New York PSC Denies Sales Tax Reimbursement Sought by ESCO due to Incorrect Tax Rate Used by Utility

The New York PSC has denied a petition filed by Agway Energy Services, LLC which was seeking an order from the PSC directing Niagara Mohawk Power Corporation (NMPC or National Grid) to compensate Agway for incremental sales taxes and interest assessed by the New York State Department of Taxation and Finance (T&F), which Agway asserted resulted from National Grid's incorrect selection of sales tax rates for customers under utility consolidated billing.

The dispute concerns a finding by T&F that Agway had under paid sales taxes after auditing sales tax payments for the period from December 2003 through November 2007. As previously reported, Agway asserts that the sales tax rates National Grid used to calculate consolidated bills for customers who chose Agway as their commodity supplier contributed to this finding of tax deficiency

As part of its initial petition, Agway asked that the PSC direct National Grid to use sales tax rates supplied by Agway when computing the commodity portion of bills for Agway's customers. During the pendency of the case, the parties agreed that National Grid would use sales tax rates provided by Agway, rendering the issue moot.

As for Agway's sought reimbursement, the PSC denied the request, citing the express language of the Billing Services Agreement (BSA) between National Grid and ESCOs.

The Commission first agreed that it did have jurisdiction over the BSA to resolve the dispute.

However, the PSC found that the BSA bestows sole liability for payment of sales taxes to T&F on Agway.

"Agway's claim is addressed by Section 7.2 of the BSA. In this section, the BSA is explicit that the ESCO, not National Grid, has liability for all sales taxes," the PSC said.

"Section 7.2 of the BSA specifically assigns liability for taxes, including sales taxes 'related to Billed Amounts' to the ESCO, in this case Agway. The BSA defines Billed Amounts as 'any and all amounts billed by NMPC to Customers, including Accounts Receivable, exclusive of applicable sales tax imposed thereon' (emphasis by PSC). Section 7.2 further states that '[n]othing in this agreement shall be construed' as placing an obligation on National Grid to remit any taxes that are the 'collection and remittance responsibility of ESCO' with respect to either the Billed Amounts or Accounts Receivable. Finally, Section 7.2 states that the ESCO 'shall be liable for and shall pay all such taxes, and shall further indemnify, defend and save harmless NMPC from and against any and all liability for such taxes and any interest or penalties thereon,'" the PSC said.

"The parties to the BSA, including National Grid may have expected that National Grid's billings of ESCO customers would reflect sales taxes owed by those customers. However, the BSA makes clear that, in the event of a deficiency in the sales taxes collected by National Grid, ultimate liability for remitting sales taxes to T&F lies with the ESCO, not National Grid," the PSC said.

"Section 7.2 places liability for remittance of sales taxes to T&F on Agway. This liability extends to all sales taxes on Billed Amounts, not just to remitting the sales taxes collected on Agway's behalf by National Grid. By requesting that we direct National Grid to reimburse Agway for the additional sales taxes and interest Agway was required to pay as a result of the T&F audit, Agway asks that we ignore Section 7.2 of the BSA. As Section 7.2 of the BSA cannot be ignored, we cannot grant Agway's request for reimbursement," the PSC said.

Case: 11-M-0702