Franchise Tax: 1884 to Today

Franchise Tax: 1884 to Today

Today’s “Energy Tax” is the direct lineal descendant of the Public Utility Gross Receipts and Franchise Taxes, or Franchise Tax. Initially, the tax was just a Franchise Tax, but in 1919, the Public Utility Gross Receipts taxes were added to become PUGRAFT. The tax was created for entities having lines or mains located in, on, or over, any street, highway or other public place, and provided for a 2% assessment on gross receipts of telegraph, telephone, cable and express companies. This tax was revenue collected by the municipality.

In 1900, the Voorhees Tax Act extended the Franchise Tax to all utilities except those subject to the Railroad and Canal Property Tax Act.

From 1917 to 1919, Franchise Tax rates were increased from 3 to 5%. In 1940, significant revisions and amendments were made to the statute. Unit values were applied to each class and type of utility’s property. Unit values are values statutorily scheduled to items, or for classes and types of property, and used to calculate a value in an attempt to make values uniform (i.e., aerial telephone lines are scheduled at $11 per mile of single wire, or a 4 inch cast iron pipe is valued at $0.67 per foot).

In 1952, sewerage corporations were included as among taxable public utility companies, and in 1961, water companies became subject to the tax. As a result, taxes were imposed “in lieu of property taxes” on certain properties of the following utilities:

• Street railways;
• Traction;
• Sewerage;
• Water;
• Gas and electric;
• Heat and power corporations using or occupying public streets; and,
• Highways, roads and other public places.

Over the years, as the tax policies changed, so did the percentage rates, and finally a flat rate was established: In 1955 the tax was capped at 7.5%, in 1956 a 5% minimum was set, and in 1960 a firm rate of 7.5% was established.

An accelerated payment schedule was imposed in 1979 on all public utility companies paying the PUGRAFT.

In 1980, the State began collecting the funds; further detail on this below. By 1992, the Franchise Tax was expanded to include persons, co-partnerships, associations and corporations (with the exception of those specifically exempted) having lines or mains located on or over any street, highway or other public place. Utilities subject to taxation included both communication and non-communication utilities. After the State deducted the costs of administering the tax, the remaining revenues were for local use, subject to limitations imposed by the State’s budget. The collected taxes were paid to municipal tax collectors in three installments.