By Jeremy Duda | Arizona Capitol Times
Reversing a decades-old policy, the Arizona Corporation Commission will allow the owners of small utility companies to pass their income taxes off to consumers across the state.
The commission on Feb. 12 voted 4-1 to allow LLCs and businesses entities known as “S corporations,” which must have 100 or fewer shareholders, to request rate increases to offset the cost of personal income taxes. No companies are currently doing so, but several water companies that unsuccessfully requested that ability last year are expected to take advantage of the new policy.
Supporters of the change say it’s a matter of fairness. Larger companies, known as “C corporations,” are already allowed to pass on their corporate incomes taxes through their rates. Entities that tax income only at the personal level and not at the company level, known as pass-through entities, aren’t able to do the same thing.
Commissioners who supported the change say it will make the system more equitable for smaller companies, give them more capital for infrastructure, discourage them from becoming C corporations and encourage more companies to get into the utility business.
However, critics say the change will lead to higher rates for water and sewer services. They argue that S corporations already get the benefit of not having to pay any corporate income taxes, and that it’s unfair to shareholders of larger companies like Arizona Public Service and Tucson Electric Power, which still must pay taxes on their own investment income. Owners of S corporations, they say, pay only the same personal income taxes as C corporations’ shareholders.
If you’d like to discuss energy issues, contact Court Rich, Co-Chair of Rose Law Group’s Renewable Energy Department at crich@roselawgroup.com
