Tuesday, June 2, 2009

Champaign Natural Gas Tax No Sip of Wine

By Mike Monson
Monday, June 1, 2009 8:03 AM CDT

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CHAMPAIGN – Implementing a new natural-gas use tax on bulk purchases of out-of-state natural gas could wind up becoming a big income generator for the city of Champaign.

But there are still a number of questions about the proposed tax, including whether it would be applied to the University of Illinois and Unit 4 schools.
The city council will consider a number of proposed tax and fee increases at a 7 p.m. study session Tuesday. The meeting will be in council chambers at the City Building, 102 N. Neil St.

In the case of the natural-gas use tax, City Finance Director Richard Schnuer is asking the city council for authorization to further investigate imposing a 2.75 percent tax on entities purchasing natural gas out of state.

The city currently charges a 2.75 percent utility tax on users of natural gas and electricity bought through AmerenIP as well as on water purchases.

But larger natural-gas customers, such as the UI, the Unit 4 school district and some local businesses, don't pay the city tax. Those entities buy natural gas out of state, known as "from the wellhead," and then have it shipped here. State law exempts such purchases from the city's utility tax, which is based on the cost of gas sold.
But, under state law, the city can charge a natural-gas use tax that charges on a per-therm or volume basis for those out-of-state purchases, according to Schnuer. The city doesn't currently levy such a tax.

Schnuer said he talked with an AmerenIP official and that, based on the number of natural-gas therms that were transported to Champaign by AmerenIP that were bought out of state, the city could earn as much as $1.4 million from the new tax. That's substantially above the $150,000 that Schnuer originally estimated.

Schnuer said the current situation – with large users paying no tax while smaller users do pay a city tax – is inequitable.

"I think people would agree that, in general, when two parties are doing something similar, you want to treat them similarly," he said.

In a memo to the city council, Schnuer wrote that the proposed tax would apply to public entities such as Unit 4 schools. He also wrote that the city has not discussed the issue with UI officials and that the such discussions would take place if the city council gives the go-ahead.

The UI has long taken the position that it is not subject to taxes assessed by units of local government. But, in some cases, the university does make payments in lieu of taxes, such as in lieu of paying the city's food and beverage tax, Schnuer wrote.

Terry Ruprecht, the UI's director of energy conservation, confirmed that the UI does not believe it is subject to local taxation.

"The state does not get taxed by a city," he said. "That position has been consistent in the 21 years I've been here."

Ruprecht said a 2.75 percent tax would cost the UI a substantial sum, likely about $1 million, if it were imposed. The UI bought $35 million worth of natural gas in the fiscal year that ended June 30, 2008.

In his memo, Schnuer noted that the town of Normal levies a 5 percent natural-gas use tax and that Illinois State University pays the tax.

Unit 4 Chief Financial Officer Gene Logas said the school district bought about $800,000 in natural gas last year and that about 80 percent of that was bought out of state. He estimated such a tax would cost the school district $20,000 annually.

"Obviously, we'd rather work with the city to avoid that," he said. "We're facing the same budgetary constraints that they are."

Schnuer added that it is "not the intent" of city staff to raise $1.4 million from the tax, and that the city council could consider a number of different options. For example, the city council could generate an additional $150,000, as originally projected, by lowering the gas utility tax charged small users to 1.5 percent and imposing a gas-use tax of 1.4 percent on out-of-state purchases. Or the city could impose a smaller use tax on big customers to raise the $150,000.

The city could also opt to exempt the UI and Unit 4 from such a tax.

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