To: Stakeholders and interested parties, SJR 91 Task Force on State and Local Taxation
From: Staff, SJR 91 joint subcommittee
Re: Preparation of task force final report.
As a means of collecting information for the preparation of the final report to the joint subcommittee, The SJR 91 Task Force on State and Local Taxation requests stakeholders to provide responses to the following questions, preferably by e-mail attachment, to legislative staff no later than October 9, 1998.
Should the current taxation scheme for electric utilities remain in effect if the General Assembly makes the policy decision to allow retail competition?
If the General Assembly makes the policy decision to allow retail competition, the current taxation scheme for electric utilities should be changed.
To a great extent, the current taxation scheme relies on revenues from Gross Receipts Taxes ("GRT"). As its name implies, these taxes are on all receipts. In a regulated environment, this kind of taxation works just fine. In an unregulated environment, however, the GRT has some serious shortcomings. For one thing, it is regressive. Because it's a tax on all receipts, not on net income, it must be paid whether or not the company makes any money. Also, the potential exists for out-of-state providers to escape its payment due to lack of the requisite contact with the Commonwealth.
2. Which mechanisms are appropriate replacement mechanisms for the state gross receipts tax:
a. Corporate income tax on generation.
b. "Declining block" consumption tax.
These are both better alternatives, either alone or in combination. It makes sense to apply the CNI tax to generation, since presumably, after deregulation, this is the area where competition will occur. If the CNI tax is applicable to some generation providers, it should be applicable to all. The difficulty will be in determining the technical aspects of its application, particularly as regards companies which provide all of generation, transmission, and distribution service. The principle, however, is sound.
Application of a "declining block" consumption tax is an even better alternative. Such a tax would assure that each kWh, no matter its source, would be taxed in the same way. There would consequently be no inherent advantage attaching to any one type of provider. But once again, the devil is in the details. The tax statute would need to be drafted to impose the tax directly on retail consumers, and to provide for a method of calculation and collection.
3. Should the "declining block" consumption tax include:
a. Local gross receipts taxes
b. State Corporation Commission special assessment
For purposes of clarity and administrative convenience, the preferable approach would be to subsume as many current taxes as possible in the consumption tax.
4. Describe the appropriate tax treatment for:
a. Investor-owned utilities
b. Electric cooperatives
c. Municipal electric systems
Ideally, investor-owned utilities, co-operatives, and municipal systems should be taxed similarly to the extent they provide the same services. A consumption tax imposed directly at the retail customer level is particularly appropriate in this regard. This type of tax avoids the problem of the CNI tax not being applicable to some entities.
5. Which state agency should administer any tax program designed to replace the current gross receipts tax?
If the Department of Taxation administers the current tax program as it applies to investor-owned businesses of all kinds, it should also administer a tax program designed to replace the current GRT. This approach would reasonably assure consistency of application.
6. What action should the General Assembly take to protect/preserve the current revenues received from real property taxes on generation facilities?
Many municipalities rely heavily on property taxes for their revenues. Care should be taken to assure that those revenues are maintained in some form. We make no recommendations as to how the General Assembly should preserve such revenue.
7. Who should perform assessments on property owned by suppliers of electricity?
8. What assessment method should be used on property owned by suppliers of electricity?
So long as the assessment method is uniform and consistently applied, it shouldn't matter. The important thing is to attempt to tax all generation property similarly, whether that is on a local or statewide basis. This would seem to argue in favor of a single agency performing these tasks, rather than the fragmented system that is now in place.
9. What action should the General Assembly take to protect/preserve the current revenues received from the consumer utility tax?
The consumer utility tax could be combined with a consumption tax based on kWh usage. A second-best approach would be to leave it as it is as a percentage of the bill, but this poses problems in collection-after deregulation, it may be difficult to identify the supplier and get accurate price information upon which to calculate the tax.
10. Who should collect and remit the consumer utility tax to localities?
Ideally, the governmental entity imposing the tax should collect it. In practice, however, it makes a lot of sense for the regulated service provider to collect and remit the tax, especially if it's on a per-kWh basis. The regulated service provider would need to supply kWh information to the municipality in any event for collection of the tax.