Articles Posted in Utility Law

In 2015, the Tax Court of Indiana ruled that sewer system development charges and connection fees that are paid by a developer or builder and not by the retail customer are not gross receipts subject to the utility receipts tax (URT). Hamilton Southeastern Utils., Inc. v. Indiana Dept. of State Revenue, 40 N.E.3d 1284 (Ind. Tax 2015). The Indiana Department of State Revenue completed an audit of Hamilton Southeastern Utilities, Inc. proposing URT assessments on receipts from sewer system development charges and connection fees. Hamilton Southeastern protested, and after an administrative hearing denied the protest, Hamilton Southeastern appealed.

In determining that the sewer system development charges and connection fees paid by a developer or builder and not by the retail customer were not subject to the URT, the court examined I.C. 6-2.3-1-4 and I.C. 6-2.3-3-10. Under I.C. 6-2.3-1-4, the court determined that ‘utility services for consumption’ simply refers to the removal of sewage and does not give indication of a broader definition. The Department of State Revenue argued that because the fees are necessary, they should be included in the URT; however, the court found that was not grounded in the words of the statute. Under I.C. 6-2.3-1-10, gross receipts “are: 1) received for an enumerated service, 2) the enumerated service is provided to a consumer, and 3) the enumerated service is directly related to the delivery of utility services to the (same) consumer.” At 1288 (emphasis in original). In the case of system development and connection fees, the charges are not paid by the retail consumer, but by the developer and builder.

The court granted summary judgment to Hamilton Southeastern under I.C. 6-2.3-1-4 and I.C. 6-2.3-1-10, but decided the issue of needing to separate receipts on records and returns of the taxpayer under I.C. 6-2.3-3-2 separately. Later, the court determined that the system development and connection fees were separated from the taxable receipts in accordance with the statute. Hamilton Southeastern Utils., Inc. v. Indiana Dept. of State Revenue, Cause No. 49T10-1210-TA-00068 (Ind. Tax April 29, 2016). Although Hamilton Southeastern did not report the amount of fees that was not required – simply separating the fees from the taxable receipts was sufficient. This was accomplished by only reporting the taxable receipts.

Whether telecommunications providers have a private right of action under Section 253 of the Telecommunications Act of 1996 is an issue that will only be resolved in time. In November 2015, the Eighth Circuit joined the Second, Fifth, Ninth, and Tenth in holding that they do not. This decision split from the Sixth and Eleventh circuits holding they do.

Spectra Communications Group, LLC (“Spectra”) provided telecommunications services in the City of Cameron (“the City”) for several years. Spectra also maintained facilities in the City’s rights of way (“ROW”). The City enacted a ROW and Communications ordinance that required communications providers, like Spectra, to pay user fees and obtain use permits in order to maintain facilities in the City’s ROW.

The City sued Spectra for failure to pay municipal license taxes and user fees and failure to obtain use permits. After this suit, Spectra sought a construction permit. The City denied Spectra’s request for failing to comply with the City’s ROW code. Spectra then sued the City.

The Indiana Tax Court recently examined in Aztec Partners, LLC v. Ind. Dep’t of State Revenue, No. 49T10-1210-SC-00067, 2015 Ind. Tax LEXIS 29 (Ind. Tax Ct. June 23, 2015), whether electricity that Aztec Partners, LLC (“Aztec”), who operates nineteen Qdoba Mexican Restaurants in Indiana, used to power electrical equipment was subject to Indiana sales tax. The Court found it was not and reversed the Department of State Revenue’s (the “Department”) final determination and remanded the case.

At Aztec’s Qdoba Restaurants, employees prepare food items that are ultimately combined and served as entrées. Those food items are held and preserved in electrical equipment, such as food warmers and cooling systems, until they are combined into entrées and sold. The electrical equipment is not used to cook the food. In June 2011, Aztec filed twelve refund claims with the Department for the refund of sales tax paid on the electricity used to power electrical equipment. The Department denied the refunds finding that the electricity was taxable. Aztec protested the refund denial. Thereafter, the Department held a hearing and issued a Memorandum of Decision on August 24, 2012 denying that protest. Aztec initiated an original tax appeal.
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The Indiana Court of Appeals recently interpreted a land developer’s contract with an Indiana town in Carroll Creek Development Company Inc. v. Town of Huntertown, 9 N.E.3d 702 (Ind. Ct. App 2014). The contract provided that the developers could recoup nearly five-hundred thousand dollars of their water main construction costs through connection charges levied against land owners in a defined “excess area” if the land owners chose to directly or indirectly connect to the water main within the subsequent fifteen years.
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OSHA’s final rule revised or implemented eleven provisions in the Construction of Electrical Power Transmission Standard, 29 CFR 1926, subpart V, including provisions regarding: (1) host employers and contractors; (2) training; (3) job briefings; (4) fall protection; (5) insulation and working on or near live parts; (6) minimum approach distances; (7) protection from electric arcs; (8) deenergizing transmission and distribution lines and equipment; (9) protective grounding; (10) operating mechanical equipment near overhead power lines; and (11) working in manholes and vaults. OSHA also adopted a new construction standard on electrical protective equipment, 29 CFR 1926.97, and revised general industry and construction sections 29 CFR 1910.137 and 1910.269 mostly to incorporate the changed standards.

The host employers and contractors provision includes requirements for host employers and contract employers to exchange information on hazards and on the conditions, characteristics, design, and operation of the host employer’s installation. It also includes a requirement for host employers and contract employers to coordinate their work rules and procedures to protect all employees.
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The Indiana Court of Appeals recently interpreted a land developer’s contract with an Indiana town in Carroll Creek Development Company Inc. v. Town of Huntertown, 9 N.E.3d 702 (Ind. Ct. App 2014). The contract provided that the developers could recoup nearly five-hundred thousand dollars of their water main construction costs through connection charges levied against land owners in a defined “excess area” if the land owners chose to directly or indirectly connect to the water main within the subsequent fifteen years.
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The Indiana Court of Appeals recently issued an opinion explaining the difference between two common types of termination clauses in oils and gas leases. The first, known as a “drill or pay” clause, obliges the lessee to either commence production within a certain timeframe or pay advance royalties, but does not operate to automatically terminate the lease in the event of a breach. The second, called an “unless” clause, provides that the lease will automatically terminate if the conditions are not met.
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In January, 2014 the Indiana Court of Appeals found that failure to supply an accurate map of underground facilities may bar negligence suits against contractors who properly file an intent to excavate with the Indiana Underground Plant Protection Service in compliance with the Indiana Damage to Underground Facilities Act (DUFA). City of Fort Wayne v. Northern Indiana Public Service Company, 2 N.E.3d 60 (Ind. Ct. App. 2014). If the contractor files the intent to excavate and obtains defective “locates” from the operator of the underground facility, then the contractor has a defense to damages claims under Indiana Code § 8-1-26-22(c).
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HEA 1423 was signed into law on March 27, 2014 and it makes two important changes.

1) The new law expands the temporary discount program for companies hiring in Indiana by:

  • reducing the threshold for utility discount applications from a maximum demand of at least ten megawatts to five megawatts
  • opening the discount to prospective employers, who may be considering locating a new facility in Indiana. (Previously, the discount was available only to existing employers expanding operations.)

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An Indiana appellate court has recently upheld the judgment of a trial court, holding that a sewer lien could not be enforced by selling a property at a tax sale when that lien was the only lien that existed on the property.

In In re: Carroll County 2012 Tax Sale, 993 N.E.2d 635 (Ind. Ct. App. 2013), a regional sewer district (“SD”) serviced an area within which the property owners (“Owners”) possessed property. When the Owners did not pay their sewer bills on time, SD perfected a lien against the property and certified those liens to the county auditor and treasurer for collection with the property tax bill. The auditor and treasurer then applied for a judgment and order of sale for the property in the trial court due to satisfy unpaid property taxes and special assessments (the sewer bills). Soon after, the Owners paid the outstanding property taxes, leaving the only lien on the property to be the sewer lien.
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