Court Finds Wholesale Electric Supplier Subject to Pennsylvania Gross Receipts Tax

May 9, 2017

Sellers of electricity for resale in Pennsylvania should analyze and monitor their buyers to make sure that the transactions are within the resale exemption of Pennsylvania’s Gross Receipts Tax (GRT).

The GRT is imposed on certain sales of electric energy within Pennsylvania.  72 P.S. § 8101(b). The GRT has a resale exemption, 72 P.S. § 8101(b)(1) and many sellers believe that it covers all sales for resale in Pennsylvania.  That belief is wrong. 

A panel of the Commonwealth Court has made it clear that the resale exemption is limited to the “wholesale” electricity sold to persons, partnerships, associations, corporations or political subdivisions.  The panel held that sales to an industrial development authority were not within the exemption.  It was argued, among other things, that the authority was a “political subdivision” and within the resale exemption.  But, the Court noted that the term “political subdivision” means “[a]ny county, city, borough, incorporated town, township, school district, vocational school district and county institution district,” 1 Pa.C.S. § 1991, and concluded that the authority did not fall within that definition or the resale exemption.  The seller is now facing a tax bill over $340,000.

The Court’s logic could mean the sale of “wholesale” electricity to others is subject to GRT.  For example, the exemption does not explicitly include trusts (such as business trusts or real estate trusts), the Commonwealth or any department, board, commission or authority of the Commonwealth.  So, under this ruling, if they are purchasing power for others, such as their tenants, the transaction could be subject to GRT because the buyer does not fall within the resale exemption.

This decision and the underlying logic should send a warning to everyone who engages in sales of electricity for resale to periodically analyze and monitor their transaction(s) and buyer(s) to make sure that they fall within the scope of the resale exemption.  The application of GRT can be fact intensive, and if facts change or your buyer is outside of the statutory definitions – you could be facing a tax liability.

The case is American Electric Power Service Corp. v. Commonwealth of Pennsylvania, Docket No. 861 FR 2013, Opinion and Order entered May 4, 2017; 2017 Pa. Commw. LEXIS 174.

If you have any questions on the GRT and its applicability to sales of electric energy within Pennsylvania, please contact Carl Shultz at (717) 255-3742 – cshultz@eckertseamans.com  –  or Dan Clearfield at (717) 237-7173 – dclearfield@eckertseamans.com.

This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice.

 

Share This Post

Authors

Carl R. Shultz Photo Harrisburg

Carl R. Shultz

Member - Harrisburg

See full bio