If a utility spins off its retail gas and electricity supply business into a separate company while keeping its transmission and distribution operations, does the phased-out reduced sales tax rate on transmission and distribution charges still apply?

Plain-English summary

Consolidated Edison Company of New York, a regulated utility subsidiary of Consolidated Edison, Inc. (CEI), was in the middle of New York's electric-industry restructuring, which was opening the market to competing energy suppliers while Con Edison continued to deliver power through its own transmission and distribution ("T&D") wires. As part of that transition, Con Edison considered spinning off its wholesale/retail gas and electricity supply functions ("retail functions") into a separate regulated subsidiary of CEI — its own sister company — while Con Edison itself kept running the T&D system. Con Edison asked whether its T&D charges would still qualify for a new, phasing-down sales tax rate under Tax Law § 1105-C (heading to zero percent by September 2003) once supply and delivery were split between two different companies, and whether it mattered if the new supply company were a CEI sister subsidiary, or if the two companies shared the same office building.

Historically, when one utility sold both the electricity/gas and the delivery of it, the Department taxed the whole bundled charge. But under a restructured market, the Department had already announced (TSB-M-99(1)S/(1.4)S) that gas/electric "service... of whatever nature" taxes the services of both the delivery company and the supply company, even when they're now different, unbundled companies. Building on that, the new § 1105-C reduced-rate provision applies specifically to receipts from gas or electric "service" that includes transportation, transmission, or distribution — a category that keeps applying to Con Edison's T&D charges regardless of who's selling the underlying commodity.

The Department confirmed Con Edison's T&D receipts would qualify for the reduced, phasing-to-zero rate once the commodity itself is sold by a separate vendor — and that this result doesn't change just because the new supply company is a corporate sister under the same parent holding company, or because the two companies are physically located in the same building. Since the answer to the "same building" question was already yes, the Department didn't need to separately address what would happen if the companies were in different buildings.

What this means for you

Utilities restructuring into separate supply and delivery entities

Splitting your commodity-supply business from your transmission/distribution business into affiliated (even commonly-owned, co-located) entities doesn't disqualify your T&D charges from the reduced sales tax rate — common ownership and shared office space aren't treated as red flags for this purpose, as long as the commodity is genuinely sold by the separate vendor.

Energy service companies (ESCOs) and utility holding companies

This confirms the Department's restructuring-era policy (TSB-M-99(1)S/(1.4)S, TSB-M-00(4)S) that unbundling a formerly single utility charge into separate supply and delivery charges, across separate legal entities, is respected for sales tax purposes — including the newer § 1105-C phase-down specifically for transmission/distribution charges.

Accountants and tax professionals

Note that § 1105-C was a temporary, scheduled phase-down (25% per year starting September 2000, reaching zero by September 2003) — confirm current law before relying on the specific rate mechanics here, since the provision's own terms contemplated the tax eventually disappearing entirely on qualifying T&D receipts.

Common questions

Q: Does splitting a utility into a T&D company and a supply company automatically reduce sales tax on delivery charges?
A: Yes, as long as the gas or electricity itself is genuinely sold by a separate vendor — the T&D charges then qualify for the reduced (and eventually zero) rate under § 1105-C.

Q: Does it matter if the new supply company is owned by the same parent as the T&D company?
A: No. Common ownership through the same holding company doesn't disqualify the T&D charges from the reduced rate.

Q: Does it matter if the two companies share the same office building?
A: No. Shared physical location doesn't affect the analysis either.

Q: Can another utility rely on this ruling for its own restructuring?
A: No. This advisory opinion binds the Department only for Consolidated Edison Company of New York on the facts described, though it reflects the Department's general restructuring-era published guidance.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of "receipt," incl. gas/electric transmission and distribution charges)
• Tax Law § 1105(b)(1) (tax on gas and electric service)
• Tax Law § 1105-C, added by Ch. 63, Laws of 2000 (phased-down reduced tax rate on gas/electric transmission and distribution)

Prior guidance referenced:

• TSB-M-99(1)S / TSB-M-99(1.4)S (Application of Sales Tax to Sales of Certain Utility Services)
• TSB-M-00(4)S, June 9, 2000 (Sales and Use Taxes on Gas and Electricity)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_50s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(50)S
Sales Tax
November 30, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000719B

On July 19, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Consolidated Edison Company of New York, Inc., 4 Irving Place, Room 1875-S, New
York, New York 10003.
The issues raised by Petitioner, Consolidated Edison Company of New York, Inc., are:
1.

Whether if Petitioner were to separate its gas and electricity
transmission and distribution functions from its wholesale and retail
supply of gas or electricity by putting its wholesale and retail supply
of gas or electricity (“retail functions”) into a separate corporate
entity, the reduced sales tax rates under Section 1105-C of the Tax
Law would apply to the transmission and distribution charges.

2.

If the answer to Issue 1 is yes, whether the reduced sales tax rates
would apply to gas and electricity transmission and distribution
charges if the new company were a subsidiary of Consolidated
Edison, Inc. and a sister company of Petitioner.

3.

If the answer to Issue 1 is yes, whether the reduced sales tax rates
would apply to gas and electricity transmission and distribution
charges if the retail functions were physically located in the same
building as the transmission and distribution company.

4.

If the answer to Issue 3 is no, whether the reduced sales tax rates
would apply to the gas and electricity transmission and distribution
charges if the retail functions were physically located in another
building from the transmission and distribution company.

Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a regulated public utility incorporated in the State of New York on November
10, 1884. It is a subsidiary of Consolidated Edison, Inc. (“CEI”), a public utility holding company
under the Public Utility Holding Company Act of 1935 (“PUHCA”), which is exempt from
registration with the Securities and Exchange Commission (“SEC”) in accordance with Section
3(a)(1) of PUHCA. CEI was incorporated in the State of New York on September 3, 1997.
Petitioner is engaged in the business of furnishing electricity, gas and steam utility services to the
general public within New York City and Westchester County.

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In August 1994, the New York State Public Service Commission (the “PSC”) began hearings
with respect to restructuring the New York electric industry to foster competition in the generation
of electricity and offer customers a choice of energy providers (The Competitive Opportunities
Proceeding, Case No. 94-E-0952). On May 20, 1996, PSC issued an order that endorsed a
fundamental restructuring of the electric utility industry in New York State. The PSC directed
Petitioner and most of the other electric utilities in New York subject to a Competitive Opportunities
Proceeding to file restructuring plans by October 1, 1996, addressing, among other things, retail
access, divestiture, and a corporate reorganization. On October 1, 1996, Petitioner filed its plan with
the PSC.
On September 23, 1997, the PSC issued its Order Adopting Terms of Settlement Subject to
Conditions and Understandings in Cases 96-E-0897 and 96-E-0916 (hereinafter “the Order”). The
Order, with the conditions and understanding set forth therein, adopted and incorporated the terms
of the Amended and Restated Settlement Agreement dated September 19, 1997, among Petitioner,
PSC staff and other parties (the “Settlement Agreement”). The Settlement Agreement provides for
a transition to a competitive electric market through the divestiture of Petitioner’s electric generating
facilities and the development of a retail access plan under which Petitioner’s customers could
choose alternative suppliers of electricity. It is currently planned that, by November 1, 2000, all of
Petitioner’s electric customers would have the choice to buy electricity from other suppliers. The
delivery of electricity to customers will continue to be through Petitioner’s transmission and
distribution ( “T & D”) systems. All of Petitioner’s gas customers are already permitted to buy gas
from other suppliers and the delivery of the gas is through Petitioner’s T & D system. For those
customers that do not buy their electricity or gas from an alternative supplier, Petitioner will continue
to provide both the T & D service and the gas or electricity to those customers (‘bundled service”).
Retail choice is not available to Petitioner’s steam customers (these customers are separately billed
for steam service, apart from the billing for electric or gas T & D or commodity services).
In order to further Petitioner’s efforts to introduce competition into the electric industry, a
recommendation has been made to separate and move the retail functions into a regulated subsidiary
company.
The new company would be a subsidiary of CEI (the holding company) with its own
employees who will be responsible for all energy purchases for customers who currently purchase
supply from Petitioner. It is anticipated that the functions integral to the new company operations
will include all existing customer operations (e.g., call centers, billing, collections, etc.); energy
services activities charged to customer accounting and sales; cash processing treasury functions;
electric and gas supply; mailroom operations; and customer outreach staff in corporate
communications. Approximately 2,000 employees would staff the proposed organization. Petitioner
would continue to provide the T & D services. The objective is to separate functions that align with
other energy service companies (ESCO’s) so as to isolate cost elements that compare with the
ESCO’s and separate those costs from those of the T & D function.

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The demarcation between the T & D and retail functions is the meter. The physical
ownership, testing, installation and removal of meters will remain with the T & D function. Meter
data services, including meter reading, customer requested turn-on and turn-off, and turn-off for non­
payment will be the responsibility of the new company. Also, integral to this proposal is the
independence of billing systems of T & D and the new company. As a regulated entity, the new
company will be subject to all regulatory and statutory stipulations for a utility.
It is assumed that the newly formed subsidiary of CEI is in fact a separate and distinct entity
from Petitioner that operates independently of Petitioner and holds itself out to the public as a
separate legal entity.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article, including gas and gas service and electricity
and electric service of whatever nature, valued in money, whether received in money
or otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or delivery, and,
with respect to gas and gas service and electricity and electric service, any charges
by the vendor for transportation, transmission or distribution, regardless of whether
such charges are separately stated in the written contract, if any, or on the bill
rendered to such purchaser and regardless of whether such shipping or delivery or
transportation, transmission, or distribution is provided by such vendor or a third
party, but excluding any credit for tangible personal property accepted in part
payment and intended for resale....
Section 1105(b)(1) of the Tax Law imposes a tax upon:
The receipts from every sale, other than sales for resale, of the following: (A)
gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam
service of whatever nature; (B) telephony and telegraphy and telephone and telegraph
service of whatever nature except interstate and international telephony and
telegraphy and telephone and telegraph service; (C) a telephone answering service;
and (D) a prepaid telephone calling service.

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Chapter 63 of the Laws of 2000, added new Section 1105-C of the Tax Law which provides,
in part:
Reduced tax rates with respect to certain gas service and electric service.
Notwithstanding any other provisions of this article or article twenty-nine of this
chapter:
(a) The rates of taxes imposed by this article and pursuant to the authority of
article twenty-nine of this chapter on receipts from every sale of gas service or
electric service of whatever nature (including the transportation, transmission or
distribution of gas or electricity, but not including gas or electricity) shall be reduced
each year on September first, beginning in the year two thousand, and each year
thereafter, at the rate per year of twenty-five percent of the rates in effect on
September first, two thousand, so that the rates of such taxes on such receipts shall
be zero percent on and after September first, two thousand three.
Opinion
Technical Services Bureau Memorandum entitled Application of Sales Tax to Sales of
Certain Utility Services, January 29, 1999, TSB-M-99(1)S, announced a change in policy with
respect to the imposition of sales tax on charges for transporting and distributing electricity and
natural gas. The original effective date of TSB-M-99(1)S was April 1, 1999. This effective date was
changed to April 1, 2000, as reflected in TSB-M-99(1.4)S. TSB-M-99(1.4)S, provides, in part:
Historically, electricity or gas, along with (among other things) the service of
getting it to the consumer, was provided by one party, the utility, and the entire
charge was subject to sales tax. In a restructured environment, one company will be
selling electricity or gas and another company will be providing the service of
(among other things) getting the electricity or gas to the customer. The phrase “gas,
electricity...and gas, [and] electric...service of whatever nature” imposes tax on the
services of both parties in the provision of electricity or gas.
Therefore, the Department has determined that the fee a utility charges the
customer for getting the electricity or gas to the customer is subject to state and local
sales tax as a charge for electric or gas service.
With respect to Issues 1, 2 and 3, Petitioner’s receipts from the sale of T & D of electricity
and gas to a customer, which electricity and gas are sold by a separate vendor, would qualify for the
reduced rate of sales tax under Section 1105-C of the Tax Law. See Technical Services Bureau
Memorandum entitled Sales and Use Taxes on Gas and Electricity, June 9, 2000, TSB-M-00(4)S.
The fact that the separate vendor is a subsidiary of Consolidated Edison, Inc. and a sister company
of Petitioner or that the retail functions may be physically located in the same building as Petitioner,

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would not alter the determination that Petitioner’s receipts from the sale of the T & D of electricity
and gas qualify for the reduced rate of sales tax under Section 1105-C of the Tax Law.
Issue 4 does not need to be addressed based on the conclusion in the preceding paragraph
with respect to Issue 3.

DATED: November 30, 2000

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.