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As at-home energy creation becomes more popular and more households adopt sustainable practices such as utilizing solar to produce electricity, the subtleties of tax reporting for energy creation and consumption are becoming frequently asked questions for consumers. In the context of net-metering it is important to understand what the concept is, and when a consumer may be provided tax documentation regarding their net-metering activities. This article aims to provide commentary on the question of when a consumer should expect to receive a federal form 1099 from his or her service provider and why.
Net-metering simply refers to customers of a utility provider who generate more electricity at their home than they purchase from the grid. This excess is transferred back to the grid for either a credit on the customer’s bill, or in exchange for payment from the utility provider to the customer. Arkansas’ Public Service Commission Net-Metering Rules discuss the application of the credit and payment concepts in Rule 2.04(2) and 2.04(3)(a) and (b). In short, these rules state that a consumer can expect to receive a credit from a service provider where the consumer receives service but has generated more electricity than the consumer has used. If that consumer ceases to be a consumer of the utility, ceases to operate a net-metering facility, or transfers the net-metering facility to another person, then the utility shall purchase the remaining excess generation, and the consumer should expect to receive a form 1099 from the utility.
Reviewing the relevant Arkansas net-metering rules and IRS guidance there appears to be a significant difference in treatment between a credit offered on a customer’s bill and a purchase of energy from a customer. The IRS has contemplated what exactly a credit to a customer’s bill is from a tax perspective, though not in a perfectly analogous situation. In Rev. Rul. 91-36 a utility company provided rate reductions and nonrefundable credits to customers who participated in their conservation efforts. The credits represented a reduction in the purchase price of electricity, not gross income that must be reported. This rule also extends to rebates and any item that reduces the purchase price to the customer. In this situation, and after reviewing the instructions and rules concerning IRS Form 1099, a credit is not considered gross income and therefore likely will not require the issuance of a 1099 by a service provider.
As to the “purchase” issue, in PLR 201035003 a taxpayer sold all the environmental attributes associated with a credit (generated by a residential solar unit) to a public utility in exchange for payment. There the Service found that the sale was not a reduction in price or a rebate as discussed above. Instead, this sale represented reportable gross income. In such a scenario, issuance of a 1099 likely would be required by a service provider.
In conclusion, customers who participate in net-metering should generally not expect to receive a 1099 from their utility provider for credits on their electricity bill. If, however, a consumer does receive an out-and-out payment for electricity generated from their utility provider, he or she should expect to receive a 1099 and will be required to report it accordingly.
