Is customer-owned excess renewable electricity taxable when it is banked under a net-metering plan and later offsets the customer's utility usage?

Plain-English summary

The South Carolina Department of Revenue ruled that customer-generated renewable electricity was not subject to sales tax or electric power tax when the customer retained ownership, banked the excess with the utility, and later used it to offset the customer's own electricity usage.

The customer was effectively using electricity it already owned. The banked energy was not a new sale by the utility and was not consideration paid for utility electricity. Kilowatt-hours generated and used by the customer were likewise outside the electric power tax under the described plan.

The conclusion was narrow. It did not apply to net-purchase-and-sale arrangements, "buy all, sell all" plans, or use of the excess energy by anyone other than the customer that generated it.

What this means for you

Customers with solar, wind, or other renewable generation

Ownership is the key fact. This ruling covered a plan where the customer kept ownership of excess energy and carried it forward as a banked credit against the customer's own later usage.

Public utilities

The taxable utility sale was measured after recognizing the customer's use of its own banked electricity. If the arrangement instead transfers ownership or separately buys and sells power, this ruling says its conclusion does not apply.

Energy and tax professionals

Compare the contract and meter configuration with the ruling's facts. RR 10-10 involved a bidirectional net meter and retained customer ownership; SC PLR 11-3 later contrasted a two-meter buy-all, sell-all arrangement and treated its two sales separately.

Common questions

Q: Why was the banked credit not taxable?
A: Because it represented electricity the customer still owned, not electricity sold back to the customer by the utility.

Q: What if unused banked energy was reset to zero?
A: The ruling said no sales or electric power tax arose when the customer received no consideration for the lost balance.

Q: Does this cover a utility buying all customer generation?
A: No. The ruling expressly excluded net-purchase-and-sale and buy-all, sell-all plans.

Q: Does it cover another person using the customer's credits?
A: No. The conclusion was limited to use by the same public-utility customer that generated the electricity.

Citations and references

• S.C. Code §§ 12-36-60, 12-36-910 and 12-36-1310 (sales and use tax on electricity)
• S.C. Code §§ 12-23-10 and 12-23-20 (electric power tax and exemptions)
• 16 U.S.C. § 2621(d)(11) (net metering definition quoted in the ruling)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR10-10.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 REVENUE RULING 10-10

SUBJECT:

Net Metering Plans in which the Customer Retains Ownership of
Electricity as Represented by Excess Renewable Energy
(Sales and Use Tax and Electric Power Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous advisory opinions and any oral directives in conflict
herewith.

REFERENCES:

S. C. Code Ann. Section 12-36-910 (2000, Supp. 2009)
S. C. Code Ann. Section 12-36-1310 (2000, Supp. 2009)
S. C. Code Ann. Section 12-36-60 (2000)
S. C. Code Ann. Section 12-36-2120 (2000, Supp. 2008)
S. C. Code Ann. Section 12-23-10 (2000)
S. C. Code Ann. Section 12-23-20 (2000; 2009)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2005)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the
public and to Department personnel. It is an advisory opinion
issued to apply principles of tax law to a set of facts or general
category of taxpayers. It is the Department’s position until
superseded or modified by a change in statute, regulation, court
decision, or another Departmental advisory opinion.

Question:
If, under a “net metering” plan as described in the Facts, a public utility customer retains
ownership of the excess renewable energy associated with the electricity generated by that
customer, is the value assigned to the excess renewable energy subject to the sales and use
tax or the electric power tax when used to offset future electricity usage by the customer?

Conclusions:
If a public utility customer’s renewable energy facility (e.g., solar panels, wind turbine)
generates more energy than the customer uses under a ‘net metering” plan as described in
the Facts, the public utility customer retains ownership of the excess renewable energy.
The excess renewable energy is “banked” by the customer with its public utility and;
therefore, represents the customer’s “ownership” of that electricity. The customer is
essentially “using” their own electricity; therefore, the use of the excess renewable energy
does not represent a sale of electricity to the customer by the public utility nor does it
represent consideration paid by the customer for the public utility’s electricity.
Therefore, the value assigned to the excess renewable energy is not subject to the sales tax
or the electric power tax when used to offset future electricity usage by the customer if,
under a “net metering” plan as described in the Facts, the public utility customer retains
ownership of the excess renewable energy associated with the electricity generated by that
customer.
The following example provides guidance: 1
Scenario A: Customer A is a non-residential customer and operates a small business office
that uses the following amount of electricity over a three month period. This customer
does not operate a renewable energy facility (e.g., solar panels, wind turbine).

Month

Charge

Electricity
Usage

Electricity
Generated

Net
Billed

June

Customer Charge

Monthly
Bill
$20.65

Demand Charge (kW)

10

0

10

$100.00

Energy Charge (kWh)

1,000

0

1,000

$83.98

TOTAL

$204.63

1

For purposes of simplicity, the example concerns sales of electricity that are not exempt from the sales and
use tax or the electric power tax. If a sale of electricity is entirely exempt from the sales and use tax or the
electric power tax, this advisory opinion is not applicable. While “net metering” as described in the Facts
will affect the customer’s monthly bill, it has no impact on the tax due if the sale is entirely exempt from the
applicable tax. However, if a sale of electricity to a particular customer is partially taxable and partially
exempt, then the value assigned the excess renewable energy must be prorated between the taxable portion
and the exempt portion of the transaction based on the facts and circumstances and the Department’s
longstanding policy. (e.g., See Code Section 12-36-2120(19) and SC Regulation 117-302.4.)

2

August

July

Customer Charge

$20.65

Demand Charge (kW)

10

0

10

$100.00

Energy Charge (kWh)

1,200

0

1,200

$100.78

TOTAL

$221.43

Customer Charge

$20.65

Demand Charge (kW)

10

0

10

$100.00

Energy Charge (kWh)

1,600

0

1,600

$134.37

TOTAL

$255.02

For sales of electricity to Customer A, the “gross proceeds of sales” upon which the sales
tax is calculated are as follows: $204.63 for June, $221.43 for July, and $225.02 for
August. The kilowatt hours (“kWh”) upon which the electric power tax is calculated are as
follows: 1,000 kWh for June, 1,200 kWh for July, and 1,600 kWh for August.
Scenario B: Customer B is a non-residential customer that operates a small business office
that uses the following amount of electricity over a three month period. This customer
operates a renewable energy facility (e.g., solar panels, wind turbine) and generates
electricity under a “net metering” plan as described in the Facts. Customer B, under the
“net metering” plan, retains ownership of the electricity as represented by excess
renewable energy associated with the energy that customer generated.

Month

Charge

Electricity
Usage

Electricity
Generated

Net
Billed

June

Customer Charge

Monthly
Bill
$20.65

Demand Charge (kW)

10

5

5

$50.00

Energy Charge (kWh)

1,000

1,200

0

$0.00

TOTAL

$70.67

3

August

July

Customer Charge

$20.65

Demand Charge (kW)

10

5

5

$50.00

Energy Charge (kWh)

1,200

1,000 +
200 June Excess

0

$0.00

TOTAL

$70.67

Customer Charge

$20.65

Demand Charge (kW)

10

5

5

$50.00

Energy Charge (kWh)

1,600

1,200

400

$33.59

TOTAL

$104.24

For sales of electricity to Customer B, the “gross proceeds of sales” upon which the sales
tax is calculated are as follows: $70.67 for June, $70.67 for July, and $104.24 for August.
The kWh upon which the electric power tax is calculated are as follows: 0 kWh for June,
0 kWh for July, and 400 kWh for August.
Since Customer B is “banking” with its public utility the excess renewable energy
associated with electricity Customer B generated, the excess renewable energy represents
the Customer B’s “ownership” of that electricity. Customer B is essentially “using”
electricity Customer B owns; therefore, the use of it does not represent a sale of electricity
to Customer B by the public utility nor does it represent consideration paid by the
Customer B for the public utility’s electricity.
The value assigned each month to Customer B’s excess renewable energy is not subject to
the sales tax when used to offset future electricity usage by the customer. The renewable
energy generated and used by Customer B is not subject to the electric power tax when
used initially or when banked to offset future electricity usage by the customer. In
addition, if a customer’s excess renewable energy that is banked is set to zero at the
beginning of each summer season as discussed in the Facts, neither the sales and use tax
nor the electric power tax are applicable to such banked renewable energy since no sale
occurs because the customer does not receive any consideration for this “lost” excess
renewable energy.

4

Note: This advisory opinion conclusion only applies to “net metering” plans as described
in the Facts. It is not applicable to the “net purchase and sale” of electricity or a “buy all,
sell all” plan. 2 In addition, it is not applicable to the use of excess renewable energy by
any person other than the public utility customer that generated the electricity.
Facts:
Public utilities in the United States are required to make available to customers, upon
request, net metering. Specifically, 16 U.S.C. Section 2621(d)(11) states:
Each electric utility shall make available upon request net metering service
to any electric consumer that the electric utility serves. For purposes of this
paragraph, the term “net metering service” means service to an electric
consumer under which electric energy generated by that electric consumer
from an eligible on-site generating facility and delivered to the local
distribution facilities may be used to offset electric energy provided by the
electric utility to the electric consumer during the applicable billing period.
Under net metering, if a public utility customer generates more electricity from a
renewable energy facility (e.g., wind turbines, solar panels, fuel cells) than that customer
uses, then the customer receives credit (known as “excess renewable energy”) from the
public utility for the amount of excess electricity generated from the customer’s renewable
energy facility. The electric meter at the customer’s premise (home or business) can
record electricity in both directions. This allows any excess electricity produced by the
customer’s renewable energy facility to be carried forward or “banked” and used to offset
that customer’s electricity usage in the future.
As described by the U. S. Department of Energy, net metering
…enables customers to use their own generation to offset their
consumption over a billing period by allowing their electric
meters to turn backwards when they generate electricity in excess
of their demand. This offset means that customers receive retail
prices for the excess electricity they generate.
Without net metering, a second meter is usually installed to
measure the electricity that flows back to the provider, with the
provider purchasing the power at a rate much lower than the retail
rate.

2

“Net purchase and sale” is an arrangement in which a bi-directional meter is installed. The meter records
the electricity sold to the customer by the public utility. The meter also records the excess electricity
generated by the customer and sold by the customer to the public utility. This is sometimes known as an
“offset/sell” plan. A similar configuration known as a “buy all, sell all” plan is an arrangement in which two
single directional meters are installed. One meter records the electricity sold to the customer by the public
utility. The other meter records the electricity generated by the customer in which all is sold by the customer
to the public utility.

5

The following graphic illustrates “net metering:”

M

Solar Panel or Other
Renewable
Generation Facility

Small Business

Electric Public
Utility

Bi-Directional Meter
(Records electricity in both directions)

The South Carolina Energy Office and the South Carolina Office of Regulatory Staff
issued a report on net metering on January 1, 2009 – “Net Metering in South Carolina:
Current Status and Recommendations.” A copy of this report can be found on the South
Carolina Energy Office website (http://www.energy.sc.gov/) under “Renewable Energy.”
In this report, it was recommended that if the customer generates renewable energy in
excess of the amount of electricity used in that month then the customer should be allowed
to retain ownership or “bank” any excess renewable energy associated with the electricity
generated by the customer. This banked renewable energy can be used to offset future
electricity usage by the customer. The report also recommends that at the beginning of
each summer season, any remaining excess renewable energy should be granted to the
public utility and the excess renewable energy balance be set to zero.
The purpose of this advisory opinion is to address the application of the sales and use tax
and the electric power tax to net metering as described in the Facts above when a public
utility customer retains ownership of the excess renewable energy associated with the
energy generated by that customer. It is not applicable to the “net purchase and sale” of
electricity or a “buy all, sell all” plan. 3 In addition, it is not applicable to the use of excess
3

“Net purchase and sale” is an arrangement in which a bi-directional meter is installed. The meter records
the electricity sold to the customer by the public utility. The meter also records the excess electricity
generated by the customer and sold by the customer to the public utility. This is sometimes known as an
“offset/sell” plan. A similar configuration known as a “buy all, sell all” plan is an arrangement in which two
single directional meters are installed. One meter records the electricity sold to the customer by the public
utility. The other meter records the electricity generated by the customer in which all is sold by the customer
to the public utility.

renewable energy by any person other than the public utility customer that generated the
electricity.
Discussion:
Sales and Use Tax
Code Section 12-36-910(A) states:
A sales tax, equal to [six] 4 percent of the gross proceeds of sales, is
imposed upon every person engaged or continuing within this State in the
business of selling tangible personal property at retail. (Emphasis added.)
Code Section 12-36-1310(A) reads:
A use tax is imposed on the storage, use, or other consumption in this State
of tangible personal property purchased at retail for storage, use, or other
consumption in this State, at the rate of [six] 5 percent of the sales price of
the property, regardless of whether the retailer is or is not engaged in
business in this State. (Emphasis added.)
Code Section 12-36-60 defines the term "tangible personal property" to mean:
...personal property which may be seen, weighed, measured, felt, touched,
or which is in any other manner perceptible to the senses. It also includes
services and intangibles, including communications, laundry and related
services, furnishing of accommodations and sales of electricity, the sale or
use of which is subject to tax under this chapter and does not include
stocks, notes, bonds, mortgages, or other evidences of debt. … (Emphasis
added).
Therefore, the term tangible personal property includes the sale or use of services and
intangibles, including sales of electricity, which are subject to South Carolina sales or use
taxes under Chapter 36 of Title 12.
Sales of electricity are subject to sales and use taxes under Chapter 36 of Title 12 pursuant
to Code Sections 12-36-910(B)(2) and 12-36-1310(B)(2), which impose the tax on the “
gross proceeds accruing or proceeding from the sale of electricity.”
Code Section 12-36-2120 exempts various transactions from the sales and use tax. For
example, that code section exempts from the sales and use tax (1) sales of tangible
personal property (including electricity) to the federal government; (2) sales of electricity
for use by manufacturers miners, or quarriers to manufacture, mine, or quarry tangible
personal property for sale; and (3) sales of electricity used for residential purposes. 6
4

Code Section 12-36-1110 increased the sales and use tax rate by 1% beginning June 1, 2007.
Code Section 12-36-1110 increased the sales and use tax rate by 1% beginning June 1, 2007.
6
See Code Section 12-36-2120 for other exemptions applicable to the sales and use tax and sales of
electricity.
5

7

Based on the above, persons engaged in the business of selling electricity at retail are
subject to the sales tax and person purchasing electricity from a person engaged in the
business of selling electricity at retail are subject to the use tax 7 unless the sale is
otherwise exempt under Code Section 12-36-2120.
Electric Power Tax
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 five-tenths 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 12-23-20 provides certain exemptions from the electric power tax. For
example, that code section exempts from the electric power tax electricity generated by
any person owning and operating an electric manufacturing or generating plant of ten
horsepower or less; (2) electricity generated by 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; and (3) electricity generated by a municipality manufacturing or
generating electricity for the use of its customers. 8
Based on the above, persons engaged in the business of selling electricity for resale
(wholesale sales), and public utilities and electric cooperatives (not including
municipalities) engaged in the business of selling electricity at retail, are liable for the
electric power tax unless the electricity has been previously taxed in South Carolina or the
sale is otherwise exempt under Code Section 12-23-20.

7

Code Section 12-36-1340 requires an out-of-state seller to collect and remit the use tax if the seller has
nexus with South Carolina.
8
See Code Section 12-23-20 for other exemption applicable to the electric power tax and sales of electricity.

8

Therefore, when a customer retains ownership of excess renewable energy associated with
electricity generated by that customer, the excess renewable energy represents the
customer’s “ownership” of that electricity. The customer is essentially “using” electricity
that customer owns. As such, the use of this electricity does not represent a sale of
electricity to the customer by the public utility nor does it represent consideration paid by
the customer for the public utility’s electricity since the customer retains ownership of the
electricity as represented by the excess renewable energy. The value assigned each month
to this excess renewable energy is not subject to the sales tax when used to offset future
electricity usage by the customer and the kilowatt hours generated and used by the
customer are not subject to the electric power tax when used initially or used to offset
future electricity usage by the customer.
Note: This advisory opinion conclusion only applies to “net metering” plans as described
in the Facts. It is not applicable to the “net purchase and sale” of electricity or a “buy all,
sell all” plan. 9 In addition, it is not applicable to the use of excess renewable energy by
any person other than the public utility customer that generated the electricity.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
October 26
, 2010
Columbia, South Carolina

9

“Net purchase and sale” is an arrangement in which a bi-directional meter is installed. The meter records
the electricity sold to the customer by the public utility. The meter also records the excess electricity
generated by the customer and sold by the customer to the public utility. This is sometimes known as an
“offset/sell” plan. A similar configuration known as a “buy all, sell all” plan is an arrangement in which two
single directional meters are installed. One meter records the electricity sold to the customer by the public
utility. The other meter records the electricity generated by the customer in which all is sold by the customer
to the public utility

9