Michigan – Energy Optimization Charges Taxable

SALT Report 1974 – The Michigan Court of Appeals ruled that energy optimization charges are subject to sales tax under MCL 205.51(1)(d) as a “charge by the seller for any services necessary to complete the sale.”

The Taxpayer in this case, is a regulated electric cooperative that sells electricity to residential and commercial customers.  In accordance with Michigan law 2008 PA 295, the Taxpayer implemented an energy optimization plan and assessed an energy optimization charge on its customer’s billing statements to cover the costs of the EO plan.

Under protest, the Taxpayer paid sales taxes on the EO charges and filed a request for refund in the amount of $10,434.20.   A Michigan lower court determined that the EO charges were subject to sales tax because the EO plan was a service incidental to the retail sale of electricity.  Accordingly, the court denied the Taxpayer’s refund request.  The Taxpayer appealed.

Upon review of the case, the Court of Appeals determined that because Michigan law requires the Taxpayer to create an energy optimization plan in order to reduce the costs of providing service to its customers the EO plan is a service that the Taxpayer must provide in order to sell electricity. Therefore, the EO charge is considered part of the sales price of electricity and is taxable as gross proceeds.

For Further Information:

Michigan Court of Appeals – Docket Number 307867