In re Oneok Field Services Gathering, LLC

• Decision Date: 18 December 2001
• Docket Number: No. 95,776.,95,776.
• Citation: 38 P.3d 900,2001 OK 116
• Parties: In the Matter of the Assessment for the Year 2000 of Certain Property Owned by ONEOK FIELD SERVICES GATHERING, LLC.
• Court: Oklahoma Supreme Court

38 P.3d 900

2001 OK 116

In the Matter of the Assessment for the Year 2000 of Certain Property Owned by ONEOK FIELD SERVICES GATHERING, LLC.

No. 95,776.

Supreme Court of Oklahoma.

December 18, 2001.

As Corrected December 28, 2001.

Mart Tisdal, Clinton, OK, for appellants.

William K. Elias and Freda L. Williams, Oklahoma City, OK, for appellee.

Scott D. Caldwell and Julie L. Vogt, Oklahoma City, OK, for Oklahoma State School Board Association, amicus curiae.

Chris J. Collins and Michael L. Carr, Oklahoma City, OK, for Association of County Commissioners, amicus curiae.

Michael E. Smith, Sharon Taylor Thomas and Rand Phipps, Oklahoma City, OK, for Mid-Continent Oil & Gas Association, amicus curiae. BOUDREAU, Justice.

¶ 1 This is an appeal from an order of the district court reducing the ad valorem tax valuation of the personal property of Oneok Field Services Gathering, LLC, in Washita County, Oklahoma, for the 2000 tax year. A statutory construction issue is presented: Has the Legislature classified pipeline rights of way as real property or personal property for assessment by a county assessor? We conclude that for purposes of ad valorem tax assessment by a county assessor, pipeline rights of way are within the statutory definition of real property. We hold the district court did not err in granting summary judgment on this issue in favor of Oneok Field Services, LLC.

I. Background

¶ 2 Oneok Field Services Gathering, LLC, (Oneok), is in the business of gathering natural gas. Oneok has a natural gas pipeline gathering system in Washita County. For the 2000 tax year, Oneok submitted sworn schedules of its business personal property to the Washita County Assessor (county assessor).¹ The county assessor, using the cost approach, estimated a fair cash value for Oneok's natural gas pipeline gathering system to be $2,711,847.00. In arriving at this valuation, the county assessor included $347,210.00 for the pipeline rights of way as a cost of construction. The county assessor classified Oneok's property as personal property.²

¶ 3 Oneok protested the valuation before the county assessor and then the Washita County Board of Equalization (county board).³ In its protest, Oneok alleged that "right of way value should not be on the assessment for personal property." The county board rejected Oneok's protest and sustained the county assessor's personal property valuation for Oneok's pipeline gathering system.

¶ 4 Oneok appealed to the District Court in Washita County, Oklahoma.⁴ Its petition alleged that:

The $2,711,847 valuation . . . is in excess of the actual fair market value of the subject property for the reason that such value includes $347,210 ($2.00 per foot of gathering line) for value attributable to rights-of-way.

The valuation recommended by the County Assessor and affirmed by the Board is erroneous as a matter of law to the extent that the Board's valuation taxes right-of-way as personal property. Under Oklahoma law, right-of-way is an interest in real property taxable to the fee owner. It is not taxable as personal property. As a result, the determination of the fair market value for the property by the County Assessor and the Board is arbitrary, excessive, and fails to take into account the actual value and situation of the subject property.

The county assessor denied that she failed to used a proper methodology in determining fair cash value or that her valuation was arbitrary and excessive.

¶ 5 Oneok moved for summary judgment arguing that the Legislature has not classified pipeline rights of way as personal property for ad valorem tax purposes; and, that pipeline rights of way constitute interests in real property taxable to the fee owner. The district court granted summary judgment, finding there was no substantial controversy as to any material fact and concluding that rights of way are interests in real property as defined in 68 O.S.1991, 2806 and that under Oklahoma law, all interests in real property are taxed to the fee owner. The judgment ordered that the fair cash value of Oneok's natural gas gathering system be reduced by $347,210.00. The district court denied the county's motion for new trial.

¶ 6 The county timely commenced appeal to this Court asserting that the district court erroneously held that pipeline rights of way are not taxable ad valorem. The county also raised questions as to whether there is any evidence establishing that the county assessor's valuation exceeds Oneok's fair cash value or that the valuation should be reduced by $347,210.00. We, sua sponte, retained the appeal.

II. Standard of Review

¶ 7 Oneok's appeal to the district court raised a first impression issue as to whether the Legislature classified pipeline rights of way as personal property for purposes of ad valorem taxation. The definitions of real property and personal property set forth in the ad valorem tax statutes are critical to the resolution of this issue. Because the meaning of statutory language is a pure issue of law and because the trial court's disposition was effected by summary judgment, the issue stands before us for de novo review.⁵ In a de novo review, we have plenary, independent and non-deferential authority to determine whether the trial court erred in its application of the law.⁶

III. Taxable status of Oneok's pipeline rights of way under the existing statutory taxing scheme

¶ 8 The power to tax is an exclusively legislative function that can be exercised only under statutory authority and in the manner provided by law.⁷ Subject only to constitutional restrictions⁸ and the will of the people expressed through elections, the Legislature has plenary power in regard to taxation.⁹

¶ 9 Our state constitution provides that "(a)ll property which may be taxed ad valorem shall be assessed at its fair cash value".¹⁰ The tax is based on the value of the property as of January 1st of each year.¹¹ The value of the property is the price at which a willing buyer would buy property and a willing seller would sell property if both parties are knowledgeable about the property and its uses.¹² The county assessor estimates this fair cash value by making a market appraisal¹³ and calculates the assessed value by multiplying the estimated fair cash value by the assessment ratio.¹⁴

¶ 10 Within constitutional limitations, the Legislature has power to classify property for purposes of taxation. The Legislature may arrange and divide the various subjects of taxation into distinct classes and it may exercise wide discretion in selecting and classifying the subjects of taxation.¹⁵ The manner in which the Legislature defines property classes for ad valorem tax purposes is not constrained by the common law.¹⁶ Because the power to classify for tax purposes is vested in the Legislature, courts will not interfere with legislative classifications and definitions for purposes of ad valorem taxation in the absence of constitutional transgression in classifying the property to be taxed.¹⁷

¶ 11 The controversy in this case relates to the character of pipeline rights of way for purposes of assessment by the county assessor, i.e., whether they should be taxed as real or personal property. This controversy must be resolved by determining whether pipeline rights of way generally have the important characteristics which distinguish the interests described by the tax statutes to be applied. Oklahoma has two tax statutes which define the general terms "real property" and "personal property". Neither specifically refers to pipeline rights of way.

¶ 12 Defining "real property," 68 O.S.1991, 2806 provides:

Real property, for the purpose of ad valorem taxation, shall be construed to mean the land itself, and all rights and privileges thereto belonging or in any wise appertaining, such as permanent irrigation, or any other right or privilege that adds value to real property, and all mines, minerals, quarries and trees on or under the same, and all buildings, structures and improvements or other fixtures, including but not limited to improvements such as barns, bins or cattle pens, or other improvements or fixtures of whatsoever kind thereon, exclusive of such machinery and fixtures on the same as are, for the purpose of ad valorem taxation, defined as personal property.

¶ 13 Defining "personal property," 68 O.S.Supp.2000, 2807 provides in part:

Personal property, for the purpose of ad valorem taxation, shall be construed to include:

. . . .

12. a. All tanks and containers used to store or hold crude oil or any of its products or byproducts and all tanks and containers used to store or hold gasoline, water, or other liquids or gases,

b. All oil, gas, water or other pipelines,

c. All telegraph and telephone lines,

d. All railroad tracks,

e. All oil and petroleum products in storage; and

13. All other property, having an actual, constructive or taxable situs in this state, and not included within the definition of real property.¹⁸

¶ 14 Oneok argues that pipeline rights of way cannot be taxed as personal property because they fall within the definition of real property. Oneok maintains that the Legislature defined real property in § 2806 as not only the land itself and any right or privilege that adds value to real property, but "all rights and privileges thereto belonging or in any wise appertaining" to the land itself. Oneok contends that pipeline rights of way fall within this latter category of real property for purposes of ad valorem taxation. Oneok points out that § 2807(13) expressly excludes from the definition of personal property all property included within the definition of real property.

¶ 15 The county assessor asserts that pipeline rights of way are personal property for ad valorem taxation. The county assessor points out that oil and gas pipelines are unambiguously defined as personal property under § 2807(12)(b). Accordingly, the assessor argues that all pipeline components, including the value...