Justia Energy, Oil & Gas Law Opinion Summaries

Southwest Royalties, Inc., an oil and gas exploration company, filed a tax refund claim with the Comptroller, arguing that it was entitled to a tax exemption for some of its equipment related to oil and gas production operations such as casing, tubing, and pumps, together with associated services. The Comptroller denied relief. Southwest subsequently sued the Comptroller and the Attorney General, asserting that the equipment for which it sought refunds was used in separating oil, gas, and associated substances (collectively, hydrocarbons) into their different components. The trial court rendered judgment for the State, concluding that Southwest failed to meet its burden of proving that the exemption applied. The Supreme Court affirmed, holding that Southwest was not entitled to an exemption from paying sales taxes on purchases of the equipment because it did not prove that the equipment for which it sought a tax exemption was used in “actual manufacturing, processing, or fabricating” of hydrocarbons within the meaning of Tex. Tax Code Ann. 151.318(2), (5), or (10). View "Southwest Royalties, Inc. v. Hegar" on Justia Law

Nelson Industrial Steam Company (“NISCO”) was in the business of generating electric power in Lake Charles. In order to comply with state and federal environmental regulations, NISCO introduces limestone into its power generation process; the limestone acts as a “scrubbing agent.” The limestone chemically reacts with sulfur to make ash, which NISCO then sells to LA Ash, for a profit of roughly $6.8 million annually. LA Ash sells the ash to its customers for varying commercial purposes, including roads, construction projects, environmental remediation, etc. NISCO appealed when taxes were collected on its purchase of limestone over four tax periods. NISCO claimed its purchase of limestone was subject to the “further processing exclusion” of La. R.S. 47:301(10)(c)(i)(aa), which narrowed the scope of taxable sales. The Louisiana Supreme Court granted NISCO’s writ application to determine the taxability of the limestone. The trial court ruled in the Tax Collectors' favor. After its review, the Supreme Court found that NISCO’s by-product of ash was the appropriate end product to analyze for purposes of determining the “further processing exclusion’s” applicability to the purchase of limestone. Moreover, under a proper “purpose” test, the third prong of the three-part inquiry enunciated in "International Paper v. Bridges," (972 So.2d 1121(2008)) was satisfied, "as evidenced by NISCO’s choice of manufacturing process and technology, its contractual language utilized in its purchasing of the limestone, and its subsequent marketing and sale of the ash." Therefore the Court reversed the trial court and ruled in favor of NISCO. View "Bridges v. Nelson Industrial Steam Co." on Justia Law

The issue this case presented for the Supreme Court's review centered on whether 39-29-105(1)(a) permitted a deduction for the “cost of capital” associated with natural gas transportation and processing facilities. In general terms, the cost of capital was defined as the amount of money that an investor could have earned on a different investment of similar risk. In this case, the cost of capital was the amount of money that BP America Production Company’s (“BP”) predecessors could have earned had they invested in other ventures rather than in building transportation and processing facilities. BP claimed it could deduct the cost of capital because it was a cost associated with transportation and processing activity. Respondent Colorado Department of Revenue argued that the cost of capital was not a deductible cost because it was not an actual cost. The court of appeals held that the cost of capital as not a deductible cost under the statute. BP appealed, and the Colorado Supreme Court reversed, holding that the plain language of section 39-29-102(3)(a) authorized a deduction for any transportation, manufacturing, and processing costs and that the cost of capital was a deductible cost that resulted from investment in transportation and processing facilities. The appellate court was reversed and the case remanded back to the district court for further proceedings. View "BP Am. v. Colo. Dept. of Revenue" on Justia Law

At the center of this an appeal was the superior court's de novo valuation of the Trans-Alaska Pipeline System (TAPS) for tax assessment years 2007, 2008, and 2009. In February 2014 the Alaska Supreme Court issued a decision affirming the superior court's de novo valuation of TAPS for the 2006 assessment year.1 The parties introduced considerably more evidence during trial for the 2007, 2008, and 2009 years, but the operative facts remained substantially the same and the superior court applied similar standards and methods for valuation. Many of the issues raised on appeal were similar or identical to issues raised in the 2006 appeal and thus are partially or wholly resolved by the Court's prior opinion. Because the superior court did not clearly err or abuse its discretion with regard to any of its findings or its methodology, and because it committed no legal error in its conclusions, the Supreme Court affirmed. View "Alaska Dept. of Revenue v. BP Pipelines (Alaska) Inc." on Justia Law

The 1976 Railroad Revitalization and Regulatory Reform Act prohibits states from imposing taxes that “discriminat[e] against a rail carrier,” 49 U.S.C. 11501(b)(4)A, including: Assessing rail transportation property at a value with a higher ratio to the true market value of the property than the ratio applied to other commercial and industrial property; levying or collecting an ad valorem property tax on rail transportation property at a tax rate that exceeds the rate applicable to commercial and industrial property in the same jurisdiction; or imposing “another tax that discriminates against a rail carrier providing transportation.” Railroads sued, claiming that Tennessee sales and use tax assessments were discriminatory. The district court agreed, holding that imposition of those taxes on railroad purchases and use of diesel fuel was discriminatory. In response, in 2014, Tennessee enacted a Transportation Fuel Equity Act that repeals the sales and use tax on railroad diesel fuel, but subjects railroads to the same per-gallon tax imposed on motor carriers under the Highway User Fuel Tax. Previously railroads, like other carriers using diesel fuel for off-highway purposes, were exempt from a “diesel tax.” The Railroads contend the Act is discriminatory because it now subjects only railroads to taxation of diesel fuel used off-highway. The Sixth Circuit affirmed denial of the Railroads’ motion for a preliminary injunction on its targeted or singling-out approach and the functional approach, but remanded for consideration of the Railroads’ argument under the competitive approach. View "CSX Transp., Inc. v. Tenn. Dep't of Revenue" on Justia Law

The South Dakota Department of Revenue assessed Northern Border Pipeline Company, the operator of an interstate pipeline that provides transportation services to natural gas owners who desire to ship their gas, for use tax on the value of the shippers’ gas that the shippers allowed Northern Border to burn as fuel in compressors that moved the gas through the pipeline. An administrative law judge affirmed the assessment. The circuit court reversed, holding that Northern Border’s burning of the shippers’ gas was exempt from use tax under a tax exemption. The Supreme Court affirmed, holding that because Northern Border did not own the gas, use tax may not be imposed under this Court’s precedents. View "N. Border Pipeline Co. v. S.D. Dep’t of Revenue" on Justia Law

In 1999-2000, AmerGen purchased three nuclear power plants. The Nuclear Regulatory Commission transferred the operating licenses, making AmerGen obligated to decommission the plants, and extended the licensing to 2029, 2034, and 2026. Decommissioning may take 60 years. Prior owners had established qualified and nonqualified trust funds to pay for decommissioning. Contributions to a qualified fund (I.R.C. 468A), subject to limitations, are currently deductible. Investment incomes are taxed at a fixed rate. A nonqualified fund does not have those tax advantages. AmerGen's accountants advised that it was unlikely that the IRS would allow AmerGen to include the assumed decommissioning liability in the basis of the assets acquired on the date of the purchase and that the entire cash consideration would be allocated to the basis of transferred nonqualified funds, rather than to the basis of the plants. AmerGen sought IRS private letter rulings and required the sellers to make additional contributions to the trusts. They transferred $393 million in qualified funds and $581 million in nonqualified funds. On its 2001-2003 tax returns, AmerGen claimed that, in addition to the $93 million purchase price, it assumed decommissioning liabilities of $2.15 billion that should be included in the basis of the plants at the time of purchase. With that adjustment and corresponding depreciation and amortization deductions and reduced capital gains, AmerGen attempted to reduce its taxable income by $110 million per year. The IRS rejected the request. The Federal Circuit affirmed summary judgment that the economic performance requirement of 26 U.S.C. 461(h) applies to AmerGen as an accrual basis taxpayer so that it may not include the liabilities in basis. AmerGen did not economically perform decommissioning in the relevant tax years. View "Amergen Energy Co, LLC v. United States" on Justia Law

Anadarko Petroleum Corporation, which acquired Kerr-McGee Oil & Gas Onshore L.P. in 2006, operated oil and gas wells from 2008 to 2011 and filed severance tax returns during this period. The severance tax rate an owner of oil and gas interests must pay depends on the fair market value of the owner’s interest. At issue in this case was how the value of such an interest is to be calculated. In 2010, the Auditing Division of the Utah State Tax Commission issued notices to Anadarko and Kerr-McGee (collectively Anadarko) informing Anadarko of a deficiency in its 2009 severance tax and assessing additional taxes and interest, and informing Kerr-McGee that its claimed 2009 refund was being reduced. Anadarko filed a petition for determination with the Commission. At issue before the Commission was whether the Auditing Division had applied the correct tax rate. The Commission granted summary judgment for the Auditing Division. The Supreme Court reversed, holding that the Commission improperly disallowed deductions Anadarko made for tax-exempt federal, state, and Indian tribe royalty interests under the severance tax statute. Remanded. View "Anadarko Petroleum Corp. v. Utah State Tax Comm’n" on Justia Law

In 2012, after auditing Cloud Peak Energy Resources, LLC’s Montana Coal Tax payments for years 2005-2007, the Department levied a deficiency assessment for additional taxes owing from sales involving non-arm’s length (NAL) agreements. Cloud Peak filed a complaint alleging that the Department’s methodology for determining market value was illegal and that it had also illegally assessed taxes on coal additives for the years 2005-2007. The district court (1) held in Cloud Peak’s favor on the first issue, concluding that the market value of coal sold under NAL agreements is determined by comparing its price with that of coal sold under arm’s length contracts negotiated in a similar timeframe; and (2) ruled in the Department’s favor on the issue regarding additives. The Supreme Court affirmed in part and reversed in part, holding that the district court (1) correctly found that market value is properly based upon similarly negotiated contracts, but the additional language included in the order was inappropriate; and (2) did not err in holding that coal additives used from 2005-2007 are subject to Montana Coal Taxes. View "Cloud Peak Energy Res., Inc. v. Dep’t of Revenue" on Justia Law

In this tax refund case, Chevron challenged the method by which the Kern County Assessor and Assessment Appeals Board valued oil and gas wells as new construction during three tax years, Rev. & Tax. Code, 5140 et seq. The trial court found that the Board used the wrong valuation method and remanded. Both parties appealed. The court concluded that Chevron has standing to maintain this action; concluded that the Board did not abuse its discretion or act contrary to law when it approved the assessor's valuation method; rejected Chevron's exemption argument; and reversed in part, affirming in part. View "Chevron USA v. County of Kern" on Justia Law