April 4, 1988

Ron Schreiner, Secretary 
SD Department of Revenue 
700 Governors Drive 
Pierre, South Dakota 57501

Official Opinion No. 88-08

Taxation of rural electric companies Chapter 10-36

Dear Mr. Schreiner:

You have requested an official opinion through your Director of Property Tax on two questions relating to the taxation of rural electric companies under  SDCL 10-36.  The questions you pose are as follows:

QUESTIONS: 

1.   What constitutes gross receipts subject to the two percent gross receipts tax imposed in SDCL 10‑36‑6?  Specifically, are receipts representing charges for the following taxable? 

A.   Penalties for late payment included on a customer's statement. 

B.   Interest income generated from funds on deposit. 

C.   Service connection fees or charges. 

D.   Receipts from retail sales or appliances, furnaces, heaters, wiring and electrical supplies. 

2.   What portion of patrons' dividends or credits, paid or credited during the year 1987 are exempt?  The amendment to SDCL § § 10-36-5 and 10-36-6 by the 1987 Legislature allowing patrons' dividends or credits to be excluded from taxable receipts seems to be effective July 1, 1987.

The statute requires that rural electric companies pay a two percent tax upon their gross receipts derived from furnishing of electric energy during the preceding calendar year.  The report that they make to you on April 15 of each year sets forth the total gross of such company from each county in which the company operates, as well as the total gross receipts within each school  district in each county.  However, the only receipts which are applicable here are receipts derived from the furnishing of electric energy during the preceding calendar year.  It is apparent from your question that REAs engage in business other than the furnishing of electric energy.  However, unless it is a receipt that comes from furnishing energy, it is neither reportable nor taxable.

IN RE QUESTION NO. 1:

A.   In my opinion, the penalties for late payment represent interest the utility loses by not being paid promptly and is, therefore, not taxable.

B.   Interest income generated from funds on deposit are not derived from the furnishing of electrical energy and are not taxable.

C.   Service connection fees or charges obviously have to do with the furnishing of electrical energy where the connection is for the purpose of furnishing the energy and would be taxable.

D.   Engaging in other business by REAs, such as retail sales of appliances, heaters, etc., does not produce gross receipts from the furnishing of electric energy, and these would not be taxable.

IN RE QUESTION NO. 2:

The law was changed, as you note, in 1987 to provide that "Gross receipts for taxation purposes may not include dividends or distributions to patrons whether paid or credited."  That statute, which was Chapter 92, Laws of 1987, took effect on July 1, 1987, and from and after that time and during the taxable year ending May 1, 1988, any dividends or distributions to patrons paid or credited would not be included in the gross receipts.

In my view, it is not material whether the profit was made before or after July 1, so long as the dividend was declared or credited after July 1, 1987.

Respectfully submitted,

Roger A. Tellinghuisen
Attorney General