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Frontlines

Fortnightly Magazine - November 15 1996

so far received "over 500" sets of comments.

"This is a key area for public power," says Kimberly." [Public power] supports the idea of independent state and local jurisdiction, but we may need federal legislation on private activity bond constraints."

Meanwhile, McCarley has resigned from his post at LADWP, effective at the end of January 1997.

Taxing Matters

Last month the U.S. Supreme Court heard oral argument in General Motors v. Tracy, No. 95-1232, on whether the State of Ohio can impose a pattern of sales, use, and gross receipts taxes that may favor natural gas LDCs against interstate marketers.

As I understand it, at least 31 states have enacted separate tax structures to recognize the special attributes of the gas distribution business, including tat least eight states (among them, Ohio) that impose high property taxes on LDCs, and five more (plus the District of Columbia) that draw distinctions according to whether a customer buys gas from an LDC or an unregulated private marketer.

The situation was unique in Ohio. There, the state exempted gas LDCs from the state sales tax because it already imposed an even higher gross-receipts tax on gas utilities. And that exemption for sales taxes created a parallel exemption for LDCs against paying the state's use tax-a tax imposed on interstate marketers selling gas into Ohio. Is that fair?

The answer seems to depend on whether you think gas marketers and LDCs practice the same business.

A large group argues that the Ohio tax scheme violates the Commerce Clause because it discriminates against interstate marketers in favor of local distributors. General Motors and other gas customers have taken that view, supported by the U.S. Chamber of Commerce, the National Association of Marketers, the Process Gas Consumers Group, the Natural Gas Supply Association, and a handful of interstate pipelines, such as ANR and Colorado Interstate Gas Co., that feel Ohio's tax scheme could force them to lose business in transporting gas for marketers.

Ohio defends its tax exemption for LDCs as a quid pro quo for the cost of regulation: "Utilities undertake an obligation to serve....Marketers, by contrast, undertake no statutory obligation....Far from burdening marketers, in fact, it appears that [the Ohio tax scheme] has been a blessing, Marketers no longer dominate the industrial natural gar market in Ohio, and apparently have chosen not to enter the residential market only because of the additional requirements they must meet to make such sales." (See, Brief for Respondent, Tax Commissioner of Ohio.)

"Virginia could use the same logic to exempt sales tax on purchases of furniture from [Virginia] stores that deliver using their own delivery trucks. Virginia stores would be favored over stores in High Point, NC, which are known for selling furniture at deep discount prices, but ship their goods to buyers in other states by common carrier."

If furniture companies can bypass the showroom and all its overhead, why can't gas marketers do the same?

Editor

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