April 02, 2009
State to settle National Grid tax dispute
Ruling will decide whether municipalities have to pay back $12 million to energy company
Within the next 90 days, the state Department of Taxation and Finance will decide whether 150 upstate New York municipalities, including three in Cortland County, must repay $12 million in local taxes the utility company National Grid claims it overpaid.
Both the New York Conference of Mayors and the state Public Service Commission sent letters to the department last week, requesting a legal opinion on the state’s tax laws.
“We needed to get a unified opinion on the situation,” said Anne Dalton, a spokeswoman for the state Public Service Commission, which regulates New York utility companies.
“There was a disagreement on the law, and we’re not the ones that should be interpreting the tax law,” Dalton said, noting the commission had been contacted by several municipalities in January after receiving letters from National Grid asking for the return of thousands of dollars.
Altogether, the company has asked Cortland, the village of Homer, and the village of McGraw to repay more than $100,000.
Peter Baynes, NYCOM’s executive director, said he expected the Department of Taxation and Finance to side with the municipalities.
“It’s not just about this one payment to National Grid but a permanent loss of a revenue source to municipalities,” Baynes said, in noting the main issue is whether National Grid should collect a gross receipts tax on products distributed for other companies.
National Grid collects a gross receipts tax, which is a 1 percent tax on the total energy bills from its sales, from its customers and turns the funds over to villages and cities in upstate New York.
The company also collects a separate state tax and turns the money over to the state.
In addition to supplying 150 municipalities with utilities, National Grid delivers electricity and natural gas to customers who purchase their energy through other companies, such as Agway.
In December, an internal audit showed National Grid had included funds for gross receipts taxes collected on deliveries for other companies in its quarterly payments to municipalities between December 2005 and September 2008, even though the company does not collect the tax on these services.
In a December letter, National Grid said the services provided for other companies should be exempt from village and cities’ gross receipts tax because these financial transactions “originate outside the municipality.”
National Grid spokesman Steve Brady said the money collected from the municipal and state taxes were deposited in one fund, and the overpayment to municipalities had caused the company to underpay its state taxes. Baynes noted the state legislation concerning local gross receipts taxes has not been amended in 50 years, and these laws state that municipalities should collect gross receipts taxes in the same manner as the state.
The state currently collects a gross receipts tax on all companies’ energy services, Baynes said.
“We still contend that National Grid is not exempt from paying the gross receipts tax,” he added.
Cortland Mayor Tom Gallagher said the city will continue to let NYCOM handle the situation and cannot judge the impact on the city’s finances until the state makes a final decision on whether the municipalities will repay the overpaid taxes.
Since 1937, Cortland has collected a gross receipts tax and receives about $32,000 every three months from National Grid, which has asked the city to return $87,000.
National Grid has also asked for $22,000 to be returned by the village of Homer, which has collected a gross receipts tax from National Grid for several years and received $29,300 from the tax in 2007 and about $24,000 in 2008.
Mayor Mike McDermott could not be reached for comment before deadline.
National Grid has also asked the village of McGraw to return money, though no exact figure was available from the village clerk. Mayor Robert Freeman could not be reached for comment.
Last month, National Grid held a series of conference calls with mayors and village administrators to discuss the possibility of repaying the taxes through deductions from future tax payments.
National Grid is “not wed” to any repayment structure and is compiling more detailed breakdowns of the overpaid taxes owed by each municipality, Brady said. National Grid plans to collect $12 million from the municipalities to pay its state taxes. Brady said last month the company would pay the state by the end of March and experience a short-term loss until the company regains the funds from municipalities.
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