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Powerex Corp. v. Department of Revenue, 357 Or. 40, 346 P.3d 476

Facts

Powerex wholesales natural gas and electricity across North America, with sales of natural gas shipped through a hub in Oregon to purchasers in other states. In 2003, Powerex treated its natural gas sales as sales 'in this state' for tax purposes but later filed for a refund, arguing that the gas was delivered to California, not Oregon. The Tax Court found that Powerex's natural gas was not delivered to purchasers within Oregon, while it ruled that electricity was not tangible personal property, leading to the appeal by the Department of Revenue.

In 2003, Powerex sold natural gas to retailers in California through the hub in Malin. When Powerex filed its Oregon tax returns for the 2003 tax year, it treated those sales as sales 'in this state' for the purpose of calculating the 'sales factor'—i.e., for the purpose of calculating the percentage of Powerex's total income that was attributable to Oregon.

Issue

The main legal issues were whether Powerex's sales of natural gas and electricity were 'in this state' for tax purposes under the Uniform Division of Income for Tax Purposes Act (UDITPA).

Rule

Under UDITPA, sales of tangible personal property are considered 'in this state' if the property is delivered or shipped to a purchaser within the state, regardless of the f.o.b. point or other conditions of the sale.

Generally, sales of tangible personal property are 'in this state' if '[t]he property is delivered or shipped to a purchaser * * * within this state regardless of the f.o.b. point or other conditions of the sale.'

Analysis

The court analyzed the Tax Court's findings regarding the delivery of natural gas and electricity. It agreed with the Tax Court that Powerex's natural gas sales were not 'in this state' because the gas was shipped to California, not delivered to purchasers in Oregon. However, the court noted that the Tax Court did not address whether the electricity sold was delivered to purchasers within Oregon, which required further proceedings.

The Tax Court found that Powerex shipped gas to purchasers in other states through a hub in Malin, Oregon, where two pipelines intersect. It concluded that, in doing so, Powerex had not shipped or delivered gas to purchasers within Oregon.

Conclusion

The Supreme Court affirmed the Tax Court's ruling regarding natural gas sales but reversed the ruling on electricity sales, remanding the case for further examination of whether those sales were 'in this state.'

We accordingly affirm the Tax Court's judgment in part, reverse it in part, and remand the case for further proceedings.

Who won?

Powerex prevailed in the case regarding natural gas sales, as the court agreed that those sales were not taxable in Oregon due to the ultimate destination being California.

The Tax Court agreed with Powerex. It found that the gas was being transmitted over pipelines that functioned as common carriers.

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