NYS Repeals Tax Exemption for Energy Supply

Power Management relayed information earlier this year that NYS was attempting to repeal a longstanding tax exemption for businesses that utilize third party suppliers, or ESCOs, for electric and natural gas service.

Unfortunately, the New York’s State budget for 2019 – 2020 did repeal the ESCO Delivery Tax Exemption effective 6/1/19. This action is estimated to create more than $128,000,000 in new taxes annually on NY businesses. Businesses operating in NYS should be aware of this immediate change as it will be effective from this point forward regardless of when a supply contract began.

Below is the official announcement from the New York State Department of Taxation and Finance describing the tax change:

Beginning on June 1, 2019, the state and local sales and use tax exemption for the transportation, transmission, or distribution of gas or electricity when purchased from someone other than the vendor of the gas or electricity is repealed. This charge applies to sales made and services rendered on or after that date regardless of when a service contract began.

 As a result of this change, the services of transporting, transmitting, or distribution gas or electricity (T&D) are subject to both state and local sales tax when the sale of the commodity is also subject to state and local sales tax.

Sales of gas and electricity for commercial purposes are subject to both state and local sales tax and, therefore, the charges for T&D are also subject to state and local sales tax. Sales of residential energy continue to be exempt from state sales tax and, therefore, charges for T&D of residential energy are also exempt from state tax. Where sales of residential energy are subject to local sales tax, the charges for T&D related to those sales are also subject to local sales tax.

 If a vendor’s billing method is based on meter readings that do not coincide with the June 1, 2019 effective date, or a vendor is unable to update its billing system by that date, for the first sales tax quarterly return period after the effective date the Department will accept a reasonable method of ascertaining the tax due for the portion of a billing period occurring on and after June 1, 2019.