When a utility agrees to transport a customer's own natural gas (contract carriage) and separately reimburses an upstream pipeline for transportation costs, is the utility's own transportation fee taxable under sections 186 and 186-a, and does simply passing along reimbursement payments to the upstream pipeline count as taxable income to the utility?

Plain-English summary

Niagara Mohawk Power Corporation, a regulated New York utility, entered into a "Special Transportation Agreement" with a customer that had acquired its own supply of natural gas in Louisiana and wanted help getting it to its New York facilities. Under that agreement, Niagara Mohawk agreed to receive the customer's gas daily from Consolidated Gas Transmission Corporation and deliver it to the customer, with the customer reimbursing Niagara Mohawk for whatever transportation charges Consolidated billed. To make that work, Niagara Mohawk separately signed a "Limited-Term Transportation Agreement" with Consolidated, which itself received the gas from Texas Gas Transmission Company (which had received it from the Louisiana producers); Niagara Mohawk agreed to reimburse Consolidated for its expenses, including what Consolidated owed Texas Gas. Niagara Mohawk effectively acted as a conduit -- passing the customer's gas through, and passing the customer's reimbursement payments upstream to Consolidated -- and argued that, as a mere collecting agent, the amounts it billed and passed along shouldn't count as its own taxable income under sections 186 or 186-a.

The Department split the analysis into the utility's OWN fee versus the pass-through reimbursement. Relying on two prior rulings -- one holding that a gas utility's own "contract carriage" fee for transporting a customer's or producer's gas is a taxable receipt, and another (involving Con Edison acting as a true agent for a separate public utility service) holding that amounts collected and remitted in full to a genuine third-party principal aren't the agent's own receipts -- the Department concluded Niagara Mohawk is taxable under section 186 on its OWN contract-carriage fee for providing the special transportation service. Separately, the specific amounts Niagara Mohawk collects from the customer purely to reimburse Consolidated (and, through Consolidated, Texas Gas) for THEIR transportation charges are not Niagara Mohawk's own gross earnings -- PROVIDED those amounts are actually remitted onward. Any portion collected for that reimbursement purpose but not actually passed through becomes Niagara Mohawk's own taxable receipt. Under section 186-a, the analysis is similar but with an important nuance: the utility's own contract-carriage fee is fully taxable gross income (and if its pipelines run partly outside New York, only the New York-pipeline portion is taxable); but the reimbursement-collection service, being merely incidental to Niagara Mohawk's principal utility business, is instead treated as an "other transaction" taxable only on the PROFIT derived from it -- meaning any reimbursement amount NOT remitted becomes taxable profit under section 186-a, rather than being folded into gross receipts.

What this means for you

Utilities providing contract carriage or similar pass-through transportation services

Your own transportation/carriage fee is squarely taxable gross earnings/income under sections 186 and 186-a. But amounts you collect purely to pass through to an upstream carrier or pipeline for THEIR charges are excluded from your tax base -- as long as you actually remit those amounts in full. Any shortfall you keep becomes your own taxable receipt (or, under 186-a, taxable profit).

Utilities structuring multi-party transportation arrangements (utility-to-pipeline-to-producer chains)

The tax treatment tracks the money, not the paperwork -- being a "conduit" only protects the pass-through PORTION of a transaction, and only to the extent it's genuinely passed through. Retaining any part of a collected reimbursement converts that retained amount into your own taxable receipt.

Businesses citing "collecting agent" status to exclude receipts from a gross-receipts-type tax

A pure collection-and-remittance role (like Con Edison's role for the NYC Public Utility Service in a companion ruling) can exclude fully-remitted amounts from your own tax base -- but this exception is narrow and doesn't extend to your own fee for the underlying service you provide.

Common questions

Q: Is Niagara Mohawk's transportation fee taxable even though it calls itself a "collecting agent"?
A: Yes -- the "collecting agent" characterization only applies to the pass-through reimbursement amounts owed to Consolidated/Texas Gas, not to Niagara Mohawk's own separate fee for providing the special transportation service itself.

Q: What happens if Niagara Mohawk collects a reimbursement amount from the customer but doesn't remit all of it to Consolidated?
A: The unremitted portion becomes Niagara Mohawk's own taxable receipt under section 186, and taxable profit under section 186-a.

Q: Does it matter if Niagara Mohawk's pipelines extend outside New York?
A: Yes, for section 186-a -- if the pipelines used for the contract carriage run both within and outside New York, only the gross income attributable to the New York-pipeline portion is taxable under that section.

Q: Can another utility rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other utilities, though it applies the same principles as the cited NYC Energy Office and Con Edison rulings.

Citations and references

Statutes and regulations:

• Tax Law § 186 (utility gross earnings tax); § 186-a (utility gross receipts tax)
• New York City Energy Office, TSB-A-85(23)C (contract carriage fee is a taxable receipt)
• Consolidated Edison Company of New York, Inc., TSB-A-86(22)C (fully-remitted agency amounts excluded)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_12c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (12) C
Corporation Tax
May 29, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C870212A

On February 12, 1987, a Petition for Advisory Opinion was received from Niagara
Mohawk Power Corporation, 300 Erie Boulevard West, Syracuse, New York 13202.
The issue raised is whether Petitioner is liable for the taxes imposed by sections 186 and
186-a of the Tax Law when Petitioner agrees to assist in effectuating the transportation of
customer owned natural gas as part of a "Special Transportation Agreement" and a "LimitedTerm Transportation Agreement".
Petitioner, a New York corporation with its principal office in Syracuse, New York, is a
public utility regulated by the New York State Public Service Commission and the Federal
Energy Regulatory Commission.
On July 15, 1986, Petitioner entered into a contract entitled "Special Transportation
Agreement" with a customer. The customer had acquired a supply of natural gas in Louisiana,
and had requested Petitioner to assist it in transporting the gas to its own facilities. In accordance
with the "Special Transportation Agreement", Petitioner agreed to receive a specified amount of
gas daily from Consolidated Gas Transmission Corporation ("Consolidated"), on behalf of the
customer. In turn, Petitioner agreed to deliver to the customer the amount of gas received from
Consolidated.
Further, the "Special Transportation Agreement" provides that the customer will
reimburse Petitioner for any and all transportation charges billed to Petitioner by Consolidated
for the transportation of the customer-owned gas.
In connection with the above described "Special Transportation Agreement", Petitioner
entered into a "Limited-Term Transportation Agreement" with Consolidated. Pursuant to this
agreement, Consolidated agreed to deliver the customer-owned gas, which it received from Texas
Gas Transmission Company ("Texas Gas") which had received the customer-owned gas from
producers in Louisiana, to Petitioner, which would ultimately transport the customer-owned gas
to the customer. Petitioner agreed to reimburse Consolidated for all of its expenses, including the
expenses incurred by Consolidated in connection with the transportation service from Texas Gas.
Petitioner has agreed to act as a conduit between the customer and Consolidated.
Petitioner has agreed to receive the customer-owned gas from Consolidated and pass it along to
the customer. Likewise, Petitioner has agreed to receive payment for transportation expenses
from the customer and convey such amounts to Consolidated.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-87 (12) C
Corporation Tax
May 29, 1987

Since Petitioner bills the customer and receives an amount, which Petitioner then
transmits to Consolidated, it is Petitioner's contention that under the provisions of the "Special
Transportation Agreement" and the "Limited- Term Transportation Agreement" it is acting
merely as a collecting agent of Consolidated. Accordingly, Petitioner states that to the extent that
Petitioner is acting as the collecting agent of Consolidated, the amounts billed and received by
Petitioner from the customer should not constitute gross income of Petitioner and therefore,
should not be subject to the taxes imposed by sections 186 and 186-a of the Tax Law.
Section 186
Section 186 of the Tax Law imposes a tax on "every corporation, joint stock company or
association formed for or principally engaged in the business of supplying water, steam or gas,
when delivered through mains or pipes, or electricity, or principally engaged in two or more such
businesses." The tax is based, in part, upon gross earnings from all sources within this state. The
term "gross earnings" as used in this section means all receipts from the employment of capital
without any deduction.
It was determined in New York City Energy Office, State Tax Commission Advisory
Opinion, October 15, 1986, TSB-A-85(23)C, that where a gas utility, under an arrangement
called "contract carriage" is required to transport or to contract with others to transport natural
gas owned by a consumer or under contract for sale by a producer to a consumer, the fee charged
by such gas utility for such contract carriage is a receipt of the gas utility and is included in the
gas utility's gross earnings under section 186 of the Tax Law.
In Consolidated Edison Company of New York, Inc., State Tax Commission Advisory
Opinion, December 1, 1986, TSB-A-86(22)C, it was determined that where Con Edison acted as
agent for the New York City Public Utility Service, any amount collected by Con Edison and
remitted to the Utility Service for the sale of the Utility Service's preference power that was
delivered to Utility Service's customers through Con Edison's distribution system did not
constitute gross earnings of Con Edison for purposes of section 186 of the Tax Law. However, if
Con Edison receives an amount for such transaction that is not remitted to the Utility Service,
such amount not remitted is a receipt of Con Edison and is included in Con Edison's gross
earnings.
Accordingly, Petitioner is subject to the tax imposed under section 186 of the Tax Law on
the fees imposed for the special gas transportation service (contract carriage) provided to its
customer. To the extent Petitioner acts as a collecting agent, the amount collected by Petitioner
from its customer and remitted to Consolidated and/or Texas Gas to reimburse Consolidated
and/or Texas Gas for all of their rates, charges, costs, fees and expenses in transporting
customer's gas to Petitioner's facilities does not constitute gross earnings. However, any amount
collected by Petitioner from its customer for such reimbursement that is not remitted to
Consolidated and/or Texas Gas is a receipt of Petitioner and is included in Petitioner's gross
earnings.

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TSB-A-87 (12) C
Corporation Tax
May 29, 1987

Section 186-a
Section 186-a provides in part:
. . . . a tax equal to 3% of its gross income is hereby imposed on every utility doing
business in this state which is subject to the supervision of the state department of public
service, . . . .
. . . . The word "utility" includes every person subject to the supervision of the state
department of public service, . . . .
. . . . The word "person" means persons, corporations, companies, associations, joint­
stock associations, etc. . . .
. . . . The words "gross income" mean and include receipts received in or by reason on any
sale, conditional, or otherwise, . . . . made or service rendered for ultimate consumption or
use by the purchaser in this state, . . . .
. . . . Also profit from any transaction (except for sales for resale and rentals) within this
State whatsoever. . . .
Generally, "sales made and services rendered for ultimate consumption or use within this
state" means sales of gas, electricity, steam, water refrigeration, telephony or telegraph when
delivered through mains, pipes or wires, sale of merchandise which are part of stock in trade,
charges for transportation of passengers and/or goods, toll charges and service charges such as
charges for installation and moving of telephones and for the delivery of messages. Thus, "sales
made and services rendered" has been defined to include sales and services which are the
principal business of the taxpayer and which are made to customers.
In order to be included under the heading "profit from any other transaction whatsoever,
except the profit on sales for resale and rentals," the profits must be from labor not performed in
the conduct of the taxpayer's principal business and from the sales of materials and supplies,
other than such as are purchased for resale. Isolated transactions also come under this item such
as when a water company, which does not make a practice of furnishing this service, lays pipes
and mains for a customer with title vesting in such customer.
In New York City Energy Office, supra, it was determined that, for purposes of section
186-a of the Tax Law, where the gas utility renders a service whereby it transports natural gas
owned and ultimately consumed by the purchaser of the service and the pipelines of the utility
which renders the service are located entirely within New York State, the total gross income
received by the utility as a result of contract carriage is taxable to the utility under section 186-a.
If the pipelines of the utility which renders the contract carriage service are located within and
without New York State and the natural gas is shipped in intrastate, interstate or foreign
commerce, the gross income received by the utility as a result of contract carriage from the use of
its New York State pipelines is taxable to the utility under section 186-a of the Tax Law. New
York City Energy Office, supra.

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TSB-A-87 (12) C
Corporation Tax
May 29, 1987

Where the gas utility contracts with others to transport the natural gas, although a service
is rendered, it is not a service "for ultimate consumption or use by the purchaser", within the
meaning intended so that the total "receipts" for such services does not constitute gross income as
defined. Contracting with others to transport natural gas owned by a consumer on behalf of such
consumer, is a service rendered but is incidental to the conduct of the utility's principal business.
As such, the service rendered is properly a transaction taxable on the profits derived therefrom.
To the extent that such service is rendered on behalf of a New York State consumer, such profits
would be subject to tax in their entirety under section 186-a of the Tax Law. New York Energy
Office, supra.
In Consolidated Edison Company of New York, Inc., supra, it was determined that where
Con Edison acted as agent for the New York City Public Utility Service, any amount collected by
Con Edison and remitted to the Utility Service for the sale of the Utility Service's preference
power, did not constitute receipts of Con Edison for purposes of section 186-a of the Tax Law.
However, if Con Edison receives an amount for such transaction that is not remitted to the Utility
Service, such amount not remitted is a receipt of Con Edison.
Accordingly, for purposes of section 186-a of the Tax Law, the total gross income
received by Petitioner as a result of the special gas transportation service (contract carriage) that
is provided to its customer is taxable to Petitioner. However, as determined in New York City
Energy Office, supra, if Petitioner's pipelines are located both within and without New York
State, only the gross income received by Petitioner as a result of contract carriage from the use of
Petitioner's New York State pipelines is taxable under section 186-a of the Tax Law. To the
extent Petitioner acts as a collecting agent, Petitioner is performing a service incidental to the
conduct of Petitioner's principal business. As such, the amount collected by Petitioner from its
customer and remitted to Consolidated and/or Texas Gas to reimburse Consolidated and/or Texas
Gas for all of their rates, charges, costs, fees and expenses in transporting customer's gas to
Petitioner's facilities does not constitute receipts of Petitioner and is not subject to tax under
section 186-a of the Tax Law. However, if any amount collected by Petitioner from its customer
for such reimbursement is not remitted to Consolidated and/or Texas Gas the profits on such
receipt is taxable under section 186-a of the Tax Law.

DATED: May 29, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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