August 5, 2013
Tax reform bill will add taxes to CHEC bills
comprehensive tax reform bill passed a final vote in the North Carolina
House and Senate and was signed into law by Gov, Pat McCrory in late
July. The bill takes away Cape Hatteras Electric Cooperative’s
tax-exempt status, effective next July 1.
The result will be a 7 percent tax on electricity for its members.
was originally incorporated in 1945 for the purpose of providing low
cost electric service on a non-profit basis. North Carolina
declared all electric membership corporations (EMCs) to be public
agencies, exempting the co-ops from paying state sales taxes.
1960, a territory dispute arose between EMCs and investor owned
utilities (IOUs) regarding the provision of electric service to
previously unserved territories. In 1964, a compromise was
reached that resulted in the assignment of service territories to EMCs
and IOUs and the loss of public agency status for EMCs.
CHEC was in a unique position because it had no competitors and IOUs
were not interested in serving Hatteras Island, its public agency
The provision that would remove CHEC’s
tax-exempt status and subject the residents of Hatteras Island to a 7
percent tax on electricity was added to a conference committee
report of the tax reform bill just three days before the bill passed
the legislature. And, by rule, the conference committee report could
not be amended by the House or Senate.
This comes on the heels of a decade-long legal battle by CHEC to retain its tax-exempt status.
2011, The North Carolina Court of Appeals issued a unanimous decision
about ongoing litigation between Cape Hatteras Electric Cooperative and
the North Carolina Department of Revenue (NCDOR).
The Court of
Appeals affirmed the earlier position of the trial court, which ruled
in favor of CHEC. The Appeals Court decision upheld the judgment
issued in November, 2009 ordering the NCDOR to refund the sales and
franchise taxes paid by the cooperative since 2000, including
NCDOR began collecting the sales and franchise
taxes in 2000 and 2001. The cooperative paid the taxes under
protest from 2000 until the Dare County Superior Court ruled in its
favor in 2009.
Superior Court found that the cooperative and
its members did not owe the taxes and ordered the NCDOR to refund
more than $3.6 million in sales taxes and nearly $3.7 million in
franchise taxes, along with accrued interest.
Rep. Paul Tine is
working with cooperative staff and various other legislators to have
the cooperative’s tax-exempt status restored.
to a media release from the electric cooperative, the hope is that a
legislative revenue laws study committee will review the issue and
recommend restoring CHEC’s tax-exempt status before the legislature
reconvenes on May 14, 2014.
If the legislature is willing to
restore CHEC’s tax-exempt status, it could occur before the 7 percent
tax goes into effect on July 1, 2014.