Maryland: electricity transmission and distribution equipment held exempt from sales and use tax

• On 17 July 2026 the Supreme Court of Maryland ruled in Comptroller v. Potomac Edison that conductors, substations and transformers used by a public utility to “step up” and “step down” voltage qualify for the sales and use tax exemption for property used directly and predominantly in a production activity.
• The Court reasoned that changing electricity’s voltage as it travels from out-of-state generation to Maryland customers constitutes “processing” — a production activity under the Tax-General Article. Support structures such as clamps, bolts and brackets, and electric meters, do not qualify because they serve only a physical or delivery function.
• The Court also held Maryland’s general four-year limitations period (not a 30-day window) applied to the refund claim, and that the utility was entitled to interest on refunded amounts. The dispute concerned an audit assessment of roughly $3.24 million in tax, interest and penalties for 2003–2007.

Extended article

The Supreme Court of Maryland handed a partial but significant victory to utilities in Comptroller v. Potomac Edison (decided 17 July 2026, Docket 12/25). Potomac Edison buys out-of-state power and uses its transmission-and-distribution system — conductors, substations, transformers — to carry it to customers. As electricity leaves generation at ~18,000 volts, transformers step it up to as much as 500,000–765,000 volts for transmission, then substations step it back down to usable levels.

The central question was whether that equipment is used “directly and predominantly” in a “production activity” under Section 11-210(b) of the Tax-General Article. Section 11-101 defines processing tangible personal property for resale — and electricity is treated as tangible personal property — as a production activity. The Court held that stepping voltage up and down is “processing,” so the conductors, substations and transformers qualify.

The exemption is not unlimited: support structures (clamps, bolts, brackets) and electric meters do not qualify because their direct and predominant use is not processing. Procedurally, the Court applied Maryland’s general four-year limitations rule to pre-assessment payments (not the 30-day window the Appellate Court used) and confirmed entitlement to interest on refunds. The underlying audit (August 2003–July 2007) had produced about $1.76m tax, $1.31m interest and $175,786 penalties — roughly $3.24m total. The judgment was affirmed in part, reversed in part, and remanded, confirming the exemption principle for utility processing equipment.

External links

• Justia — Comptroller v. Potomac Edison (2026), opinion
• The BayNet — Potomac Edison wins partial victory in $3.24M Maryland tax dispute
• Maryland Comptroller — Sales and Use Tax production exemptions guidance