UTAH POWER & LIGHT CO. v. PFOST, COMMISSIONER OF LAW ENFORCEMENT, Et Al.

Background

A Maine-based public utility that generates, transmits, and sells electricity in Idaho, Utah, and Wyoming sued to block an Idaho law that levied a license tax on electricity produced in Idaho. The 1931 Idaho law required producers to measure electricity “at the place of production,” pay one-half mill per kilowatt-hour on amounts generated for barter, sale, or exchange, keep measuring instruments at generators, and allow an exemption and bill credit for electricity used to pump irrigation water. A three-judge federal court dissolved an earlier injunction and ordered the company to pay the tax with interest; the company appealed.

Reasoning

The main question was whether making electricity is a local act the state may tax, or an inseparable part of interstate commerce that the state cannot tax. The Court concluded generation is a local process of converting mechanical energy into electrical energy — a distinct act like manufacture — and thus subject to state taxation before interstate transmission begins. The Court also held the irrigation credit in §5 is an exemption benefiting consumers and is severable from the rest of the law under the act’s separability clause. The Court found the statute reasonably clear when read with its title: the tax applies to electricity generated for sale or exchange, measured at production but allowing deductions for producer use and transmission losses, and that measurement and administration are practicable.

Real world impact

The decision lets Idaho collect the license tax on electricity made in the State for sale while requiring producers to measure and report production. Irrigation customers keep the statutory credit and producers must account for non-taxable uses and transmission losses. The law’s administrative difficulties do not make it invalid.