Revenue Ruling 01-10-3
Nebraska Sales and Use Tax
Supersedes Revenue Ruling 01-09-2, Issued October 30, 2009

NET METERING OF ELECTRICITY

Issues:

Neb. Rev. Stat. §§ 70-2001 through 70-2005 require utilities to “net meter” the consumption and generation of electricity if an electric utility’s customer is also generating excess electricity that is sold to the utility.

(1) Should sales tax be imposed on the gross amount or the net amount of electricity sold to the customer-generator?

(2) Does the excess electricity produced and sold by a customer-generator to a local distribution utility qualify as a sale for resale?

(3) Is a customer-generator’s wind energy generation facility subject to the nameplate capacity tax authorized pursuant to LB 1048 (2010)?

Conclusions:

(1) Sales tax is imposed on the gross amount of electricity sold to a customer-generator because the value of the excess electricity purchased by the local distribution utility is a separate transaction that does not reduce the gross receipts of the local distribution utility.

(2) Yes, excess electricity produced by a customer-generator and sold to a local distribution utility qualifies as a sale for resale because the local distribution utility is purchasing the electricity to sell to other customers, and these sales occur within in its regular course of business.

(3) No, a customer-generator’s wind energy generation facility is not subject to the nameplate capacity tax if a customer-generator’s facility meets the definition of a qualified facility under Neb. Rev. Stat. § 70-2002.

Definitions:

Customer-generator. Customer-generator means an end-use electricity customer that generates electricity from a qualified facility on the customer’s side of the meter.

Local Distribution Utility. Local distribution utility means the local electrical distribution system operator.

Local Distribution System. Local distribution system means the equipment and facilities used for the distribution of electric energy to the electricity customer.

Nameplate Capacity. Nameplate capacity means the total electrical capacity of a wind turbine to generate electricity as measured in megawatts, including fractions of a megawatt.

Net Excess Generation. Net excess generation means the net amount of electricity, if any, generated by a qualified facility that exceeds a customer-generator’s electricity requirements.

Net Metering. Net metering means a system of metering and charging for electricity. A local distribution utility credits a customer-generator at the applicable retail rate for each kilowatt-hour of electricity produced by the customer-generator. The local distribution utility compensates the customer-generator for net excess generation at a rate equal to the local distribution utility’s avoided cost of electric supply.

Qualified Facility. Qualified facility means a facility owned and operated by a customer-generator that: produces 25 or less kilowatts of electrical energy; interconnects with the local distribution system; is intended to meet or offset the customer-generator’s requirements for electricity at that specific location; and meets all applicable safety, performance, interconnection, and reliability standards.

Wind Energy Generation Facility. Wind energy generation facility means a facility that generates electricity using wind as the fuel source.

Analysis:

Net metering requires a local distribution utility to credit a customer-generator at the applicable retail rate for each kilowatt-hour of electricity produced by a qualified facility, and to compensate the customer-generator for net excess generation at a rate equal to the local distribution utility’s avoided cost of electric supply.

(1) Gross Receipts of a Local Distribution Utility

Neb. Rev. Stat. §§ 77-2701.16(2)(c) and 77-2703(1) provide that the sale of electricity to a consumer is subject to sales or use tax unless the sale is otherwise exempt. The sale of electricity to a customer-generator from a local distribution utility constitutes a single taxable transaction, independent from the sale of excess electricity by a customer-generator back to the local distribution utility. Since it is a separately defined transaction, the sale of electricity does not qualify as a trade-in under Neb. Rev. Stat. § 77-2701.35(3)(d)(i).

For example, during a monthly billing period, a customer-generator buys 2 kilowatts of electricity from a local distribution utility. The same customer-generator produces 1 kilowatt of excess electricity for sale to the local distribution utility. Sales tax is imposed on the 2 kilowatts of electricity bought by the customer-generator. The 1 kilowatt of excess electricity produced by the customer-generator and sold to the local distribution utility is a separate and distinct transaction, and therefore is exempt from sales tax as a sale for resale as explained below.

(2) Sale for Resale

The sale of net excess generated electricity from a customer-generator to a local distribution utility qualifies as a sale for resale because the local distribution utility is independently purchasing the excess electricity from the customer-generator for purposes of resale, and the local distribution utility sells electricity in its regular course of business. See Neb. Rev. Stat. § 77-2706. Since only the local distribution utility may purchase the excess electricity, a resale certificate is not required to support the purchases. Each local distribution utility is responsible for recording the gross amount of electricity delivered to the customer-generator and the amount of excess electricity purchased from the customer-generator.

For example, during a monthly billing period, a customer-generator buys 2 kilowatts of electricity from a local distribution utility. The same customer-generator produces 3 kilowatts of excess electricity for sale to the local distribution utility. Sales tax is imposed on the 2 kilowatts of electricity bought by the customer-generator. The 3 kilowatts of excess electricity produced by the customer-generator and sold to the local distribution utility is a separate and distinct transaction, and therefore is exempt from sales tax as a sale for resale.

(3) Nameplate Capacity Tax on Wind Generation Facilities

Beginning July 15, 2010, an owner of a wind energy generation facility is generally subject to an annual nameplate capacity tax. Neb. Rev. Stat. § 77-6203. However, an exception exists for a wind energy generation facility that qualifies as a customer-generator as defined in Neb. Rev. Stat. § 70-2002. Therefore, small generators that qualify for net metering under Neb. Rev. Stat. § 70-2003, are exempt from the nameplate tax authorized in Neb. Rev. Stat. § 77-6203.

APPROVED:
Douglas A. Ewald
Tax Commissioner

August 4, 2010