Cemi v. State Bd. of Equalization

• Decision Date: 15 June 2007
• Docket Number: No. 104,391.,Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 2.,104,391.
• Citation: 2007 OK CIV APP 79,167 P.3d 446
• Parties: CHESAPEAKE ENERGY MARKETING, INC., Plaintiff/Appellee, v. STATE BOARD OF EQUALIZATION and The Oklahoma Tax Commission, Defendants/Appellants.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

167 P.3d 446

2007 OK CIV APP 79

CHESAPEAKE ENERGY MARKETING, INC., Plaintiff/Appellee, v. STATE BOARD OF EQUALIZATION and The Oklahoma Tax Commission, Defendants/Appellants.

No. 104,391.

Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 2.

Court of Civil Appeals of Oklahoma, Division No. 1.

June 15, 2007.

Appeal from the District Court of Oklahoma County, Oklahoma; Honorable Barbara G. Swinton, Trial Judge.

AFFIRMED.

William K. Elias, Amy Elizabeth Wellington, Linda Jo Blan-Byford, Elias, Books, Brown & Nelson, P.C., Oklahoma City, OK, for Plaintiff/Appellee.

Lynn C. Rogers, Larry D. Patton, Assistant Attorney General, Oklahoma City, OK, for Defendants/Appellants.

CAROL M. HANSEN, Presiding Judge.

¶ 1 Defendant/Appellants, State Board of Equalization and Oklahoma Tax Commission (collectively State), seek review of the trial court's order granting summary judgment in favor of Plaintiff/Appellee, Chesapeake Energy Marketing, Inc. (CEMI), declaring CEMI is not a public service corporation for purposes of ad valorem taxation. We affirm, holding State's attempt to reclassify CEMI violated the legislative moratorium on changing the treatment for assessment of gas gathering system assets in 68 O.S.Supp.2002 2851.3.

¶ 2 In 2004, CEMI sued State seeking a declaratory judgment State had exceeded its jurisdiction by attempting to centrally assess and tax CEMI's gas gathering lines and equipment pursuant to procedures applicable to public service corporations. It sought to enjoin State from exercising jurisdiction over CEMI in assessing ad valorem taxes by treating CEMI as a public service corporation, and it requested refund of taxes paid under protest for 2004. CEMI filed similar suits for tax years 2005 and 2006, and the matters were consolidated.

¶ 3 State filed a motion for summary judgment seeking a declaration CEMI was a public service corporation as defined by Okla. Const. Art. IX, § 34, and 68 O.S.2001 2808 for purposes of ad valorem taxation. It asserted CEMI was engaged in business in Oklahoma including gathering of natural gas, and had laid its pipeline under public highways in more than ten counties in Oklahoma. In support, State attached CEMI's responses to requests for admission. State argued the term "public service corporation" must be broadly construed. It cited Dobson Fiber Co. v. State Board of Equalization (Dobson Fiber), 2001 OK CIV APP 85, 27 P.3d 1029, for the proposition a company is a public service corporation if it lays its lines under public highways and its property is spread out among several counties, and argued CEMI should be treated like Dobson and declared to be a public service corporation.

¶ 4 CEMI responded and moved for summary judgment, seeking a declaration it was not a public service corporation for ad valorem purposes. It asserted it was a gas gathering company and was locally assessed from 1993 until May 2004, when the Ad Valorem Division of the Oklahoma Tax Commission directed it to render its property for central assessment as a public service corporation. It asserted its function was to lay pipelines to connect wells operated by its parent company to pipelines of purchasers, and did not furnish any products to the public. CEMI also asserted it had never used the power of eminent domain to occupy a public highway but had laid its lines under public highways pursuant to road crossing permits available to the general public. In support, CEMI attached the affidavit of its president. CEMI discussed the history of litigation and legislation regarding gas gatherers, including a legislative stay changing the manner of assessment of gas gathering system assets pending completion of a task force study.

¶ 5 In response, State submitted, among other things, the affidavit of its Administrator of the Ad Valorem Division Public Service Section for the Oklahoma Tax Commission, stating CEMI purchased Enco Gas Gathering Company (Enco) on July 31, 2003. He stated Enco was a public service corporation that the State Board of Equalization centrally assessed from 1996 until 2003, and the 2004 assessment of CEMI property by the State Board of Equalization included the former property of Enco.

¶ 6 After further briefing and a hearing, the trial court denied State's motion for summary judgment and granted CEMI's motion. It found Dobson Fiber was distinguishable from the present case and 68 O.S.Supp.2006 2807 (12)(b), 68 O.S.2001 2808, and 68 O.S.Supp.2002 2851.3 were controlling. The trial court declared CEMI was not a public service corporation for the purposes of ad valorem taxation. State appeals without appellate briefs in conformance with the procedures for the appellate accelerated docket, Okla.Sup.Ct.R. 1.36, 12 O.S.Supp.2003, Ch. 15, App. 1.

¶ 7 Because a grant of summary judgment involves purely legal determinations, we will review the trial court's decision under a de novo standard. Carmichael v. Beller, 1996 OK 48, 914 P.2d 1051, 1053. Summary judgment is appropriate only when there is no substantial controversy as to any material fact and one of the parties is entitled to judgment as a matter of law. 12 O.S.Supp. 2002, Ch. 2, App. 1, Rule 13.

¶ 8 The Legislature has plenary power to tax, subject only to constitutional restrictions and the will of the people expressed through elections. In re Oneok Field Services Gathering, LLC, 2001 OK 116, 38 P.3d 900, 903. The Oklahoma Constitution authorizes the Legislature to classify property for purposes of taxation. Okla. Const. Art. X, § 22. Property is taxed ad valorem unless the Legislature provides a substitute tax. Save Ad Valorem Funding For Students v. Oklahoma Dept. of Environmental Quality, 2006 OK CIV APP 53, 135 P.3d 823, 826.

¶ 9 Generally, the county assessor has the duty of locally assessing property taxed ad valorem. 68 O.S.2001 2819. However, the property of railroads and public service corporations is centrally assessed by the State Board of Equalization. Okla. Const. Art. X, § 21(A), and 68 O.S.2001 2847 (A). The definition of public service corporations in Okla. Const. Art. IX, § 34, and 68 O.S.2001 2808 (A)(1) includes:

all transportation and transmission companies, all gas, electric, heat, light and power companies, and all persons, firms, corporations, receivers or trustees engaged in said businesses, and all persons, firms, corporations, receivers or trustees authorized to exercise the right of eminent domain or having a franchise to use or occupy any right of way, street, alley or public highway, whether along, over or under the same, in a manner not permitted to the general public.

¶ 10 Whether gas gatherers are public service corporations has been the subject of recent litigation and legislation. Justice Kauger, in a concurring opinion in In re Oneok Field Services Gathering, LLC (Oneok), 2001 OK 116, 38 P.3d 900, 907-909 (footnotes omitted), discussed the litigation history:

¶ 3 We arrive at the point we find ourselves today via an unpublished Court of Civil Appeals opinion promulgated on April 5, 1996-Texaco Exploration & Prod., Inc. v. State Bd. of Equalization, No. 85,256 (1996) cert. denied. The sole issue considered in the cause was whether Texaco Exploration was a public service corporation for purposes of ad valorem taxation under 68 O.S.1991 2808. Finding that Texaco Exploration was not a public service corporation, the appellate court determined that Texaco Exploration should be assessed...