How did Florida apply sales and gross receipts taxes to electric-cooperative net billing and customer-generated excess power?

Plain-English summary

Florida ruled that an electric cooperative should compute gross receipts tax on the money actually received after crediting a customer's excess generation. For a taxable commercial customer, sales tax likewise applied to the net electricity charge shown on the bill.

Electricity generated and consumed behind the meter created no sales or gross receipts tax liability for the cooperative because it never registered on the utility meter. Supplying a small amount of electricity to a residential customer's inverter also did not convert the customer to commercial status or defeat the residential exemption.

Customer-generated excess electricity delivered to a wholesale provider or directly to the distribution cooperative was an exempt sale for resale. The residential customer did not have to register as a dealer on the stated facts, and the net-billing credit did not defeat the household exemption.

What this means for you

The ruling separated three flows: electricity the utility billed to the customer, electricity used entirely behind the meter, and excess electricity returned to the grid for resale. Each received different tax treatment.

Common questions

What amount formed the gross-receipts-tax base? The net amount billed and actually received after the generation credit.

Was the same net charge used for sales tax? Yes, for taxable commercial customers under the ruling; residential household sales remained exempt.

Was behind-the-meter self-generated electricity taxed to the cooperative? No.

Was excess power sold back for resale taxable? No, on the stated resale arrangements.

Citations and references

• Fla. Stat. §§ 203.01, 212.05, 212.06, and 212.08(7)(j) and Fla. Admin. Code r. 12A-1.039, as discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09A-029

Original ruling text

SUMMARY
QUESTION:
You have requested that the Department issue formal advice outlining the tax consequences of
net metering for electric cooperatives.
Net metering is a method of metering the energy consumed and produced at a home or a business
that has its own renewable energy generator. Under net metering, excess electricity produced at a
home or a business is used to offset the electricity received from a utility provider.
ANSWER:
Taxpayer should remit the gross receipt tax based on the amount of money received from its
customers for charges for utility services. This would be the net amount of electricity billed to
the customer after allowing a credit for the excess electricity generated by the customer and
returned to the utility.
The retail sale of electrical power or energy in the State of Florida is subject to sales tax. The
incidence of the tax is on “charges for electrical power or energy,” and the tax rate for such sales
is 7 percent. Therefore, if a customer is charged on the net electricity that it used during a
particular billing cycle, the utility company should collect and remit the 7 percent sales tax on
the amount billed to the customer.
June 24, 2009
XXX
Re:

Technical Assistance Advisement 09A-029
Sales and Use Tax/Gross Receipts Tax – Net Metering
Sections: 203.01, 212.05, 212.08, 212.06, Florida Statutes (F.S.)
Rule: 12A-1.039, Florida Administrative Code (F.A.C.)
Petitioner: XXX. (“Taxpayer”)

Dear XXX:
This letter is a response to your petition dated March 14, 2008, for the Department's issuance of a
Technical Assistance Advisement ("TAA") concerning the above referenced party and matter.
Your petition has been carefully examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C. This response to your request constitutes
a TAA and is issued to you under the authority of s. 213.22, F.S.
FACTS
Taxpayer is the XXX XXX for XXX XXX XXX (XXX-XXX and XXX-XXX) who provide
energy and electricity in Florida. Taxpayer XXX are XXX XXX who sell electricity at retail to
XXX XXX and buy their power from XXX XXX providers or other utilities. XXX XXX buy

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Page 2
their power from other utilities and would directly buy back any excess power from a renewable
generator. The XXX XXX XXX buys the excess power from the customer under their
arrangement with the other XXX XXXs. For this reason, Taxpayer request will consist of issues
which apply to all XXX XXX; issues which apply only to the XXX XXX who buy power from
XXX XXX XXX; and issues which apply only to the XXX XXXs who buy power from other
utilities.
Some of Taxpayer’s XXXs own and operate small XXX XXX. To date, most of these are (less
than 10kW) XXX (XXX) energy systems. Several of Taxpayer’s XXX offer a net billing option,
which allows customers to receive credits for excess electricity generated by their renewable
generator. "Excess" electricity is the electricity that is generated by the customer that exceeds the
customer's needs at that moment.
The metering/billing process is a multi-step transaction. Generally, after a customer notifies the
distribution XXX that he or she would like to interconnect a renewable generator to the XXX's
facilities, the XXX sends the customer a third-party interconnection agreement and request for
verification of insurance. Under the terms of the interconnection agreement, any excess
electricity generated by the customer is sold to the XXX XXX provider. [your emphasis] Once
the distribution XXX receives the executed documents, the customer's meter is changed out for a
special meter (unless the customer's meter is already capable of measuring electricity in both
directions) that measures both the amount of electricity supplied by the distribution XXX to the
customer and the excess electricity generated by the customer that is delivered to the XXX XXX.
The customer's account is set up to reflect the tariffed retail rate paid by the customer to the
distribution XXX and the rate paid by the XXX XXX to the customer (these rates may not be the
same) for the excess electricity. The excess power delivered from the customer to the XXX XXX
is then resold to the distribution XXX. The resale of excess electricity generated by the customer
to the XXX XXX is shown as a credit on the distribution XXX's XXX power bill. In turn, the
distribution XXX reflects the credit on the customer's bill.
REQUESTED ADVISEMENTS
I. For all 15 XXXs, Taxpayer has asked advice regarding the following:
Issue 1: Is the electricity sold to a residential customer that has provided an exemption
certificate to the XXX still exempt from sales tax on electricity under the household fuel
exemption in Section 212.08(7)(j), F.S., even though the customer is now in the business
of selling electricity?
Issue 2: Most renewable generators require the use of inverters on their systems. The
utility supplies a small amount of electricity to these inverters. When the utility sells
electricity that is used directly by the renewable generation system, is the residential
customer’s status changed to commercial for tax purposes?
Issue 3: Does the XXX have any sales tax liability for power generated and consumed by
the customer that does not register on the XXX’s meter (i.e., that is not excess power)?

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Issue 4: Does the XXX have any gross receipts tax liability for power generated and
consumed by the customer that does not register on the XXX’s meter (i.e., that is not
excess power)?
Issue 5: What is the proper method to calculate sales and gross receipts taxes for
residential and commercial customers utilizing net billing (Can the distribution XXX
apply the Net Billing Credit before the sales taxes are calculated and should it offset the
distribution XXX’s revenues for calculating its gross receipts tax)?
II. For the 13 XXXs, with XXX XXX power contracts, Taxpayer has asked advice regarding the
following:
Issue 1: Is the sale of customer’s excess electricity to the XXX XXX exempt from sales
taxes as a sale for resale?
Issue 2: Is the sale of excess electricity from customer to the XXX XXX exempt from
gross receipts tax as a sale for resale?
III. For the 2 XXXs, with power contracts with other utilities, Taxpayer has asked advice
regarding the following:
Issue 1: Is the sale of customer’s excess electricity directly to the distribution XXX
exempt from sales taxes as a sale for resale?
Issue 2: Is the sale of excess electricity directly from the customer to the distribution
XXX exempt from gross receipts tax as a sale for resale?
ANALYSIS and DISCUSSION
Gross Receipts Tax
Section 203.01, F.S., imposes the gross receipts tax on the total amount of gross receipts
received by a distribution company for utility services. [Emphasis supplied] The rate applied to
utility services is 2.5 percent. Assuming the electric utility is a distribution company, it would be
required to pay gross receipts tax on its total receipts from charges for utility service sold to a
retail consumer. If the customer pays $100 on the net electricity that the consumer purchased,
the distribution company is taxed on the $100 received.
Taxpayer’s XXX should remit the gross receipt tax based on the amount of money that they
receive from its customers for charges for utility services. This would be the net amount of
electricity billed to the customer after allowing a credit for the excess electricity generated by the
customer and returned to the utility.

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Sales and Use Tax
Section 212.05, F.S., provides it is the legislative intent that every person is exercising a taxable
privilege that engages in the business of selling tangible personal property at retail in this state.
For exercising such a privilege, a tax is levied on each taxable transaction or incident. The retail
sale of electrical power or energy in the State of Florida is subject to sales tax. The incidence of
the tax is on “charges for electrical power or energy,” and the tax rate for such sales is 7 percent.
See Section 212.05(1)(e)1.c, F.S. Therefore, if a customer is charged $100 on the net electricity
that it used during a particular billing cycle, the utility company should collect and remit the 7
percent sales tax on the $100 amount billed to the customer. Electricity that is provided to the
customer before net metering would not be taxed. Although we are sure that you are well aware
of this, we note that sales of electricity to residential households are exempt from sales tax
pursuant to Section 212.08(7)(j), F.S.
Excess customer-generated electrical power or energy put on the grid is ultimately used by and
billed to other customers of Taxpayer’s XXX. Credits allowed by Taxpayer’s XXX for such
excess customer-generated electrical power or energy would be treated as exempt sales for resale
under the provisions of Rule 12A-1.039, F.A.C.
Under the facts presented in your letter, residential customers are not required to register as
dealers with the Department and be responsible for all of the attendant responsibilities that go
along with being a "dealer." The residential customer's delivery of excess electricity and the
subsequent credit or "net-billing" do not defeat the exemption provided to residential customers.
This conclusion also considers: (a) that the delivery of excess electricity is a "sale for resale" that
carries out the Legislature's intent of promoting energy conservation and the use of solar energy;
and, (b) under the facts presented, Florida sales tax would not be due because the customer to
utility "sale" is an exempt "sale for resale," and Florida gross receipts tax would not be due
because the "sale" is not to a "retail consumer."
RESPONSE
Section I:
Issue 1: Is the electricity sold to a residential customer that has provided an exemption
certificate to the XXX still exempt from sales tax on electricity under the household fuel
exemption in Section 212.08(7)(j), F.S., even though the customer is now in the business
of selling electricity?
Response: Yes. The exemption for residential households is not defeated. The
Department does not issue "exemption certificates" to residential households.
Issue 2: Most renewable generators require the use of inverters on their systems. The
utility supplies a small amount of electricity to these inverters. When the utility sells
electricity that is used directly by the renewable generation system, is the residential
customer’s status changed to commercial for tax purposes?

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Response: No. The status of the customer would not change to commercial for tax
purposes.
Issue 3: Does the XXX have any sales tax liability for power generated and consumed by
the customer that does not register on the XXX’s meter (i.e., that is not excess power)?
Response: No. The XXX would not be responsible for tax on power generated and
consumed by its customer that is not registered on the XXX’s meter.
Issue 4: Does the XXX have any gross receipts tax liability for power generated and
consumed by the customer that does not register on the XXX’s meter (i.e., that is not
excess power)?
Response: No, the XXX would not be liable.
Issue 5: What is the proper method to calculate sales and gross receipts taxes for
residential and commercial customers utilizing net billing (Can the distribution XXX
apply the Net Billing Credit before the sales taxes are calculated and should it offset the
distribution XXX’s revenues for calculating its gross receipts tax)?
Response: Florida gross receipts tax is levied against the total amount of gross receipts
received by a distribution company. [emphasis supplied] See Section 203.01(1)(c), F.S.
The XXXs should remit gross receipts tax based on the gross receipts they actually
receive (and bill for what they will actually be receiving). In other words, if the bill from
the utility shows electricity consumed by the customer in the amount of $XXX and a
credit for excess customer-generated electricity in the amount $XXX, resulting in a
balance due of $XXX, gross receipts tax, for purposes of calculating the gross receipts
tax, is calculated on the net amount or $XXX. Under the same scenario, Florida sales and
use tax would be calculated at the tax rate of XXX percent on the charge of $XXX.
Electricity that is provided to the customer before net metering would not be taxed. Sales
tax would only apply to sales to commercial customers; all sales to residential customers
are specifically exempt from sales tax.
Section II:
Issue 1: Is the sale of customer’s excess electricity to the XXX XXX exempt from sales
taxes as a sale for resale?
Response: Yes. The sale of customer’s excess electricity to the XXX XXX would be
exempt from sales taxes as a sale for resale pursuant to Section 212.06(1)(b), F.S.
Issue 2: Is the sale of excess electricity from customer to the XXX XXX exempt from
gross receipts tax?
Response: Yes. The gross receipts tax is not imposed on the sale or delivery of
electricity to XXXs for resale, pursuant to Section 203.01(3)(a)2., F.S.

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Section III:
Issue 1: Is the sale of customer’s excess electricity directly to the distribution XXX
exempt from sales taxes as a sale for resale?
Response: Yes. The sale of customer’s excess electricity to the XXX XXX would be
exempt from sales taxes as a sale for resale pursuant to Section 212.06(1)(b), F.S.
Issue 2: Is the sale of excess electricity directly from the customer to the distribution
XXX exempt from gross receipts tax?
Response: Yes. The gross receipts tax is not imposed on gross receipts received from the sale or
delivery of electricity to XXXs for resale, pursuant to Section 203.01(3)(a)2., F.S.
CONCLUDING STATEMENT
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request for
this advice, as specified in Section 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above.
You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment than expressed in
this response.
You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request you provide the undersigned with an edited copy of
your request for Technical Assistance Advisement, the backup material and this response,
deleting names, addresses and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department within 10 days of the date of this
letter.
If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at 850-488-8026.
Kind Regards,

Alan R. Fulton
Tax Law Specialist
Technical Assistance & Dispute Resolution
ARF\lp
Record ID:

43389