ISO New England to Start Charging Sales Tax on Transactions

ISO New England has filed changes at FERC to collect sale taxes on certain transactions in the market.

The change is prompted by the ISO's assumption of central counter-party status in the market.

The ISO is now the central counterparty for transactions in the New England Markets (i.e., the ISO is the seller of specified electricity products and services to all purchasers, as well as the purchaser of those specified electricity products and services from all sellers). As previously reported, FERC adopted the central counter-party model with little regard to retail market impacts.

This status as central counterparty imposes certain state sales tax compliance obligations on the ISO.

Five of the six New England states in which the ISO operates (i.e., Connecticut, Maine, Massachusetts, Rhode Island and Vermont) impose a sales tax on the retail sale of tangible personal property and require sellers of that tangible personal property to collect that tax from its buyers. In addition, these states consider the sale of electricity to be the sale of tangible personal property.

Accordingly, the ISO will have to collect and remit applicable state sales tax with respect to purchases of electricity through the New England Markets, unless the purchase is made for subsequent resale (which sale is exempt from the sales tax in all five states so long as the state resale requirements are satisfied and the purchaser subsequently does not consume the electricity which would create a use tax liability) or a state-specific sales tax exemption applies to the purchase and is properly claimed by the purchaser.

The ISO said that a Market Participant purchasing electricity for subsequent resale to another party (e.g. a retail supplier) must furnish the ISO with an appropriate and properly executed resale certificate to satisfy the ISO's state obligation with regard to the collection and remittance of state sales tax with respect to purchases of electricity for resale. Specific procedures regarding the resale certificate (e.g. how burdensome it would be on retail suppliers) were not evident in the ISO's filing.

A Market Participant claiming a state-specific sales tax exemption must furnish the ISO with all mandatory documentation or other information required by the particular state to enable the ISO to honor the claimed state-specific sales tax exemption.

The ISO's specific filing at FERC (ER13-1870) was to clarify its ability to collect sales tax.

While the amounts due for state sales tax would be captured in general language in the Billing Policy describing Non-Hourly Charges, the revision to the Billing Policy filed by the ISO adds a specific reference to "state sales tax and related charges" in Section 1.3 of the Billing Policy to make it abundantly clear that those amounts are included in Non-Hourly Charges and will be collected as such.

The revision to the Billing Policy eliminates any doubt that the ISO may suspend and/or terminate a Market Participant that fails to pay state sales tax and related charges, the ISO said.