Coastal States Petroleum Co. v. Corpus Christi Independent School Dist., 13-85-124-CV

Citation707 S.W.2d 206
Decision Date05 March 1986
Docket NumberNo. 13-85-124-CV,13-85-124-CV
Parties31 Ed. Law Rep. 1045 COASTAL STATES PETROLEUM COMPANY, Appellant, v. CORPUS CHRISTI INDEPENDENT SCHOOL DISTRICT and Corpus Christi Junior College District, Appellees.
CourtCourt of Appeals of Texas

Ken Dahlberg, Wood & Burney, Corpus Christi, M. Frank Powell, M. Frank Powell & Associates, Austin, for appellant.

Hal George, Asst. City Atty., Corpus Christi, for appellees.

Before NYE, C.J., and BENAVIDES and DORSEY, JJ.

OPINION

BENAVIDES, Justice.

This suit involves the valuation of crude oil inventory for ad valorem tax purposes. Although appellant brings fourteen points of error, one issue controls the outcome of this case: what constitutes "market value" of a refinery's crude oil for the tax years 1980 and 1981.

No dispute exists over the quantity or type of products owned by Coastal States Petroleum Company within the limits of the taxing jurisdictions on the dates involved. It is also undisputed that property must be taxed according to its value. TEX. CONST. art. VIII, § 1.

The principal problem as reflected in the appellate briefs and oral argument thereon is whether the crude oil inventory at appellant's refinery must be valued for tax purposes at a "book value" price, pursuant to Federal Energy Guideline Rule 212.183(b) ("pricing rule") as asserted and interpreted by appellant, or assessed at comparable market value. Appellant contends that "book value" should be the measuring figure, thus evaluating a barrel of crude oil in storage on January 1, 1980 at $15.64, and on January 1, 1981 at $15.65. Appellees, on the other hand, used comparable market value to value appellant's crude oil for 1980, at $21 per barrel and for 1981, at $28 per barrel. Appellant argues that the valuation method used by appellees for appellant's crude oil constitutes an arbitrary and fundamentally erroneous plan, scheme, method or formula of taxation which directly resulted in substantial injury to appellant. Appellant attacks only the appraised value of its crude oil inventory and not any other property.

At trial, Coastal States Petroleum Company ("Coastal") assumed the burden of proof by stipulating to the facts necessary to establish the taxing authorities' prima facie case, and was allowed to open and close. TEX.R.CIV.P. 266. In addition, the parties stipulated to the following pertinent facts:

(1) Appellant tendered into the Court's Registry payment of $304,127.18 for 1980 taxes due and $88,583.30 for 1981 taxes due to the appellees.

(2) The tax rates adopted by each appellee for 1980 and 1981 are undisputed. 1

(3) A reasonable attorney's fee for appellees is ten percent (10%) of the difference between the tax tendered by appellant and the tax, penalty, and interest, if any, determined by the Court to be owed.

(4) The tank composition reports and tax records applicable to appellant for tax years 1980 and 1981 were stipulated as true and correct copies.

Appellant claims that as a result of appellees' appraisals, appellant's taxes on its crude oil for 1980 and 1981 would be excessive as follows:

                Tax on Appellees'        Tax on Appellant's
                "Market Value"       "Book Value"="Market Value"  Excess tax
                -------------------  ---------------------------  ----------
                1980:   $160,323.78          $119,403.02          $40,920.76
                1981:     65,293.23            36,489.05           28,804.18
                        -----------  ---------------------------  ----------
                TOTAL:  $225,617.01          $155,892.07          $69,724.94
                

The appellant brings fourteen points of error, all argued together with regard to the factual and legal sufficiency of the evidence. All fourteen points of error are contingent on appellant's main argument that their "Book Value" mandates the taxable market value. All points fail if appellant is incorrect in this assertion.

The jury returned answers to the special issues as follows:

SPECIAL ISSUE NO. 1

Do you find from a preponderance of the evidence that Plaintiff's Board of Equalization employed an arbitrary or fundamentally erroneous method of valuing Defendant's crude oil inventory in 1980?

Answer "We do" or "We do not."

Answer: We do not

SPECIAL ISSUE NO. 2

Do you find from a preponderance of the evidence that the Plaintiff's Board of Equalization employed an arbitrary or fundamentally erroneous method of valuing Defendant's crude oil inventory in 1981?

Answer "We do" or "We do not."

Answer: We do not

SPECIAL ISSUE NO. 3

What do you find from a preponderance of the evidence to be the fair market value of Defendant's crude oil inventory for 1980?

Answer in dollars and cents per barrel.

Answer: $21.00

SPECIAL ISSUE NO. 4

What do you find from a preponderance of the evidence to be the fair market value of Defendant's crude oil inventory for 1981?

Answer in dollars and cents per barrel.

Answer: $28.00

SPECIAL ISSUE NO. 5

Do you find from a preponderance of the evidence that the valuation placed on Defendant's crude oil inventory by the Board of Equalization for 1980 resulted in substantial injury to Defendant?

Answer "We do" or "We do not."

Answer: We do not

SPECIAL ISSUE NO. 6

Do you find from a preponderance of the evidence that the valuation placed on Defendant's crude oil inventory by the Board of Equalization for 1981 resulted in substantial injury to Defendant?

Answer "We do" or "We do not."

Answer: We do not

SPECIAL ISSUE NO. 7

Do you find from a preponderance of the evidence that "LIFO" was the consistent and historical accounting practice of Defendant?

Answer "We do" or "We do not."

Answer: Yes we do

Robert Shaw, Director of Ad Valorem Taxes for Coastal States, testified at trial that according to calculations (based on book value, LIFO basis) of fair market value per barrel, appellant would be paying 34.27% more taxes for 1980 and 78.94% more for 1981. He claimed this difference constitutes substantial injury, and appellees' appraisal that totally ignores the refiner's crude oil "pricing rule," is substantially erroneous.

Jack Stone, appraiser for appellees, recommended the price of $21 per barrel for 1980, based on an average of prices and information from the Department of Energy, posted prices from the Texas Railroad Commission of crude oil in Texas, and other refineries' values of crude. The OPEC price at the time of Stone's appraisal was $25.00-26.00 per barrel. Stone reduced that figure by 15% to account for any entitlements he did not know of available to the companies that could have some bearing on the price. Stone discussed inventory cost figures with appellant's representatives, but did not independently appraise appellant's crude oil after those discussions. The 1981 price per barrel valuation on such basis according to Stone was $28.00 per barrel.

It is clear that the average fair market value which Stone presented to the Board of Equalization hearing on August 21, 1980 did not specifically take into account the Department of Energy or Federal Energy Guidelines or pricing rules. Stone testified at trial that in fact, he did not know about the guidelines, did not consider them in his calculations, and that the restrictions should not affect the fair market value of appellant's property. Nonetheless, his testimony as to fair market value was before the jury. In addition, there was testimony from an independent appraiser that the market value based on a replacement value for the inventory at the appropriate valuation dates was $29.00 per barrel for the 1980 tax year and $33.05 for the 1981 tax year.

Appellee witness Stone distinguished between price paid and book value and testified that "the pricing rule" would not govern the sale of crude to require its sale at book value and testified that he knew of no instance where "the guideline" or "pricing rule" was so enforced.

Appellant asserts that the major error in appellees' valuation is their failure to consider the specific impact on appellant by the restrictions and regulations imposed by the federal government on appellant's ability to sell its crude oil.

Coastal claims that under the "LIFO" (last in first out, if lower) method of inventory evaluation, 2 approved by the company auditors, the average book values, including transportation costs, for crude oil by the barrel, were $15.64 for 1980, and $15.65 for 1981. Appellant claims that these values are the proper figures for ad valorem valuation, necessary to avoid penalties for violating the Federal Energy Pricing Rules. In effect, appellant asserts that if the crude oil was valued differently, if they sold the oil for more than their book value costs, they would violate the law and therefore be subject to a $20,000 penalty, $40,000 fine, or a year in prison.

We agree that federally imposed restrictions on prices are recognized by Texas courts as affecting market value of the property subject to those restrictions. Exxon Corp. v. Middleton, 613 S.W.2d 240 (Tex.1981); Polk County v. Tenneco, Inc., 554 S.W.2d 918 (Tex.1977); Texas Eastern Transmission Corp. v. Sealy Independent School District, 580 S.W.2d 596 (Tex.Civ.App.--Houston [1st Dist.] 1979, writ ref'd n.r.e.). However, each pricing rule must be considered in its proper context.

In addition, the jury is not required to accept one party's arguments, but makes its decision by a preponderance of the evidence. As the Beaumont Court of Appeals noted in Southwestern Settlement and Development Corp. v. State, 282 S.W.2d 78 (Tex.Civ.App.--Beaumont 1955, writ ref'd n.r.e.):

[t]he findings ... fixing the reasonable cash market value per acre of Defendant's lands ... at $90 and $95 per acre, instead of the $39.25 testified to by Mr. Coats, show that the jury did not accept Mr. Coats' opinions, and they were not required to do so, for several reasons other than the fact that his testimony concerning values was only an opinion. And for the same reasons they were not required to accept the findings made in his reports.

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1 cases
  • Sears & Roebuck v. Dallas Central Appr.
    • United States
    • Court of Appeals of Texas
    • August 9, 2000
    ...pet. denied); Cheek v. Humphreys, 800 S.W.2d 596 (Tex. App._Houston [14th Dist.] 1990, writ denied); Coastal States Petroleum Co. v. Corpus Christi Indep. Sch. Dist., 707 S.W.2d 206 (Tex. App._Corpus Christi 1986, writ ref'd n.r.e). None of these cases involve the valuation of merchandise i......

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