Virginia Elec. & Power Co. v. Haden

• Decision Date: 17 December 1973
• Docket Number: No. 13195,13195
• Court: West Virginia Supreme Court
• Parties: , 1 P.U.R.4th 26 VIRGINIA ELECTRIC AND POWER COMPANY, a corporation, v. Charles H. HADEN, II, Tax Commissioner, etc., revived in the name of RichardL. Dailey, Tax Commissioner, etc.

Page 848

200 S.E.2d 848

157 W.Va. 298, 1 P.U.R.4th 26

VIRGINIA ELECTRIC AND POWER COMPANY, a corporation, v. Charles H. HADEN, II, Tax Commissioner, etc., revived in the

name of RichardL. Dailey, Tax Commissioner, etc.

No. 13195.

Supreme Court of Appeals of West Virginia.

Submitted Jan. 24, 1973.

Decided July 24, 1973.

Rehearing Denied Dec. 17, 1973.

Syllabus by the Court

1. A public utility may be taxed under more than one provision of the business and occupation tax statute if it appears from the record that it is engaged in more than one business activity, as categorized in Code, 1931, 11--13--2a, through 2j, as amended.

2. A public utility engaged in the manufacture of electric power is subject to the payment of the tax prescried in Code, 1931, 11--13--2, as amended, at the rate provided in Section 2b thereof, upon the value of all electric power so manufactured and transmitted outside of the state.

3. Manufacturing is a local activity and the product manufactured cannot become a part of commerce until such manufacturing process is completed: therefore, a tax on the manufacture in this state of electric power, even though such power is subsequently transmitted to another state, does not constitute a tax on interstate commerce.

4. A casual or isolated use of a natural resource in one's business which does not require continuous production thereof does not cause one to be engaged in the business of producing for sale, profit or commercial use any natural resource products, as contemplated by Code, 1931, 11--13--2a, as amended.

Chauncey H. Browning, Jr., Atty. Gen., William F. Carroll, Asst. Atty. Gen., Charleston, for appellant.

Jackson, Kelly, Holt & O'Farrell, Thomas N. Chambers, Charleston, Geary & Geary, James Paul Geary, Petersburg, Hunton, Williams, Gay & Gibson, H. Brice Graves, Richmond, Va., for appellee.

CAPLAN, Justice:

This is an appeal by Richard L. Dailey, Tax Commissioner of the State of West Virginia, successor to Charles H. Haden, II, from a final order of the Circuit Court of Grant County, dated June 22, 1971. The proceeding before that court was an appeal by Virginia Electric and Power Company from an administrative decision of the then Tax Commissioner. In said order the court held that Virginia Electric and Power Company, herein sometimes called the Power Company, or taxpayer, was not a manufacturer of electric power taxable under Code, 1931, 11--13--2b, as amended, and further, that it was not taxable as a producer of natural resource products under Code, 1931, 11--13--2a, as amended. The Power Company was taxable, held the court, under Code, 1931, 11--13--2d, as amended, with respect to the conduct of its electric power business measured by sales and demand charges. Furthermore, the court held that the sale of electricity, manufactured at its Mount Storm plant, to customers outside the state constitutes a transaction in interstate commerce and cannot constitutionally be taxed.

Virginia Electric and Power Company is a Virginia corporation, qualified to do business in West Virginia and North Carolina. It is a public utility which provides electric power to the public in parts of West Virginia, Virginia and North Carolina. The area served by it in West Virginia consists of all or parts of the counties of Greenbrier, Monroe, Pocahontas, Raleigh and Summers.

Upon the application of the Power Company, the West Virginia Public Service Commission, by an order entered March 23, 1961, granted it a certificate of convenience and necessity to construct, maintain and operate a steam electric generating station on Stony River in Grant County, West Virginia, said station to be hereinafter referred to as the Mount Storm plant. This generating station was completed and the Power Company began its operations in 1965.

During the years 1965 and 1966 all of the electric power manufactured by the Power Company at Mount Storm was transmitted over transmission lines connecting with its transmission and distribution system in Virginia. This is the system that serves its utility customers in Virginia, West Virginia and North Carolina. The power sold to the West Virginia customers is returned to this state via its distribution system in Virginia.

In 1955 the Power Company sold 14.89% Of the total electric power manufactured at Mount Storm to its West Virginia customers and the balance, 85.11%, to customers located outside the boundaries of this state. The sale of electricity by the appellee to customers outside the state were even greater in 1966. The record reveals that during that year, of the total production of the Mount Storm plant, 2.87% Was sold to West Virginia customers and 97.13% Went to outside customers.

In 1965 and 1966 the Power Company paid business and occupation tax on the gross amount derived from the electric power manufactured at Mount Storm and sold to its West Virginia customers, said tax having been paid at the rate prescribed in Code, 1931, 11--13--2d, as amended. Section 2d applied to public utilities engaged in the business of selling electricity within the state. For the same years the taxpayer failed to report or pay tax under any section of Code, 1931, 11--13, as amended, upon the value of 85.11% And 97.13% Of its Mount Storm production which was sold to consumers outside the state.

To facilitate its Mount Storm plant in the manufacture of electricity it became necessary to construct a cooling water reservoir. This was accomplished by impounding water of the Stony River with an earth and rock fill dam. In the construction of said dam, rock was quarried from the construction site of the power generating plant and incorporated into and made an integral part of said dam. The rock was quarried and transported to the dam site and incorporated therein by Garbart Construction Company, a subcontractor of George F. Hazelwood and Company, the main contractor for the construction of the Mount Storm Station. Thus, the Power Company caused the excavation and relocation of rock and stone upon its own property for use in the required dam. During the construction of this dam, which covered a period of two years, the appellee failed to report or pay any tax under Code, 1931, 11--13--2a upon the value of the stone quarried and produced upon its property and incorporated into said dam.

The Tax Commissioner, being of the opinion that the Power Company was subject to the payment of business and occupation tax under Code, 1931, 11--13--2b, as amended, and then in effect, as a manufacturer of electric power and under Code, 1931, 11--13--2a, as amended, and then in effect, as a producer of natural resource products, issued an assessment of business and occupation tax against said Power Company for the years 1962, 1963, 1964, 1965 and 1966. Thereafter, pursuant to Code, 1931, 11--13--7b, as amended, the appellee petitoned the Tax Commissioner for a reassessment of said tax and an administrative hearing thereon was held by the commissioner on November 1, 1967.

Subsequent thereto, the Tax Commissioner issued his administrative decision wherein he held that the Power Company was a manufacturer of electric power within the meaning of Code, 1931, 11--13--2b, as amended, and as to that portion of electric power generated at Mount Storm not distributed in utility sales within this state, it was subject to business and occupation tax at the rate prescribed in said Section 2b. The Commissioner further held that, by reason of the aforesaid quarry operations, the Power Company was a producer of natural resource products, as contemplated by Code, 1931, 11--13--2a, as amended, and, as such, was subject to business and occupation tax at the rate prescribed in said Section 2a. His decision reduced the original assessment from $277,922.40 to $159,143.32 and imposed a penalty on the latter sum in the amount of $33,903.64.

Virginia Electric and Power Company appealed this administrative decision to the Circuit Court of Grant County, alleging, Inter alia, that the Tax Commissioner had relied upon certain third party evidence to determine the value of the electric power manufactured and the rock quarried. The values used by the Tax Commissioner in arriving at his decision were determined by the state tax auditors. Being of the opinion that the Power Company's objection to the state's evidence was valid, the Tax Commissioner sought to withdraw his administrative decision and afford a full hearing for the purpose of permitting said company to offer further evidence in determining the aforesaid values. With this purpose in mind the Tax Commissioner filed a Plea in Abatement and Motion to Dismiss and Remand. The Power Company followed by filing a 'Motion to Strike that Certain Pleading of the Defendant's Entitled 'Plea in Abatement and Motion to Dismiss and Remand".

The circuit court, by order entered December 31, 1969, denied the Tax Commissioner's Plea in Abatement and Motion to Dismiss and Remand, ruling that no order of the court was needed to perfect the appeal and that the purported withdrawal by the Tax Commissioner of his administrative decision did not oust the court of jurisdiction. Also, the court ruled that it did not have authority to remand the case to the Tax Commissioner for further administrative proceedings. After additional pleadings were filed and upon further consideration, the circuit court, on June 22, 1971, entered the order from which this appeal is prosecuted.

As is evident from the foregoing, the basic questions to be resolved on this appeal are: (1) Is Virginia Electric and Power Company a manufacturer of electricity under Code, 1931, 11--13--2b, as amended, and if so, can the tax at the rate prescribed in Section 2b be imposed on all electricity generated and sent out of the state via its transmission system in Virginia, or would such tax constitute a burden on interstate commerce? (2) Is Virginia Electric and Power Company a producer of natural resource products as...