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Vermont Yankee and Vermont Back At It, This Time on Taxation Issues

By Gabriella Khorasanee, JD on December 18, 2013 | Last updated on March 21, 2019

Entergy Nuclear Vermont Yankee, LLC ("Vermont Yankee") can't seem to play nice with Vermont. The two parties have been in litigation since 1978 -- and the present case arises within this context.

The Vermont Generating Tax

You may recall that earlier this year, the Second Circuit held that Vermont could not shut down Vermont Yankee because of safety concerns. Because Vermont had refused to extend Vermont Yankee's regulatory approval for the plant's operation, Vermont Yankee stopped making payments to the state, agreed upon by the parties in Memoranda of Understanding. As a result, Vermont passed the Generating Tax, a $0.0025 per kilowatt-hour on electricity produced by plants with a capacity to generate at least 200,000 kilowatts.

More Vermont Yankee Litigation

Vermont Yankee filed a claim in federal court seeking a declaratory judgment that the Generating Tax is unconstitutional, and injunctive relief. Vermont countered with a motion to dismiss based on subject matter jurisdiction. The district court granted the motion, and Vermont Yankee appealed.

Subject Matter Jurisdiction

Vermont Yankee argues that the Generating Tax is unconstitutional under the Commerce, Contract, Equal Protection, and Supremacy Clauses of the U.S. Constitution. In response, Vermont argues that the federal courts lack subject matter jurisdiction under the Tax Injunction Act ("TIA"). Under the TIA, the federal courts will not get involved with state tax issues if the state provides a "plain, speedy and efficient remedy" in its own courts.

Here, the court had to determine whether the Generating Tax was in fact a tax, and not some other type of fee, and whether Vermont provided a plain, speedy and efficient state remedy. First, the Second Circuit found that the Generating Tax was in fact a tax because the funds are deposited in the state's general fund and used for the "general benefit of the state."

Furthermore, the court found that Vermont provided administrative remedies, which once exhausted, Vermont Yankee could raise constitutional challenges to the law. Finding that Vermont provided a sufficient remedy within its own state courts, the Second Circuit affirmed the district court's dismissal based on lack of subject matter jurisdiction.

We have a feeling that this is not the last we'll hear of Vermont and Vermont Yankee. At the very least, we know that Vermont Yankee will probably take its tax challenge to state court after exhausting its administrative remedies. One day, hopefully soon, these two will stop bickering.

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