Effective July 1, 2020, Iowa law permits utility companies to utilize an inflow-outflow billing method for eligible distributed generation facilities. Under the inflow-outflow method, a generation customer is responsible for paying for the inflow kWh energy charge (sales to customer), while the amount of outflow kWh energy charge is credited to the customer (purchases from customer).
The Iowa Department of Revenue ruled that for sales tax purposes, inflow (sales to customers) and outflow (purchases from customers) of energy are considered a “trade-in” of energy for credit in dollars (outflow), rather than separate transactions. As a result, the portion of the sales price credited to the customer is exempt from sales tax. The Department explained that in determining the applicable sales tax, the taxpayer could either: (1) take into consideration prior months’ activity by offsetting the current month’s billing with credits accumulated from prior months; or (2) offset the current month energy inflows only by the current month energy outflows, which requires computing the sales tax on the difference when the inflow is greater than the outflow for the current month. The Department also noted that the utility is not required to provide an exemption certificate to its customers when claiming the sales tax exemption. In the Matter of MidAmerican Energy Company, No. 2020-300-2-0299 (Dec. Order July 10, 2020).