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1
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OPINION
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EXTRACTED KEY WORDS
YORK TAX TENNESSEE SALES INTERSTATE NATURAL GAS COMMISSION PIPELINE TAXES TAXATION FERC PRICE COMMERCE CLAUSE TAX LAW ACT TRANSPORTATION DEREGULATION SUPREME COURT CONSUMERS TAX BURDENS GAS PIPELINE COMPANY PUBLIC SERVICE COMMISSION PURCHASE GAS COMPENSATORY TAX PASS-THROUGH CUSTOMERS NY2D FEDERAL ENERGY REGULATORY LOCAL DISTRIBUTION COMPANIES |
3 No. 71
Tennessee Gas Pipeline Company,
Appellant,
v.
Michael H. Urbach, as Commissioner of the Department of Taxation and
Finance of the State of New York, et al.,
Respondents.
_________________________________________________________________
2001 NY Int. 150
May 1, 2001
This opinion is uncorrected and subject to revision before publication
in the New York Reports.
Christopher L. Doyle, for appellant.
Andrew D. Bing, for respondents.
_________________________________________________________________
WESLEY, J.:
When Congress passed the Natural Gas Policy Act of 1978 (see, 15
USC § 3301, et seq.), it set in motion the deregulation of the natural
gas industry. At that time, interstate pipeline companies enjoyed
market control of prices as they provided the only means for the sale
and distribution of gas from the wellhead to local distribution
companies (regulated utilities in New York).(1) In 1992, the
Federal Energy Regulatory Commission (FERC) completed the transition
when it ordered all interstate pipelines to "unbundle" their
transportation services from their gas sales (FERC Order No. 636, 57
Fed Reg 13267). The pipelines became common carriers of natural gas
(see, e.g., Matter of Texas E. Transmission Corp. v Tax Appeals
Tribunal, , 95 NY2d 323, 325-329). Large industrial buyers could
now buy natural gas directly from suppliers, bypassing local
utilities. The gas is delivered by pipeline, or more commonly, by a
New York gas utility. Pursuant to FERC-approved tariffs, the cost of
the transport paid by the user is separate from the purchase price of
the gas.
Allowing industrial end users to bypass local utilities and purchase
gas outside the State created a tax problem for New York. The State's
system of natural gas taxation was developed prior to deregulation and
focused on utilities and other entities that sold gas within New York.
Section 186 of the Tax Law imposes a corporate franchise tax on any
corporation, joint stock company or association "formed for or
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