Powerex saga with Oregon
Oregon lost another round in a long-running battle with the BC Hydro trading arm, Powerex, over whether electricity and gas that the company sells to customers in California, but that pass through Oregon, can be taxed in Oregon.
After losing an earlier court decision, the state tax department changed its rules. It then lost again in a case involving tax years 2011 through 2015. The earlier litigation involved tax years 2002 through 2004. (For earlier coverage, see “Electricity is tangible property” in the August 2016 NewsWire.)
Powerex is a British Columbia company. It buys and sells electricity in the wholesale market. It does not own any assets in Oregon or serve residential customers. The Oregon Public Utility Commission does not consider it a utility.
Oregon taxes companies doing business in the state on any income originating in Oregon. The state used a three-factor formula to determine how much income to assign to Oregon during the period 2002 through 2004: the same share as the fraction of a company’s total property, employees and sales that are in the state, with extra weight given to the sales factor. By 2011 to 2015, the state had changed to a single factor: the share of total sales in the state.
Electricity is considered tangible personal property in Oregon.
Income from sales of tangible personal property is considered earned at the “ultimate destination” of the property rather than the delivery point under any contract between the buyer and seller. The state tax court determined that none of the sales during the period 2002 through 2004 were taxable in Oregon because the ultimate destination was outside the state, generally in California.
In 2015, the Oregon tax department adopted a new sourcing ruling solely for “public utilities” that sourced income to the “contractually specified point of physical delivery.” Thus, if electricity or gas changed hands at a hub in Oregon on its way to California, the state claimed the right to collect an income tax on the sale. Then after a 2018 audit, Oregon assessed taxes against Powerex back to 2011 after concluding that the electricity and gas trader is a public utility.
Curses, foiled again.
Powerex went back to court. It said it is not a public utility and the state cannot change its rules retroactively in this manner.
The court agreed that Powerex is not a public utility. It said it did not have to reach the question about retroactive tax law changes.
The case is Powerex Corp. v. Department of Revenue. The Oregon tax court released its decision in mid-July.