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« Lamont is officially in. | Main | 3/19/2006 »

Utilities Charge You For Taxes They Don't Pay

New York Times reported this last Wednesday. Here are the important bits:

Many electric utility companies across the nation are collecting billions of dollars from their customers for corporate income taxes, then keeping the money rather than sending it to the government.

The practice is legal in most states. The companies say it is smart business.

But some representatives of utility customers say that the practice, which involves using losses from other subsidiaries to reduce taxes owed, is not fair. They say that money that utilities are required to collect for federal and state taxes - typically a nickel on each dollar paid for electricity - should go for just that, or not be included in electric bills.

Otherwise, they argue, these legal monopolies make more than they are authorized to, and other taxpayers have to make up the difference in higher taxes or reduced services.

...

But in recent years many utilities have expanded into unregulated businesses, like energy trading and aircraft leasing, while others have been acquired by companies that own other businesses. When those other businesses lose money or create artificial losses through tax planning, those losses can be used to offset income earned by the utilities.

As a result, the parent companies owe less in taxes than their electric customers paid. Sometimes these companies owe nothing, or receive large tax refunds. By not remitting the taxes, the parent companies effectively have more money to invest in their operations or pay to shareholders in dividends.

The ability to intercept tax payments is not limited to electric utilities. Natural gas, water and telephone utilities can use the same techniques. The potential tax benefits are much smaller for gas and water utilities, however. And most telephone companies are no longer regulated as monopolies and their rates no longer include income taxes. (The taxes and fees that phone companies add to monthly bills are not corporate income taxes.)

...

Only a few states have mechanisms to prevent pocketing such money. West Virginia and Oregon require that taxes be paid to the government, although the Oregon law, enacted last year, is under attack by utilities there.

In Pennsylvania, the state Supreme Court ruled in 1985 that "fictitious" expenses, such as taxes government never receives, cannot be included in utility rates.

Needless to say, I'll be contacting PSE&G and our reps on Congress about this one. I can't wait to get the generic prepared reply from PSE&G.

By min | March 20, 2006, 10:49 AM | Liberal Outrage