Duquesne Light Co. v. State Tax Dept.

• Decision Date: 14 November 1984
• Docket Number: No. 16067,16067
• Parties: DUQUESNE LIGHT CO., et al. v. STATE TAX DEPT., etc., et al.
• Court: West Virginia Supreme Court

Page 683

327 S.E.2d 683

174 W.Va. 506

DUQUESNE LIGHT CO., et al. v. STATE TAX DEPT., etc., et al.

No. 16067.

Supreme Court of Appeals of West Virginia.

Nov. 14, 1984.

Concurring Opinion Dec. 3, 1984.

Certiorari Denied April 15, 1985.

See 105 S.Ct. 2040.

Syllabus by the Court

1. Section 2m of the 1978 Acts of the Legislature, Chapter 96, does not violate the provisions of 15 U.S.C. § 391, as interpreted by the United States Supreme Court in the case of Arizona Public Serv. Co. v. Snead, 441 U.S. 141, 99 S.Ct. 1629, 60 L.Ed.2d 106 (1979).

2. "This Court will not pass on a nonjurisdictional question which has not been decided by the trial court in the first instance." Syllabus Point 2, Sands v. Security Trust Co., 143 W.Va. 522, 102 S.E.2d 733 (1958).

MILLER, Justice:

The State Tax Commissioner appeals a decision of the Circuit Court of Kanawha County which struck down our business and occupation tax on the generation of electric power, W.Va.Code, 11-13-2m. ¹ The court below held that this case was controlled by Arizona Public Serv. Co. v. Snead, 441 U.S. 141, 99 S.Ct. 1629, 60 L.Ed.2d 106 (1979), in which the United States Supreme Court struck down a New Mexico utility tax because it violated Section 2121(a) of the Tax Reform Act of 1976, 15 U.S.C. § 391 (1976). We disagree and reverse.

I.

Before addressing the particular facts and issues raised in this case, it is important to understand the Snead case. The United States Supreme Court in Snead decided the case based upon 15 U.S.C. § 391, ² which had been enacted because of a discriminatory tax adopted by the State of New Mexico. The purpose of 15 U.S.C. § 391 was set out in the Senate Finance Committee Report, which the United States Supreme Court quoted:

" 'The committee has learned that one State places a discriminatory tax upon the production of electricity within its boundaries for consumption outside its boundaries. While the rate of the tax itself is identical for electricity that is ultimately consumed outside the State and electricity which is consumed inside the State, discrimination results because the State allows the amount of the tax to be credited against its gross receipts tax if the electricity is consumed within its boundaries.' " 441 U.S. at 147, 99 S.Ct. at 1632-33, 60 L.Ed.2d at 111.

As the United States Supreme Court noted, the name of the state was not disclosed in the Committee Report, but during the floor debate, "Senators Domenici and Montoya of New Mexico, Senators Fannin and Goldwater of Arizona and Senator Cranston of California made it clear that the provision was aimed directly at New Mexico's electrical energy tax." 441 U.S. at 147, 99 S.Ct. at 1633, 60 L.Ed.2d at 112. Thus, the Supreme Court had before it a legislative enactment directed at a state statute that Congress had declared to be discriminatory.

A critical part of the Court's opinion was its determination that it would not adopt the Commerce Clause test for determining whether the state tax was discriminatory under 15 U.S.C. § 391. New Mexico urged this test since it "requires examination of New Mexico's total tax structure to determine whether the State in fact imposes a greater tax burden on electricity sent out of state. See Halliburton Oil Well Cementing Co. v. Reily, 373 US 64, 69 [83 S.Ct. 1201, 1203, 10 L.Ed.2d 202, 206.]" 441 U.S. at 149, 99 S.Ct. at 1633-34, 60 L.Ed.2d at 113. New Mexico's central argument was that if the Court would examine the state's entire utility tax, it would be clear that the tax on utilities shipping energy out of state was not discriminatory. ³ However, the Court declined to look at the entire tax structure stating:

"To look narrowly to the type of tax the federal statute names, rather than to consider the entire tax structure of the State, is to be faithful not only to the language of that statute but also to the expressed intent of Congress in enacting it. Because the electrical energy tax itself indirectly but necessarily discriminates against electricity sold outside New Mexico, it violates the federal statute." 441 U.S. at 149-50, 99 S.Ct. at 1634, 60 L.Ed.2d at 113. (Emphasis in original; footnote omitted).

We observe that New Mexico's Electrical Energy Tax was enacted as a single tax enactment and not as part of a tax plan that affected related areas. Also of some importance is note 7 in Snead, 441 U.S. at 150, 99 S.Ct. at 1634, 60 L.Ed.2d at 113, where the Court stated:

"The amici in this case have pointed to several similar state taxes on the generation of electricity. Pa.Stat.Ann., Tit. 72, § 8101 (Purdon Supp. 1978-1979); Wash.Rev.Code §§ 82.16.020, 82.16.050 (1976); W.Va.Code §§ 11-13-2d, 11-13-2m (Supp.1978). None of these States, however, has adopted precisely the scheme used by New Mexico, and we express no opinion as to the validity of these or any other state tax laws."

With these salient points from Snead in mind, we proceed to discuss our tax.

II.

W.Va.Code, 11-13-2m, was enacted in 1978 as a part of a larger plan to reorganize the business and occupation tax on utilities. ⁴ Prior to 1978, electric utilities generating or selling electricity in this State were taxed under W.Va.Code, 11-13-2d, at the rate of 5.72 percent based on sales and demand charges for domestic purposes and 4.29 percent on sales and demand charges for all other purposes. ⁵ Electric utilities generating electricity in this State but transmitting it out of state were taxed under the general manufacturing tax rate under W.Va.Code, 11-13-2b, which was 0.88 percent. See Virginia Elec. and Power Co. v. Haden, 157 W.Va. 298, 200 S.E.2d 848 (1973), cert. denied, 416 U.S. 916, 94 S.Ct. 1624, 40 L.Ed.2d 118 (1974).

As applicable to this case, the material changes made by the 1978 amendments to W.Va.Code, 11-13-1, et seq., were as follows. The taxation on manufacturing of electricity was removed from W.Va.Code, 11-13-2b, and placed in a new section, W.Va.Code, 11-13-2m. This section provides that the tax rate would be 4 percent, subject to a provision that the rate would be 2.46 percent on electricity sold to a customer engaged in manufacturing if the contract demand exceeded 200,000 kilowatts per hour per year, or if the usage exceeded 200,000 kilowatts per hour in a year. ⁶

The 1978 amendments also altered W.Va.Code, 11-13-2d, to provide that electric utilities generating electricity for sale in this State would be taxed at a 4 percent rate, and those which do not generate electricity but supply it are to be taxed at a 3 percent rate. A proviso similar to the one in Section 2m was placed in this section to provide for a reduced rate of 2.46 percent if a manufacturing customer's contract demand exceeded 200,000 kilowatts per hour per year or if the usage exceeded 200,000 kilowatts per hour per year. ⁷

It is quite clear that the 1978 amendments harmonized the tax rate between the generation and sale in this State of electric power and the generation of electric power in this State for transmission out of state. It is true that there is some difference in language between Sections 2d and 2m with regard to measuring the value of the product, i.e., electric power. ⁸ However, W.Va.Code, 11-13-2, was also amended in 1978 to bring equality to the measurement of the value between Sections 2d and 2m taxes:

"If any person liable for any tax under sections two-a, two-l or two-m [§§ 11-13-2a, 11-13-2l or 11-13-2m] shall ship or transport his products or any part thereof out of the state without making sale of such products, the value of the products in the condition or form in which they exist immediately before transportation out of the state shall be the basis for the assessment of the tax imposed in said section, except in those instances in which another measure of the tax is expressly provided. The tax commissioner shall prescribe equitable and uniform rules for ascertaining such value." ⁹

III.

With this background in mind, we address the issue in this case: does W.Va.Code, 11-13-2m, violate 15 U.S.C. § 391? The circuit court did not elaborate on its holding. The principal argument advanced by the utilities is that Section 2m must be read in isolation. When it is, it is patently discriminatory under Snead because it taxes only the manufacturing of electricity which is transmitted out of state, and excludes in-state manufacturing by its reference to Section 2d.

We are cited several cases in which we have held that our business and occupation tax is composed of a number of separate taxes which are applicable to various distinct business activities. E.g., Virginia Elec. and Power Co. v. Haden, supra; United Fuel Gas Co. v. Battle, 153 W.Va. 222, 167 S.E.2d 890, appeal dismissed sub nom. United Fuel Gas Co. v. Haden, 396 U.S. 116, 90 S.Ct. 398, 24 L.Ed.2d 309 (1969); Owens-Illinois Glass Co. v. Battle, 151 W.Va. 655, 154 S.E.2d 854 (1967). Based upon these cases, the argument is made that each section of the business and occupation tax must stand scrutiny separately.

We have not, however, adopted such a rigid view of our business and occupation tax structure. For example, in Owens-Illinois Glass Co. v. Battle, we utilized the doctrine of in pari materia to settle a question under our business and occupation tax by construing several related provisions.

Moreover, we cannot ignore the fact that the 1978 amendments did more than enact Section 2m. As we have previously stated, several sections of the business and occupation tax which dealt with the manufacturing of electricity were amended. Under well known canons of statutory construction, we are obliged to consider a legislative enactment in its entirety. Woodring v. Whyte, 161 W.Va. 262, 242 S.E.2d 238 (1978); Spencer v. Yearce, 155 W.Va. 54, 180 S.E.2d 868 (1971); Syllabus Point 1, State ex rel. Holbert v. Robinson, 134 W.Va. 524, 59 S.E.2d 884 (1950).

If we consider the 1978 amendments in their entirety, it is apparent that the legislature did not single out and tax only the...