Connecticut State Department of Revenue Services

Declaratory Ruling No. 1990-2

Sales and Use Taxes

December 18, 1990

Mary Adamowicz, Esq.
Murtha, Cullina, Richter & Pinney
CityPlace – P.O. Box 3197
Hartford, CT 06103-0197

RE: Petition for Declaratory Ruling Regarding AES Thames Cogeneration Project

Dear Attorney Adamowicz:

The declaratory ruling issued to AES Thames, Inc. dated April 23, 1987 is hereby withdrawn in its entirety and the following declaratory ruling is substituted in response to the petition of AES Thames, Inc. of March 20, 1987:

  1. The facts on which this ruling is based are as follows: AES Thames, Inc. (hereinafter "AES") will build and operate a cogeneration system adjacent to an industrial plant owned and operated by Stone Container Corp. (hereinafter "Stone").
  2. The cogeneration system will consist of two coal-fired boilers which will generate steam. The steam will pass through a turbine-generator which will produce electricity.
  3. The electricity generated by the cogeneration system will be sold to Connecticut Light & Power (hereinafter "CL&P"), which will resell the electricity to consumers.
  4. The steam extracted from the turbine-generator will be sold to Stone which will use the steam in making paperboard.

The petition requests the following rulings:

  1. The purchase of coal by AES for use as fuel in generating steam and electricity is exempt from sales and use taxes under either the first or third sentence of Connecticut General Statutes (hereinafter "C.G.S.") §12-412(18).*
In the first and second sentences of C.G.S §12-412(18), the General Assembly distinguished, on the one hand, between fuel used directly in an industrial plant, and, on the other hand, fuel used directly in furnishing power to an industrial manufacturing plant or in furnishing gas, water, steam or electricity. If a power plant were considered by the General Assembly to be an industrial plant, then the reference in the second sentence to fuel used directly in furnishing power to an industrial plant would be a tautology. It cannot be assumed that the General Assembly would enact meaningless and redundant provisions. On the contrary, there is a presumption of purpose behind every provision.
The fuel to be used by AES will not be fuel used directly in an industrial plant. It will be fuel used directly in furnishing power to an industrial manufacturing plant or in furnishing gas, water, steam or electricity.
In the instant matter, AES will not be furnishing power to an industrial plant. Instead it will be furnishing steam to an industrial manufacturing plant, Stone, and electricity to CL&P.
C.G.S §12-412(18) requires that when fuel is used directly in furnishing gas, water, steam or electricity, the gas, water, steam or electricity must be "delivered to consumers through mains, lines or pipes."
In the instant matter, AES will deliver steam to a consumer, Stone, through pipes. It is ruled, therefore, that the fuel to be used directly in furnishing steam to Stone will be exempt from sales and use taxes.
The legislative history of a more recently enacted exemption, C.G.S §12-412(3)(E) [§12 of Public Act 89-251], clearly establishes the intent of the General Assembly to exempt fuel used by cogenerators of electricity. Based on that legislative intent, this Department has previously ruled that has purchased by a cogeneration facility for use directly in the production of electricity, the excess of which is sold to a utility for delivery to consumers, is exempt under C.G.S §12-412(3)(E).
In the instant matter, AES will sell electricity to CL&P, which will deliver the electricity to consumers. CL&P is not the "consumer," nor is it an "industrial plant"; however, CL&P, as a utility, is in the business of delivering electricity to consumers. As such, the fuel which AES purchases to produce electricity is the fuel used directly in the furnishing of electricity which is delivered to consumers.
It is ruled, therefore, that the fuel to be used directly in furnishing electricity to CL&P is exempt from sales and use taxes.
  1. The sale of steam by AES to Stone is exempt from sales and use taxes.
The steam to be sold by AES will be delivered to a consumer, Stone, through pipes. By virtue of C.G.S §12-412(3)(E) [§12 of Public Act 89-251], it is ruled that the sale of steam by AES to Stone will be exempt from sales and use taxes.
  1. The sale of electricity by AES to CL& is exempt from sales and use taxes.
Although the electricity sold by AES will ultimately be delivered to consumers, it is impossible to predict in advance the use to which the electricity will be put by the consumers. The exemption afforded by C.G.S §12-412(3)(A) [§12 of Public Act 89-251] requires information about specific consumers which is simply not available to either AES or CL&P at the time the cogenerated electricity is sold. This exemption is therefore not applicable to the sale from AES to CL&P, although it may be available to CL&P at the time the electricity is resold by it to consumers. Nonetheless, only retail sales are subject to the sales and use taxes; C.G.S. §§12-408(1) and 12-411(1); sales for resale are not subject to sales and use taxes; C.G.S. §§12-410 and 12-413(1).

It is ruled, therefore, that if a resale certificate, pursuant to C.G.S. §§12-410(1) and 12-411(9), is issued by CL&P to AES, then the sale of electricity by AES to CL&P will be exempt from sales and use taxes.

You are hereby directed to serve a copy of this declaratory rulign on those persons which your firm’s letter of March 20, 1987 identifies as having an interest in the subject matter and to file forthwith proof of service with my office.

Sincerely,

Edward J. Bajorski
Acting Commissioner

EJB:PAT

Cc: Patrick L. Pelletier
Richard D. Nicholson
Jonathon L. Ensign

*NOTE: Since the date of the ruling request, the middle sentence of C.G.S. §12-412(18) has been eliminated. The third sentence is now the second sentence, and wherever the "second" sentence of the statute is mentioned in this ruling it will refer to the "third" sentence as it existed at the time of the ruling request.