City of Seattle II v. Dept. of Rev.

No. 34 September 11, 2013 269
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) requested a declaratory judgment as to property tax
assessed from an Oregon legislative scheme under which municipal corporations
and public utility districts that are parties to certain agreements are subject
to taxation but Oregon municipalities are not. Granting Defendant (the depart-
ment)’s cross-motion for summary judgment, the court ruled that within the
region, the provisions of the federal statutes that form the foundation of electric
power in the region contain a “preference clause” under which the types of gov-
ernmental entities such as taxpayers in this case were contemplated and actively
encouraged. Further, it is settled law that if one state should own property located
in another state, that property is held subject to the laws of the latter state and
270 City of Seattle II v. Dept. of Rev.
to all the incidents of private ownership, therefore the Oregon statutes at issue
do not, on their face, violate the Commerce Clause by being discriminatory in
respect of interstate commerce.
Oral argument on cross-motions for summary judgment
was held by telephone on June 25, 2013.
Gregory A. Chaimov, Davis Wright Tremaine LLP,
Portland, and Gregory C. Narver, Assistant City Attorney,
Seattle, 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 September 11, 2013.
HENRY C. BREITHAUPT, Judge.
I. INTRODUCTION
This matter is before the court on a second set of
cross-motions for summary judgment. Oral argument on
this matter was held June 25, 2013. Plaintiffs’ motion to
allow submission of post-hearing statements was denied.
II. FACTS
Plaintiffs (taxpayers) are municipal corporations
created under the law of the State of Washington and
generally operating within Washington. Each of the tax-
payers 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) (Power Resources).
Previously, Defendant Department of Revenue
(the department) sought to extend the holding of Power
Resources to these taxpayers and collect from them prop-
erty tax in respect of the property interest in Oregon that
Cite as 21 OTR 269 (2013) 271
they possessed by reason of the COAs. See PUD No. 1 of
Snohomish County I v. Dept. of Rev., 17 OTR 290 (2004)
(Snohomish I). In Snohomish I, this court decided that
municipalities and public utility districts formed in the
state of Washington were not “public or municipal corpora-
tions in this state” as those terms are used in ORS 307.090
and therefore the property of such entities was not, under
that statute, exempt from Oregon property tax.
That litigation ended, however, before other issues
had been addressed by this court. This was due to Or
Laws 2005 ch 832, a statute amending ORS 307.090 that
exempted foreign municipal corporations from property tax-
ation 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, it would have broad-
ened the exemption established in 2005 so as to have it apply
to electric cooperatives. After passage in the Oregon Senate,
SB 495 proceeded 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 exemp-
tions adopted in 2005. 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.
After this legislative action in 2009, the present
taxpayers renewed their challenge to the Oregon legislative
scheme under which municipal corporations and public util-
ity districts that are parties to COAs are subject to taxation
but Oregon municipalities are not subject to taxation. The
first challenge addressed by this court was as to the legis-
lative procedure followed by the 2009 Oregon Legislature.
That challenge was unsuccessful. See City of Seattle I v.
Dept. of Rev., 20 OTR 408 (2011).
Taxpayers now renew other challenges to the system
of taxation in place after the 2009 legislation. Specifically,
272 City of Seattle II v. Dept. of Rev.
for the purposes of preserving their position, taxpayers
assert that Power Resources was wrongly decided.
Taxpayers also claim that the consequence of the
amendment to ORS 307.090 by the 2009 legislature is that
the Oregon system of taxation, as to COAs in which they or
other out-of-state municipal or government entities are par-
ties, is facially unconstitutional under Article I, section 8,
clause 3 of the Constitution of the United States (the
Commerce Clause).
Taxpayers have withdrawn other challenges origi-
nally pleaded and have not asked this court to reconsider its
decision in Snohomish I as to the application of ORS 307.090.1
The department has responded with a cross-motion
for summary judgment. It asserts that the COAs to which
taxpayers are parties are subject to taxation either under
the teaching of Power Resources or under the teaching of
Pacificorp Power Marketing v. Dept. of Rev., 340 Or 204,
131 P3d 725 (2006) (PPM Marketing) by reason of the pro-
visions of ORS 308.505 to 308.565 (the central assessment
statutes). The department also asserts that the Oregon
statutory scheme is not facially unconstitutional under the
Commerce Clause.
In the prior proceedings in this case, the record
was not clear as to whether the COAs to which taxpayers
are parties were comparable or identical to the provisions of
agreements to which the City of Eugene and the federal gov-
ernment are parties. The record now includes the provisions
of the agreement to which the City of Eugene is a party and
so, if relevant, the comparability of the agreements can be
determined.
III. ISSUES
The first issue presented is whether taxpayers are
taxable in respect of the COAs. The second issue is if tax-
payers are taxable in respect of such contract rights, are the
Oregon property taxation statutes resulting in such taxa-
tion facially unconstitutional under the Commerce Clause.
1
As to the proper reading of ORS 307.090 with respect to “corporations in this
state” see also Pacific States Marine Fisheries v. Dept. of Rev., 346 Or 117, 125-27,
206 P3d 1037 (2009).
Cite as 21 OTR 269 (2013) 273
IV. ANALYSIS
Power Resources controls as to whether the contract
relationships under the COAs result in taxpayers having
property taxable in this state. It may be that the decision in
PPM Marketing also can be applied to reach the same result
under the central assessment statutes. However, the court
need not, and does not reach that issue in this order.
As to whether taxpayers have the benefit of the pro-
visions of ORS 307.090 in its former and current form, the
court adheres to its decision in Snohomish I, both for the
reasons stated therein and on the basis of the teaching of
Pacific States Marine Fisheries v. Dept. of Rev., 346 Or 117,
206 P3d 1037 (2009).
What remains then is the question of the facial con-
stitutionality of the result that Washington municipalities
and public utility districts are subject to property taxation
by reason of COAs whereas Oregon municipalities and pub-
lic utility districts are not subject to taxation.2 The constitu-
tional question under the Commerce Clause may be resolved
by looking to the decisions of the United States Supreme
Court that have dealt with situations in which states or
their political subdivisions are subject to more favorable
treatment than other participants in a market. It is not nec-
essary to resolve the question of whether the contract rights
and obligations of taxpayers under their COAs are constitu-
tionally comparable to the rights and obligations of parties
to the contracts that have been put into the record as being
contracts to which one Oregon municipality is a party. For
purposes of this order, the court assumes that the provisions
of the two types of contracts, which are in fact different, are
constitutionally comparable for purposes of applying the
limitations of the Commerce Clause.
The primary limitation to which taxpayers point is,
of course, that states may not treat out-of-state commercial
actors less favorably than in state commercial actors—they
may not engage in commercial chauvinism. New Energy Co.
2
The department has argued that the position of the public utility district
taxpayer here is not well taken for the reason that Oregon public utility districts
are, in fact, taxable to the same extent as their counterparts in Washington.
Given the basis of this opinion, the court need not resolve that argument.
274 City of Seattle II v. Dept. of Rev.
v. Limbach, 486 US 269, 274-75, 108 S Ct 1803, 100 L Ed 2d
302 (1988).
There is a well developed exception to the doctrine
disallowing more favorable treatment of in-state interests.
That exception is that when the state, or a political subdi-
vision of a state, is itself a market participant, favorable
treatment is permitted.3 Reeves, Inc. v. Stake, 447 US 429,
436-37, 100 S Ct 2271, 65 L Ed 2d 244 (1980). As the United
States Supreme Court stated in Department of Revenue of
Kentucky v. Davis, 553 US 328, 343, 128 S Ct 1801, 170 L
Ed 2d 685 (2008) (Kentucky), tax exemptions favoring “a
traditional government function without any differential
treatment favoring local [private] entities over substantially
similar out-of-state interests” do not discriminate against
interstate commerce. Kentucky, 553 US at 343.
The court is of the opinion that, at least in the
Pacific Northwest, the provision of electricity to citizens is a
traditional government function. The government function
aspect is conclusively demonstrated by the very status of
taxpayers as government subdivisions. This is, of course, a
reflection of the particular role of electric power in the devel-
opment of the region and the participation of governmental
entities in the acquisition, transmission and distribution of
electric energy. The court takes judicial notice of the pro-
visions of the federal statutes that form the foundation of
electric power reality in this region. From the beginning,
those statues contained a “preference clause” under which
the very types of governmental entities being discussed in
this case were not only contemplated, but actively encour-
aged. See 16 USC § 832c.
It is also settled law that if one state should own
property located in another state, that property is held sub-
ject to the laws of the latter state and to all the incidents of
private ownership. State of Georgia v. City of Chattanooga,
264 US 472, 44 S Ct 369, 68 L Ed 796 (1924).
The Oregon statutes at issue in this case do not,
on their face, violate the Commerce Clause by being
3
All parties at the hearing on these motions agreed that the doctrines at
issue apply to political subdivisions as well as states themselves.
Cite as 21 OTR 269 (2013) 275
discriminatory in respect of interstate commerce. No fur-
ther inquiry is necessary as to the balance of public interest
and alternative but less discriminatory alternative treat-
ment of those affected by the law.
V. CONCLUSION
For the foregoing reasons, the motion of the depart-
ment is granted and the motion of taxpayers is denied.
Counsel for the department is directed to prepare
an appropriate form of judgment. Now, therefore,
IT IS ORDERED that Defendant’s Cross-Motion for
Summary Judgment is granted; and
IT IS FURTHER ORDERED that Plaintiffs’ Motion
for Summary Judgment is denied.