Tax Law Alert: Oregon Rulemaking Would Tax Electricity and Gas Sales by Non-Utilities Differently

Legal Alert

The Oregon Department of Revenue is considering rulemaking that would affect whether sales to a “contracted point of delivery” in Oregon are taxed by Oregon vs. another state. “Public utilities” would continue to measure their Oregon income tax based on the existing “contracted point of delivery” rule. But power marketers, businesses that generate and sell electricity as an incidental matter (such as cogeneration facilities) and other “non-public-utility” businesses would not automatically use that method.

Specifically, the rule would no longer apply to sellers whose primary business is not the “ownership and operation for public use of any plant, equipment, property, franchise or license *** for the production, storage, transmission, sale, delivery, or furnishing of electricity, water, steam, oil, oil products, or gas.” (See ORS 314.610(6).) These “non-public-utility” businesses apparently would be taxed based on the “ultimate destination” of the sale.

What’s the issue? Whether Oregon treats the sales of these commodities as occurring in Oregon vs. another state such as California. Oregon has had a rule since 2007 that defines when sales of electricity and natural gas are considered to take place in Oregon. The rule says that the sale is in Oregon if the “contracted point of delivery” is in Oregon. OAR 150-314.665(2)-(C). Up to now, the Department has applied the same rule to all sellers of electricity, gas, etc. The Department now proposes to make this regime apply only to “public utilities,” i.e. sellers whose primary business is the ownership of an electric or gas plant, etc. “Non-public-utility” businesses have previously been subject to the same regime, but the proposed rule would no longer apply to them.

Why is the Department doing this? Because of the Oregon Supreme Court’s decision in Powerex Corp v DOR, 357 Or 40 (2015). In addition to deciding that electricity is “tangible personal property” for income tax purposes, the court decided that the “contracted point of delivery” rule is invalid as applied to all businesses. The Department soon will propose to reinstate the existing rule for “public utilities,” but there will be no specific rule for sourcing of sales for any other businesses.

Is the Department of Revenue taking input on this concept? Yes. Contact Joe DiNicola at 503.945.8308 or  

Possible topics for discussion with the Department of Revenue?

  1. Do “non-public-utility” businesses need guidance?
  2. Is there a need for consistent treatment as between companies that are “public utilities” and others?
  3. Could non-public-utility businesses successfully seek to apply the “contracted point of delivery” rule, should they wish to do so?
  4. What if the generator sells to a public utility? Does the contracted point of delivery rule apply there?
  5. What should be the alternative? Point of ultimate destination? Is that appropriate?
  6. What is the rule in other states? Is Oregon moving into or out of the mainstream? A change in the rule creates the possibility of: (1) double tax; and (2) no tax at all.
  7. Does this change apply only to physical deliveries of electricity or can it apply to virtual deliveries, such as hedging transactions? The conclusion of the court that electricity was tangible personal property may argue for the former.

If you have any questions about the content of this alert, please contact a key contributor.

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