How does South Carolina's electric power tax apply when a manufacturer sells all self-generated power to Santee Cooper and separately buys its plant power from a cooperative?

Plain-English summary

The South Carolina Department of Revenue treated a manufacturer's two power transactions as separate sales. The manufacturer sold all electricity from its new biomass generator to the South Carolina Public Service Authority, or Santee Cooper, while separately buying all electricity needed for its plant from an electric cooperative.

The manufacturer's sale to Santee Cooper was exempt from the electric power tax under S.C. Code §§ 12-23-130 and 58-31-80. The cooperative's sale to the manufacturer was subject to the electric power tax under § 12-23-10(2), because it was a retail sale to the ultimate user. The ruling also noted a possible exemption under § 12-23-20(8) for cooperative power sold to industrial customers as a class above the corresponding 1957-1958 fiscal-year amounts.

The Department rejected treating the arrangement like net metering. Ownership of the manufacturer's power passed to Santee Cooper, the purchased power came from a third party, and separate meters recorded the two sales.

What this means for you

Manufacturers with on-site generation

Generating approximately the same amount of power that a plant consumes does not automatically produce a tax-free net result. When the generator sells all output under one agreement and buys plant power under another, the Department may treat each leg independently.

Utilities and electric cooperatives

A cooperative selling power to a manufacturing plant is selling to the ultimate user and is generally within § 12-23-10(2). The historical industrial-customer exemption in § 12-23-20(8) is measured for industrial customers as a class, not simply by one customer's status.

Energy and tax professionals

Contractual ownership and metering were decisive facts. This arrangement used two power purchase agreements and two meters; the manufacturer did not retain or "bank" the power it sold. The ruling expressly contrasted those facts with the net-metering arrangement discussed in SC Revenue Ruling 10-10.

Common questions

Q: Was the manufacturer's sale of biomass electricity taxable?
A: No. The buyer was Santee Cooper, and the Department applied the Public Service Authority exemptions in §§ 12-23-130 and 58-31-80.

Q: Was the cooperative's sale to the manufacturer taxable?
A: Yes. It was a sale by an electric cooperative to the ultimate user under § 12-23-10(2), subject to any applicable exemption.

Q: Why did the two transactions not offset each other?
A: They were separate contractual sales recorded on separate meters. The manufacturer sold its output to Santee Cooper and separately bought power from the cooperative; it did not retain or bank the generated electricity.

Q: What industrial exemption did the ruling identify?
A: Section 12-23-20(8) exempts cooperative power sold to industrial customers as a class above the corresponding monthly amounts sold to that class in the State's 1957-1958 fiscal year.

Citations and references

• S.C. Code § 12-23-10(1)-(2) (wholesale and ultimate-user electric power tax)
• S.C. Code § 12-23-20(4), (8) (industrial-generation and industrial-customer exemptions)
• S.C. Code § 12-23-60 (monthly return and remittance)
• S.C. Code § 12-23-130 (no electric power tax liability imposed on Santee Cooper)
• S.C. Code § 58-31-80 (Public Service Authority tax treatment)
• SC Revenue Ruling 10-10 (contrasted net-metering arrangement)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR11-3.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #11-3

SUBJECT:

Buy All, Sell All Arrangement for the Sale of Electric Power
(Electric Power Tax)

REFERENCES: S. C. Code Ann. Section 12-23-10 (2000)
S. C. Code Ann. Section 12-23-20 (2000)
S. C. Code Ann. Section 12-23-60 (2000)
S. C. Code Ann. Section 12-23-130 (2000)
S. C. Code Ann. Section 58-31-80 (Supp. 2010)
AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2010)
SC Revenue Procedure #09-3

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific set
of facts or a particular tax situation. It is the Department’s opinion
limited to the specific facts set forth, and is binding on agency
personnel only with respect to the person to whom it was issued and
only until superseded or modified by a change in statute, regulation,
court decision, or another Departmental advisory opinion, providing
the representations made in the request reflect an accurate statement of
the material facts and the transaction was carried out as proposed.

Questions:

1. Is the sale of electric power to the South Carolina Public Service Authority by XYZ
   Manufacturing Company, LLC under the “buy all, sell all” arrangement described in the facts
   subject to the electric power tax?
2. Is the sale of electric power to XYZ Manufacturing Company, LLC by ABC Electric
   Cooperative, Inc. under the “buy all, sell all” arrangement described in the facts subject to the
   electric power tax?

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Conclusions:

1. The sale of electric power to the South Carolina Public Service Authority by XYZ
   Manufacturing Company, LLC under the “buy all, sell all” arrangement described in the facts is
   not subject to the electric power tax. The sale of electric power to the South Carolina Public
   Service Authority is exempt from the electric power tax under Code Sections 12-23-130 and 5831-80.
2. The sale of electric power to XYZ Manufacturing Company, LLC by ABC Electric
   Cooperative, Inc. under the “buy all, sell all” arrangement described in the facts is subject to the
   electric power tax under Code Section 12-23-10(2).
   However, while the sale of electric power to XYZ Manufacturing Company, LLC by ABC
   Electric Cooperative, Inc. is subject to the electric power tax, it should be noted that under Code
   Section 12-23-20(8) electric power sold by ABC Electric Cooperative, Inc. to industrial
   customers as a class in excess of the amounts of electric power sold by ABC Electric
   Cooperative, Inc. to industrial customers as a class during the corresponding months of the
   State's fiscal year 1957-1958 is exempt from the electric power tax. “Industrial customers"
   means “that class of customer engaged in the business of manufacture, fabrication, processing
   and related work.”
   Facts:
   XYZ Manufacturing Company, LLC (“XYZ”) has recently constructed a biomass-fired electric
   generating unit at its South Carolina manufacturing plant. The unit has a capacity of
   approximately 51.4 megawatts (“MW”).
   Prior to the construction of the biomass-fired electric generating unit, XYZ purchased all the
   electric power required to run its manufacturing plant from ABC Electric Cooperative, Inc.
   (“ABC”). The electric power produced by XYZ’s new biomass-fired electric generating unit will
   all be sold to the South Carolina Public Service Authority (“Santee Cooper”) and a similar
   amount of electric power will be purchased from ABC to run its manufacturing plant.
   Under a “buy all, sell all” arrangement, among XYZ, Santee Cooper and ABC. XYZ will 1)
   contractually sell all of the capacity, electric power and associated renewable attributes 1
   produced by its biomass-fired electric generating unit to Santee Cooper under a Power Purchase
   Agreement, and 2) contractually buy all of the electric power it needs (approximately 52 MW of
   electric power) to run its manufacturing plant from ABC under a separate Power Purchase
   Agreement.
   The sale of electric power from XYZ to Santee Cooper is registered on one meter 2 and the sale
   of electric power from ABC to XYZ is registered on a separate meter. XYZ produces
   1

For the purposes of this advisory opinion, “renewable attributes” refers to credits for greenhouse gas reduction or
producing renewable energy and includes carbon credits or greenhouse gas credits, carbon tax credits or greenhouse
gas tax credits, renewable energy certificates, credit certificates, etc. It does not include state or federal production or
investment tax credits or other financial incentives specific to the biomass facility.
2
Santee Cooper owns this meter, which is located on XYZ’s property at the manufacturing plant immediately
adjacent to the XYZ biomass-fired electric generating unit. Santee Cooper does not own any other equipment at the
plant.

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approximately 40 to 45 MW of electric power that is sold to Santee Cooper and purchases
approximately 52 MW of electric power from ABC. The electric power XYZ sells to Santee
Cooper is commingled with the additional electric power supplied by ABC to ensure that XYZ
has the approximately 52 MW of electric power needed to run its manufacturing plant.
As a member of the 123 Electric Power Cooperative, ABC obtains all of its electric power from
the 123 Electric Power Cooperative. In turn, the 123 Electric Power Cooperative obtains the bulk
of its electric power from Santee Cooper.
The Power Purchase Agreements between XYZ and Santee Cooper and between XYZ and ABC
were both effective September 1, 2010 for 15 years, with the possibility of extending for 5 year
periods thereafter.
Discussion:
Code Section 12-23-10 imposes an electric power tax and states:
In addition to all other taxes of every kind imposed by law:
(1) every person, except the State, a county, a municipality, or an agency or
political subdivision of it, engaged in the business of selling electric power for
resale within the State is subject to the payment of an excise, license, or privilege
tax of five-tenths of one mill upon each kilowatt hour of electric power sold for
resale within the State, except upon such electric power purchased from a vendor,
however remote, previously taxed under this subsection. Sales for resale of an
electric cooperative to a customer whose sales are taxed under subsection (2) must
not be taxed under this subsection; and
(2) except a municipality, every public utility and electric cooperative engaged in
the business of selling electric power within the State to the ultimate user of the
power is subject to the payment of an excise, license, or privilege tax of fivetenths of one mill upon each kilowatt hour sold within the State to the ultimate
user, except such electric power purchased from vendors, however remote, taxed
under subsection (1).
Code Section 12-23-60 requires persons liable for the electric power tax to file monthly returns,
and states:
Every person subject to the provisions of this article shall on or before the
twentieth day of each month make a true and correct return to the department in
such form as it may prescribe, showing the exact amount of electric power
manufactured, generated or sold, expressed in kilowatt hours, during the previous
month, and remit the tax therewith.

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Code Section 12-23-20 provides certain exemptions from the electric power tax, and states:
The provisions of this article shall not apply to:
(1) Electric power manufactured or generated in another state and brought into
this State until such power has lost its interstate character and immunities;
(2) Electric power or energy generated in the State by plants constructed after
May 1, 1951 and exported to another state;
(3) Any person owning and operating an electric manufacturing or generating
plant of ten horsepower or less;
(4) Any industrial plant manufacturing or generating power for its own use or for
use upon its own premises by its bona fide operatives or employees, but the tax
shall be paid upon so much thereof as may be sold to other than its employees;
(5) A municipality manufacturing or generating electricity for the use of its
customers; or
(6) Electric power used in manufacturing or generating hydroelectric power and
steam electric power, and electric power used in the operation of such electric
power manufacturing or generating plants and auxiliary machinery and equipment
necessary thereto; provided, that all such power that is used for generation of
power, which is to be exempt from taxation shall be exempt only if it is metered;
nor shall they apply:
(7) When the entire capital stock of a corporation owning and operating a plant
manufacturing or generating electric power is owned by an industrial corporation,
to such power as may be furnished by such generating corporation to such
industrial corporation for use and consumption by such industrial corporation or
for use upon the premises of such industrial corporation by its bona fide
operatives or employees, but the tax shall be paid upon so much of such power as
may be sold to other than such industrial corporation's employees.
(8) Electric power sold to industrial customers as a class in excess of the amounts
of electric power sold to industrial customers as a class during the corresponding
months of the State's fiscal year 1957-1958; but all sales of electric power to any
class of customer other than industrial customers shall continue to be assessed and
taxed as provided in this article. As used in this section, "industrial customers"
shall mean that class of customer engaged in the business of manufacture,
fabrication, processing and related work.

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(9) electricity used by a technology intensive facility as defined in Section 12-63360(M)(14)(b) and qualifying for the sales tax exemption provided pursuant to
Section 12-36-2120(65), and the equipment and raw materials including, without
limitation, fuel used by such qualifying facility to generate, transform, transmit,
distribute, or manage electricity for use in such a facility. The running of the
periods of limitation within which the department may assess taxes pursuant to
Section 12-54-85 is suspended during the same time period it is suspended in item
(65)(d) of Section 12-36-2120.
In addition, exemptions for the South Carolina Public Service Authority are provided in two
code sections.
Code Section 12-23-130 states:
Nothing contained in Sections 12-23-10, 12-23-20, or 12-37-220, shall be
construed or interpreted to impose any tax liability on the South Carolina Public
Service Authority, and all property leased to and operated by the South Carolina
Public Service Authority for the generation or transmission of electric power
shall, for all tax purposes, be considered the property of the Authority.
Code Section 58-31-80 states:
The Public Service Authority is created primarily for the purpose of developing
the Cooper River, the Santee River, the Congaree River, and their tributaries
upstream to the confluence of the Broad and Saluda Rivers and upstream on the
Wateree River to a point at or near Camden and other similar projects as
instrumentalities of intrastate, interstate, and foreign commerce and navigation; of
reclaiming wastelands by the elimination or control of flood waters, reforesting
the watersheds of the rivers and improving public health conditions in those areas.
It is found that the project authorized by this chapter is for the aid of intrastate,
interstate, and foreign commerce and navigation, and that the aid and
improvement of intrastate, interstate, and foreign commerce and navigation, the
development, sale, and distribution of hydroelectric power, and the treatment,
sale, and distribution of water at wholesale are in all respects for the benefit of all
the people of the State, for the improvement of their health and welfare and
material prosperity, and are public purposes, and being a corporation owned
completely by the people of the State, the Public Service Authority is required to
pay no taxes or assessments upon any of the property acquired by it for this
project or upon its activities in the operation and maintenance of the project,
except as provided in this section. The securities and other obligations issued by
the Public Service Authority, their transfer and the income from them at all times
are free from taxation. However, unless otherwise provided in any contract with
an agency of the United States Government as assists in financing the projects
contemplated in this section or any other agency from which the funds may be
secured, all electrical energy developed by the authority must be sold at rates in
the determination of which the taxes which the project would pay if privately
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owned, to the extent provided in this section, as well as other rate-making factors
properly entering into the manufacture and distribution of the energy must be
considered. After payment of necessary operating expenses and all annual debt
requirements on bonds, notes, or other obligations at any time outstanding and the
discharge of all annual obligations arising under finance agreements with the
United States or any agency or corporation of the United States and indentures or
other instruments under which bonds have been, or may be issued, the authority
shall pay annually to the various counties of the State a sum of money equivalent
to the amount paid for taxes on properties at the time of their acquisition by the
authority, acquired, or to be acquired, in the counties, and the authority shall pay
to all municipalities and school districts in the counties in which the authority has
acquired, or may acquire properties, a sum of money equivalent to the amount
paid for taxes to the school districts and municipalities on the properties at the
time of their acquisition by the authority; and no other taxes may be considered in
the fixing of the rates of the authority. From the funds to be paid under this
section the counties, school districts, and municipalities annually shall apply a
sum sufficient for the debt requirements for bonds and other obligations of the
counties, school districts, and municipalities for which the properties were taxed
at the time of their acquisition by the authority, with the remainder of the funds to
be expended in accordance with law. (Emphasis added.)
Based on the above, persons engaged in the business of selling electric power for resale
(wholesale sales), and public utilities and electric cooperatives (not including municipalities)
engaged in the business of selling electric power at retail, are liable for the electric power tax
unless the electric power has been previously taxed in South Carolina or the sale is otherwise
exempt under Code Sections12-23-20, 12-23-10 and 58-31-80 or some other provision of law.
This applies to all persons selling electric power, including manufacturing plants selling electric
power to any persons other than employees. See Code Sections 12-23-10 and 12-23-20(4).
Therefore, it is the opinion of the Department that the sale of electric power to Santee Cooper by
XYZ under the “buy all, sell all” arrangement described in the facts is not subject to the electric
power tax. Sales of electric power to Santee Cooper are exempt from the electric power tax
under Code Sections 12-23-130 and 58-31-80.
The sale of electric power to XYZ by ABC under a “buy all, sell all” arrangement is subject to
the electric power tax. Unlike the “net metering” arrangement discussed in SC Revenue Ruling
10-10, XYZ does not retain ownership of the electric power sold to Santee Cooper. XYZ sells
the electric power to Santee Cooper and it is not “banked” by XYZ with Santee Cooper as is the
case in the “net metering” arrangement described in SC Revenue Ruling #10-10. XYZ is using
electric power purchased from a third party, ABC. In fact, as a member of the 123 Electric Power
Cooperative, ABC obtains all of its electric power from the 123 Electric Power Cooperative
which, in turn, obtains the bulk of its electric power from Santee Cooper. In addition, unlike the
“net metering” arrangement described in SC Revenue Ruling #10-10, there are two separate
meters to register both sales. As such, the sale of electric power to XYZ by ABC is subject to
the electric power tax.

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However, while the sale of electric power to XYZ by ABC is subject to the electric power tax, it
should be noted that under Code Section 12-23-20(8) electric power sold by ABC to industrial
customers as a class in excess of the amounts of electric power sold by ABC to industrial
customers as a class during the corresponding months of the State’s fiscal year 1957-1958 is
exempt from the electric power tax. “Industrial customers” means “that class of customer
engaged in the business of manufacture, fabrication, processing and related work.”
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/James F. Etter
James F. Etter, Director
July 6
, 2011
Columbia, South Carolina

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