July 2017 NewsletterJuly 1, 2017 | Newsletter
TEXAS – Court of Appeals rejects Appraisal District claim that changing or modifying the specific grounds for property tax appeal deprives District Court of jurisdiction.
United Airlines challenged the Harris County Appraisal District’s valuation of its property, consisting of commercial airplanes, airplane parts, flight simulators, and other related equipment and fixtures. United exhausted its administrative remedies by protesting the valuation to the Appraisal Review Board, which reduced the valuation to $929 million, short of United’s appraised $404 million valuation. United then sought judicial review by timely filing an appeal of the Appraisal Review Board’s valuation to the District Court pursuant to Chapter 42 of the Texas Tax Code. After United amended its petition to substitute a claim for relief under Tex. Tax Code § 42.26 (unequal appraisal) for its original claim for relief under Tex. Tax Code § 42.25 (excessive appraisal), the Appraisal District filed a plea to the jurisdiction, which the trial court granted and dismissed United’s case. United contends the trial court retained jurisdiction at all relevant times. United further argues that the trial court abused its discretion by failing to exercise its plenary power and allowing United to cure any alleged jurisdictional defect.
The Court of Appeals reversed and remanded. The trial court had jurisdiction because United timely petitioned for review of the Appraisal Review Board (ARB) orders. Texas Tax Code § 42.21 sets forth the only jurisdictional requirements for a property owner to maintain an appeal from an appraisal review board’s tax-appraisal determination. A district court has jurisdiction of an appraisal review board determination so long as the property was the subject of an appraisal review board order, the petition was filed within 60 days of the ARB order, and the petition provides sufficient information to identify the property that is the subject of the petition (see Tex. Tax Code § 42.21[a][h]). A petition filed in compliance with these sections is sufficient to vest the trial court with jurisdiction.
Stating the specific grounds for an appeal is not a jurisdictional prerequisite; thus, changing or modifying the specific grounds for the appeal does not affect the district court’s jurisdiction. The Appraisal District does not dispute that United exhausted both grounds (excessive appraisal and unequal appraisal) before the Appraisal Review Board prior to filing suit in District Court. The District argues, however, that the unequal appraisal ground contained in United’s first amended petition was filed outside the 60-day deadline for seeking judicial review and thus was untimely. There is no authority for its position that a ground for relief is part of the jurisdictional requirements of a petition for review. Therefore, the Court rejected the District’s argument that a petition for review must include the ground for relief to invoke the trial court’s jurisdiction.
United Airlines, Inc. v. Harris County Appraisal District, 513 S.W.3d 185 (Tex. Ct. App., December 6, 2016).
TEXAS – Oil refinery not required to compare entire value of its refinery to entire value of other refineries in its unequal appraisal analysis, but rather may limit its property tax challenge to certain tax accounts and the portions of its refinery to which they correspond.
Valero Refining-Texas, L.P., filed a petition for review of an appraisal of its refinery for property tax purposes, asserting that the Galveston Central Appraisal District had appraised its refinery unequally compared to other oil refineries in the District. After a jury trial, the District Court rendered judgment on the verdict in favor of Valero, and the Appraisal District appealed. The Court of Appeals reversed and remanded. Both the Appraisal District and Valero filed petitions for review, which were granted.
Generally, a tract of land and its improvements are appraised together and assigned a single value. Appraisal districts, however, are permitted to divide a tract and its improvements into separate components, each with its own tax account number, and appraise them individually. A district is required to give the owner notice of what property was included in each tax account. For 2011, the Appraisal District appraised the Valero, BP, and Marathon refineries using separate tax accounts. Valero protested some, but not all, of the account appraisals to the Galveston County Appraisal Review Board, claiming that the appraised values exceeded market values and were not equal and uniform compared to BP’s and Marathon’s appraised values. In separate orders for each account, the Board reduced the values of several accounts and rejected Valero’s claims of inequality.
Valero appealed to the District Court from the Board’s orders on only five of its accounts: three relating to processing operations, one for pollution control equipment, and one for personal property and inventory. Valero initially asserted both of the claims it made before the Board but eventually dropped its market value claim. On the first day of trial, Valero requested leave to amend its pleadings to drop the claims relating to the pollution control equipment account and personal property and inventory account, narrowing the dispute to the three accounts related to processing operations. The District did not object to the amendment in substance but argued that an equal-and-uniform challenge can be determined only if made to the appraised value of the entire tract, not just to some of the component tax accounts, and moved to dismiss for want of jurisdiction. The trial court rejected the District’s argument, denied its motion, and proceeded to trial.
The Texas Supreme Court held as a matter of law that appraisals of individual accounts may be challenged as unequal. The District argued that the “property” referred to in the statutory provisions authorizing appeal from property tax valuations is not the property in the separate tax accounts but rather the entire refinery. The Supreme Court rejected this argument, agreeing with Valero that nothing in the applicable statutory provisions requires a taxpayer to challenge all the appraisal accounts used to appraise its property. On the contrary, the Tax Code defines property as “any matter or thing capable of private ownership.” Each part of Valero’s refinery covered by a tax account was property within the meaning of the Tax Code. Accordingly, the District Court had jurisdiction of Valero’s appeal. The Court reasoned that because the District had the discretion to appraise Valero’s property by assigning it to various tax accounts, it could not argue that Valero’s challenge to the appraised value of some of those accounts was somehow deficient.
Valero Refining-Texas, L.P. v. Galveston Central Appraisal District, — S.W.3d —-, 2017 WL 727276, 60 Tex. Sup. Ct. J. 505 (Feb. 24, 2017)
TEXAS – Supreme Court rejects Commerce Clause challenge to taxation of natural gas stored within state for resale and shipment out-of-state.
ETC Marketing, Ltd., buys and sells natural gas. ETC purchases gas in Texas and immediately entrusts that gas to Houston Pipe Line Company, an affiliated pipeline operator authorized by the Federal Energy Regulatory Commission to transport gas. Its pipeline system does not extend beyond the borders of Texas but does connect to several other interstate pipelines. This interstate connection allows ETC to market and sell gas across the country.
The crux of the dispute was the storage of ETC’s gas in Harris County. The storage facility is located atop the Bammel reservoir, which lies under several thousand acres and holds a vast amount of natural gas. To create the pressure necessary to pump gas in and out of the reservoir, Houston Pipe Line Company maintains a permanent supply of “cushion gas” in the facility. Houston pays ad valorem taxes on that cushion gas and on the Bammel facility itself, but not on stored gas owned by marketers like ETC.
ETC purchased a dedicated storage capacity in the Bammel reservoir from Houston. Pursuant to an agreement, Houston pumps ETC’s excess gas (gas that exceeds the pipeline’s capacity) into the reservoir. The gas remains in the reservoir until ETC sends orders to ship certain volumes to downstream consumers. This storage capacity allows ETC to maintain a surplus of gas on the pipeline system so it can better satisfy future demand and “time the market” during peak periods. As demand rises and falls, the volume of stored gas fluctuates. Although ETC intends to, and does, sell a majority of this stored gas outside Texas, it is not obligated to do so. Rather, ETC can sell the gas outside Texas, within Texas, or not at all.
In September 2009, the Harris County Appraisal District appraised the value of approximately 33 billion cubic feet of gas allocated to ETC and stored in the Bammel reservoir, and then assessed ad valorem taxes on the value of that gas for the 2010 tax year. ETC protested the tax to the Harris County Appraisal Review Board on the basis that the stored gas was in the stream of interstate commerce and therefore immune from taxation. The Appraisal Board rejected the challenge, and ETC appealed to the District Court. The District Court dismissed the appeal, the Court of Appeals affirmed, and the Supreme Court granted ETC’s petition for review.
ETC first argued that because its stored gas is not located in Texas for longer than a “temporary period,” neither Texas nor the Harris County Appraisal District could tax the gas, citing Tex. Tax Code § 1.01(c)(1) (the state can tax only personal property “located in this state for longer than a temporary period”) and Tex. Tax Code § 21.02(a)(1) (a taxing unit may tax only property “located in the unit on January 1 for more than a temporary period.”) The Supreme Court refused to consider this argument because it had not been raised in the proceedings below.
The Court then considered ETC’s challenge to the tax under the Commerce Clause. The Commerce Clause of the United States Constitution limits a state’s power to tax interstate commerce, but this limit is not all-encompassing and states may tax some property despite its interstate character.
As a preliminary matter, the Court found that ETC’s gas does enter interstate commerce. ETC places its gas (some of which comes from out of state) in the Houston Pipe Line Company system, which is an intrastate pipeline that is connected to an interstate pipeline network. Houston eventually conveys a majority of the gas through those pipelines to ETC’s out-of-state customers downstream.
The Court relied on Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977) in holding that the tax did not violate the Commerce Clause. If the tax implicates interstate commerce, the tax must meet four necessary conditions to withstand constitutional scrutiny: (1) apply to an activity with a substantial nexus with the taxing state, (2) be fairly apportioned, (3) not discriminate against interstate commerce, and (4) be fairly related to the services provided by the state. The Court found that the gas had a “substantial nexus” within the state because it was stored for months at a time, awaiting shipment during periods of high demand. The tax was “fairly apportioned” and avoided double taxation because it “reaches only property located within a taxing unit of the state and present on the first of January.” The tax was non-discriminatory because it targets all qualifying personal property, without regard to the property’s intended destination. Finally, the tax was “fairly related to the services provided by the state” because ETC enjoys the “opportunities and protections which the state has afforded in connection with” storage and the fact that ETC had entrusted its gas to the Houston Pipe Line Company did not mean that the state did not provide services to the stored gas. The Court concluded that the non-discriminatory taxation of surplus gas held without a destination for future resale by the Appraisal District did not violate the Commerce Clause.
ETC Marketing, Ltd. v. Harris County Appraisal District, — S.W.3d —-, 60 Tex. Sup. Ct. J. 838 (April 28, 2017).
GEORGIA – Supreme Court agrees with State Revenue Commissioner that transporter of liquid natural gas is not a gas company and therefore not a public utility.
Southern LNG filed a petition for writ of mandamus, seeking to compel the State Revenue Commissioner to recognize it as “public utility” and to accept its ad valorem property tax returns as such. The Superior Court granted summary judgment and writ of mandamus for Southern, and the Commissioner appealed.
The Supreme Court reversed and held that Southern was not a “public utility.” Southern’s certificate of incorporation authorized it “to engage in the natural gas and liquid hydrocarbon pipeline business except that the Corporation shall not have power to construct, maintain and/or operate public utilities within the State of Delaware.” Southern was therefore authorized under its certificate of incorporation only to act as a “transportation company, or common carrier.”
The Court also looked at statutory or regulatory provisions that place limits on Southern’s business activities. Southern is regulated by the Federal Energy Regulatory Commission and must be authorized by that body to operate its facility. Its authorization extends only to the operation of a liquid natural gas transfer station location entirely within Chatham County, and it is not authorized to “engage in the business” of a gas company or operate a pipeline within the meaning of the various regulatory provisions. Southern would not meet the gas company definition of OCGA § 46-1-1 (5) because it is not “certified to construct or operate any pipeline or distribution system, or any extension thereof, for the transportation, distribution, or sale of natural or manufactured gas.” Nor would it be a natural-gas company as defined in 15 USC § 717a (6) because it is not “engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale.” Southern does not sell or hold title to the product, but “merely … provide[s] a service,” receiving liquid natural gas owned by others from ships into its facility, converting it to natural gas, and placing that natural gas into pipelines owned by others for distribution. Thus it would be an LNG terminal as defined separately in 15 USC § 717a (11). Since Southern’s charter authorized it to act only as a transportation company, or common carrier, and it was not authorized to engage in the business of a gas company or to operate a pipeline within the meaning of these various regulatory provisions, the Court held that it did not meet the definition of a gas company.
Riley v. Southern LNG, Inc., 300 Ga. 689, 797 S.E.2d 878 (Ga., March 6, 2017).
ARIZONA – Court of Appeals holds that the owner of power plant on tribal land may raise argument that federal law preempts state and local taxation despite prior ruling that plant was subject to state taxation because it was owned privately rather than by the tribe.
South Point Energy Center, LLC, operates a power plant on the Fort Mojave Indian Reservation. The Plant is located on land leased from the Fort Mojave Indian Tribe. The United States Department of the Interior holds the land in trust for the benefit of the Tribe. South Point filed two actions in Tax Court, contesting the Arizona Department of Revenue’s assessment of property taxes against the plant for tax years 2010 and 2011 under A.R.S. § 42-16254(G) (which permits challenges to erroneously assessed taxes) and for tax years 2012 and 2013 under A.R.S. § 42-11005 (which permits recovery of illegally collected taxes). In both actions, South Point alleged that federal law preempted state and local taxation of the plant. The Tax Court held in favor of the Department of Revenue on the bases that South Point’s preemption challenges were precluded because litigation involving a prior plant owner had determined taxability, South Point had a full and fair opportunity to raise the preemption argument but did not, and relief under the error-correction statutes was not available because, based on the disposition in the prior litigation, there was no error.
On appeal to the Court of Appeals, the Court held in the first appeal that issue preclusion did not apply because preemption was not litigated in the prior action. The prior owner had argued that for Arizona property tax purposes, the plant was deemed to be owned by the Tribe and therefore not subject to Arizona property taxation. The Court of Appeals affirmed the Tax Court, concluding that the Plant was subject to state taxation because it was owned privately rather than by the Tribe. South Point does not challenge taxation based on ownership, instead arguing that federal law preempts state and local taxation. Preemption was not litigated in the prior case.
In the second action, the Court of Appeals noted that A.R.S. §§ 42-16251 to 16259 provide a procedure to correct errors occurring in assessing or collecting property taxes, whether they inure to the benefit of the taxpayer or the government. The Court held that the definition of error set forth in A.R.S. § 42-16251(3)(a)—“any mistake in assessing or collecting property taxes resulting from an imposition of an incorrect, erroneous or illegal tax rate that resulted in assessing or collecting excessive taxes”—encompasses the type of error alleged by South Point. The Court reasoned that if the correct property tax rate is zero because of preemption, the imposition of any other tax rate is necessarily an illegal tax rate, and constitutes “error” under the statute.
South Point Energy Center, LLC v. Arizona Department of Revenue, 241 Ariz. 11, 382 P.3d 1226 (Ariz. Ct. App., Nov. 3, 2016).
WYOMING – Supreme Court rejects coal company’s attempt to reclassify “the mouth of the mine”—the point of valuation for coal when reporting its value for property tax purposes—to exclude below-grade conveyor system.
Wyodak Resources Development Corp., a coal producer in Campbell County, Wyoming, reports the taxable value of its coal to the Wyoming Department of Revenue using the proportionate profits valuation method. Wyodak claimed the Department improperly applied Wyoming law when it set the point of valuation for its coal for production years 2009 through 2011.
Wyodak owns a surface coal mine approximately five miles east of Gillette in Campbell County, Wyoming. During the years in question, Wyodak mined out of the Clovis Pit, which is located north of I-90. The Gillette Energy Complex, a group of several power plants located south of I-90, is the primary customer for Wyodak’s coal. Wyodak set up a permanent conveyor to deliver coal directly to the energy complex via a tunnel under I-90. The permanent conveyor is located in a “transportation corridor,” which was formed when the top bench of coal was mined and not backfilled. The transportation corridor is 50 to 250 feet lower than the surrounding topography. Coal that is not transported on the permanent conveyor is hauled out of the pit in trucks via a haul road to a train load-out facility north of the mine, then transported by train to the Dave Johnston Power Plant in Glenrock, Wyoming.
Wyodak annually reports its coal production, expenses, and resulting taxable value to the Department. Wyoming statutes establish that the point of valuation for coal, when reporting its value for tax purposes, is “the mouth of the mine” (Wyo. Stat. Ann. § 39-14-103[b][ii]). For coal sent to the Energy Complex, the Department and Wyodak historically recognized the mouth of the mine as the point where the permanent conveyor entered the I-90 tunnel. Under Wyoming law, costs incurred before the mouth of the mine are considered direct mining costs and increase the taxable value of the mineral. Because the I-90 tunnel was the mouth of the mine, most of the permanent conveyor costs were considered direct mining costs. Wyodak subsequently reevaluated the location of the mouth of its mine because each year the coal face had moved farther north, away from I-90, increasing the direct mining costs associated with the conveyor system and thereby increasing the taxable value of the coal. By 2011, the conveyor system was 8,080 feet, or approximately 1½ miles, long. Using a method to calculate where the mouth of the mine would be if Wyodak used a truck haul road instead of the permanent conveyor to transport its coal to the Energy Complex, Wyodak moved the mouth of the mine significantly closer to the coal face, thereby reducing its direct mining costs and, accordingly, the taxable value of its coal. The Department did not accept Wyodak’s new calculated mouth of the mine locations or its categorization of expenses, and rejected its returns. Wyodak appealed to the Board of Equalization, which also rejected its argument, and following an appeal to the District Court, the case was certified to the Supreme Court.
The Court began by citing the statutory definition of the mouth of the mine contained in Wyo. Stat. Ann. § 39-14-101(a)(vi): “the point at which a mineral is brought to the surface of the ground and is taken out of the pit, shaft or portal. For a surface mine, this point shall be the top of the ramp where the road or conveying system leaves the pit.” The Court noted the two parties’ differing interpretation of the statute. The Department interpreted the statute as placing the mouth of the mine at the point where the coal reaches the surface of the surrounding topography, which for Wyodak’s mine is at the I-90 tunnel; Wyodak asserted the mouth of the mine is the point where the coal leaves the “active pit,” which it defined as “the area or hole where a coal company takes possession of the coal through active mining activities.” In Wyodak’s view, active mining activities do not include transportation on the permanent conveyor. Its interpretation placed the mouth of its mine near the point where coal is placed on the permanent conveyor.
The Court concluded that the legislature provided clear directions to locate the mouth of the mine. The legislature specifically stated the mouth of the mine is where the coal is brought to the surface of the ground and taken out of the pit. The Court held that Wyodak’s interpretation of the statutory language (placing the mouth of the mine at a point below the surface where the “active pit” ends) was incorrect, and that the Board properly accepted the Department’s interpretation of the statute.
Wyodak Resources Development Corp. v. Wyoming Department of Revenue, 387 P.3d 725 (Wy., January 23, 2017).