Padding the State Utility Tax

By law the Washington state utility tax rate on Cascade Natural Gas accounts is supposed to be 3.852 percent. After looking over my most recent bill, by my calculation the state is collecting more tax than it should. Although collecting extra tax helps offset our current $2.6 billion budget shortfall, you would still think that the Department of Revenue would double-check every revenue source for accuracy. But if they do, they don’t figure percent the way I was taught.

Here’s the relevant statement on my most recent bill:

The current billing amount includes 3.852% state utility tax – $3.23.

The total bill, which includes the $3.23 in tax, is $83.93. If you multiply $83.93 by .03852, the result is $3.23. But that’s not how I would calculate a tax based on percent. Like sales tax, the tax rate should be applied to the base price of the item with the resulting tax added to the base price to get the total amount charged to the customer. Said more simply:

cost to customer = base price x (1 + tax rate)

Since the base price of the gas isn’t shown on the bill, there’s no way to determine if there is a mistake in the amount of tax collected or the tax rate or both. Assuming the amount of tax collected ($3.23) is correct, then the base price of the gas is $80.70 ($83.93 – $3.23) and the actual tax rate is 4.00 percent ($3.23/$80.70 x 100). Since the rate is supposed to be 3.852 percent, the state is collecting an extra $.12 in tax on this particular bill.

An extra $.12 on a bill might sound like little more than a rounding error, but such errors add up. Cascade Natural Gas has thousand of customer accounts, each billed monthly. Of course the amount of extra tax collected depends on the dollar amount of the gas used. To quickly calculate it, take the total bill and subtract the amount of tax the bill says was collected, then take .148 percent of the remainder.

I don’t know if Puget Sound Energy (my electric utility company) is computing the utility tax correctly (3.873 percent in their case) as there isn’t enough information on the bill to tell. But given Washington’s practice of maximizing the amount of revenue it collects, padding the tax on a utility bill doesn’t surprise me.