99-039

Response May 23, 2000

REQUEST LETTER

Municipal Energy involves natural gas and electricity.

COMPANY (COMPANY) is a third party supplier of natural gas to various users, one of which is COMPANY B (COMPANY B). The majority of the natural gas would presumably be used to generate electricity which would be subject to the municipal energy tax.

The code section involved is 10‑1‑300 enacted in 1996 (HB 461)

Q ‑ Is any portion of gas sold to COMPANY B subject to the Municipal Energy Tax (AMET@)? ?

Question is from NAME COMAPANY.

COMPANY has not been charging the tax for gas delivered to COMPANY B since the adoption of MET.

RESPONSE LETTER

May 23, 2000

RE: Municipal Energy Tax Application on Sales to Electricity Producers

Dear NAME,

You have requested an advisory opinion concerning the municipal energy sales and use tax, which, pursuant to Utah Code Ann. '10-1-304, may be applied on the sale or use of taxable energy within a municipality. You specifically ask whether natural gas sold by COMPANY. (ACOMPANY@) to COMPANY B (ACOMPANY B@) is subject to the municipal energy tax when COMPANY B then uses the natural gas to produce electricity. The electricity produced by COMPANY would itself, when sold, be subject to the municipal energy tax.

Utah Code Ann. '10-1-305(2)(b)(iv) creates an exemption from the municipal energy tax for Athe sales or use of taxable energy to a person if the primary use is for use in compounding or producing taxable energy or a fuel subject to taxation under Title 59, Chapter 13, Motor and Special Fuel Tax Act[.]@ ATaxable energy@ is defined in Utah Code Ann. '10-1-303(9) to mean Agas and electricity.@ Thus, subsection 305(2)(b)(iv) allows two exemptions, one for taxable energy (i.e., gas or electricity) primarily sold to compound or produce gas or electricity, which would include the sale of natural gas to produce electricity, and a second exemption for taxable energy primarily sold to compound or produce fuels subject to taxation under Title 59, Chapter 13. Accordingly, the natural gas purchased by COMPANY B to produce taxable energy (i.e., electricity) would qualify under the first part of this exemption and would not be subject to the municipal energy tax.

Of course, should COMPANY B purchase natural gas for purposes other than compounding or producing electricity, that purchase may be subject to the municipal energy tax. Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner