November 27, 2018
The Department of Revenue (“Department”) is issuing this interim guidance statement to clarify the taxability of income received by Public Utility Districts (“PUDs”) and non-utility companies that are hired by a PUD to perform line repairs in the event of a storm or other emergency.
This interim guidance statement does not address the various inter-local or mutual-aid agreements that exist between many of these PUDs in Washington.
A “light and power business” is defined in RCW 82.16.010 as:
“…the business of operating a plant or system for the generation, production or distribution of electrical energy for hire or sale and/or for the wheeling of electricity for others.”
A light and power business includes:
a publicly-owned utility, such as a PUD, or
a privately-owned utility
A light and power business is subject to Public Utility Tax (“PUT”). The tax measure of PUT is the “gross income” of the business, defined in RCW 82.16.010(3) and WAC 458-20-179(102) as:
“…the value proceeding or accruing from the performance of the particular public service or transportation business involved, including operations incidental to that business. No deduction may be taken on account of the cost of the commodity furnished or sold, the cost of materials used, labor costs, interest, discounts, delivery costs, taxes, or any other expense whatsoever paid or accrued, nor on account of losses.” (Emphasis added)
A light and power business pays PUT in lieu of business and occupation (“B&O”) tax on its business activities, including operations incidental to that business. However, a light and power business may also be engaged in other separate business activities that are subject to B&O tax.
Emergency line repair services performed for a PUD by a light and power business
Often, a PUD will hire another light and power business (including other PUDs) to perform line repairs in response to storms or other emergencies. Gross income received by the light and power business for performing these services is subject to PUT because these services are considered incidental to the light and power business’ activities, regardless of whether those benefiting from the emergency line repairs are the PUD itself or the PUD’s customers.
Emergency line repair services performed for a PUD by a non-utility company (businesses not subject to PUT)
A PUD may hire a non-utility company to assist in emergency line repair services. The non-utility company is not a “light and power business” as defined in RCW 82.16.010, and therefore, it does not provide a service subject to PUT. Instead, the gross income received by the non-utility company for performing these emergency line repairs is subject to service and other activities B&O tax.
Non-utility companies pay B&O tax on the gross income they receive for performing these activities under the Service and Other Activities classification instead of the Retailing classification. Generally, the repairing of tangible personal property is a “retail sale” under RCW 82.04.050 and is subject to retailing B&O and retail sales tax. However, RCW 82.04.050(3)(d) provides a specific exclusion from the definition of a “retail sale” for:
“…pruning, trimming, repairing, removing, and clearing of trees and brush near electric transmission or distribution lines or equipment, if performed by or at the direction of an electric utility;” 1
Thus, emergency line repair services performed by a non-utility company for a PUD are not retail sales, but rather service activities subject to the service and other activities B&O tax under RCW 82.04.290.
Items used in performing emergency line repair services
A light and power business or a non-utility company performing emergency line repair services is deemed the consumer of any items they use to provide their services and, therefore, must pay retail sales or use tax on the items purchased or used, unless a specific exclusion or exemption applies. Refer to RCW 82.04.050 and 82.04.190 for more information.
The Department will continue to review this issue for purposes of developing final guidance. The Department anticipates that this interim statement will continue until it issues final guidance or cancels the interim statement.
If you have questions about this guidance, please contact the Department at 360-705-6705.
1 While the statute refers to “trees and brush near electric transmission or distribution lines or equipment,” “repairing” is a term that one would associate with a service being performed on transmission lines or equipment, as opposed to on trees and brush around the same. Thus, reading the exemption to include the repairing of transmission lines, distribution lines, and equipment gives meaning to the term “repairing.” In addition, testimony in the original Bill Report from Substitute Senate Bill 5129 (1995) suggests that lines would also be covered by the exemption.