Justia Energy, Oil & Gas Law Opinion Summaries

Articles Posted in Tax Law
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Downstream fuel producers pay an excise tax, 26 U.S.C. 4081(a)(1)(A). Revenues from the tax fund the Highway Trust Fund. In 2004, Congress sought to incentivize renewable fuels without undermining highway funding. Under the American Jobs Creation Act, a fuel producer can earn the “Mixture Credit” by mixing alcohol or biodiesel into its products. The Mixture Credit applies “against the [excise] tax imposed by section 4081,” section 6426(a)(1). Under section 6427(e), a producer can also receive the Mixture Credit as direct, nontaxable payments, to the extent the Mixture Credit exceeds the excise tax liability. The Highway Revenue Act now appropriates the full amount of a producer’s section 4081 excise tax to the Highway Trust Fund “without reduction for credits under section 6426,” section 9503(b)(1).In 2010-2011, Delek claimed $64 million in Mixture Credits and subtracted that amount from its cost of goods sold, increasing Delek’s gross income and its income tax burden. In 2015, Delek filed a refund claim (more than $16 million), arguing that its Mixture Credits were “payments” that could only satisfy, but not reduce, the excise tax amount, so that subtracting the Mixture Credit from its cost of goods sold was a mistake. The IRS denied the claim. The Sixth Circuit affirmed summary judgment in the government’s favor, rejecting Delek’s “novel theory: The credit is a “payment” that satisfies, but does not reduce, its excise tax liability.” View "Delek US Holdings, Inc. v. United States" on Justia Law

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The Fifth Circuit affirmed the district court's denial of partial summary judgment in an action brought by Vitol against the United States, seeking an $8.8 million tax refund. The court concluded that the plain language of the statute, taken in context, excludes butane from the definition of a liquefied petroleum gas (LPG) under 26 U.S.C. 6426(d)(2).In this case, the court applied the standard tools of statutory interpretation in their proper order, and the court need not consider legislative history or abstract congressional purpose. The court explained that, although the common meaning of LPG includes butane, section 6426(d)(2) is a subsidiary part of a broader statutory framework that treats a given fuel as either a taxable fuel or an alternative fuel, but not both. Therefore, the statutory context of section 6426 provides sound reason to depart from butane's common meaning. Furthermore, section 4083 defines butane as a taxable fuel for purposes of the excise tax imposed at section 4081. The court reasoned that, if butane is a taxable fuel, it cannot be an alternative fuel and thus it is not an LPG under section 6426(d)(2). View "Vitol, Inc. v. United States" on Justia Law

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In 2007, CalBio acquired two facilities and began upgrading them to biomass facilities. CalBio secured Authority to Construct permits that allowed construction and allowed the facilities to generate and sell electricity. The permits could be converted into Permits to Operate after the facilities met conditions, including emissions tests. CalBio labeled the facilities “in operation” in 2008. The facilities passed pre-parallel testing under PG&E interconnection agreements and began selling electricity on the spot market and later to PG&E. The facilities operated fairly continuously throughout 2009, occasionally noncompliant with emissions regulations.The 2009 American Recovery and Reinvestment Act, 123 Stat. 115, allowed entities to receive federal grants if they “placed in service” a renewable energy facility during 2009-2010 or began constructing property in 2009-2010. CalBio was experiencing financial difficulties but did not seek grants because its facilities had been placed in service in 2008. CalBio suspended operations in 2010 and sold the facilities. Akeida spent $15 million improving the facilities, which passed emissions tests in 2011. Akeida applied for grants, claiming that the facilities were placed in service when Akeida’s emissions improvements were certified.The Treasury Department largely rejected Akeida’s claims, reasoning that most of the property had been placed in service in 2008. The Claims Court and Federal Circuit agreed, applying Treasury’s regulatory definition of “placed in service,” which required it to determine the “taxable year in which the property is . . . availabil[e] for a specifically assigned function.” View "Ampersand Chowchilla Biomass, LLC v. United States" on Justia Law

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The Supreme Court affirmed the decision of the Board of Tax Appeals (BOTA) upholding county appraisers' application of the Kansas Oil and Gas Appraisal Guide developed by the Kansas Department of Revenue's Property Valuation Division for valuations given for the 2016 tax year to the working interest of River Rock Energy Co. in 203 gas wells and related equipment, holding that the BOTA did not err.In its dispute, River Rock argued that the Guide produced inflated values for its working gas leases by capping operating expense allowances to arrived at a "working interest minimum lease value." The BOTA upheld the county appraisers' application of the Guide. The court of appeals affirmed in part and reversed in part, holding that the Guide overvalued River Rock's wells. The Supreme Court affirmed in part and reversed in part, holding (1) the county appraisers correctly applied the Guide; and (2) the court of appeals correctly decided that it had jurisdiction to entertain River Rock's challenge to BOTA's order refusing to abate filing fees. View "In re Tax Appeal of River Rock Energy Co." on Justia Law

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Gasoline is subject to an excise tax. The combined fuel excise taxes account for more than 80% of the annual revenue collected for the Highway Trust Fund. The 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act. introduced new credits that fuel producers could use to offset their fuel excise taxes, including one for using “alternative fuels” to create “alternative fuel mixtures” (AFM credit), 26 U.S.C. 6426(e).U.S. Venture buys fuel from various suppliers and combines it with different additives before selling the finished product to retailers. Since 2012 U.S. Venture has commonly added butane to the gasoline it produces and sells. Butane is a type of gas, made from both natural gas and petroleum. It has long been considered a fuel additive, with suppliers adding it to gasoline since at least the 1960s.In 2017. U.S. Venture first sought an AFM tax credit for producing and selling fuel that contained a mixture of gasoline and butane. The IRS rejected its position. The district court and Seventh Circuit affirmed. There is nothing alternative about gasoline containing a butane additive, as indicated by a combination of statutory provisions defining the scope of the alternative fuel mixture tax credit. View "U.S. Venture, Inc. v. United States" on Justia Law

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A mining company appealed the borough assessor’s valuation of its mine to the borough board of equalization. At a hearing the company presented a detailed report arguing the borough had improperly included the value of “capitalized waste stripping”when calculating the tax-assessed value of the mine. The assessor maintained its position that waste stripping was taxable, but reduced its valuation of the mine to better reflect the remaining life of the mine. The board approved the assessor’s reduced valuation of the mine and the superior court affirmed the board’s decision. The mine owners argued that waste stripping fell within a statutory exemption from taxation. The Alaska Supreme Court construed municipal taxing power broadly, and read exceptions to that power narrowly. The Court found waste stripping was not a “natural resource,” but an improvement that made it easier for miners to access natural resources. The Court concluded that the value of this improvement, like that of other improvements at the mine site, was subject to tax by the borough. The Court therefore affirmed the superior court’s decision affirming the board’s valuation. View "Fairbanks Gold Mining, Inc. vs. Fairbanks North Star Borough Assessor" on Justia Law

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An oil producer challenged an Alaska Department of Revenue advisory bulletin interpreting the oil tax code, arguing that the bulletin violated the Alaska Administrative Procedure Act (APA) and seeking a declaratory judgment that the interpretation was contrary to law. The Alaska Supreme Court determined the advisory bulletin could not be challenged under the APA because it was not a regulation, and that a declaratory judgment was not available because the tax dispute between the parties was not ripe. View "Exxon Mobil Corporation v. Alaska, Department of Revenue" on Justia Law

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This dispute involved ad valorem taxes for the tax years 2013 through 2016. In October 2012, D90 Energy, LLC, purchased two gas wells and one saltwater disposal well. The wells were subject to ad valorem property taxation in Jefferson Davis Parish, Louisiana. Relying on a Commission regulation applicable to oil and gas wells, D90 argued that a purchase price in a valid sale is fair market value; therefore, the wells should be valued at $100,000.00 for each of these tax years. For each tax year, the Assessor rejected D90’s documentation of the sale, explaining, in part, that his office never uses the sales price as fair market value for oil and gas wells. Rather, the Assessor used valuation tables provided by the Commission, which take into account age, depth, type, and production of the wells. D90 appealed each assessment to the Commission, presenting documentary evidence and live testimony to establish the $100,000.00 purchase price for the wells and the arms-length nature of the sale. It presented additional evidence to establish that the condition and value of the wells were virtually identical for each tax year. The district court affirmed the Commission’s valuations for all four tax years. Reviewing only what was presented to the Assessor, the court of appeal reversed the district court and reinstated the Assessor’s valuation. The Louisiana Supreme Court granted D90’s writ application to determine the correctness of the assessments, the proper scope and standard of review, and the legal effect of D90’s failure to pay taxes under protest. After review, the Court determined the district court was correct in affirming the Commission, thus reversing the appellate court's judgment. View "D90 Energy, LLC v. Jefferson Davis Parish Board of Review" on Justia Law

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In 2015, the owners of a 13,000-acre tract of land known as 70 Ranch successfully petitioned to include their tract in a special district. After 70 Ranch was incorporated into the district, the district began taxing the leaseholders of subsurface mineral rights, Bill Barrett Corporation, Bonanza Creek Energy, Inc., and Noble Energy, Inc. for the oil and gas they produced at wellheads located on 70 Ranch. The Lessees, however, objected to being taxed, arguing the mineral interests they leased could not be included in the special district because neither they nor the owners of the mineral estates consented to inclusion, which they asserted was required by section 32-1-401(1)(a), C.R.S. (2019), of the Special District Act. The Colorado Supreme Court determined that section 401(1)(a) permitted the inclusion of real property covered by the statute into a special taxing district when (1) the inclusion occurred without notice to or consent by the property’s owners and (2) that property was not capable of being served by the district. The Court answered "no," however, 32-1-401(1)(a) required the assent of all of the surface property owners to an inclusion under that provision, and inclusion was only appropriate if the surface property could be served by the district. "Section 32-1-401(1)(a) does not require assent from owners of subsurface mineral estates because those mineral estates, while they are real property, are not territory. Thus, Lessees’ consent was not required for the inclusion of 70 Ranch in the special district." The Court therefore affirmed the court of appeals on alternate grounds. View "Barrett Corp. v. Lembke" on Justia Law

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The DC Circuit denied petitions for review challenging FERC's orders concerning SFPP's tariffs. SFPP challenges FERC's decisions to deny SFPP an income tax allowance, to decline to reopen the record on that issue, and to deny SFPP's retroactive adjustment to its index rates. Shippers challenge FERC's disposition of SFPP's accumulated deferred income taxes (ADIT) and its temporal allocation of litigation costs.The court held that FERC's denial of an income tax allowance to SFPP was both consistent with the court's precedent and well-reasoned, and that FERC did not abuse its discretion or act arbitrarily in declining to reopen the record on that issue. Furthermore, FERC reasonably rejected retroactive adjustment to SFPP's index rates. The court also held that FERC correctly found that the rule against retroactive ratemaking prohibited it from refunding or continuing to exclude from rate base SFPP's ADIT balance, and that FERC reasonably allocated litigation costs. View "SFPP, LP v. Federal Energy Regulatory Commission" on Justia Law