
Commissioner