Justia Energy, Oil & Gas Law Opinion Summaries

Confronting a statewide budget crisis, the Nevada Legislature undertook several revenue-adjustment and cost cutting measures in an effort to balance the State's budget. Those measures were codified in Assembly Bill 6 (AB 6). In this appeal, the Supreme Court was asked whether parts of AB 6 violated the Nevada Constitution. The disputed section of the bill applied only to Appellant Clean Water Coalition (CWC), and converted money collected as user fees into a tax. The CWC used moneys it collected from households and businesses to implement the Systems Conveyance and Operations Program (SCOP) which involved the planning, design, financing, construction, operation and maintenance of a regional system to convey effluent from existing and future wastewater treatment facilities to its outfall in the Colorado River system. The CWC collected fees from 2002 until 2010. SCOP was tabled, and the funds collected for the wastewater facilities were transferred to the State's General Fund. M Resort and other businesses that had paid the fees sued the State, challenging the conversion of the CWC fees into what they argued was essentially a special tax. "Special taxes" are prohibited by the state constitution. The Supreme Court held that because AB 6 "burdens only the CWC in its efforts to raise revenue for the state, it is an impermissible local and special tax" under the state constitution. The Court found AB 6 unconstitutional.

Pursuant to an oil and gas lease with Appellee Trees Oil Company (Trees), Appellant Arthur Hockett had a 1/8-royalty interest in the production from a Haskell County well that produced natural gas. Trees operated the well, and sold the gas produced to âfirst purchasers.â Before paying Trees for production, the first purchasers deduct taxes and fees imposed by the state. Trees then pays Appellant 1/8 of the net sales proceeds. In 2009, Appellant filed a complaint against Trees, seeking recovery of the amount in tax deducted from the sales proceeds from the first purchasers. Trees moved to dismiss the suit, arguing that it could not be held liable for complying with state law by paying the sales taxes. The district court held that the taxes and fees were to be imposed on all owners in the venture, including royalty owners. Appellant appealed. The Supreme Court found that state law does not require royalty owners pay the oil and gas taxes and fees if they do not operate the well. The fees withheld by the first purchaser are an expense attributable to the oil company as the well operator. In computing Appellantâs royalties, Trees was not permitted to deduct the amount of its fees expenses from the gross sale price under contract with the first purchaser. Accordingly, the Court held that the district court erred in ruling in favor of Trees. The Court remanded the remanded the case for further proceedings.

The Montana Department of Revenue ("Department") appealed a judgment reversing the State Tax Appeal Board's ("STAB") conclusion that the Department had applied a "commonly accepted" method to assess the value of PacificCorp's Montana properties. At issue was whether substantial evidence demonstrated common acceptance of the Department's direct capitalization method that derived earnings-to-price ratios from an industry-wide analysis. Also at issue was whether substantial evidence supported STAB's conclusion that additional obsolescence did not exist to warrant consideration of further adjustments to PacifiCorp's taxable value. The court held that substantial evidence supported the Department's use of earnings-to-price ratios in its direct capitalization approach; that additional depreciation deductions were not warranted; and that the Department did not overvalue PacifiCorp's property. The court also held that MCA 15-8-111(2)(b) did not require the Department to conduct a separate, additional obsolescence study when no evidence suggested that obsolescence existed that has not been accounted for in the taxpayer's Federal Energy Regulatory Commission ("FERC") Form 1 filing. The court further held that STAB correctly determined that the actual $9.4 billion sales price of PacifiCorp verified that the Department's $7.1 billion assessment had not overvalued PacifiCorp's properties.