Tax News

CCH (cch.taxgroup.com) reports:

Agreements between Seattle City Light (SCL) and suburban cities under which SCL paid a percentage of revenues received from the cities' power customers in exchange for the cities' promise not to establish their own municipal electric utilities did not violate state law prohibiting certain franchise fees, the Washington Supreme Court has held.
Washington municipalities may impose a 6% utility tax for the privilege of conducting a power distribution business. The city of Seattle imposes such a tax on SCL's gross revenues, including revenues received from its suburban utility customers. The franchise agreements at issue provided that SCL would pay the cities 6% of its revenues derived from retail power sales to city residents in consideration for the cities' agreement not to exercise their authority to establish a competing municipal electric utility for the duration of the franchise.
Ratepayers contended that the payment provision of the agreements violated RCW 35.21.860(1), which provides that no city or town may impose a franchise fee or any other fee or charge of whatever nature or description on an electric utility. The court ruled that SCL's agreement to pay the cities a percentage of utility revenues SCL received from the cities' residents did not fall within the statutory prohibition because the cities did not impose the payment provision in exercising their governmental powers of taxation and regulation. Rather, the payments constituted valid consideration in exchange for the cities' promise to forbear from entering into competition with SCL. Accordingly, the court affirmed the summary judgment order dismissing the ratepayers' action.
Burns v. City of Seattle, Washington Supreme Court, No. 78449-3, August 2, 2007, ¶202-672
Other References:
Explanations at ¶80-400