AGO 1956 No. 299 - Jul 12 1956
TAXES ‑- PUBLIC UTILITY DISTRICTS
A public utility district may not deduct from sales reported pursuant to RCW 54.28.020, current which is sold to members of an electric cooperative who are served pursuant to a lease‑purchase agreement with the cooperative whereunder 60% of the revenues are applied to retire the cooperative's debts and the remainder retained by the district.
No exemptions from ad valorem taxes on property of the cooperative arises from such agreement.
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July 12, 1956
Honorable Cliff Yelle
Olympia, Washington Cite as: AGO 55-57 No. 299
Attention: !ttMr. A. E. Hankins
You have requested our opinion as to the taxable status of a public utility district and an electric cooperative under the following circumstances: The district has entered into a lease‑purchase agreement with the electric cooperative under which the district services the cooperative's customers, retaining 40% of the revenues from the sales of such current and paying 60% of the revenues to the cooperative. The cooperative uses its 60% of the revenues to amortize its debt to the federal government and pay taxes to the county. All the expenses of operating the cooperative system are paid by the district. We presume that title to the cooperative's property will, under the agreement, eventually pass to the district upon performance of the contractual obligations of the lease‑purchase agreement, but that presently title to such property is in the cooperative.
You have inquired:
[[Orig. Op. Page 2]]
1. Whether the district may report the valuation of the cooperative's system as part of its own, thus permitting apportionment by the Tax Commission of the excise tax paid by the district pursuant to chapter 54.28 RCW over the entire area serviced by the district and also thereby relieving the cooperative from payment of ad valorem property taxes, or
2. Whether the district may deduct for purposes of the excise tax imposed by chapter 54.28 RCW, sales to members of the cooperative in which case the property of the cooperative would remain on the tax rolls and subject to property taxes.
We answer both of your questions in the negative.
(1) Essentially, the first question is whether the property of the electric cooperative, which is the subject of the lease‑purchase agreement, may be eliminated from the tax rolls and relieved of property taxes because of the above described agreement. It is our opinion that such cannot be done.
The property of the cooperative is, of course, not exempt from property taxes. An exemption would, however, arise if such property passed into ownership of an entity whose property is exempt, such as a public utility district. Amendment XIV, Washington Constitution. But, under the agreement, as we understand it, the cooperative retains title to this property. There is, consequently, no statutory authority for its exemption and the assessor must retain it on the tax rolls and continue to assess it for tax purposes as long as the cooperative retains title. See RCW 84.36.010 andSpokane County v. Spokane, 169 Wash. 355.
(2) The excise tax about which you inquire is imposed by RCW 54.28.020, which states:
"There is hereby levied and there shall be collected from every district a tax for the act or privilege of engaging within this state in the business of operating works, plants or facilities for the generation, distribution and sale of electric energy. With respect to each such district, such tax shall be the sum of the following amounts: (1) Two percent of the gross revenues derived by the district from the sale of all [[Orig. Op. Page 3]] 'distributed energy,' i.e., electric energy which it distributes to consumers but neither generates nor purchases from generating districts; (2) five percent of the gross revenues derived by the district from the sale of all 'self generated and distributed energy,' i.e., the electric energy which it distributes to customers and also generates; and (3) five percent of the gross revenues derived by the district from the sale of 'distributed energy purchased from another generating district,' i.e., electric energy which it distributes to consumers and also purchases from another district which generated the same."
Clearly the imposition of this tax does not depend on the tax status of the property of the customers or consumers to whom the district sells electric current. Rather the tax is imposed on the gross receipts from all sales made by the district.
Thus, whether the current is being sold to the cooperative as an entity or to the cooperative members directly, and regardless of the taxable status of the property of the cooperative, the sale of such current is taxable under the appropriate rate, there being no exemption in this circumstance which is applicable.
Very truly yours,
Assistant Attorney General