1998 -NMCA- 113, Blackwood & Nichols Co. v. New Mexico Taxation and Revenue Dept.

• Decision Date: 12 May 1998
• Docket Number: No. 18616,18616
• Parties: , 1998 -NMCA- 113 BLACKWOOD & NICHOLS COMPANY, a corporation, et al., Petitioners-Appellants, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, a governmental agency of the State of New Mexico, Respondent-Appellee.
• Court: Court of Appeals of New Mexico

Page 137

964 P.2d 137

125 N.M. 576, 1998 -NMCA- 113

BLACKWOOD & NICHOLS COMPANY, a corporation, et al., Petitioners-Appellants, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, a governmental

agency of the State of New Mexico, Respondent-Appellee.

No. 18616.

Court of Appeals of New Mexico.

May 12, 1998.

Certiorari Denied Aug. 13, 1998.

Michael H. Feldewert, Campbell, Carr, Berge & Sheridan, P.A., Santa Fe, for Petitioners-Appellants.

Tom Udall, Attorney General, Margaret B. Alcock, Special Assistant Attorney General, Taxation & Revenue Department, Santa Fe, for Respondent-Appellee.

OPINION

DONNELLY, Judge.

¶1 Blackwood & Nichols Company, Devon Energy Corporation, Koch Exploration Company, and Dugan Production Corporation (Petitioners) appeal from an order of the district court granting summary judgment in favor of the New Mexico Taxation and Revenue Department (the Department). The central issue presented on appeal is whether Petitioners are liable for the tax imposed by the Natural Gas Processors Tax Act, NMSA 1978, §§ 7-33-1 to -8 (1963, as amended through 1985, and prior to the 1998 amendment) (the Act). For the reasons discussed herein, we affirm.

FACTS AND PROCEDURAL POSTURE

¶2 In 1963 the New Mexico Legislature enacted the Oil and Gas Manufacturers Privilege Tax Act, effective April 1, 1963. See 1963 N.M.Laws, ch. 179, §§ 1 to 27. In 1970 the statute was amended to delete the tax on manufactured oil products, and was renamed the "Natural Gas Processors Tax Act." See 1970 N.M.Laws, ch. 13, §§ 1 to 12. After a minor amendment in 1985, see 1985 N.M.Laws, ch. 65, §§ 41 to 42, the Act again underwent substantial changes in the 1998 legislative session. See 1998 N.M.Laws, ch. 102, §§ 1 to 8. As this appeal only concerns the application of the Act prior to the 1998 amendments, all references to the Act are to the version which preceded the 1998 amendments unless stated otherwise.

¶3 Petitioners are producers of natural gas in the Four Corners and San Juan Basin area of New Mexico. Each of the Petitioners has been producing natural gas in New Mexico for more than two decades, and some have engaged in such activity since the early 1950s. In 1995 the Department levied a tax under the Act against each of the Petitioners. Petitioners paid the tax under protest and filed claims for refund with the Department, pursuant to NMSA 1978, § 7-1-26 (1994). Following an administrative hearing, Petitioners' refund claims were denied. Thereafter, Petitioners sought review of the Department's ruling in the First Judicial District Court, pursuant to Section 7-1-26(A)(2). The petitions were consolidated, and after a hearing the district court denied Petitioners' challenges to the Act, granted the Department's motion for summary judgment, and determined that Petitioners were liable for payment of the tax.

DISCUSSION

¶4 Petitioners argue that the district court erred in construing the Act, granting summary judgment, and holding that they were liable for payment of the processing tax for the period in question.

¶5 On appeal of an order granting summary judgment, the evidence is viewed in a light most favorable to the party opposing summary judgment, see Sarracino v. Martinez, 117 N.M. 193, 194, 870 P.2d 155, 156 (Ct.App.1994), and the evidence is reviewed to determine whether there are disputed material factual issues warranting trial on the merits. Id. Where, as here, the material facts are not in dispute, summary judgment is proper when a party is entitled to judgment as a matter of law. See id.; Lexington Ins. Co. v. Rummel, 1997-NMSC-043, p 9, 123 N.M. 774, 945 P.2d 992. Construction of a statute is a question of law that we review de novo. See State v. Arellano, 1997-NMCA-074, p 3, 123 N.M. 589, 943 P.2d 1042; Cox v. Municipal Boundary Comm'n, 120 N.M. 703, 705, 905 P.2d 741, 743 (Ct.App.1995). Determining whether statutory language is ambiguous also constitutes a question of law subject to de novo review. See Leo v. Cornucopia Restaurant, 118 N.M. 354, 357, 881 P.2d 714, 717 (Ct.App.1994). The fundamental principle of statutory interpretation is that the court must ascertain and give effect to the intent of the Legislature. See Cummings v. X-Ray Assocs., 1996-NMSC-035, p 44, 121 N.M. 821, 918 P.2d 1321. However, " '[w]hen a statute contains language which is clear and unambiguous, we must give effect to that language and refrain from further statutory interpretation.' " Sims v. Sims, 1996-NMSC-078, p 17, 122 N.M. 618, 930 P.2d 153 (quoting State v.. Jonathan M., 109 N.M. 789, 790, 791 P.2d 64, 65 (1990)).

¶6 In furtherance of their challenge to the district court's application of the Act, Petitioners argue that Section 7-33-4 is ambiguous and that it should be strictly construed against the Department. Among other things, Petitioners contend that the term "interest owner," which is undefined in the statute, is ambiguous. We do not agree. Although the statute has been modified by several amendments, its meaning is readily discernible when examined in light of the statute's legislative history and related statutory provisions.

¶7 Section 7-33-4 provides in applicable part:

A. There is levied and shall be collected by the oil and gas accounting division of the taxation and revenue department, a privilege tax on processors for the privilege of engaging in the business of processing based on the value of their products. The measure of the tax shall be forty-five one-hundredths of one percent of the value of the products.

....

C. Every interest owner is liable for this tax to the extent of his interest in the value of such products or to the extent of his interest as may be measured by the value of such products.

Any Indian tribe, Indian pueblo or Indian is liable for this tax to the extent authorized or permitted by law.

¶8 Petitioners argue that under the language of the Act, the natural gas processors tax is imposed on the processors of natural gas. They point out that, at the administrative hearing, Petitioners presented evidence that there are presently two basic types of agreements generally in use relating to the processing of natural gas in New Mexico:

Under one type of agreement, usually referred to as a "casinghead agreement", the plant operator purchases 100 percent of a producer's natural gas at an agreed price before the gas enters the plant. The plant operator takes responsibility for selling the processed natural gas products. The agreed price the plant operator pays the producer is usually calculated as a percentage of the plant operator's proceeds from the sale of [the processed] products.

This was the type of agreement that was pervasive in the natural gas industry in 1970, when the Act was amended. At that time, pipeline companies purchased substantially all of Petitioners' natural gas at the wellhead or at the inlet of a processing plant. The pipeline companies owned the processing plants and virtually all of the gas which passed through those plants. Under this type of agreement, the pipeline companies, as processors, traditionally reported and paid the natural gas processors tax.

¶9 The record also shows that by the beginning of 1990 and up to the present time, Petitioners have contracted to sell natural gas to various parties downstream of the wellhead and processing plants. Petitioners do not own or operate any processing plants in New Mexico. Rather, they pay a fee to a processing company to transport their gas away from the wellhead and process it at various processing plants in New Mexico.

Under the second type of agreement, usually referred to as a "processing agreement", the plant operator does not take title to the natural gas delivered to the plant, but charges the owner of the natural gas a fee for the plant's processing services. The fee may be paid in cash or in-kind in the form of a portion of the processed products....

The dispute in this case is over who must pay the natural gas processors tax under this type of agreement.

¶10 In support of their contention that Section 7-33-4 does not subject them to payment of the tax, Petitioners point to the fact that the statute calls for a tax "on processors for the privilege of engaging in the business of processing"; that a related provision, Section 7-33-8, requires processors to "make a return to the [Department] showing the value, volume and kind of products sold from each plant for the calendar month"; and that "[a]ll taxes due, or to be remitted, by the processor shall accompany this return." Petitioners reason that because they are not in the business of processing natural gas, they should not be subject to the processors tax. They further argue that there has been a major change in industry practice from casinghead agreements to processing agreements and that legislation is necessary to subject them to liability for payment of the tax. We are not persuaded by these arguments.

¶11 The fact that the Legislature has made provisions for reporting and remittance to be made by natural gas processors does not change the incidence of the tax, as spelled out in the language of the statute imposing the tax. See United Nuclear Corp. v. Revenue Div., Taxation & Revenue Dep't, 98 N.M. 296, 301, 648 P.2d 335, 340 (Ct.App.1982) (where tax is imposed on buyer, and seller merely acts as the collector of the tax, legal incidence of tax does not shift to seller); see also Fleming Oil Co. v. Anco Gas Corp., 217 S.W.2d 29, 37 (Tex.Civ.App.1948) (discussing Texas statute that charged production taxes against the producers (sellers) and made it the duty of the processor (buyer) to see that same were paid, and concluding "it was entirely lawful for the buyer and sellers to make any contract they pleased relative to the payment of the production taxes."). Nor are we persuaded that the change in industry practice from casinghead agreements to processing agreements relieves Petitioners of their tax liability. Legislative action, not unilateral...