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County of Sonoma v. State Board of Equalization … (1987)

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1986 Legislation Provided Retroactive Exemption from Tax of Sales of Geothermal Steam

The County of Sonoma and an individual resident of that county brought an action to compel the Board to assess and collect tax on sales of geothermal steam at The Geysers.

Plaintiffs contended that the pre-1986 sales and use tax exemption for sales of gas and water through mains, lines, or pipes did not exempt geothermal steam and that the Board lacked authority to exempt geothermal steam from tax.

The Board (and intervenors—companies who would be assessed tax if their sales of geothermal steam were found to be taxable) contended: (1) that the Board's longstanding administrative interpretation was correct and (2) that 1986 legislation (SB 2315) expressly exempted geothermal steam and intended that this exemption apply retroactively.

The court of appeal held in favor of the Board, concluding that a clear legislative intent of SB 2315 was to exempt retroactively pre-1986 sales of geothermal steam. The court held that the retroactive exemption was not a constitutionally prohibited gift of public funds since the exemption served an important public purpose, the protection of alternative energy sources including geothermal energy. County of Sonoma v. State Board of Equalization (1987) 195 Cal.App.3d 982.