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Southern California Edison v. State, Department of Taxation

Supreme Court of Nevada

July 27, 2017

SOUTHERN CALIFORNIA EDISON, Appellant,
v.
THE STATE OF NEVADA DEPARTMENT OF TAXATION, Respondent.

         Appeal from a final judgment in an action to recover previously paid use taxes. First Judicial District Court, Carson City; James Todd Russell, Judge. Affirmed.

          Norman J. Azevedo, Carson City; Jones Day and Charles C. Read, Los Angeles, California, for Appellant.

          Adam Paul Laxalt, Attorney General, Lawrence J.C. VanDyke, Solicitor General, and Andrea Nichols, Senior Deputy Attorney General, Carson City, for Respondent.

         BEFORE THE COURT EN BANC. [1]

          OPINION

          HARDESTY, J.

         In Sierra Pacific Power Co, v. State Department of Taxation, we recognized that "[violations of the dormant Commerce Clause are remedied by compensating for the negative impact to the claimant as measured by the unfair advantage provided to the claimant's competitors." 130 Nev., Adv. Op. 93, 338 P.3d 1244, 1246 (2014). We concluded there that, as no competitor was favored by any unfair tax advantage, no tax refund was due. Id. Here, faced with a similar dormant Commerce Clause issue, we consider whether appellant Southern California Edison (Edison) is due a refund of use tax paid to Nevada because it made the requisite showing of favored competitors. We also consider whether Edison alternatively is owed a tax credit in an amount equal to the transaction privilege tax (TPT) levied by Arizona. We conclude that Edison is not owed a refund because Edison has not demonstrated the existence of substantially similar entities that gained a competitive advantage because of the unconstitutional tax. We also conclude that Edison is not due a credit because the TPT does not qualify as a sales tax paid by Edison within the meaning of NAC 372.055.

         FACTS AND PROCEDURAL HISTORY

         Edison is an electrical utility company serving approximately 14 million customers. During all times relevant to this litigation, it owned a majority interest in Mohave Generation Station (Mohave), [2] a coal-fired power plant in Clark County. Mohave bought coal exclusively from Peabody Western Coal Company (Peabody), which extracted the coal in Arizona. The coal was ground up, turned into a slurry mixture, and transported across state lines to Mohave through a 273-mile pipeline.

         Respondent State of Nevada Department of Taxation (the Department) levied a use tax on the coal Edison purchased from Peabody, pursuant to NRS 372.185. Edison paid $23, 896, 668 in use tax for transactions with Peabody between March 1998 and December 2000. During this time, the state of Arizona levied a TPT on Peabody for the coal's production in Arizona totaling $9, 703, 087.52, which was included in the overall price Edison paid to Peabody.

         Pursuant to NRS 372.270, proceeds of minerals mined in Nevada are exempt from the use tax but subject to a net proceeds tax under NRS Chapter 362. Alleging that exempting minerals mined in Nevada from the use tax while imposing the use tax on minerals mined outside the state unconstitutionally discriminates against interstate commerce and violates the dormant Commerce Clause, Edison filed a claim with the Department for a refund of the use tax it paid between March 1998 and December 2000.[3] The Department denied the claim, and Edison filed an appeal with the Nevada Tax Commission. The Commission also denied the requested refund.[4]

         Edison then filed an independent action in the district court and sought a trial de novo seeking a refund of the taxes it paid, [5] Edison did not seek prospective relief from its future obligation to pay use tax. After conducting a bench trial but before entering its final decision, the district court stayed the matter pending this court's ruling in Sierra Pacific because the cases presented many of the same legal and factual issues. Two weeks after this court published its opinion in Sierra Pacific, the district court issued its decision in which it found that, while the negative implications of the dormant Commerce Clause rendered NRS 372.270 unconstitutional, [6] Edison was not entitled to a refund because it did not have favored competitors that benefited from the discriminatory taxation scheme. The district court also denied Edison's other claims. Edison now appeals.

         DISCUSSION

         Edison's primary arguments on appeal are: (1) NRS 372.185 (use tax) and NRS 372.270 (use tax exemption) can be harmonized to bring NRS 372.270 within constitutional parameters, and, under its proposed construction, Edison is entitled to a refund because the use tax does not apply to its coal purchases; (2) if this court does not accept Edison's proposed construction, NRS 372.270 is impermissibly discriminatory under the dormant Commerce Clause and Edison made a showing of advantaged competitors caused by NRS 372.270, so it is entitled to a refund pursuant to Sierra Pacific; and (3) if this court decides that Edison is not owed a refund, Edison is entitled to a tax credit for the TPT Arizona levied on the coal's production.

         NRS 372.270 cannot be harmonized with NRS 372.185 to bring it within constitutional parameters

         Edison argues that NRS 372.270 is constitutional if it is interpreted in harmony with NRS 372.185. Edison further argues that, under its suggested interpretation, Edison's coal purchases from Peabody qualify for the exemption in NRS 372.270. Although we examined NRS 372.270 in Sierra Pacific, we did not consider the constitutionality of the statute because the parties did not challenge that determination by the district court. 130 Nev., Adv. Op. 93, 338 P.3d at 1245. While Edison also does not take issue with the district court's determination that NRS 372.270, if interpreted as applying to it, violates the dormant Commerce Clause, Edison asserts that NRS 372.270 does not apply to its use of Arizona coal here. This court reviews questions of statutory construction de novo. I. Cox Constr. Co. v. CH2 Invs., LLC, 129 Nev. 139, 142, 296 P.3d 1202, 1203 (2013).

         Nevada's use and sales tax statutory scheme is structured as follows:

Under Nevada law, sales and use taxes are complementary, yet mutually exclusive. Sales tax applies to the sale of tangible personal property within the state. NRS 372.105. Conversely, use tax applies to the use, storage, and consumption of tangible personal property within the state. NRS 372.185. . . . The use tax complements the sales tax so that all tangible personal property sold or utilized in Nevada is subject to taxation. Use taxation is also a way for Nevada to tax transactions outside the state that would otherwise escape sales taxation. The incidence of Nevada's use tax falls directly upon the party that makes the out-of-state purchase and uses the property within the state.

State, Dep't of Taxation v. Kelly-Ryan, Inc., 110 Nev. 276, 280, 871 P.2d 331, 334-35 (1994).

         Thus, NRS 372.185 imposes a use tax "on the storage, use or other consumption in this State of tangible personal property purchased from any retailer" in an out-of-state transaction "that would have been a taxable sale if it had occurred within [Nevada]." NRS 372.270 exempts from the sales and use tax "the gross receipts from the sale of, and the storage, use or other consumption in this State of, the proceeds of mines which are subject to taxes levied pursuant to chapter 362 of NRS." NRS Chapter 362 provides for a distinct net proceeds tax on all mining operations within the state. See, e.g., NRS 362.140.

         One of Edison's expert witnesses explained at trial that the net proceeds tax has an effective rate of about one percent, whereas the use tax has an effective rate of six or seven percent. Thus, according to this testimony, NRS ...


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