Critics question LIPA on sales tax status

After years of paying sales tax on goods and services, the Long Island Power Authority last week agreed to allow its primary contractor, National Grid, to act as a tax-exempt agent to handle its purchases, saving up to $11 million a year.

But critics want to know why it took so long, perhaps as much as 13 years.

LIPA trustees on Thursday approved the measure that will allow the agency to take advantage of the tax-exempt status it was granted at its 1998 founding -- for everything from paper clips to telephone poles. LIPA had previously agreed not to take advantage of its exemption, an official said, as part of the Long Island Lighting Co. takeover agreement, though it is not clear why. National Grid does most of purchasing for LIPA, and adds prevailing sales tax when goods or services are transferred to LIPA -- to the tune of $9 million to $11 million a year.

The decision, which followed years of analysis and will cost ratepayers $1.68 million for National Grid to implement, immediately drew a chorus of critics, who say they had assumed LIPA had avoided sales tax and now want to know whether some back taxes can be recouped.

"To me it's an outrageous omission," said Suffolk Legis. Wayne Horsley (D-Babylon). "What they are doing is rectifying a mistake. This looks like a 'Whoops, we forgot.' "

At a news conference Tuesday, Suffolk Legis. Edward P. Romaine (R-Center Moriches) charged the delay may have cost ratepayers more than $100 million, and has asked state Comptroller Thomas DiNapoli to review LIPA's purchases. A spokesman for DiNapoli said the comptroller would review the request.

LIPA officials at last week's trustees meeting blamed the delay on the complexity of making the switch, and issues surrounding the purchase of KeySpan by National Grid in 2007. Also, LIPA general counsel Lynda Nicolino said, the authority agreed at the time of the takeover of the LILCO in 1998 "not to seek to avail itself of those [tax] exemptions."

It's unclear why. LIPA spokeswoman Vanessa Baird-Streeter didn't respond to several requests for comment.

"Was this a technicality that we overlooked? Why didn't we take advantage of this?" asked trustee Gemma de Leon at the board meeting.

"We were unable to fully vet the issue at the time," Nicolino said, of the period when National Grid bought KeySpan.

Nicolino said about 18 months of past taxes could potentially be recouped, though it wasn't certain.

"A municipal utility should not be paying sales tax in the state of New York," said Romaine, who in a letter called on DiNapoli to audit the payments to determine "if they were legitimate and [taxes] can they be recovered."