New York: Telecommunications Company Not Entitled to Refund of Sales Taxes Paid on Electricity

The New York Supreme Court, Appellate Division recently affirmed a Tax Appeals Tribunal ruling denying a taxpayer’s request for a refund of sales taxes paid on purchases of electricity used to power and deliver its telecommunications services. After the refund was denied by the Department of Taxation and Finance, an Administrative Law Judge, and the Tribunal, the taxpayer sought review before the Appellate Division. The taxpayer first argued that its purchases were excluded from sales tax because the electricity was purchased and resold to customers as a component part of its taxable telecommunications services, and such purchases were excluded from the scope of taxable “retail sales.” To qualify for this exclusion, the electricity had to constitute “tangible personal property.”  The court, noting that the definition of tangible personal property specifically excluded electricity and that it had previously ruled in a decision involving the taxpayer’s corporate predecessor that electricity “does not qualify as tangible personal property,” upheld the Tribunal’s ruling.  The taxpayer’s second argument was that the purchases were exempt as purchases made for “resale as such.” The court, however, disagreed. Notably, the taxpayer was not in the business of selling electricity, did not advertise to its customers that it was offering electricity for sale or that the electricity could be independently consumed; nor were customers separately billed for electricity consumed. The court concluded that the Tribunal properly denied the refund claim. Please contact Judy Cheng at 212-872-3530 for more information on XO Communications Services v. Tax Appeals Tribunal of the State of New York.