On power bills and a bill's power

By Scott Mooneyham | Dec 22, 2013

RALEIGH -- Early next year, North Carolinians will find out how much some related, key components of the tax overhaul approved by state legislators will cost or not cost them.

In this case, the issue is pretty much out of the hands of legislators. It’s the state Utilities Commission that will decide what happens.

While legislative supporters of the tax overhaul sold it as a means of reducing state taxes overall, it is possible that the legislation could have the effect of increasing residents’ power bills.

The tax legislation included a provision that will raise the sales taxes that people pay on the electricity and natural gas from 3 percent to 7 percent. For someone with a power bill that averages $100 a month, the difference would mean paying $48 more a year.

That change is expected to result in a collective increase of utility sales taxes paid by consumers of $519 million.

On the other hand, the utility companies that provide that electricity and natural gas will get a tax break.

The tax law repeals a gross receipts/franchise tax and instead subjects the utilities to a general franchise tax. That change is expected to save the companies around $400 million.

The companies will also benefit from a general decrease in the corporate income tax, although how much of the savings accrue to the utilities isn’t known.

If that sounds unfair, it may not be. Utilities are regulated monopolies, and the state sets the rates that they can charge based on their cost of doing business. Obviously, a tax cut decreases their cost of doing business.

Now, the arguing has begun over just how much in savings the tax cuts will mean for the companies, and what other factors should or should not enter into the calculation.

It’s the state Utilities Commission that is charged with setting the rates, and a provision included in the tax legislation instructed it to examine the tax changes as it considers them.

Sometime in January or February, the commission is expected to issue a decision about how to handle the tax changes as they relate to rates.

Company filings with the commission show there is no great consensus among the utilities about which tax changes to consider. Attorney General Roy Cooper, meanwhile, has weighed in, filing comments with the commission saying that rates should be lowered.

How the issue is resolved will certainly affect what the tax overhaul means for the average North Carolinian.

Consider that, for someone with $40,000 in taxable income in the state, the legislature’s decision to lower the personal income tax will mean savings of about $350 a year.

If those savings are mostly nickeled and dimed away by higher sales taxes on electricity, applying the sales tax to a trip to the movie theater, and doing away with sales tax holidays, the idea that this tax overhaul benefits everyone gets nickeled and dimed away too.

And when you only earn $40,000, nickels and dimes can mean a lot.

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