Electricity is not “tangible personal property,” the Oregon Tax Court said in September.

Companies are taxed in Oregon only on income that is earned in Oregon. Revenue from sales of tangible personal property is treated as earned in the place of delivery. Thus, if the customer is in Oregon, the sales income is earned in Oregon. Other sales are sourced to where most of the income-producing activity occurs.

BC Hydro, through a trading subsidiary called Powerex, sells electricity generated in Canada to wholesale customers in the United States. Some of the electricity is delivered to a delivery point on the Oregon utility grid, but most of that electricity is then wheeled over the grid to customers outside Oregon.

“The trial in this matter was very interesting, primarily because of the testimony of two distinguished physicists regarding the nature of electricity,” the court said, before concluding that “more probably than not,” electricity is not tangible property. Oregon is a member of a multi-state tax compact and uses a uniform statute suggested by the tax compact for apportioning income. It said that only two other states had considered the treatment of electricity under the uniform statute and both — California and Massachusetts — had come to the same conclusion that electricity is not tangible.

Powerex also delivers natural gas to a hub in Oregon. The ultimate users of this gas are outside Oregon. The company conceded that gas is tangible personal property, but argued that the state should adopt an ultimate destination rule by treating the sale as occurring where the gas is ultimately used. The court agreed.

The case is Powerex Corp. v. Department of Revenue. The Oregon Tax Court released its decision on September 17.

by Keith Martin