PSE Bainbridge Island City Tax on Electrical Service

Bainbridge Island’s Municipal Code 3.88 and fee schedule impose a 6% of gross revenue tax on electrical service providers.

So I was puzzled why Puget Sound Energy bills 6.370% for “Effect of Bainbridge Island City Tax.”


PSE BI City Tax Charge


Obvious question that the City Finance Department could probably answer, right?


City Finance staff didn’t have a clue, and the City Manager pointed out that Public Record requests cannot ask city staff a question … public record requests can only request copies of records. That is true.

But since the question to the City wasn’t asked as a public records request, I surmised that response means a citizen cannot ask a reasonable question to City staff even though they supposedly work for us and we help pay their salary.

OK, whatever.

Since the billing comes from PSE, the question was posed to PSE customer service on their public website. They acknowledged receipt and stated a reply would be forthcoming. Didn’t happen.

Follow-up e-mail. No response. Another follow-up. No response.

Finally, after more than a month of follow-ups, finally an elementary and non-responsive answer simply saying PSE uses the tax rates published by the State Department of Revenue (DOR).

Good grief.

OK … question then posed to the Department of Revenue since they show a 6% City of Bainbridge Island tax on electrical service providers.

DOR was moderately helpful in stating that it’s complicated because gross revenue is an accounting calculation, and the Washington State Utilities and Transportation Commission, who regulate PSE rates, permits an administrative fee for PSE’s cost of collecting the tax.

Next inquiry sent to the Utilities and Transportation Commission to get their calculations. They confirmed what DOR had stated, but no specific details on the PSE billings.

Finally, after roughly four months of e-mails for an explanation, a PSE government affairs person at a local City meeting took on the question when I expressed my frustration with PSE’s  lack of responses and a non-responsive generalization.

Bingo … go up the corporate ladder to get an unanswered question answered!

So here is the answer as to why Bainbridge Island electrical users are paying 6.370% City taxes when the city council has set a 6% rate in the municipal code as researched and posted by PSE:

First I would like to provide some framework for what is shown as the “Effect of Bainbridge Island City Tax” on your bill. The Bainbridge Island City Tax is a tax on PSE equal to 6.0% of PSE’s gross revenue within the City of Bainbridge Island. The Washington Utilities and Transportation Commission allows PSE to increase the amount it charges customers within the City of Bainbridge Island to recover the cost of this tax. RCW 82.16.090 requires that PSE the rate, origin and approximate amount of each tax levied upon the revenue of the light and power business or gas distribution business and added as a component of the amount charged to the customer. PSE shows the effective rate of the Bainbridge Island City tax which is added as a component of the amount charged. Since the City Tax is added as a component of the amount charged it has the effect of increasing the gross revenue within the City of Bainbridge Island. PSE also pays a State Utility Tax and a State Filing Fee based on its gross revenue, which are also included in the amount charged and therefore both increase gross revenue even further. With each increase in gross revenue additional tax amounts become payable.

PSE reviews each city tax ordinance and based on the deductions from gross revenue allowed by the city PSE determines that appropriate rate to apply to the amount billed prior to the addition of the city tax so that the effect of increases in gross revenue due to taxes and the deductions from gross revenue allowed by the city are all taken into account. For example, with cities that have a 6.0% tax rate where the city allows deductions for state utility tax, the city tax and for uncollectible bills, PSE adds only 5.99% to the customer bill.  For a city that allows no deductions from gross revenue at all, PSE adds 6.69% to the amount billed to account for the effect of taxes on the additional gross revenue. In the City of Bainbridge Island there are deductions for State Utility Tax and for uncollectible accounts, but no deduction for the Bainbridge Island City Tax itself. The easiest way to show this is by a simplified example:

Tariff Charges = $100.00
Effect of City Tax at 6.37% = $ 6.37
Total Billing = $106.37

Revenue Subject to City Tax = 102.50 ($106.37 – State Utility Tax) (State Utility Tax = $100 * 3.873% = $3.87)
Additional Revenue Subject to State taxes: $6.37

PSE Expenses due to City tax:
City Tax: Taxable Revenue of $102.50 X City Ordinance Rate of 6.00% = $6.15
Additional Taxes paid to the State:
Additional Taxable Revenue of $6.37 X State Utility Tax Rate of 3.873% = $0.25
Additional Taxable Revenue of $6.37 X State Filing Fee Rate of 0.2% = $0.01

Tax Related Amount Billed by PSE = $6.37
Tax Related Expenses Paid by PSE = $6.41

In this example PSE has expenses greater than the amount billed, but that is due to rounding and simplification of the example. The main purpose of the example is to show that PSE passes through the effect of, or lack of, deductions allowed by the City imposing the tax and that the State and City taxes both apply to each other and themselves.

OK … that’s why you are being taxed at 6.370% on your electrical bill.

And you also know that PSE is claiming they are losing money (accounting wise) by collecting a City of Bainbridge Island tax of 6% and charging customers 6.370%.

It takes an advanced degree in accounting to sort all this out.

And for an additional .370% of tax per month, four months of asking questions is about all the time I want to put into what I though would be a simple, understandable response.

It’s all appears legitimate and authorized by a complexity of laws and rules permitted by the State Utilities and Transportation Commission in tariff filings and rulings.

I have enough life experience to acquire the wisdom that virtually  nothing in government and taxes is simple and understandable to the average public citizen. This is yet another example.