Powerex Corp. v. Dept. of Revenue

Under ORS 314.665, both natural gas and electricity are considered tangible personal property for income tax purposes as they can be perceived with the senses and may be physically located within the state.

Powerex sells natural gas and electricity in the western United States at wholesale prices. For income tax purposes, sales in Oregon are distinguished between those of tangible personal property and all other sales. In the Oregon Tax Court, Powerex argued the Department of Revenue (DOR) incorrectly characterized the sale of natural gas and electricity occurring in Oregon. Specifically, Powerex agreed with DOR that natural gas is tangible personal property, but argued that natural gas had merely been shipped through, and not sold in, Oregon. Further, Powerex argued electricity is not tangible personal property because the subatomic particles that make up electricity are massless, and therefore not tangible. The Tax Court agreed with Powerex and entered a judgment in their favor. On appeal to the Oregon Supreme Court, DOR challenged this ruling. The Court agreed with the Tax Court regarding Powerex’s sale of natural gas, finding it did not occur in Oregon. But, the Court further held that electricity is tangible personal property; the subatomic nature of electricity is not controlling over the legal definition of tangible. Instead, whether property can be perceived with the senses or physically located, and potentially shipped or delivered, within the state is controlling. The judgment of the Tax Court is affirmed in part and reversed in part. The case is remanded for proceedings consistent with this opinion.