PSEG Long Island has not paid Nassau sales taxes since it began managing the electric grid for LIPA in January 2014, which contributed to the county's unexpected shortfall in sales tax collections over the past two years, Nassau officials said Tuesday.

County officials uncovered the loss of an average $4 million annually in the utility's sales taxes -- payments LIPA had made for years -- at a time when PSEG is seeking $387 million in rate increases over three years, and as the Nassau Legislature prepares to vote Wednesday on whether to allow PSEG to make only partial property tax payments.

The Long Island Power Authority, which still owns the properties operated by PSEG, said the 2013 LIPA Reform Act caps property tax increases at 2 percent annually. But some school officials and lawmakers complained last week that the cap will force homeowners to pay higher property taxes.

"Nassau County is evaluating legal action to protect homeowners from PSEG's effort to shift their taxes onto our homeowners," County Executive Edward Mangano said of the tax issues and rate increase proposal. "State leaders must immediately clarify the LIPA Reform Act to ensure homeowners don't pay higher taxes while PSEG earns higher profits."

On the sales tax issue, PSEG spokesman Jeffrey Weir said in a statement, "PSEG Long Island is an agent for the Long Island Power Authority, which, as a state agency, is tax exempt. All savings that are generated by this exemption go to the direct benefit of our customers. The sales tax exemption is one of the many known benefits of the public-private partnership operating model that was established under the LIPA Reform Act. Other benefits include lower cost government financing, reimbursement of major storms under FEMA, among many others."

Presiding Officer Norma Gonsalves (R-East Meadow) has requested a report from the county legislature's budget review office on the impact of PSEG's termination of sales tax payments, said spokesman Frank Moroney. "It may require state legislation to correct," he said.

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The debate over PSEG property taxes has stalled the county legislature's approval of school tax warrants, which set rates for school tax bills. By law, town tax receivers must begin mailing the bills Thursday. That means the legislature must decide Wednesday whether to accept or reject the utility's cap.

"PSEG is sticking it to taxpayers every way they can," said Hempstead Town tax receiver Don Clavin. "First they want a massive rate increase. Then they don't want to pay their fair share of property taxes and now we find out they don't even want to pay their share of sales taxes."

But Weir said PSEG Long Island "is paid a flat, fixed fee to operate the utility and receives no benefit and does not profit in any way" from the sales tax exemption.

LIPA was entitled to tax-exempt status since it was founded in 1998, but continued to pay taxes for years after it replaced the private Long Island Lighting Co., which paid both property taxes and sales taxes.

In 2012, LIPA agreed to allow National Grid to act to make tax-exempt purchases. PSEG is based in Nassau, which means most of its purchases are made in Nassau. Suffolk officials said the county has not received sales tax payments from PSEG since January 2014.

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The state Department of Public Service on Monday recommended that PSEG be granted $325.4 million in rate hikes over the next three years -- about $62 million less than the power company had requested. The recommended amount would increase an average residential electric bill by 0.8 percent the first year, 2.1 percent the second year and 2.1 percent the year after that.

Mangano originally accepted PSEG's interpretation of the 2 percent cap on property tax increases. But last week he proposed that the county revise its administrative code to allow partial payment while the county treasurer seeks to collect the unpaid balance.

The code currently prohibits partial property tax payments. All three town tax receivers rejected PSEG's tax payments last month because the power company sent in nearly $1.4 million less than $30.4 million billed. The towns then withheld $30 million in property tax revenue from Nassau.

With Mark Harrington

and David M. Schwartz

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Due to incorrect information provided by Suffolk County, an earlier version of this story misstated PSEG Long Island's record of sales tax payments to the county. PSEG has not made sales tax payments to Suffolk County since January 2014.