City of Seattle I v. Dept. of Rev. ( 2011 )

408 December 27, 2011 No. 49
IN THE OREGON TAX COURT
REGULAR DIVISION
THE CITY OF SEATTLE,
a municipal corporation of the State of Washington,
acting by and through its City Light Department,
Plaintiff,
v.
DEPARTMENT OF REVENUE,
Defendant.
(TC 4946 & TC 4957)
CITY OF TACOMA,
a municipal corporation of the State of Washington,
acting by and through its
Department of Public Utilities, Light Division,
dba Tacoma Power,
Plaintiff,
v.
DEPARTMENT OF REVENUE,
Defendant.
(TC 4958)
PUBLIC UTILITY DISTRICT NO. 1
OF SNOHOMISH COUNTY, WASHINGTON,
a municipal corporation of the State of Washington,
Plaintiff,
v.
DEPARTMENT OF REVENUE,
Defendant.
(TC 4959)
Plaintiffs (taxpayers) appealed ad valorum property tax assessments on
certain utility service agreements, arguing mainly that because certain legisla-
tion originated in the Oregon Senate, its revenue raising provisions could not be
enforced. Cross-motions for summary judgment were made on four issues involv-
ing the federal and Oregon constitutions and a federal law. Granting the depart-
ment’s motion on three of the issues and denying both parties’ motions on the
fourth, the court ruled that: the substantive concerns regarding the Origination
Clause issue were satisfied in the adoption of the revenue raising provisions in SB
495 because the principle and operative language as to extension of taxation was
first proposed by the House and the Senate agreed with the actions of the House;
Cite as 20 OTR 408 (2011) 409
that the court did not have in the record any agreement of the type that would
present constitutional issues as to the Commerce Clause; that Oregon property
tax is levied only on property and not on or in respect of business activities such
as generation or transmission of electricity; and that because property taxation
is an area that has been traditionally occupied by the states, and the provisions
of Article I, section 9, clause 4 of the federal constitution prohibit the imposition
of a property tax by the federal government, there was no conflict between state
and federal law as to the Supremacy Clause issue.
Oral argument on cross-motions for summary judgment
was held September 19, 2011, in the courtroom of the Oregon
Tax Court, Salem.
Gregory A. Chaimov, Davis Wright Tremaine LLP,
Portland, filed the motion and argued the cause for Plaintiffs
(taxpayers).
Melisse S. Cunningham, Senior Assistant Attorney
General, Department of Justice, Salem, filed the cross-motion
and argued the cause for Defendant (the department).
Decision for Defendant rendered December 27, 2011.
HENRY C. BREITHAUPT, Judge.
I. INTRODUCTION
This case is before the court on cross-motions for
partial summary judgment. The parties have filed a par-
tial stipulation of facts, the provisions of which are set forth
below.
II. FACTS
Plaintiffs (taxpayers) are municipal corporations
created under the law of the State of Washington and gen-
erally operating within Washington. Each of the taxpayers
entered into agreements with the Bonneville Power
Administration (BPA) pursuant to which each taxpayer
obtained the right to transmit power on the transmission
system operated by BPA. The parties agreed at the hearing
on this matter that those agreements (each referred to as
a Capacity Ownership Agreement or COA) are in all mate-
rial respects identical to the agreements at issue in Power
Resources Cooperative v. Dept. of Rev., 330 Or 24, 996 P2d
969 (2000).
410 City of Seattle v. Dept. of Rev.
Previously, Defendant (the department) sought to
extend the holding of Power Resources to these taxpayers
and collect from them property tax in respect of the prop-
erty interest in Oregon that they possessed by reason of
the COAs. See PUD No. 1 of Snohomish County v. Dept. of
Rev., 17 OTR 290 (2004). That litigation ended by reason of
Oregon Laws 2005, chapter 832, a statute that exempted
foreign municipal corporations from taxation in respect of
COAs.
The exemption accomplished under the 2005 legis-
lation was again the subject of legislative consideration in
2009. In that year, Senate Bill 495 (SB 495) was introduced
in the Oregon Senate. As introduced, the bill would have
broadened the exemption established in 2005 so as to have
it apply to electric cooperatives. See SB 495 A-Engrossed
(2009). After passage in the Oregon Senate, SB 495 pro-
ceeded to the Oregon House of Representatives where it
was subjected to a “gut and stuff” procedure. The expanded
exemption provisions were “gutted” and in their place were
“stuffed” provisions repealing the exemptions adopted in
2005. See SB 495 B-Engrossed (2009). As so altered, the
bill was passed by the Oregon House of Representatives and
returned to the Senate, which concurred with the changes
made in the House and passed the bill. SB 495, as amended
by the House and passed by both legislative chambers was
then signed by the Governor. See Or Laws 2009, ch 804.
In their filings with the court, taxpayers asserted
that the Eugene Water and Electric Board (EWEB) was a
party to a COA but not subject to tax. Taxpayers conceded
at the hearing on this matter that EWEB is not a party to a
COA. They further conceded that although EWEB is a party
to some agreement with BPA, that agreement is not in this
record.
III. ISSUE
Are either taxpayers or the department entitled to
summary judgment on any or all of the following questions:
(1) Was SB 495 adopted in violation of Article IV, section 4
of the Oregon Constitution (the Origination Clause)?
Cite as 20 OTR 408 (2011) 411
(2) Does taxation of taxpayers’ property by Oregon vio-
late Article I, section 8, clause 3 of the United States
Constitution (the Commerce Clause)?
(3) Does taxation of taxpayers’ property by Oregon violate
the provisions of 15 USC section 391 (15 USC § 391)?
(4) Does taxation of taxpayers’ property violate the provi-
sions of Article VI, clause 2 of the United States Constitution
(the Supremacy Clause)?
IV. ANALYSIS
A. Origination Clause Issue
The Origination Clause of the Oregon Constitution
provides:
“Bills may originate in either house, but may be amended,
or rejected in the other; except that bills for raising revenue
shall originate in the House of Representatives.”
Or Const Art IV, § 18 (2010).
The Origination Clause in Oregon closely parallels
the Origination Clause in the United States Constitution.
Cf. US Const, Art I, § 6, cl 1 (“All bills for raising revenue
shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other
Bills.”). The parties agree that there is no governing prece-
dent as to the precise issue in this case relating to origina-
tion of wholesale amendments by the House, either under
Oregon law or under federal law.
The purposes of the Origination Clause are well
understood. Bills raising revenue “are required to have
their origin in the lower branch of the legislature because it
is the more numerous of the two bodies, and, being oftener
renewed by elections, presumptively it more closely and
directly represents the people.” Northern Counties Trust v.
Sears, 30 Or 388, 401, 41 P 931 (1895).
For purposes of this analysis, although the parties
differ on this, the court will assume that SB 495 raises rev-
enue. Taxpayers maintain that because SB 495 originated
in the Senate, its revenue raising provisions cannot be
enforced.
412 City of Seattle v. Dept. of Rev.
The vehicle constituting SB 495, although created
in the Senate, had its entire cargo relating to raising rev-
enue loaded on in the House. Indeed, as the vehicle came
to the House its cargo, far from being a raising of revenue,
was further extension of tax exemptions. Accordingly, all of
the substantive concerns that lay behind the Origination
Clause are satisfied. The burden of taxation on the people
originated in the House and emanated from that body.
The court is of the view that taxpayers’ position
exalts form over substance. That is a concern in many cases,
but it is of special concern when a court is reviewing the
propriety of the acts of a coordinate branch of government.
Oregon courts do not treat compliance with the Origination
Clause as a political question beyond review, as would some.
See U.S. v. Munoz-Flores, 495 US 385, 401, 110 S Ct 1964,
109 L Ed 2d 384 (1990) (Stevens, J. concurring). However,
the courts in Oregon have adopted deferential rules in the
consideration of Origination Clause cases for the very reason
that such rules are appropriate in judging the compliance of
the legislature with procedural requirements in the legisla-
tive process. See Young v. Galloway, 177 Or 617, 164 P2d 427(1945).1 All of the substantive concerns of the Origination
Clause were satisfied in the adoption of the revenue raising
provisions in SB 495. The principle and operative language
as to extension of taxation was first proposed by the House
and the Senate agreed with the actions of the House.
A virtually identical analysis was employed in
Baines v. New Hampshire Senate President, 152 NH 124, 876
1
In Young the court refused to adopt a rule under which compliance with
constitutional requirements had to affirmatively appear in the legislative record.
Instead the court followed a rule that compliance was presumed unless a failure
to comply with constitutionally required procedural requirements affirmatively
appeared in the legislative journals. Young, 177 Or at 621-22. Throughout the
opinion in Young, the court acknowledges the need to show proper deference to
the legislative branch. Although Young was not an Origination Clause case, tax-
payers cite to Young for the proposition that courts are not permitted to go beyond
journal entries and into the substance of legislative action to test compliance of
legislative actions with the constitution. The court in Young did not authorize
a search of records for a reason to strike down legislation. It, however, did not
proscribe a review of the substance of the legislative actions in order to establish
compliance with constitutional requirements and the focus of the court on respect
for and deference to the legislative branch indicates that such a thorough review
in the process of confirming validity is justified.
Cite as 20 OTR 408 (2011) 413
A2d 768 (2005). In that case, the revenue raising provisions
of a piece of legislation were first added to a bill when it was
in a conference committee. Id. at 126. The conference com-
mittee had a majority of members from the house of repre-
sentatives and the conference bill, treated as only a sugges-
tion to the legislative chambers, was ultimately approved,
first by the house and then by the senate. Id. The Supreme
Court of New Hampshire found there to be no violation of
the origination clause concerns of the New Hampshire con-
stitution. Id. at 139-40.
As to the Origination Clause motions, the cross-
motion of the department is granted and the motion of tax-
payers is denied.
B. Commerce Clause Issue
The attack by taxpayers in their motion and briefs
was premised on there being differential treatment by
Oregon of COAs to which foreign municipal corporations are
parties and a COA to which EWEB, an Oregon municipal
corporation, was a party. Given the concession of taxpayers
that EWEB is not party to a COA and that the agreement
that EWEB has with BPA is not part of this record, the
motion of taxpayers on this issue must be denied.
As to its cross-motion on this issue, the department
asks the court to issue a ruling based on an assumption,
for purposes of this case, that an Oregon municipal corpo-
ration was a party to a COA and yet not subject to taxa-
tion by reason of the provisions of ORS 307.090. The court
is of the view that such a ruling would be in the nature of
an advisory opinion. Further, as to whether agreements of
the type to which EWEB is a party present constitutional
issues, the fact is that the court does not have in this record
any agreement to which EWEB is a party. Accordingly, the
cross-motion of the department on this issue is denied.
C. The 15 USC section 391 Issue
15 USC section 391 provides:
“No State, or political subdivision thereof, may impose
or assess a tax on or with respect to the generation or
transmission of electricity which discriminates against
414 City of Seattle v. Dept. of Rev.
out-of-State manufacturers, producers, wholesalers, retail-
ers, or consumers of that electricity. For purposes of this
section a tax is discriminatory if it results, either directly
or indirectly, in a greater tax burden on electricity which
is generated and transmitted in interstate commerce than
on electricity which is generated and transmitted in intra-
state commerce.”
This statute must be read strictly as it purports to
impinge on the power of sovereign states to impose taxation.
See Ann Sacks Tile & Stone, Inc. v. Dept. of Rev., 20 OTR
377, (2011). The reading taxpayers propose, that a gener-
ally applicable tax on property is a “tax on or with respect
to generation or transmission of electricity” is by no means
a strict reading. The Oregon property tax is levied only on
property, not on or in respect of business activities such as
generation or transmission of electricity. The tax in question
here has none of the features of the tax found to be violative
of the statute in Arizona Public Service Co v. Snead, 441 US
141, 60 L Ed 2d 106 (1979).
This court finds applicable and persuasive the rea-
soning and conclusions of the court in PP&L v. Dept. of
Revenue, 773 P2d 1186 (Mont 1989), cert den, 493 US 1050(1990). In addition, taxpayers have introduced no legislative
history or other indication that in adopting 15 USC section
391, Congress sought to have it apply to an ad valorem prop-
erty tax. It is simply the case that the tax levied on the prop-
erty in question here would in no way be affected by reason
of taxpayers here engaging or not engaging in any given
level of generation or transmission.
The motion of taxpayers is denied on this issue and
that of the department is granted.
D. Supremacy Clause Argument
Taxpayers argue that inherent in the Supremacy
Clause is the principle that a federal law that conflicts with
state law will preempt the state law. Preemption can occur
explicitly or where Congress is considered to have so occu-
pied a field that there is no room for contrary state legis-
lation or other action. English v. General Electric Co., 496
US 72, 110 S Ct 2270, 110 L Ed 2d 65 (1990). Taxpayers do
Cite as 20 OTR 408 (2011) 415
not claim that the federal statutes to which they refer, those
dealing with electric power and more specifically with the
generation and transmission of electricity in the Northwest,
contain any explicit preemption.
As to field preemption:
“(w)here * * * the field which Congress is said to have pre-
empted” includes areas that have “been traditionally occu-
pied by the States,” congressional intent to supersede state
laws must be “ ‘clear and manifest.’ ”
Id. at 79.
Property taxation is certainly an area that has been
traditionally occupied by the states. Indeed, the provisions
of Article I, section 9, clause 4 of the federal constitution
prohibit, as a practical matter, the imposition of a property
tax by the federal government. This court can find, in the
materials with which it has been presented, no basis for con-
cluding that there was a “clear and manifest” Congressional
intent to displace the power of the states to levy ad valorem
property taxes on property involved in the areas as to which
Congress has legislated and which have been cited by tax-
payers. Indeed, if this argument of taxpayers were to be suc-
cessful, a levy of property taxes on the properties of investor
owned utilities located, in all respects, in Oregon would be
prohibited. That is not the law. Cf. PP&L v. Montana Dept
of Rev, 237 Mont 77, 773 P2d 1176 (1989), cert den, 493 US
1050 (1990) (upholding a state-imposed beneficial use tax on
use of BPA-owned power lines by owners of electric generat-
ing plants).
As to this issue, the motion of taxpayers is denied
and that of the department is granted.
V. CONCLUSION
Now, therefore,
IT IS ORDERED that as to the Origination Clause
issue, Plaintiffs’ motion is denied and Defendant’s cross-
motion is granted;
IT IS FURTHER ORDERED that as to the
Commerce Clause issue both motions are denied;
416 City of Seattle v. Dept. of Rev.
IT IS FURTHER ORDERED that as to the 15 USC
§ 391 issue Plaintiff’s motion is denied and Defendant’s
cross-motion is granted; and
IT IS FURTHER ORDERED that as to the
Supremacy Clause issue Plaintiff’s motion is denied and
Defendant’s cross-motion is granted.