May 28, 1998
Council urges elimination of dividends tax on utility holding companies
The state's excess dividends tax on holding company assets could nullify much of the benefit of the Public Service Commission's (PSC) ongoing deregulation of utilities, according to Kevin Lanahan, The Business Council's specialist in energy issues.Lanahan said The Business Council strongly supports a bill that would eliminate that tax. That bill has been introduced by Assemblyman Herman D. Farrell and Senator Ronald Stafford.Because electricity costs more in New York than in many other states, the PSC ordered all six investor-owned utilities in New York to restructure. Each will become an unregulated holding company, a regulated transmission and distribution company, and one or more unregulated subsidiary companies.As a result, utilities soon will auction off generation facilities. However, current law may be construed to levy a 4.5 percent dividends tax on the transfer of assets from an energy company's subsidiary to its holding company."This section of the tax law must be updated to reflect our new wholesale power market," Lanahan said. "Otherwise, a tax that was unforeseen before deregulation will reduce its benefits."Ironically, high energy taxes are a key factor in New York's relatively high energy costs-and cutting these costs is a goal of deregulation, Lanahan noted.
"Updating this tax will also help utility holding companies make desirable investments of profits from one subsidiary in others," he said.