American Electric Power Service Corporation v. Commonwealth of PA
2017 Pa. Commw. LEXIS 174
Pa. Commw. Ct.2017Background
- AEPSC, a FERC-regulated wholesale electricity seller (not a PUC-licensed public utility), sold wholesale electricity to the Letterkenny Industrial Development Authority (LIDA) beginning in 2009.
- LIDA is an industrial development authority created under Pennsylvania’s Economic Development Financing Law (EDFL); it purchases wholesale power and resells almost all of it to the Army and businesses in a local business park.
- AEPSC claimed a resale exemption on its 2010 utilities gross receipts tax (GRT) return for sales to LIDA (and Pitcairn Borough); Revenue disallowed the exemption for LIDA and assessed GRT on AEPSC’s 2010 receipts from LIDA.
- AEPSC argued (1) it is not subject to the GRT after electric deregulation, and (2) alternatively its sales to LIDA were exempt as sales-for-resale to a political subdivision or otherwise because LIDA is “subject to the tax.”
- The Board of Finance and Revenue found AEPSC subject to GRT, allowed the resale exemption for Pitcairn (a municipality), but denied it for LIDA because LIDA is not a political subdivision and did not report/pay GRT; the Commonwealth Court affirmed (vacating penalty relief).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether AEPSC is subject to the utilities gross receipts tax (GRT) after deregulation | AEPSC: Competition Act limits taxable entities to those engaged in retail sales or PUC-licensed suppliers, so AEPSC (a wholesale FERC-regulated seller) is not an "electric light company" or "engaged in electric light and power business." | Commonwealth: Competition Act language broadened Section 1101(b) to include electric distribution companies and generation suppliers and to treat activities establishing/maintaining a market as engaging in the business; taxability follows function, not licensure. | Court: AEPSC is subject to GRT; services and market activity, not PUC licensure, determine taxability. |
| Whether sales to LIDA qualify for the resale exemption because LIDA is a "political subdivision" | AEPSC: LIDA is a public instrumentality and should be treated as a political subdivision for the resale exemption; alternatively, "subject to the tax" does not require actual payment. | Commonwealth: Statutory Construction Act defines "political subdivision" narrowly; authorities are separate public instrumentalities, not political subdivisions; resale exemption applies only to listed entities that are subject and pay tax. | Court: LIDA is not a political subdivision under 1 Pa. C.S. §1991; sales to LIDA do not qualify for the resale exemption. |
| Whether the resale exemption applies when the reseller is merely "subject to the tax" but did not pay/file | AEPSC: The phrase "subject to the tax" suffices for the exemption even if the reseller did not pay GRT. | Commonwealth: The plain language and statutory scheme imply the reseller must be subject and responsible for the tax; both seller and reseller cannot be excused for the same sale. | Court: The exemption does not apply where reseller did not report/pay; AEPSC’s interpretation would permit double nonpayment and is rejected. |
| Whether AEPSC is equitably estopped from paying tax/interest because of Revenue agent's prior statements | AEPSC: Relied on Revenue employee’s representations (about sales to municipalities) and only learned of denial in 2012; estoppel and prospective relief should apply. | Commonwealth: No reliance as Revenue never accepted the exemption for LIDA; government agents cannot estop the Commonwealth on taxation; AEPSC failed to preserve estoppel and interest arguments. | Court: Issues waived procedurally; on merits estoppel rejected; penalties waiver noted but interest upheld; assessment not retroactive. |
Key Cases Cited
- Department of Environmental Protection v. Cumberland Coal Resources, LP, 102 A.3d 962 (Pa. 2014) ("including" in statutory definitions indicates enlargement, not limitation)
- Spectrum Arena Limited Partnership v. Commonwealth, 983 A.2d 641 (Pa. 2009) (discussing Competition Act and revenue-neutral reconciliation)
- Solar Turbines, Inc. v. Commonwealth, 816 A.2d 362 (Pa. Cmwlth. 2003) (taxability determined by function performed, not status as public utility)
- Transcontinental Gas Pipe Line Corporation v. Commonwealth, 620 A.2d 614 (Pa. Cmwlth. 1993) (prospective application of tax liability where taxpayer lacked earlier notice)
- DS Waters of America, Inc. v. Commonwealth, 150 A.3d 583 (Pa. Cmwlth. 2016) (sovereign immunity from estoppel by misstatements of government agents)