United States

Maryland: Machinery and Equipment Used to Deliver Electricity Not Eligible for Sales Tax Exemption

Feb 02, 2015
From KPMG TaxWatch

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The Maryland Tax Court recently addressed whether a taxpayer engaged in transmitting electricity qualified for a sales and use tax exemption for tangible personal property used in a production activity. The taxpayer, a distributor and seller of electricity, sought a refund of sales and use tax paid on machinery and equipment purchased and used in connection with transmitting electricity. Under Maryland law, tangible personal property “used directly and predominantly in a production activity at any stage of operation on the production activity site” is exempt from sales and use tax. The taxpayer argued that the processing that occurs when electricity is generated continues in the transmission lines as electricity is delivered to customers. 

The court disagreed, observing that Maryland tax law treats generating electricity and processing electricity as separate and distinct activities. The transmission of electricity is included in the definition of a “taxable service” while generating electricity is a specifically enumerated “production activity.” Therefore, the court concluded that the transmission of electricity is a taxable service and not a production activity, and the materials purchased in conjunction with transmitting electricity did not qualify for the production activity exemption. For more information on The Potomac Edison Co. v. Comptroller of the Treasury please contact Mike Riscili at 717-260-4719.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.