Powerex Corp. v. Department of Revenue
346 P.3d 476
Or.2015Background
- Powerex, a wholesale trader of natural gas and electricity, sought an Oregon tax refund claiming the Department of Revenue improperly included certain sales in Oregon's "sales factor" for apportioning multistate income under UDITPA (ORS 314.605–314.675).
- For 2003 sales, Powerex sold natural gas through the Malin, Oregon hub en route to California purchasers; contracts listed Malin as the contractual delivery point and passed title there.
- The Tax Court found (1) natural gas sales were not "delivered or shipped to a purchaser within this state" because Malin was a pipeline transfer between common carriers and the ultimate destination was California, and (2) electricity is not "tangible personal property," allocating electricity sales to British Columbia where most income-producing activity occurred.
- The Department of Revenue appealed both rulings, arguing contractual delivery points and title passage at Malin place the gas (and analogously electricity) sales in Oregon, and disputing the Tax Court's classification of electricity.
- The Oregon Supreme Court affirmed the Tax Court as to natural gas (holding contractual f.o.b./delivery terms are "other conditions of sale" to be disregarded under ORS 314.665(2)(a)) but reversed as to electricity, concluding electricity is "tangible personal property" under ORS 314.665(2)(a) and remanding for factual findings about where electricity was delivered/shipped.
Issues
| Issue | Plaintiff's Argument (Powerex) | Defendant's Argument (Dept. of Rev.) | Held |
|---|---|---|---|
| Whether Powerex's natural gas sales were "delivered or shipped to a purchaser within this state" under ORS 314.665(2)(a) | Gas passed through Malin only as a transfer point; ultimate destination was California, so sales are not in Oregon | Contractual delivery points and title passage at Malin mean the gas was delivered to purchasers in Oregon | Held for Powerex: Malin was a common-carrier transfer point; contractual f.o.b./delivery terms are "other conditions of sale" to be disregarded; gas sales not in Oregon |
| Whether contractual "point of delivery"/title passage controls allocation despite ORS 314.665(2)(a)'s disregard of f.o.b./other conditions | Contract terms specifying delivery point and title passage at Malin establish delivery occurred in Oregon | Those contractual terms are "other conditions of the sale" and must be disregarded under the statute; practical ultimate-destination test governs | Held for Powerex: contractual delivery point functions like an f.o.b. and cannot override the statute's destination-based inquiry |
| Whether electricity is "tangible personal property" under ORS 314.665(2)(a) | Electricity is not tangible (technical/quantum-physics basis) and should be treated as intangible/services for apportionment | Electricity is perceptible, measurable, transferable, and valuable for its physical properties; therefore it is tangible personal property | Held for Dept. (court): Electricity is tangible personal property for ORS 314.665(2)(a) |
| Whether Powerex's electricity sales were in Oregon (allocation method) | If electricity is intangible, allocate by where the greater part of income-producing activity occurred (Powerex said British Columbia) | If electricity is tangible, allocate by where electricity was delivered/shipped to purchaser (statutory destination test); dept. argued some delivery points in Oregon | Court remanded: Because it held electricity is tangible, Tax Court must make findings on where electricity was shipped/delivered (did transmission points function like common carriers or loading-dock pickups?) |
Key Cases Cited
- Curry v. McCanless, 307 U.S. 357 (recast constitutional bases for taxing intangible property)
- Blodgett v. Silberman, 277 U.S. 1 (distinguishing physical evidence of an obligation from the intangible right it represents)
- Parker Banana v. Dep’t of Revenue, 391 So. 2d 762 (Fla. Dist. Ct. App.) (discusses when pickup by purchaser vs. common-carrier delivery affects destination analysis under sales apportionment)
- Olympia Brewing Co. v. Comm’r of Revenue, 326 N.W.2d 642 (Minn. 1982) (interpreting destination rule under Uniform Act analogue)
- McDonnell Douglas Corp. v. Franchise Tax Bd., 26 Cal. App. 4th 1789 (discusses allocation to state of delivery/customer location under the Uniform Act)
- Exelon Generation Co. v. Dep’t of Revenue, 917 N.E.2d 899 (Ill. 2009) (court held electricity is tangible personal property)
- Tucson Elec. Power Co. v. Arizona Dep’t of Revenue, 822 P.2d 498 (Ariz. Ct. App. 1991) (electricity characterized as tangible personal property)
- Atlantic Richfield Co. v. Dept. of Rev., 300 Or. 637 (discusses weight of interstate uniformity when interpreting UDITPA)