The Oregon Tax Court issued its opinion in Powerex v. Dep’t of Revenue, TC 4800 (Or. Tax Ct., Sept. 17, 2012), holding that sales of electricity are sales of other than tangible personal property for Oregon apportionment purposes. The taxpayer sold both electricity and natural gas at wholesale with contractual points of delivery in Oregon. The primary issue in the case was whether, for apportionment purposes and calculating the numerator of the sales factor, the taxpayer’s sales of electricity were sales of tangible personal property or sales of intangible personal property sourced to the location of the majority of the income-producing activity based on costs of performance.

The parties’ expert witnesses, both physicists, appeared to agree that electricity is a phenomenon wherein virtual photons transmit force rather than matter. Based on principles of statutory construction and the apparent agreement of the parties’ expert witnesses as to the nature of electricity, the court held that force transmitters do not come within the legislative understanding of tangible personal property and that the taxpayer’s sales of electricity were sales of other than tangible personal property.

The court ruled in the taxpayer’s favor on the issue of sourcing sales of natural gas by adopting an ultimate destination rule, rather than the contractual point of delivery rule advocated by the Department of Revenue. The ultimate destination rule, the court explained, is more in line with the underlying purpose of the sales factor and is the rule applied in a majority of UDITPA states.