U.S. Supreme Court Review Sought for Violation of Commerce Clause

A utility company held liable for Nevada use tax on coal purchases made in Arizona is seeking U.S. Supreme Court review of its case. When making the coal purchases, the Nevada company paid both:

  • Arizona transaction privilege tax (TPT); and
  • Nevada use tax.

In its ruling, the Nevada Supreme Court denied the company both:

  • a refund of use tax; and
  • a credit against use tax for the Arizona tax paid.

In its petition for review, the company asked:

whether proof that a tax scheme violated the dormant U.S. Commerce Clause by favoring in-state interests over out-of-state interests was sufficient to entitle the disfavored competitors to a remedy.

While the Nevada courts held the statutory tax rules were unconstitutional under the dormant Commerce Clause, the company was not entitled to a refund. No favored competitors benefited from the discrimination that occurred under the statutes. Further, the courts denied the company a credit because the Arizona tax paid was not a sales tax.

Nevada Tax Refund

The Nevada Supreme Court made two rulings in denying a refund for the Nevada taxes.

First, the sales and use tax exemption for minerals mined in Nevada could not be constitutionally harmonized with the state’s imposition of use tax on coal shipped into the state. Sales of coal in Nevada are subject to tax if the seller bought the coal out of state. However, sales of coal mined in Nevada are exempt from sales tax because the Nevada coal is subject to a net proceeds tax. To extend the exemption would have the “absurd result” of out-of-state mine proceeds avoiding sales, use, and net proceeds tax.

Second, even if the statutes unconstitutionally discriminated against interstate commerce, the company did not indicate which competitors  benefited from the application of the statutes. Notably, the court rejected the claim that geothermal, oil, and natural gas power plants were competitors of the coal power plant.

Arizona Tax Credit

Finally, the company was denied a tax credit against Nevada use tax for Arizona privilege tax paid on the coal. The Nevada Supreme Court noted that:

  • the tax was not a sales tax; and
  • the company had agreed to pay the tax as part of its contract with the Arizona mining company.

Petition for Review

In its petition to the U.S. Supreme Court, the company noted that this petition should be granted:

  • to ensure that parties subjected to an unconstitutional deprivation of property are afforded recompense and to deter states from enacting unconstitutional legislation in the first place;
  • in light of the important public interest in ensuring that litigants subjected to unconstitutional taxation are afforded a meaningful remedy; and
  • because this case presented the question of whether the differential tax treatment of competitors within the same market establishes injury entitling a disfavored taxpayer to a remedy.

Southern California Edison Co. v. State of Nevada Dept. of Taxation, U.S. Supreme Court, Dkt. No. 17-755, petition for certiorari filed November 21, 2017; Southern California Edison Co. v. State of Nevada Dept. of Taxation, Nevada Supreme Court, July 27, 2017, ¶201-004

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All stories by: CCHTaxGroup