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Qualified Cogeneration Facilities

On July 14, 1997, the Energy Tax Reform Act ("ETR"), P.L. 1997, c. 162 was signed into law by Governor Whitman. The law imposes New Jersey Sales and Use Tax on natural gas and electricity, effective January 1, 1998. There is a provision in the law that exempts the purchase or use of natural gas and utility service that is used for cogeneration at any site at which a cogeneration facility was in operation on or before March 10, 1997, or for which an operating permit or a construction permit and certificate of operation has been filed with the Department of Environmental Protection on or before March 10, 1997, to produce electricity for use on that site.

Such cogeneration facilities will issue an Exempt Use Certificate (ST-4) to natural gas vendors as evidence of the exemption. The statutory provision to be referenced on the form is N.J.S.A.54:32B-8.46.

Any facilities that were not in operation on or before March 10, 1997 pursuant to the above are entitled to an exemption for purchases of natural gas and utility service that is used to generate electricity that is either 1)sold for resale, or 2)sold to an end user other than the end user upon whose property is located the cogeneration facility or self-generation unit that generated the electricity, or upon the property purchased or leased from the end user by the person owning the cogeneration facility or self-generation unit if such property is contiguous to the user's property and is the property upon which is located the cogeneration facility or self-generation unit that generated the electricity.

Since the cogeneration facility will not know how the natural gas will be used at the time of purchase, it will be issued a Direct Pay Certificate which will result in a waiver of the vendor's obligation to collect tax and a requirement that the facility self-assess the tax on a monthly or quarterly basis. Until such form is completed, cogenerators will be sent a letter from the Division which can be provided to the natural gas vendor as evidence of the exemption.

The following is exempt from sales tax: The sale, use, exchange and delivery of electricity that was generated by a facility either 1)on the user's property, or 2) on property contiguous to the user's property that is owned or leased from the user by the person owning the CO-generator; and was consumed by 1) the one on-site end user on the user's property; 2) or by an affiliated user on the same site; 3) or by a nonaffiliated user on the same site with an electric distribution system that was integrated and interconnected with the user on or before March 10, 1997.

The Division has received information that you are operating as a cogeneration facility and therefore are entitled to either a full or partial exemption from New Jersey Sales Tax pursuant to PL 1997, c. 162. In order to complete an Exempt Use Certificate, as required for facilities operating as of March 10, 1997, or to be placed on a Direct Pay system, as required for facilities operating after that date, it is necessary that the facility be registered with the Division. Your immediate attention to this matter is required.

If the facility is already registered, please verify the name, address, federal identification number and contact person. This information should be sent to:

New Jersey Division of Taxation
Denise M. Lambert, Tax Services
PO Box 269
Trenton, NJ 08695

If the facility is not currently registered, please complete the enclosed REG-1 application and return it to the Division of Revenue at the address indicated on the form.

*A "qualified" cogeneration facility is defined as a facility the primary purpose is the sequential production of electricity and steam or other forms of useful energy, which is designated as a "qualifying facility" pursuant to the Public Utility Regulatory Policies Act of 1978 (PURPA)

Last Updated: Wednesday, 08/20/14

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