HARRISBURG — The Commonwealth Court of Pennsylvania has upheld a previous ruling from a three-judge panel of the same court that found American Electric Power Service Corp.’s sale of electricity to the Letterkenny Industrial Development Authority (LIDA) is not tax-exempt, according to an opinion authored by President Judge Mary Hannah Leavitt on March 15.
The Commonwealth Court said the three-judge panel ruled on the tax-exempt status of the electricity sale on May 4, 2017, upholding a decision of the Board of Finance and Revenue.
“In doing so, the panel held that taxpayer’s sale of electricity to (LIDA) is subject to the gross receipts tax set forth in Section 1101(b) of the Tax Reform Code of 1971 (Tax Code), 2 72 P.S. §8101(b), and not eligible for the tax exemption set forth in Section 1101(b)(1) of the Tax Code,” according to the March 15 opinion.
The court said in the opinion that American Electric is based in Columbus, Ohio, and “sells electricity in Pennsylvania on a wholesale basis.”
“[American Electric] does not provide electricity to end-user customers and is not subject to the jurisdiction of the Pennsylvania Public Utility Commission,” the opinion said. “As a wholesale seller of electricity, [the] taxpayer is regulated solely by the Federal Energy Regulatory Commission.”
According to receipts filed by American Electric for the 2010 tax year, the company received $5.8 million in exchange for providing electricity to LIDA, as well as $640,706 in gross proceeds from the sale of electricity to the Borough of Pitcairn.
“[The] taxpayer claimed that these gross receipts were non-taxable under Section 1101(b)(1) of the Tax Code because they were derived from the sale of electricity for resale,” the Commonwealth Court said.
However, the court said “the Department of Revenue rejected [the] taxpayer’s claim of an exemption and increased [the] taxpayer’s gross receipts tax liability for 2010 from $0 to $380,546.”
Although the board agreed on appeal that the amounts paid by Pitcairn “should have been exempt because Pitcairn is a municipality,” the opinion said “the board held otherwise for LIDA, which is not a political subdivision and did not pay a gross receipts tax.”
On appeal to the full Commonwealth Court, American Electric claimed that “because it is an interstate wholesaler of electricity regulated by the Federal Energy Regulatory Commission and not a utility, it is not subject to the gross receipts tax,” the opinion said.
In addition, the court said that American Electric argued on appeal that "if it is subject to the gross receipts tax, its sales of electricity to LIDA are exempt from the tax." Specifically, the opinion said the "taxpayer maintains that LIDA acts in a private capacity when reselling electricity to its customers. In that regard, LIDA is akin to a private corporation or a municipality acting 'in a private corporate function.'"
However, the court disagreed.
“In short, [the] taxpayer has failed to demonstrate that LIDA is one of the listed entities eligible for the resale exemption in Section 1101(b)(1) of the Tax Code,” the opinion said.