Justia Utilities Law Opinion Summaries

Articles Posted in Tax Law
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In 1999, after deregulation of the energy industry in Illinois, Exelon sold its fossil-fuel power plants to use the proceeds on its nuclear plants and infrastructure. The sales yielded $4.8 billion, $2 billion more than expected. Exelon attempted to defer tax liability on the gains by executing “like-kind exchanges,” 26 U.S.C. 1031(a)(1). Exelon identified its Collins Plant, to be sold for $930 million, with $823 of taxable gain, and its Powerton Plant, to be sold for $870 million ($683 million in taxable gain) for exchanges. Exelon identified as investment candidates a Texas coal-fired plant to replace Collins and Georgia coal-fired plants to replace Powerton. In “sale-and-leaseback” transactions, Exelon leased an out-of-state power plant from a tax-exempt entity for a period longer than the plant’s estimated useful life, then immediately leased the plant back to that entity for a shorter sublease term. and provided to the tax-exempt entity a multi-million-dollar accommodation fee with a fully-funded purchase option to terminate Exelon’s residual interest after the sublease. Exelon asserted that it had acquired a genuine ownership interest in the plants, qualifying them as like-kind exchanges.The Commissioner disallowed the benefits claimed by Exelon, characterizing the transactions as a variant of the traditional sale-in-lease-out (SILO) tax shelters, widely invalidated as abusive tax shelters. The tax court and Seventh Circuit affirmed, applying the substance over form doctrine to conclude that the Exelon transactions failed to transfer to Exelon a genuine ownership interest in the out-of-state plants. In substance Exelon’s transactions resemble loans to the tax-exempt entities. View "Exelon Corp. v. Commissioner of Internal Revenue" on Justia Law

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The Supreme Court held that voter approval was not required for a transfer from a utility’s enterprise fund to the city’s general fund.Cal. Const. art. XIIIC prohibits local governments from imposing or increasing any tax without voter approval. Any charge imposed for a service or product that does not exceed the reasonable costs of providing it is excepted from the definition of tax. The City of Redding operated an electric utility as a department of its city government. At issue was whether an annual interfund transfer from the utility’s enterprise fund to the city’s general fund required voter approval where the transfer was intended to compensate the general fund for costs of services that other city departments provide to the utility. The Supreme Court held that because neither the budgetary transfer nor the rate the city charged its utility customers constituted a tax, voter approval was not required. View "Citizens for Fair REU Rates v. City of Redding" on Justia Law

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In a 2005 Cooperation and Option Agreement to facilitate Russell's construction and operation of the Energy Center, a natural gas-fired, combined cycle electric generating facility in Hayward, the city granted Russell an option to purchase 12.5 acres of city-owned land as the Energy Center's site and promised to help Russell obtain permits, approvals, and water treatment services. Russell conveyed a 3.5-acre parcel to the city. The Agreement's “Payments Clause” prohibited the city from imposing any taxes on the “development, construction, ownership and operation” of the Energy Center except taxes tethered to real estate ownership. In 2009, Hayward voters approved an ordinance that imposes “a tax upon every person using electricity in the City. … at the rate of five and one-half percent (5.5%) of the charges made for such electricity” with a similar provision regarding gas usage. Russell began building the Energy Center in 2010. In 2011, the city informed Russell it must pay the utility tax. The Energy Center is operational.The court of appeal affirmed a holding that the Payments Clause was unenforceable as violating California Constitution article XIII, section 31, which provides “[t]he power to tax may not be surrendered or suspended by grant or contract.” Russell may amend its complaint to allege a quasi-contractual restitution claim. View "Russell City Energy Co. v. City of Hayward" on Justia Law

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Charges that constitute compensation for the use of government property are not subject to Proposition 218’s voter approval requirements. To constitute compensation for a property interest, however, the amount of the charge must bear a reasonable relationship to the value of the property interest, and to the extent the charge exceeds any reasonable value of the interest, it is a tax and requires voter approval.Plaintiffs contended that a one percent charge that was separately stated on electricity bills issued by Southern California Edison (SCE) was not compensation for the privilege of using property owned by the City of Santa Barbara but was instead a tax imposed without voter approval, in violation of Proposition 218. The City argued that this separate charge was the fee paid by SCE to the City for the privilege of using City property in connection with the delivery of electricity. The Supreme Court held that the complaint and stipulated facts adequately alleged the basis for a claim that the surcharge bore no reasonable relationship to the value of the property interest and was therefore a tax requiring voter approval under Proposition 218. The court remanded the case for further proceedings. View "Jacks v. City of Santa Barbara" on Justia Law

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New Hampshire Electric Cooperative, Inc. (NHEC) filed tax abatement appeals to the Board of Tax and Land Appeals (BTLA) for 23 municipal assessments of its property that occurred in 2011 and 2012. The BTLA held a consolidated hearing over nine days between January and February 2015 regarding NHEC’s tax abatement appeals. During the hearing, NHEC presented expert witness testimony and an appraisal of NHEC’s property from George Lagassa, a certified general real estate appraiser and the owner of Mainstream Appraisal Associates, LLC. In his appraisals, Lagassa estimated the market value of NHEC’s property by reconciling the results of four valuation approaches: a sales comparison approach; an income approach, which estimated the value of NHEC’s property by capitalizing the company’s net operating income; a cost approach, which estimated the net book value (NBV) of NHEC’s property by calculating the original cost less book depreciation (OCLBD) of NHEC’s property; and a second cost approach, which estimated the value of NHEC’s property by calculating the reproduction cost new less depreciation (RCNLD) of NHEC’s property. NHEC appeals the BTLA order denying 16 of NHEC’s 23 individual tax abatement appeals regarding its property. The New Hampshire Supreme Court found no reversible error in the BTLA’s order and affirmed it. View "Appeal of New Hampshire Electric Cooperative, Inc." on Justia Law

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8x8 provides telephone services via Voice over Internet Protocol (VoIP). Customers use a digital terminal adapter, containing 8x8’s proprietary firmware and software. Customers’ calls are switched to traditional lines and circuits when necessary; 8x8 did not pay Federal Communications Excise Tax (FCET) to the traditional carriers, based on an “exemption certificate,” (I.R.C. 4253). Consistent with its subscription plan, 8x8 collected FCET from its customers and remitted FCET to the IRS. In 2005, courts held that section 4251 did not permit the IRS to tax telephone services that billed at a fixed per-minute, non-distance-sensitive rate. The IRS ceased collecting FCET on “amounts paid for time-only service,” stated that VoIP services were non-taxable, and established a process seeking a refund of FCET that had been exacted on nontaxable services, stating stated that a “collector” can request a refund if the collector either “establishes that it repaid the amount of the tax to the person from whom the tax was collected”; or “obtains the written consent of such person to the allowance of such credit or refund.” The IRS denied 8x8’s refund claim. The Claims Court concluded that 8x8 lacked standing and granted the government summary judgment. The Federal Circuit affirmed; 8x8 did not bear the economic burden of FCET, but sought to recover costs borne by its customers, contrary to the Code. The court rejected an argument that FCET was “treated as paid” during the transfer of services to traditional carriers. View "8x8, Inc. v. United States" on Justia Law

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This was the third appeal of this case arising from the efforts of appellee Southern LNG, Inc. (“Southern”) to compel State Revenue Commissioner Lynnette Riley (“the Commissioner”) to recognize Southern as a “public utility” under OCGA 48-5-511 and to accept Southern’s ad valorem property tax returns. On remand, the trial court granted summary judgment to the Commissioner on a mandamus claim, holding that Southern had an adequate alternative remedy. In a prior appeal, the Supreme Court laid out for the parties in considerable detail the potential legal and procedural issues bearing on the question of whether the Commissioner could become a party or be bound by a judgment rendered in the tax appeals. On remand, Southern and the Commissioner filed renewed cross-motions for summary judgment. The trial court granted summary judgment in favor of Southern, holding that it had no “equally convenient, complete and beneficial” remedy other than mandamus, and denied the Commissioner’s motion for summary judgment, and directed the Commissioner “to accept [Southern’s] ad valorem property tax returns pursuant to OCGA 48-5-511(a) instanter.” The Commissioner appealed, and the Supreme Court this time reversed, finding Southern did not show the Commissioner, in refusing to accept Southern’s ad valorem tax returns, violated a “clear legal duty,” that she failed to act, or that her actions were arbitrary, capricious and unreasonable, amounting to a gross abuse of discretion, so as to entitle Southern to a writ of mandamus. View "Riley v. Southern LNG, Inc." on Justia Law

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Pike County's Sny Island Levee Drainage District was organized in 1880 to protect from Mississippi River flooding and runoff. The Kansas City Southern and the Norfolk Southern operate main line railways over the District's flood plain. Illinois law permits the District to assess properties within its territory in order to maintain the levees. A new method, ​adopted in 2009, purported to calculate assessments based on the benefits the District conferred on each property, rather than based on acreage. After the Seventh Circuit enjoined use of the methodology, the District discontinued collecting annual assessments and implemented a one-time additional assessment, 70 ILCS 605/5. The District filed an assessment roll based on new benefit calculations, identifying the tax on KC as $91,084.59 and on Norfolk as $102,976.18, if paid in one installment..The Railroads again filed suit, alleging that the District used a formula that discriminated against them in violation of the Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. 11501. The Seventh Circuit affirmed judgment in favor of the District. The court rejected an argument that the comparison class against which their assessment should be measured is all other District properties, instead of the narrower class of commercial and industrial properties used by the district court. There was no clear error in the court’s assessment of a “battle of the experts.” View "Kansas City S. Ry. v. Sny Island Levee Drainage Dist" on Justia Law

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Plaintiffs Rockwood Water People’s Utility District (Rockwood PUD), Northwest Natural Gas Company (NW Natural) and Portland General Electric Company (PGE) sought review of a Court of Appeals decision to uphold the validity of municipal enactments by respondent City of Gresham (the city) that increased the licensing fee that each utility was required to pay from five percent to seven percent of the utility’s gross revenues earned within the City. Plaintiffs sought a declaration that the enactments were void and unenforceable because they conflicted with the provisions of ORS 221.450. Alternatively, Rockwood PUD argued that it could not be taxed more than five percent by a city without explicit statutory authority. Trial court agreed with plaintiffs that the enactments violated ORS 221.450, and did not reach Rockwood PUD’s alternative argument. The Court of Appeals reversed, holding that the fee increase was not preempted by ORS 221.450 because the utilities were not operating “without a franchise” and that a city’s home-rule authority to impose taxes or fees on a utility is not affected by a utility’s municipal corporation status. The Supreme Court held that the license fee imposed by the City was a “privilege tax” and that the affected utilities were operating “without a franchise” within the meaning of ORS 221.450. The Court also held that the City was not preempted by ORS 221.450 from imposing the seven percent privilege tax on NW Natural and PGE, but that the City did not have express statutory authority to impose a tax in excess of five percent on Rockwood PUD under ORS 221.450. View "Northwest Natural Gas Co. v. City of Gresham" on Justia Law

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Great Oaks, a water retailer, challenged a groundwater extraction fee imposed on water it draws from wells on its property. The power to impose such a fee is statutorily vested in the Santa Clara Valley Water Management District. The trial court awarded a refund of charges paid by Great Oaks, finding that the charge violated the provisions of both the District Act and Article XIII D of the California Constitution, which imposes procedural and substantive constraints on fees and charges imposed by local public entities. The court of appeal reversed, holding that the fee is a property-related charge for purposes of Article 13D, subject to some constraints, but is also a charge for water service, exempt from the requirement of voter ratification. A pre-suit claim submitted by Great Oaks did not preserve any monetary remedy against the District for violations of Article 13D and, because the matter was treated as a simple action for damages when it should have been treated as a petition for a writ of mandate, the trial court failed to apply a properly deferential standard of review to the question whether the District’s setting of the fee, or its use of the resulting proceeds, complied with the District Act. View "Great Oaks Water Co. v. Santa Clara Valley Water Dist." on Justia Law