Apache Gas Products Corp. v. Oklahoma Tax Commission, 42841
| Decision Date | 27 March 1973 |
| Docket Number | No. 42841,42841 |
| Citation | 1973 OK 34,509 P.2d 109 |
| Parties | APACHE GAS PRODUCTS CORPORATION et al., Appellants, v. OKLAHOMA TAX COMMISSION, Appellee. |
| Court | Oklahoma Supreme Court |
Syllabus by the Court
1. Where natural gas is sold at a certain contract price, which was the highest and best price obtainable for gas in the field producing it, under the circumstances prevailing at the time the contract was entered into, this does not constitute a case where gas 'is sold under circumstances where the sale price does not represent the cash price thereof prevailing for gas . . . of like kind, character or quality in the field from which such product is produced . . .', within the meaning of Title 68 O.S.1961, § 833 (68 O.S.1971, § 1009(f)); and this interpretation of said statute is not affected by the fact that some of the gas covered by the contract was not produced and delivered to the buyer until years after the contract was entered into, when such gas, under newer contracts, sold at a higher price.
2. The Gross Production Tax prescribed by 68 O.S.1961, §§ 821--850 (68 O.S.1971, §§ 1001--1022), is levied on the occupation or business of producing the commodities therein designated, and is in lieu of a property tax. This Court's opinion in the case of In re Skelton Lead & Zinc Company's Gross Production Tax for 1919, 81 Okl. 134, 197 P. 495, and all other cases of like import are hereby overruled insofar as they are in conflict herewith.
Appeal from the District Court of Oklahoma County; Carmon C. Harris, Judge.
Action by taxpayers against Oklahoma Tax Commission to recover gross production taxes paid under protest. Judgment for Oklahoma Tax Commission, and taxpayers appeal. Reversed and remanded with directions.
George H. Bowen, Tulsa, for appellants.
Albert D. Lynn, E. J. Armstrong, R. O. Ingle, Sallisaw, for appellee.
This appeal involves the interpretation and application of the emphasized provisions of that part of this State's Gross Production Tax Law, 68 O.S.1961, § 833, appearing as Title 68 O.S.1971, § 1009, quoted below:
'(a) The gross production tax on . . . natural gas . . . shall be paid on a monthly basis in accordance with this Article.
'(f) In case . . . gas . . . is sold under circumstances where the sale price does not represent the cash price thereof prevailing for . . . gas . . . of like kind, character or quality in the field from which such product is produced, the Tax Commission may require the said tax to . . . (b) paid upon the basis of the prevailing price then being paid at the time of production thereof in said field for . . . gas . . . of like kind, quality and character.' (Emphasis supplied)
For several years the Appellants, Apache Gas Products Corporation and Warren Petroleum Corporation, have been purchasing from the Appellant, R. H. Siegfried, Inc., natural gas which the latter produces on oil and gas leases in Lincoln County. These parties will hereinafter be referred to collectively as 'plaintiffs' and individually by the first word in their names. The Appellee, Oklahoma Tax Commission, will hereinafter be referred to as 'defendant' and/or 'Commission'.
For years previous to April, 1963, Apache and Warren reported to the Commission, as prescribed by 68 O.S.1961, § 834, the gas they purchased from Siegfried and other producers in Lincoln County under written contracts previously entered into with those producers; and they remitted to the Commission the gross production tax upon the quantity of gas shown on these reports computed on the basis of the prices prescribed for it by the contracts. The gas Apache and Warren were purchasing from Siegfried at the time this controversy arose had insufficient pressure to enter the pipeline of the common carrier in that area (hereinafter referred to as 'Oklahoma Natural') and consequently, under the provisions of their contracts, they obtained it for the price of 9cents per MCF at the wells where and as produced.
On April 19, 1963, the Commission, through its Gross Production Division's Director, addressed a letter to Apache enclosing a statement of additional gross production taxes it was claiming on this gas for the period August 1, 1960, to February 28, 1963, and advising Apache that in accord with the statement (which was the result of an audit the Commission had made) it owed additional gross production taxes in the amount of $4,806.68, with an additional sum of interest. The letter informed Apache that in computing the Company's liability, the Commission 'intended to use, and used as a measuring device, the prevailing price of gas in the field or area from which the gas was produced, which price the Tax Commission understands is 12cents per MCF. * * *'
Thereafter, Apache and Warren paid, under protest, the additional tax assessment, which with interest and penalty totaled $8,084.72, and then instituted the present action for its recovery. Plaintiffs attached to their petition a copy of a contract representing the terms under which they had been purchasing the gas. One provision of the contract prescribed a price of 11cents per MCF for gas delivered to the purchaser at a pressure sufficient to enter Oklahoma Natural's high pressure line at the plant where it was to be used, But another price of only 9cents per MCF for gas delivered into the plant's low pressure system. Plaintiffs' petition alleged that this contract and all others governing the price they had paid for the gas in question were 'negotiated at arm's length between the contracting parties in good faith and for the best price and on the best terms the sellers could secure.' Plaintiffs' theory was that since the lower of the above contract's prescribed prices (9cents) was the price they had paid for the gas in question, that it was the only price upon which the gross production tax could be lawfully computed. They alleged that the higher price of 12cents per MCF, the Commission had used in its computation, was 'a false and fictitious basis', arbitrarily and unlawfully fixed by the Commission, for evaluation of the gas.
Plaintiffs further alleged that the Commission's long continued uniform previous practice of assessing and collecting gross production taxes upon gas values, determined by contract sale price, constituted an administrative interpretation of the intent and meaning of the applicable tax statutes, that had become binding on said defendant. Plaintiffs further alleged that payment of the tax, calculated by the new method the Commission had used in this instance, resulted in an attempted application of the law that was neither equal nor uniform and was in violation of the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution and Article 10, Section 5, of the Oklahoma Constitution.
In its answer, the Commission denied (among other allegations of plaintiffs' petition) that the contract price plaintiffs paid for the gas was the equivalent of the 'gross value' for use in determining the gross production tax payable, or represented the proper or lawful basis for evaluating the gas for gross production tax purposes. It prayed that plaintiffs take nothing by the action and be required to pay the costs thereof.
After one trial and a judgment for plaintiffs, the trial court sustained defendant's motion for a new trial, and, after a further hearing of it, took the case under advisement and thereafter entered judgment for the defendant sustaining the 'deficiency assessment' of gross production taxes it had previously made, as hereinbefore indicated. In so ruling, the Court concluded that the gross production tax is based upon 'gross value', instead of cash value. Despite its finding that the contracts under which Apache and Warren had purchased the gas from Siegfried and others were negotiated 'at arm's length' and that the price paid for it was 'the highest and best price obtainable for natural gas in that field, under the circumstances prevailing', the Court concluded that the Commission, in determining its 'gross value' for gross production tax purposes, was not bound by that price, but was 'authorized by law to fix . . . (said) gross value by determining the prevailing price of gas in the field' and that said 'prevailing price . . .', as ascertained by defendant, was 'supported by the evidence.' The Court further found that the Commission's administrative finding that 12cents per MCF was the 'prevailing price' of the gas--using all of Lincoln County as the 'field' involved--was based upon a chart said defendant introduced in evidence as its Exhibit 6, showing that 55% Of the gas produced and sold in that County brought that price.
After the overruling of a second motion for a new trial filed by plaintiffs, they perfected the present appeal.
In their urging of errors in the trial court's judgment, plaintiffs present arguments concerning other issues, but we think the errors in said judgment are rendered manifest by considering defendant's above mentioned Exhibit 6 and correctly interpreting the applicable statutory provisions.
Defendant's Exhibit 6 consisted of a written tabulation made in its Gross Production Division showing the volumes of gas that four purchasers, including Apache, had bought and paid for natural gas they had purchased in the whole of Lincoln County at certain varying prices during the months of January in each of the years 1961, 1962 and 1963. The figures on this Exhibit (never disputed) indicated that of the total of such Lincoln County gas sold during those three months the sale price of slightly more than 55% Was 12cents per MCF, while less than 2% Of that total volume sold for 9cents per MCF. However, uncontradicted evidence, both testimony and documents (including the contracts under which Apache purchased its gas), indicated that several factors, including its pressure, affect the marketablility and price of natural gas in a given field or locality, and...
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