401 P.3d 905
Wyo.2017Background
- PacifiCorp operates four Wyoming coal-fired power plants that generate electricity by burning pulverized coal to produce steam that drives turbines and generators.
- Two water cycles (boiler/steam and cooling) require "ultra-pure" treated water; PacifiCorp uses chemicals in softening, reverse osmosis, demineralizing and further chemical treatment for both cycles.
- Combustion gas streams are treated with electrostatic precipitators and scrubbers; reagents (e.g., sodium bicarbonate or calcium carbonate mixes) remove SO2 and convert it to solids.
- In 2012 PacifiCorp requested a Wyoming Department of Revenue ruling that those chemicals qualified for (1) the manufacturers’ sales tax exemption or (2) the wholesalers’ sales tax exemption; the Department denied relief and the Board of Equalization affirmed.
- PacifiCorp appealed, sought a refund claim, and after consolidated administrative proceedings the Supreme Court of Wyoming accepted certification from the district court and reviewed statutory interpretation de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether electricity generation is "manufacturing" under Wyo. Stat. § 39-15-105(a)(iii)(A) | PacifiCorp: generating electricity produces a new tangible product distinct from coal and thus is manufacturing | Dept.: "Manufacturing" requires the raw material to be incorporated into the final product; electricity contains no coal so it is not manufacturing | Held: Court: electricity generation qualifies as "manufacturing" under the statute; PacifiCorp is a manufacturer |
| Whether chemicals for water treatment and SO2 scrubbing "become an ingredient or component" or are "used directly" in manufacturing electricity | PacifiCorp: chemicals are necessary to produce electricity and, in an economic sense, enter the final product (relying on Cheyenne Newspapers) | Dept.: chemicals do not physically enter or become components of electricity; statutory text limits exemption to ingredients/components | Held: Court: chemicals do not become ingredients/components of electricity; not exempt under the manufacturers' provision |
| Whether chemicals qualify as "chemicals and catalysts used directly" and consumed/destroyed in manufacturing (second-sentence clause) | PacifiCorp: "used directly" language supports exemption for chemicals consumed in the process | Dept.: that clause only clarifies that consumed ingredients/components may be exempt; it does not broaden exemption beyond ingredients/components | Held: Court: 2001 "used directly" clause does not eliminate the statutory ingredient/component requirement; chemicals still not exempt |
| Whether purchases qualify for wholesalers' exemption (wholesale sale to vendor for subsequent sale) | PacifiCorp: chemicals become part of resold commodity in an economic sense; exemption prevents pyramiding | Dept.: PacifiCorp is the end consumer; chemicals are not purchased for resale | Held: Court: PacifiCorp does not meet the wholesale-sale definition; wholesalers' exemption does not apply |
Key Cases Cited
- State Bd. of Equalization v. Stanolind Oil & Gas Co., 94 P.2d 147 (Wyo. 1939) (holding generation of electricity falls within manufacturing exemption)
- Cheyenne Newspapers v. State Bd. of Equalization, 611 P.2d 805 (Wyo. 1980) (interpreting "directly enters" language to include preparatory supplies that are necessary to produce final product)
- Morrison-Knudson Co. v. State Bd. of Equalization, 135 P.2d 927 (Wyo. 1943) (discussing tax pyramiding concerns)
- State Bd. of Equalization v. Tenneco Oil Co., 694 P.2d 97 (Wyo. 1985) (presumption against tax exemptions)