Equipment Used to Process Electricity Exempt in Maryland

May 7th, 2019

The Court of Special Appeals in Maryland ruled in an unreported opinion that the transmission and distribution of electricity was "processing" for the state manufacturing exemption.

The taxpayer was a public utility company that purchased electricity from power plants. The taxpayer processed the electricity through its transmission and distribution equipment for final delivery to customers. The taxpayer's transmission and distribution system used equipment that changed the voltage of the electricity so that customers could use it.

Maryland exempts purchases of tangible personal property used directly and predominantly in a production activity. Maryland defines "tangible personal property" to include electricity. Maryland defines "production activity" to include processing or refining tangible personal property for resale.

The court determined that the taxpayer was processing the electricity it purchased. As a result, the taxpayer was performing a qualifying production activity for the manufacturing exemption. The court only decided that production activities occurred within transmission and distribution systems. The court remanded the case for further proceedings and did not rule on the taxability of any particular equipment.