Powerex Corp. v. Dep't of Revenue, TC 5339

• Decision Date: 15 July 2020
• Docket Number: TC 5339
• Parties: POWEREX CORP., Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.
• Court: Oregon Tax Court

POWEREX CORP., Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.

TC 5339

OREGON TAX COURT REGULAR DIVISION Corporation Excise Tax

July 15, 2020

ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

This case involves Oregon corporation excise tax assessments against Plaintiff for the tax years ending March 31, 2011, through March 31, 2015 (collectively, the "Subject Years").¹ In prior litigation involving tax years ending in 2002 through 2004 (the "Prior Years"), both parties took the position that Plaintiff was within the class of taxpayers to which Oregon's version of the Uniform Division of Income for Tax Purposes Act ("UDITPA") applied, and the Oregon Supreme Court and this court decided various issues relating primarily to whether Plaintiff's sales at wholesale of electricity and natural gas were "in this state" pursuant to Oregon's UDITPA.² See Powerex Corp. v. Dept. of Rev., 357 Or 40, 346 P3d 476 (2015), on remand 22 OTR 222 (2016). On cross-motions for partial summary judgment, this court now must decidewhether Oregon's UDITPA applied to Plaintiff for the Subject Years, or whether Plaintiff instead was excluded as a "public utility." If Plaintiff was a public utility, the court must decide whether an administrative rule that Defendant adopted in 2015 causes Plaintiff's sales for the Subject Years to have been in Oregon. If Plaintiff was not a public utility under Oregon's UDITPA, Plaintiff prevails on its motion.

I. FACTS AND LEGAL BACKGROUND

During the Subject Years, as in the Prior Years, Plaintiff's principal business was the sale and purchase of wholesale electricity and natural gas in Canada and the United States. (Ptf's Compl ¶ 4; Def's Ans ¶ 1; see Powerex, 357 Or at 42.) Plaintiff was organized under the laws of British Columbia. (Id.)³ It is uncontested that, during the Subject Years, all of Plaintiff's sales of electricity and natural gas to purchasers in Oregon were at the wholesale level. (Decl of MacDougall ¶ 4.) Plaintiff did not possess any license issued by or for the State of Oregon for sales or delivery of electricity or natural gas to the public. (Id. ¶ 6.) Plaintiff did hold certain licenses and permits from Canadian and United States federal regulators to serve wholesale energy customers, including US Department of Energy Permits and US Federal Energy Regulatory Commission Market-Based Rate Authorizations. (See Def's Cross-Mot at 5-6; Stip Ex A-J.) Plaintiff did not own or operate any equipment or facilities used for the production or storage of electricity or gas in Oregon, or sell or deliver, or offer for sale or delivery, any electricity or natural gas to any residential customers in Oregon. (Decl of MacDougall at ¶¶ 5-7; 10.) Plaintiff was not classified as a public utility by the Oregon Public Utility Commission, norwas it regulated as a public utility by the Oregon Public Utility Commission. (Id. ¶¶ 8-9.) Plaintiff was not forced or compelled to sell to anyone, including any member of the public in Oregon, by the operation of law or regulation or regulatory body, including the Oregon Public Utility Commission, and freely chose its customers for its sales of electricity and natural gas. (Id. at ¶ 11.) Plaintiff did not, nor did it hold itself out as willing to, serve or make sales of electricity or natural gas to the public in Oregon. (Id. at ¶ 12.) No member of the public in Oregon had a right, including a legal or regulatory right, to demand or receive purchases or delivery of electricity or natural gas from Plaintiff. (Id. at ¶ 13.)

The Oregon Supreme Court has previously described Oregon's two separate statutory regimes for allocating and apportioning taxable income to Oregon. See Powerex, 357 Or at 42-43; Crystal Communications, Inc. v. Dept. of Rev., 353 Or 300, 302-05, 297 P3d 1256 (2013). Oregon's UDITPA, codified in ORS 314.605 to 314.675, applies to the great majority of businesses but does not apply to a "public utility" or to a "financial institution," as those terms are defined in Oregon's UDITPA. See ORS 314.615; 314.610(4); (6). Instead, special, generally industry-specific, administrative rules that Defendant adopts pursuant to ORS 314.280 apply to "[t]axpayers engaged in activities as a financial institution or public utility." See generally OAR 150-314-0062 to -0090. The opinions in Powerex as to the Prior Years focused on the Oregon UDITPA "sourcing" provisions in ORS 314.665, i.e., the provisions for determining whether "sales" are "in this state" and thus are counted in the numerator of the sales apportionment factor, increasing the share of overall taxable income to which Oregon's tax applies.⁴ TheSupreme Court applied the Oregon UDITPA sourcing provisions to all of Plaintiff's sales, noting:

"Throughout this litigation, the Oregon Department of Revenue has taken the position that UDITPA governs the apportionment of Powerex's income. We accept that assumption for the purposes of deciding the department's claims on appeal. We express no opinion on whether ORS 314.280, if applicable, would lead to a different result."

Powerex, 357 Or at 42 n 1.⁵ The Supreme Court determined that sales of electricity constituted sales of "tangible personal property" under the Oregon UDITPA binary system of classification for sourcing purposes, reversing this court's conclusion that those sales were of "other than * * * tangible personal property," a category that generally includes sales of intangible property and sales of services. See Powerex, 357 Or at 56-73. The Supreme Court also determined that Oregon's UDITPA requires that sales of tangible personal property be sourced based on the "ultimate destination" of the property, and not based on the state where the seller and buyer agree that the property is "delivered." See id. at 51. The Supreme Court thus invalidated Defendant's administrative rule that applied to all Oregon UDITPA taxpayers selling natural gas and electricity, which defined such a sale as "in this state" if the "contracted point of delivery" was in Oregon. See id. at 55-56. On remand, this court concluded, based on UDITPA's "ultimate destination" principles, that none of Plaintiff's disputed sales were in Oregon because the ultimate destination of the sales was outside Oregon, generally California. See Powerex Corp. v. Dept. of Rev., 22 OTR 222, 231 (2016).

In 2015, during the proceedings in this court on remand as to the Prior Years, Defendant withdrew the electricity and gas sourcing rule that the Supreme Court had invalidated under Oregon's UDITPA. (See Stip Ex AAAAA.) Defendant adopted a rule, solely for "public utilities," containing materially similar text, including a test for sourcing based on the "contractually specified point of physical delivery," pursuant to Defendant's authority under ORS 314.280. (See Stip Ex IIIII; OAR 150-314-0090; ORS 314.280(1).) At some point before 2017, Defendant also determined that Plaintiff fit within the Oregon UDITPA definition of a "public utility" and, following an audit, in 2018 assessed a deficiency against Plaintiff for the Subject Years on the theory that Plaintiff's sales of natural gas and electricity were in Oregon because the "contractually specified point of physical delivery" of the gas and electricity was in Oregon. (See Ptf's Compl ¶¶ 9-14; Def's Ans ¶¶ 1; 7.)

Plaintiff now seeks summary judgment on several of its claims, asserting that (1) it was not a "public utility" during the Subject Years and thus was entitled to continue to apply the Oregon UDITPA "ultimate destination" sourcing provisions; (2) even if Plaintiff was a public utility, Defendant's 2015 rule applying the "contractually specified point of physical delivery" test to Plaintiff is invalid because of the way Defendant promulgated the rule; and (3) even if the 2015 rule was validly promulgated, Defendant cannot apply it to Plaintiff retroactively, under ORS 305.125 as well as due process and equal protection principles. Defendant has cross-moved for summary judgment with respect to the same claims.

II. ISSUES

(1) Was Plaintiff a "public utility" within the meaning of ORS 314.610(6)?

(2) If so, was Defendant barred from applying its 2015 administrative rule for the sourcing of sales of electricity and natural gas, either because Defendant promulgatedthe rule through an invalid process or because application of the rule to the Subject Years would violate statutory or constitutional limitations on retroactive rulemaking?

III. ANALYSIS

A. Was Plaintiff a Public Utility?

The first issue requires the court to interpret the statutory term "public utility" as defined in ORS 314.610(6). To do so, the court examines the text of the statute, as well as its context including any relevant legislative history, resorting to maxims if necessary. See State v. Gaines, 346 Or 160, 171-73, 206 P3d 1042 (2009). During all of the Subject Years, and indeed since its adoption in 1965, the statute has read as follows:

"'Public utility' means any business entity whose principal business is ownership and operation for public use of any plant, equipment, property, franchise, or license for the transmission of communications, transportation of goods or persons, or the production, storage, transmission, sale, delivery, or furnishing of electricity, water, steam, oil, oil products or gas."

ORS 314.610(6) (emphasis added). It is uncontested that Plaintiff held no plant or equipment in Oregon. The parties disagree whether, as to any other property Plaintiff may have held in Oregon,⁶ Plaintiff owned or operated that property "for public use." Plaintiff argues that its activities--wholesaling electricity and gas to resellers of Plaintiff's own choosing--did not involve any "public use" of any of its property. (Ptf's Mot Part Summ J at 10-11.) Defendant contends that the fact that Plaintiff "is selling power for the ultimate use by the public" brings

/ / /Plaintiff's activities within...