Arizona Public Service Co. v. O'Chesky, No. 11369

• Docket Nº: No. 11369
• Citation: 91 N.M. 485, 576 P.2d 291, 1978 NMSC 23
• Case Date: March 23, 1978
• Court: Supreme Court of New Mexico

Page 291

576 P.2d 291 91 N.M. 485 ARIZONA PUBLIC SERVICE COMPANY, El Paso Electric Company,
Salt River Project Agricultural Improvement and Power
District, Southern California Edison Company and Tucson Gas
& Electric Company, Plaintiffs-Appellants,
v.
Fred O'CHESKY, Commissioner of Revenue, Bureau of Revenue
and State of New Mexico, Defendants-Appellees. No. 11369. Supreme Court of New Mexico. March 23, 1978.

Page 293

[91 N.M. 487] Montgomery, Andrews & Hannahs, Frank Andrews, III, Santa Fe, Rodey, Dickason, Sloan, Akin & Robb, William C. Schaab, Albuquerque, White, Koch, Kelly & McCarthy, Benjamin Phillips, Santa Fe, Bigbee, Stephenson, Carpenter & Crout, Richard N. Carpenter, Santa Fe, Snell & Wilmer, Mark Wilmer, Daniel J. McAuliffe, Phoenix, Ariz., for appellants.

Toney Anaya, Atty. Gen., Jan Unna, Daniel H. Friedman, Special Asst. Attys. Gen., Bureau of Revenue, Santa Fe, for appellees.

OPINION

PAYNE, Justice.

Appellants, five major public utility companies who generate electricity in New Mexico, sought a judgment declaring the provisions of the Electrical Energy Tax Act, Ch. 263, 1975 N.M.Laws 1371 ¹ to be unconstitutional and void. The district court denied their motion for summary judgment and granted summary judgment on a cross-motion filed by the appellee, Commissioner of the Bureau of Revenue. We sustain the trial court.

There was testimony that power plants owned and operated by the utility companies within the State of New Mexico cause an estimated $12,000,000 of environmental damage each year. There was evidence that the socio-economic problems caused by the plants may cost as much as $27,000,000 to remedy. Further testimony indicated that if the utilities were to generate the same amount of electricity at their plants outside of New Mexico it could cost them an additional $124,000,000 annually. New Mexico enacted the Electrical Energy Tax to deal with these conditions. The Act imposes a tax upon the "privilege of generating electricity in this state for the purpose of sale." The provisions of the Act pertinent to this suit are §§ 3 ² and 9 ³. Section 3 provides as follows:

A. For the privilege of generating electricity in this state for the purpose of sale, whether the sale takes place in this state or outside this state, there is imposed on any person generating electricity a temporary tax, applicable until July 1, 1984, of four-tenths of one mill ($.0004) on each net kilowatt hour of electricity generated in New Mexico.

Section 9 provides:

A. If on electricity generated outside this state and consumed in this state, an electrical energy tax or similar tax on such generation has been levied by another state or political subdivisions thereof, the amount of such tax paid may be credited against the gross receipts tax due this state.

B. On electricity generated inside this state and consumed in this state which was subject to the electrical energy tax, the amount of such tax paid may be credited against the gross receipts tax due this state. (Emphasis added.)

Section 3 imposes a 2% Tax ⁴ on all electricity generated in the state. Section 9 provides a tax credit against the 4% Gross receipts tax imposed on all retail sales in the state. The ultimate effect is that in-state sales are, as in the past, subject to a total tax burden of 4% While out-of-state

Page 294

[91 N.M. 488] sales are subjected to a 2% Tax burden which they previously did not have.

During the pendency of this litigation, the United States Congress enacted the Tax Reform Act of 1976. Section 2121(a) of that Act, 15 U.S.C. § 391 (1976), provides:

No State, or political subdivision thereof, may impose or assess a tax on or with respect to the generation or transmission of electricity which discriminates against out-of-State manufacturers, producers, wholesalers, retailers, or consumers of that electricity. For purposes of this section a tax is discriminatory if it results, either directly or indirectly, in a greater tax burden on electricity which is generated and transmitted in interstate commerce than on electricity which is generated and transmitted in intrastate commerce. (Emphasis added.)

The appellants argue that New Mexico's Electrical Energy Tax is prohibited by § 2121(a) of the federal act because it discriminates against out-of-state producers. If so, it must give way to the federal act because of the Supremacy Clause of the United States Constitution. U.S.Const. art. VI, cl. 2.

The operative test of a discriminatory tax under § 2121(a) is:

(I)f it results, either directly or indirectly, in a greater tax burden on electricity which is generated and transmitted in interstate commerce than on electricity which is generated and transmitted in intrastate commerce. (Emphasis added.)

The utilities contend that the credit provisions of the Electrical Energy Act result in a "greater tax burden" on electricity destined for use out-of-state than on electricity used in-state. They misread the section's language. The word "greater" means "larger", not "additional." As used, greater is a word of comparison.

The...