Sales Tax State Activity Update - May 2005

Natural Gas Powers Savings for Pennsylvania Utility

In a recent legal letter ruling, the Pennsylvania Department of Revenue determined machinery, equipment, parts and natural gas are exempt when used directly and predominantly to produce electricity. A taxpayer owns and operates a power facility that produces electricity for sale to a public utility. The public utility resells the electricity to retail customers.

Natural gas is injected into the production system where it is combusted and expanded causing gas turbines to spin and produce electricity. According to Pennsylvania sales and use tax law; machinery, equipment, parts and supplies are excluded from tax when used or consumed directly and predominantly in the manufacturing operation. In this case, natural gas is an exempt supply used directly and predominantly in generating electricity.

The full text can be viewed here.

( Pennsylvania Department of Revenue, Legal Letter Ruling No. SUT 05-003 )

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