Case Title: Power Resources Cooperative v. Dept. of Rev.

Citation: 

Docket Number: S45799

State: oregon

Court: Oregon Supreme Court

Date: 2000-03-03T00:00:00Z

Document:
Filed: March 3, 2000
IN THE SUPREME COURT OF THE STATE OF OREGON

POWER RESOURCES COOPERATIVE,					
	Appellant,
	v.
DEPARTMENT OF REVENUE,State of Oregon,			
	Respondent.
(OTC 4032; SC S45799)

	On appeal from the Oregon Tax Court.*
	Argued and submitted October 14, 1999.
	I. Franklin Hunsaker, Portland, argued the cause and filed
the briefs for appellant.  With him on the briefs were Stephen B.
Hill, R. Erick Johnson, and Bullivant Houser Bailey.
	James E. Wallace, Assistant Attorney General, Salem, argued
the cause and filed the brief for respondent.  With him on the
brief were Hardy Myers, Attorney General, and Marilyn H. Harbur,
Assistant Attorney General.
	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
Durham, Leeson, and Riggs, Justices.**
	GILLETTE, J.
	The judgment of the Tax Court is affirmed.
	*14 OTR 479 (1998).
    **Kulongoski, J., did not participate in the consideration or
decision of this case.
		GILLETTE, J.
		In this direct appeal from a decision of the Tax Court,
the issue is whether a part of the real and personal property
that makes up the electric transmission system known as the
"Pacific Northwest Intertie" (the Intertie) should be included in
the assessed value of taxpayer's property.  Taxpayer is entitled
to use the Intertie under a form of contract called a "Capacity
Ownership Agreement."  The Department of Revenue (Department)
ruled, and the Tax Court agreed, that taxpayer's right to use the
Intertie was subject to taxation.  We agree with the Department
and the Tax Court that, under the agreement, taxpayer "holds" a
share of the Intertie within the meaning of the pertinent
statute, and that the Department therefore properly assessed
taxpayer for a part of the Intertie's value.       
 		Taxpayer is an electrical cooperative that owns shares
in a number of electrical generation facilities, including the
Boardman Coal Plant.  In 1992, taxpayer entered into a long-term 
power sale agreement to sell electricity from the Boardman plant
to a California irrigation district.  The agreement required
taxpayer to use its "best efforts" to transmit the power via the
Intertie.  The Intertie, an electric power transmission system
that runs from Canada to the United States-Mexico border, is
owned largely by the Bonneville Power Administration (BPA), an
agency of the United States government.
In 1994, in an apparent effort to meet its obligations 
under the foregoing power sale agreement, plaintiff entered into
an "Intertie Capacity Ownership Agreement" with BPA.  Under that
agreement, plaintiff received 50 megawatts (MW) of transmission
capacity for the physical life of the Intertie, in exchange for a
lump sum payment of approximately $10.75 million in advance (1) and
a promise to pay a proportionate share of the Intertie's
operating, maintenance, and replacement expenses. (2)  The agreement
defines taxpayer's capacity ownership share in terms of the
number of MW of BPA's rated transfer capability over the Intertie
that was "owned by [taxpayer] pursuant to this agreement." 
		Under the Capacity Ownership Agreement, BPA retains all
rights to operate, maintain, and manage the Intertie.  Although
taxpayer is entitled to 50 MW of capacity of the Intertie at any
given time, it must schedule its electrical transmissions with
BPA in advance and must abide by BPA's scheduling procedures.  An
amendment to the Capacity Ownership Agreement clarifies that
taxpayer has a right to use its capacity share to "wheel"
electricity for other entities.  It also clarifies BPA's
responsibilities with regard to any part of taxpayer's 50 MW that
taxpayer fails to use, i.e., schedule, at any given time.  The
agreement permits BPA to use that unscheduled capacity, but
requires BPA to compensate taxpayer for its use.   
In 1996, the Department assessed taxpayer's property
for the 1996-97 tax year at an amount in excess of $45 million,
which included nearly $11 million as the value of taxpayer's
share of the Intertie.  Taxpayer appealed that assessment to the
Tax Court, arguing that it should not be assessed for its
capacity ownership share in the Intertie.  The Department
responded that taxpayer's share of capacity of the Intertie was
taxable, either as "[r]eal and personal property of the United
States * * * held by any person under a lease or other interest
or estate less than a fee simple" under ORS 307.060 or as
"intangible property" under ORS 308.510(1). (3)  Both parties moved
for summary judgment.
		The Tax Court granted the Department's motion for
summary judgment, denied taxpayer's motion, and entered judgment
affirming the Department's assessment order.  The Tax Court 
concluded that taxpayer had exclusive control, subject to
reasonable limitation, over a part of the Intertie and,
therefore, "held" that part of the Intertie within the meaning of
ORS 307.060. (4)  The present appeal followed.
		ORS 307.060 sets out an exception to a more general
statute, ORS 307.040, that exempts all property of the United
States from taxation.  ORS 307.060 provides, in part: 	"Real and personal property of the United States
or any department or agency thereof held by any person
under a lease or other interest or estate less than a
fee simple * * * shall be assessed and taxed as for the
full assessed value thereof subject only to deduction
for restricted use."
(Emphasis added.)
		Taxpayer contends that the Tax Court's reliance on ORS
307.060 was error.  In ORS 307.060, taxpayer argues, the term
"hold" denotes some kind of actual physical possession and
occupation of the property at issue, along with control of the
property and an ability to exclude others from it.  Taxpayer
maintains that only BPA can be said to "hold" the property that
makes up the Intertie and that BPA's physical possession or
occupancy of the system prevents anyone else, including taxpayer,
from also "holding" it in the same sense.  Taxpayer concludes
that, although it has a right to use a part of the capacity of
the Intertie under the Capacity Ownership Agreement, it does not
"hold" any portion of the physical property that makes up the
Intertie within the meaning of that statute.  
		Taxpayer relies primarily on Sproul et al v. Gilbert et
al, 226 Or 392, 359 P2d 543 (1961).  In Sproul, this court
considered the meaning of ORS 307.060 in connection with a
dispute about the taxation of rights to graze on United States
Forest Service land.  The court compared two types of grazing
arrangements:  (1) grazing permits, which gave ranchers a
nonexclusive right to graze their cattle within a designated
grazing district; and (2) grazing leases, which gave ranchers an
exclusive right to graze their cattle on designated land that was
not part of an official grazing district.  The court held that
grazing leases were taxable under ORS 307.060, while suggesting
that grazing permits were not.  Id. at 400.
		The Sproul court reasoned that ORS 307.060 applies only
to possessory interests:
	"The question then is whether ORS 307.060 was
intended to embrace derivative interests from the
federal government other than possessory interests,
i.e., to include as being taxable interests easements,
profits and other incorporeal interests.  Considered
separately, the term 'or other interest' is broad
enough to include non-possessory interests.  However,
we do not think that the term was used in ORS 307.060
in this broad sense.  The statute provides that the
interests described 'shall be assessed and taxed as for
the full true cash value thereof subject only to
deduction for restricted use.' * * * We do not think
that the legislature intended that one who has a mere
incorporeal interest such as an easement or a profit is
to be taxed the 'full true cash value' of the land with
a deduction for the 'restricted use.'  We believe that
the statute was intended to apply where the person
holding under the United States had an interest of such
dignity that it could be regarded as tantamount to a
present temporary ownership warranting an assessment of
it to him on the basis of its 'full true cash value.' * * * We construe the statute to include only interests
which are capable of possession."
Id. at 423-24 (original emphasis omitted).  Ultimately, the
Sproul court concluded, grazing lessees have a sufficient
possessory interest in the designated grazing land to implicate
ORS 307.060, primarily because their use of the parcel is
relatively exclusive and because the restrictions imposed on
their use are consistent with a leasehold arrangement.  On the
other hand, the court suggested that grazing permittees, who held
only a right to run a certain number of cattle within a shared
grazing district, lacked a sufficient possessory interest in the
land that made up the grazing district to trigger ORS 307.060. 
Sproul, 226 Or at 397-420.
Taxpayer contends that, under the reasoning of Sproul
and a later case, Ore. Summer Hm. Owners v. Johnson, 265 Or 544,
510 P2d 344 (1973), (5) its interest in the Intertie is not the type
of property that is taxable under ORS 307.060.  Taxpayer contends
that its rights under the Capacity Ownership Agreement are like
those conferred by a grazing permit:  Taxpayer's right to use the
Intertie is shared with others, and taxpayer does not occupy
physically or control any definable part of the Intertie. 
Finally, taxpayer notes that even its use of the Intertie is
subject to stringent scheduling and advance notice provisions. 
Ultimately, taxpayer argues, all that it has under its Capacity
Ownership Agreement with BPA is a prepaid, long-term transmission
service agreement, not a possessory interest in the real and
personal property that comprises the Intertie. 
		We disagree.  Although it is true that, under Sproul,
ORS 307.060 applies only to "possessory" interests in property,
that concept of possession is more flexible than taxpayer
suggests.  The Sproul court expressly noted that "possession" is
a variable term that has different meanings in different
circumstances:
"A part of the variability in the meaning of
possession arises out of the fact that possession has
meaning only in terms of actual or potential use and
because the uses to which land may be put vary from
parcel to parcel.  When the property is amenable to
many uses, the right to use it for a single limited
purpose might not constitute possession; yet, the same
right to use may well be regarded as possessory if the
land in question is susceptible to only a limited
number of uses."
226 Or at 404.  In a related vein, the Sproul court added:
"There is no exact judicial gauge which can be set
against the facts to prove our conclusion with
mathematical precision.  The exclusiveness of one's
occupancy is a matter of degree.  We can only compare
the respective ownership interests - principally the
usufructuary rights - of the transferor and the
transferee, and if we find that the transferee has been
granted the privilege of occupancy together with a
sufficient share of these interests we describe his
right as 'possession.'"
Id. at 405-06.
		The foregoing paragraphs from Sproul make two points
that extend beyond the specific facts of that case and that are
relevant to the present controversy:  (1) although a "possessory"
interest always is marked by some degree of control and some
degree of exclusivity, neither absolute control nor absolute
exclusivity is required; and (2) the test for the existence of a
possessory interest necessarily varies with the nature of the
property at issue.
    		With the foregoing points in mind, we turn to
taxpayer's contention that its right to use the Intertie is
nonpossessory because that right is shared with others and is
subject to various restrictions.  We begin with the fact that the
particular type of right that taxpayer has in the Intertie, i.e.,
to transmit electricity over it, is a right to use the Intertie
for its only apparent beneficial use.  See Sproul, 226 Or at 404-05 (where plaintiff's use of government land for grazing embraced
substantial part of all the land's practical uses, that use was
relatively exclusive).
		Taxpayer is correct in stating that it must share the
transmission capacity of the Intertie with others.  However, even
if taxpayer does not have exclusive rights to the entire
transmission capacity of the Intertie, it does have an exclusive
right to a definable part, viz., 50 MW.  Moreover, taxpayer has a
great deal of control over that 50 MW share.  Taxpayer may choose
to use the 50 MW in whatever manner it wishes, i.e., it may
choose to transmit its own electrical output, or it may, instead,
"wheel" electricity that is produced by others.  Morever, and
even if taxpayer chooses not to use all its capacity share to
transmit electricity, it retains a palpable right to the entire
50 MW:  If BPA "borrows" any capacity that taxpayer has failed to
schedule at any given time, then it must reimburse taxpayer for
such use.  Finally, taxpayer's 50 MW share exists for the
lifetime of the Intertie; it is not revocable; and it cannot be
diminished, for example, by the addition of more capacity owners. 
 		Taxpayer argues that those interests, taken together,
cannot be deemed to constitute a possessory interest in the
Intertie, because its use of the Intertie is subject to various
scheduling requirements.  However, those requirements appear to
us to be precisely the kind of restrictions that a joint owners
or lessees of this kind of property would impose on themselves in
the interest of orderly operation.  Such restrictions are
consistent with a possessory interest.  Cf. Avis v. Dept. of
Rev., ___ Or ___, ___ P2d ___ (decided this date) (slip op at 4-5) (decided under parallel statute; reservation to others of
right to use leased property did not change lease into some
lesser interest).
				The foregoing discussion leaves us with taxpayer's
primary assertion, viz., that possession requires exclusive
physical occupation and control of property that is defined in
space.  In that regard, taxpayer notes that, in Sproul, the court
suggested that a grazing permit would not confer a possessory
interest in United States Forest Service land, because permittees
do not have exclusive use of specific area of land.  Sproul, 226
Or at 400.  Taxpayer argues that, in like manner, it does not
possess any part of the property that makes up the Intertie,
because the Capacity Ownership Agreement does not confer on it
any exclusive right to occupy or control a spatially defined
portion of that property. 
		That argument factually is accurate, but it misses the
point.  Sproul might suggest that relatively exclusive control
over a defined area is a necessary component of possession of the
kind of property that was involved in that case and for the
purposes to which that property was to be used, but it also
teaches that the notion of "possession" varies with the property
at issue.  See also Avis, ___ Or at ___ (slip op at 4-5)
(demonstrating flexibility of the concept of a taxable possessory
interest).  The property involved in this case -- an electric
transmission grid -- cannot physically be divided usefully among
its owners.  However, that limitation has not prevented taxpayer
from investing in the expansion of the system, sharing the costs
of its upkeep, and thereby obtaining an exclusive right to use
and control the system to the extent necessary to permit
transmission of 50 MW of electricity for taxpayer's own benefit. 
In this context, that is sufficient; taxpayer's 50 MW capacity
ownership share in the Intertie is a possessory interest in that
entity.  Put differently, taxpayer "holds" a share of the
property that makes up the Intertie and may be assessed and taxed
for that share to the extent provided in ORS 307.060.
Taxpayer contends that, even if it does "hold" a
proportionate share of the Intertie within the meaning of ORS
307.060, application of that statute in this case violates the
principle of intergovernmental tax immunity and, consequently,
the United States Constitution. (6)  Taxpayer notes that, under the
Department's administrative rule OAR 150-307.110, state and local
property may be taxed to a nonexempt party only if the property
is occupied by the party and the party has been granted
"exclusive possession of a definitely described area for a
specified period of time." (7)  Taxpayer contends that that rule
would preclude the Department from assessing users of state
property who operate under contracts that are similar to its
"capacity ownership" contract with BPA and that the
constitutional principle of intergovernmental tax immunity
prohibits any different treatment with respect to contract users
of federal property. (8) 
OAR 150-307.110 is the Department's interpretation of a
related statutory provision, viz., ORS 307.110.  ORS 307.110
pertains to the taxation of nonexempt parties who hold state and
local, rather than federal, government property.  However, with
respect to the particulars that are relevant in this proceeding,
ORS 307.110 is almost identical to ORS 307.060:  It provides for
assessment or taxation of government property that is "held under
a lease or other interest or estate less than a fee simple" by
any nonexempt party.  See generally Avis (illustrating scope and
application of ORS 307.110).  Although the rule might suggest
that the Department tentatively has held a different view, we
have no reason to believe that the legislature intended that the
Department use different standards for determining whether a
party "holds" government property, depending on whether the
property is owned by the state, a local government, or the United
States.  Moreover, the rule is not being applied in this case and
is not an authoritative statement of the way ORS 307.110 should
be interpreted.  In short, taxpayer's suggestion that it would
have been treated differently under the tax laws of this state,
if its interest in the Intertie had been acquired from the state
government rather than from BPA is speculative, and we are not
persuaded by it.  We hold that application of ORS 307.060 to
taxpayer's interests under its "Capacity Ownership Agreement"
with BPA does not violate the doctrine of intergovernmental tax
immunity. (9)
		The judgment of the Tax Court is affirmed.

1. 	Taxpayer entered into the Capacity Ownership Agreement
with BPA at a time when BPA was engaged in a significant
expansion of the Intertie to accommodate new capacity owners. 
Taxpayer's initial lump sum payment represented a percentage,
based on taxpayer's capacity ownership share, of the "actual
capital and related costs" of that expansion. 

2. 	At present, 50 MW represents a little more than one
percent of the Intertie's total capacity of 4800 MW.	

3. 	ORS 308.510(1) defines "property" for purposes of
assessment of designated utilities as including intangible
property used or held by the company for or in the performance or
maintenance of its business. 

4. 	The Tax Court did not rule on the Department's
alternative theory that taxpayer's Capacity Ownership Share in
the Intertie is taxable as intangible property under ORS
308.510(1).  

5. 	Ore. Summer Hm. Owners involved the Department's
decision to tax owners of summer homes that were built on United
States Forest Service land for the value of the land that they
occupied.  This court concluded that the homeowner's permits
conveyed possessory interests in the land that were comparable to
the grazing leases in Sproul, primarily because they could
exercise a high degree of control and exclusivity over the
properties.  The court concluded, therefore, that the permittees
were subject to taxation for the land that their homes occupied
under ORS 307.060.  265 Or at 550.

6. 	The doctrine of intergovernmental tax immunity forbids
direct taxation of one sovereign by another as well as indirect
taxation that discriminates against those with whom the sovereign
deals.  See Vogl v. Dept. of Rev., 327 Or 193, 197 n 1, 960 P2d
373 (1998) (describing principle of intergovernmental tax
immunity).

7. 	OAR 150-307.110, provides, in part:
"(1) Qualifying Conditions.  The assessor shall
assess and tax publicly owned real or personal property
for the real market value thereof uniformly with real
property of nonexempt ownerships when the following
conditions of a lease or other interest or estate less
than fee simple are met.  A lease or other possessory
interest exists if the occupant is granted exclusive
possession of a definitely described area for a
specified period of time (term).
	"(2) Exclusive Possession.  The test is whether
the occupant has sufficient control over the premises
to warrant the label of possession.  If the occupant
can exclude others, including the owner (except for
inspection, making repairs, etc.) the occupant has
possession.  But, if the premises must be shared with
others, such as a common pasture, the occupant does not
have a possessory interest."
(Emphasis added.)

8. 	Taxpayer cites Phillips Chemical Co. v. Dumas School
Dist., 361 US 376, 80 S Ct 474, 4 L Ed 2d 384 (1960), for the
proposition that the principle of intergovernmental tax immunity
can apply in this situation.  Phillips pertained to a Texas
statute that subjected to state taxation any part of federal
property "which is used and occupied by any person [or business]
in its private capacity, or which is being used or occupied in
the conduct of any private business or enterprise" -- without
regard to the terms of such usage.  Id. at 378, 4 L Ed 2d at 387. 
The Supreme Court compared that statute, as it had been construed
and applied to the appellant, to another state statute that
permitted taxation of property leased from the state only if the
lessee held the property under a lease for a term of three years
or more.  The Supreme Court concluded that the former statute
unlawfully discriminated against the United States and its
lessees because it authorized taxation of lessees of federal, but
not state, land, when the lease at issue is subject to
termination at the option of the lessor.  Id. at 381-82, 4 L Ed
2d at 388-89.

9. 	Taxpayer also argues that the assessment at issue
violates the Supremacy Clause of Article VI, of the United States
Constitution.  Because taxpayer did not raise that argument
before the Tax Court, we do not consider it here.