Ruling 99-3, Utility Company Gross Earnings Tax Residential Service
FACTS:
A company which is a local gas distribution company and the principal business of which is manufacturing, selling or distributing gas to be used for heating purposes sells natural gas and distributes it through its pipes to the following type of buildings: Each building contains only dwelling units and the common areas within the building (such as lobbies and hallways). While each building has two or more (and typically four or more) dwelling units, the building is served by a single meter. Where the multi-family dwelling units in the building are apartments or duplexes, the company bills the landlord for the sale and distribution of the gas to the building. Where the multi-family dwelling units in the building are condominiums, the company bills the property manager for the sale and distribution of the gas to the building. While the gas that the company sells and distributes to the building is used in the dwelling units for heating purposes (including hot water heating, clothes drying and cooking) by the occupants of these dwelling units, in some cases the gas is also used to heat the common areas within the building.
ISSUE:
Where gas that is sold and distributed by a local gas distribution company is used for heating and cooking purposes by the occupants of multi-family dwellings, each of which multi-family dwellings is served by a single meter, and the company bills the landlord, where the multi-family dwellings are apartments or duplexes, and the property manager, where the multi-family dwellings are condominiums, for the sale and distribution of the gas, are the company’s gross earnings from such sale and distribution allocable to residential service?
DISCUSSION:
Conn. Gen. Stat. §12-265(b) provides that
[each company and municipal utility included in section 12-264 shall be taxed at the rate of five per cent upon the amount of gross earnings in each taxable quarter from operations, except as set forth in subsection (c) or (d) of this section and except that each company and municipal utility manufacturing, selling or distributing gas or electricity to be used for light, heat or power shall be taxed at the rate of four per cent upon the amount of gross earnings in each taxable quarter allocable to residential service ...
The italicized language was added by 1985 Conn. Pub. Acts 159, §5.
The term "residential service" is not defined in title 12 of the Connecticut General Statutes. (endnote 1) During the debate on 1985 Conn. Pub. Acts 159, no one asked or explained what "residential service" encompassed. The House Co-Chair of the Finance, Revenue and Bonding Committee stated that "the residential utilities tax for gas and electric and goes from 5% to 4%, a reduction of one per cent in the gross receipts tax on residential users" (endnote 2) and also characterized the rate drop as "reducing] the home heating costs."(endnote 3) The Senate Co-Chair of the Finance, Revenue and Bonding Committee said that the "intention was to in some way offer broad relief to each and every residential home heater." (endnote 4) Another senator stated that "[part of the revenue reduction package that we have before us today is going to give us the ability to lower the gross revenue tax on electric and gas users... residential users, in the State of Connecticut. (endnote 5)
Words and phrases are to be "construed according to the commonly approved usage of the language ..." Conn. Gen. Stat. §1-1(a). "Residential" means
used, serving, or designed as a residence or for occupation by residents (a residential hotel); providing and administering living accommodations for students (a residential college); requiring or involving attendance of classes on a campus (residential study, a residential course); adapted or restricted to or occupied by residences (a residential quarter); of, relating to, or connected with residence or residences (residential trade, a residential zone, residential construction). [Emphasis added]
Webster’s Third New International Dictionary of the English Language, Unabridged 1931 (1981).
Construing "residential service" accordingly to the commonly approved usage of the language, the gross earnings of a local gas distribution company from the sale and distribution (through its pipes) of natural gas to multi-family dwellings are gross earnings from residential service because multi-family dwellings are used and designed and serve as a residence or for occupation by residents.
This is in harmony with the Department’s interpretation of "residential dwelling" in PS 94(3.1), Gas, Electricity and Heating Fuel Purchased for Residential Use or for Use in Agricultural Production, in the Fabrication of Finished Products to be Sold, or in an Industrial Manufacturing Plant. (endnote 6)
Just as importantly (endnote 7), it is in accord with the manner in which the Department of Public Utility Control approves the rates charged by public service companies to residential users of gas or electricity, where those rates include the tax imposed under Chapter 212 of the Connecticut General Statutes on the gross earnings of those public service companies from manufacturing, selling or distributing gas or electricity to be used for light, heat or power (endnote 8).
RULING:
Where gas that is sold and distributed by a local gas distribution company is used for heating and cooking purposes by the occupants of multi-family dwellings, each of which multi-family dwellings is served by a single meter, and the company bills the landlord, where the multi-family dwellings are apartments or duplexes, and the property manager, where the multi-family dwellings are condominiums, for the sale and distribution of the gas, the company’s gross earnings from such sale and distribution are allocable to residential service.
Endnotes:
1. The term is also not defined in Title 16 of the Connecticut General Statutes. Title 16 pertains to public service companies, as defined in Conn. Gen. Stat. §16-1, and establishes the Department of Public Utility Control and the Public Utilities Control Authority. A local gas distribution company is a public service company. See note 7.
2. 28 H.R. Proc., Pt. 11, 1985 Sess., p. 3927.
3. 28 H.R. Proc., Pt. 11, 1985 Sess., p. 3945.
4. 28 S. Proc., Pt. 5, 1985 Sess., p. 1686.
5. 28 S. Proc., Pt. 5, 1985 Sess., p. 1666.
6. "A ‘residential dwelling’ is any building, all or a predominant part of which is used for housing. Thus, for example, homes, apartment buildings, condominiums, mobile home parks, nursing or convalescent homes and halfway houses are "residential dwellings," whereas such places as hotels, motels (other than apartment hotels or motels) and hospitals are not considered "residential dwellings.’" [Emphasis added] PS 94(3.2), at 2. PS 94(3.2) interprets the amendments made to Conn. Gen. Stat. §12-412(3) by 1989 Conn. Pub. Acts 251, §12.
7. Section 18 of 1985 Conn. Pub. Acts 159 provides:
Not later than thirty days after the effective date of section 5 of this act, each electric and gas public service company, as defined in section 16-1 of the general statutes, which does not have a proposed rate amendment under section 16-19 of the general statutes pending before the department of public utility control at such time, shall request the department to reopen the proceedings under section 16-19 on the company’s most recent rate amendment, solely for the purpose of decreasing the company’s rates to reflect the decrease under section 5 of this act in the gross earnings tax imposed on the company. The department shall immediately reopen such proceedings, solely for such purpose.
Because the purpose of requiring every electric and gas public service company to request the Department of Public Utility Control "to reopen the proceedings under section 16-19 on the company’s most recent rate amendment, solely for the purpose of decreasing the company’s rates to reflect the decrease under section 5 of this act in the gross earnings tax imposed on the company" was to shift the economic benefit of the tax rate reduction from the public service companies to residential users of gas or electricity, the General Assembly must have intended the Department of Revenue Services and the Department of Public Utility Control to interpret "residential service" in the same manner.
8. "Conn. Gen. Stat. Section 12-265(b) requires that public service companies pay a gross receipts tax (GRT) of 4% on residential accounts and 5% on commercial/industrial accounts. The determination of which tax rate to use is based on the use of the premises. For example, multiple family dwelling units are occupied by residential customers and are taxed at the 4% rate. Since the Department is eliminating Rate 1F [Residential firm Multiple Dwelling Heating Service, including the Bridgeport Housing Authority], all multiple dwelling customers will be switched to either Rate 7A [Small Firm Commercial-Industrial General Service] or Rate 7B [Large Firm Commercial-Industrial General Service]. Up to the present time, the Company paid the higher 5% rate on all rates 7A and 7B customers including non-heating multiple family dwelling customers. The Department finds that no matter what service these customers are on, they are still residential accounts and should be taxed at 4%." [Emphasis added] Decision of December 1, 1993, D.PU.C. Docket No. 93-03-09, at 20.
LEGAL DIVISION
Issued August 3, 1999