Ruling favors tax exemption for utility firms

Machinery that Xcel Energy and other power producers purchase to generate electricity are exempt from the state’s sales and use taxes, the Colorado Court of Appeals ruled Thursday.

Taxing that machinery, including the transformers used to move power through transmission lines, would constitute a double tax on consumers because they also pay a retail tax on the power they use, a three-judge panel of the court said.

The issue began when Xcel filed a lawsuit in Denver District Court in 2006 after M. Michael Cooke, executive director of the Colorado Department of Revenue under former Gov. Bill Owens, rejected an Xcel request for a refund on sales taxes it paid on machinery used to generate electricity.

The district court ruled in Xcel’s favor, saying state law bars imposing sales and use taxes on tools and equipment that is used to manufacture a retail product.

“The trial court accepted the testimony of (Xcel’s) expert witness that the manufacture of electricity is not completed until the electricity is in a form usable by the retail customer, which occurs at the last step-down transformer prior to entering the consumer’s meter,” Appeals Court Judge Arthur Roy wrote in the unanimous opinion, which was joined by Judges Alan Loeb and Henry Nieto.

“The department’s argument that the transformers are simply a repackaging of electricity is also unavailing as the statute clearly contemplates the completed product sold at retail. The overall scheme of the sales and use tax statute and regulations is that the sales and use tax is imposed only once, and that occasion is upon the retail sale to the end consumer.”

Revenue spokesman Mark Couch said the department is reviewing the ruling and had no comment.

Xcel spokeswoman Michelle Aguayo said the utility is pleased with the ruling, but she declined to comment further because the Department of Revenue may appeal the decision to the Colorado Supreme Court.

“We’ll continue to pursue proper tax policy on behalf of our customers,” she said. “Due to the fact that this case was still going through the legal process, and may continue, we have not calculated the impact this would have on individual customer bills.”

Jack Broughton, general manager of Grand Valley Power, said the ruling is good news for power suppliers and consumers, but he is unsure what impact it will have on his rural electric association, which was not a party to the lawsuit.


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