County Com'Rs of Rio Blanco v. Exxonmobil

• Decision Date: 24 July 2008
• Docket Number: No. 07CA1054.,07CA1054.
• Citation: 192 P.3d 582
• Parties: The BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF RIO BLANCO, Colorado, Plaintiff-Appellant, v. EXXONMOBIL OIL CORPORATION, Defendant-Appellee.
• Court: Colorado Court of Appeals

192 P.3d 582

The BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF RIO BLANCO, Colorado, Plaintiff-Appellant, v. EXXONMOBIL OIL CORPORATION, Defendant-Appellee.

No. 07CA1054.

Colorado Court of Appeals, Div. V.

July 24, 2008.

Murray Dahl Kuechenmeister & Renaud, LLP, Malcolm M. Murray, M. Patrick Wilson, Denver, CO, for Plaintiff-Appellant.

Silverstein & Pomerantz, LLP, Neil I. Pomerantz, Robert R. Gunning, Denver, CO, for Defendant-Appellee.

Opinion by Judge GRAHAM.

Plaintiff, the Board of County Commissioners of Rio Blanco County, appeals the trial court's judgment affirming the determination of the Executive Director of the Colorado Department of Revenue that certain equipment used by defendant, ExxonMobil Oil Corporation, in connection with its natural gas operations in Rio Blanco County, did not constitute "construction and building materials" and therefore could not be assessed under the county and municipal use tax statute, section 29-2-109(1), C.R.S.2007. We affirm.

ExxonMobil extracts and processes natural gas in Rio Blanco County. To facilitate its operations during the relevant time period here (January 1, 2003 through July 31, 2004), ExxonMobil brought various equipment and materials into Rio Blanco County.

We find it helpful to explain briefly ExxonMobil's natural gas operations, drawing upon facts which are either largely undisputed or were stipulated by the parties. ExxonMobil begins its natural gas extraction and processing operations by drilling a well bore into the earth at a series of well sites to reach natural gas deposits. It inserts varying "strings" of pipe, or casing, into the well bore to prevent its collapse during the extraction process. Some, but not all, of the casing is cemented into place. Natural gas and other accompanying fluids, such as condensate and water, are brought to the surface through linked sections of tubing, known as tubulars, that hang inside the well bore. Surface equipment at the well site, such as casing heads, "Christmas trees" (an assembly of valves, spools, and fittings), and manifolds, regulates and directs the flow of the extracted elements. The elements are initially processed by gas processing units that separate natural gas from oil condensate and water. Tanks at certain of the well sites provide temporary storage for the extracted fluids. A system of pipes, or flowlines, directs the natural gas and any remaining liquids from the well sites to gathering lines, which then direct the elements to one of two of ExxonMobil's gas processing plants in Rio Blanco County.

At the gas processing plants, various equipment, including compressors, amine units, hydrocarbon dewpoint control units, a furl gas system, a separator, and a "slug catcher" (a manifold that separates lighter gas from heavier liquids), further processes the natural gas. Additional storage tanks at the processing plants collect extracted liquids pending off-site sale or disposal. An instrument and electrical unit (I & E unit) at the processing plant provides an enclosure for computers and company employees that monitor and manage the processing plant.

ExxonMobil also operates saltwater disposal sites where saltwater that has been separated from the natural gas is collected. Equipment at the saltwater disposal sites pumps the saltwater to an injection well, where the saltwater is pumped back into the earth.

Each component of the natural gas system is interconnected, interdependent on, and interrelated to, the other system components. Therefore, if one component is removed or malfunctions, the entire system shuts down or ceases to operate properly.

The various system components are not readily interchangeable or completely fungible; rather, they were selected, designed, and engineered for each specific location and installation. In addition, the individual components at each location, such as tanks, gas processing units, and wellhead configurations, have specific sizing, ratings, and capacities that meet the criteria of the specific well, including pressure and impurity content. Most of the component parts are attached or connected to the system on site in Rio Blanco County.

The component structures, such as gas processing units, tanks, and other facilities, are durable, have been in place for many years, and in some cases, have been in their present location since the completion of the well. However, certain other equipment, such as gathering lines and flow lines, often has to be repaired or replaced. If equipment needs to be replaced, ExxonMobil will replace it with equipment from its other operations out of state or within Rio Blanco County. Almost all the equipment and materials used in ExxonMobil's natural gas operations are readily moveable. For example, tubulars and some of the casing may be removed from the well bore and reused elsewhere. Surface equipment used by ExxonMobil at the well sites, processing plants, and saltwater disposal sites is designed in a manner that facilitates its movement for the purpose of repair, replacement, or relocation. Certain equipment is designed with roll bars to permit movement on and off the transport trucks. When placed into service, some equipment is bolted to a concrete pad, generally to reduce vibration, while other equipment, such as many of the storage tanks, simply rests on the bare earth. ExxonMobil leased much of the equipment used at one of its processing plants in Rio Blanco County from a third party before purchasing the used equipment.

ExxonMobil tracks the location of all subsurface piping and assigns serial numbers and bar codes to most equipment. ExxonMobil's assets ledgers identify each item of equipment individually, and the equipment at issue here is designated "fixed assets."

Almost all ExxonMobil's well sites in Rio Blanco County are located on land that is leased from the Bureau of Land Management. ExxonMobil has never obtained, and the county does not require, building permits for any of its well bores, pipelines, or equipment. Finally, when a well site is abandoned, ExxonMobil is responsible for remediation and reclamation of the site, which include removal of well pads, grass reseeding, grading, and recontouring the land to its original condition.

The County issued ExxonMobil a notice of deficiency which assessed additional use taxes, plus interest and penalties, in the amount of $748,400, for the period at issue. The assessment provided that various items of equipment and materials used by ExxonMobil in its natural gas operations in Rio Blanco County constituted taxable "construction and building materials" pursuant to section 29-2-109(1). ExxonMobil appealed the assessment to the County Petition Board, which upheld the assessment.

On appeal from the Petition Board, the Department of Revenue found that the equipment in dispute did not constitute "construction and building materials" under section 29-2-109(1).

The County appealed to the trial court pursuant to sections 29-2-106.1(7) and 39-21-105, C.R.S.2007. ExxonMobil agreed to pay the use tax on a compressor enclosure at one of its processing plants, and, therefore, that piece of equipment was not at issue before the trial court. After a bench trial, the court upheld the Department's ruling that the equipment in dispute did not constitute "construction and building materials." Specifically, the court determined that the term "construction and building materials" means only items that become improvements to real property and that the equipment in dispute was installed for the purpose of natural gas operations and did not add value or constitute an improvement to the real property apart from the business conducted thereon.

The County appeals from a judgment entered after a trial to the court.

I. Standard of Review

An appeal to the district court pursuant to section 29-2-106.1(7) is a trial de novo. § 39-21-105(2)(b), C.R.S.2007. A decision of the district court is reviewable by this court "as is otherwise provided by law." § 39-21-105(7), C.R.S.2007; accord Catholic Health Initiatives Colo. v. City of Pueblo, 183 P.3d 612, 615 (Colo.App.2007).

We, therefore, review the trial court's judgment as a mixed question of fact and law. We defer to the court's credibility determinations and will disturb its findings of fact only if they are clearly erroneous and not supported by the record. M.D.C./Wood, Inc. v. Mortimer, 866 P.2d 1380, 1383 (Colo. 1994); Page v. Clark, 197 Colo. 306, 313, 592 P.2d 792, 796 (1979). We review de novo the court's application of the governing legal standards. Ocmulgee Props. Inc. v. Jeffery, 53 P.3d 665, 667 (Colo.App.2001).

Statutory interpretation is a question of law that we review de novo. Ryals v. St. Mary-Corwin Reg'l Med. Ctr., 10 P.3d 654, 659 (Colo.2000).

Our goal in such interpretation is to determine and give effect to the intent of the General Assembly. Moffett v. Life Care Ctrs., 187 P.3d 1140, 1143 (Colo.App.2008) (citing Colo. Office of Consumer Counsel v. Pub. Utils. Comm'n, 42 P.3d 23, 27 (Colo. 2002)). We first consider the statutory language, giving the words in the statute their plain and ordinary meaning. Golden Animal Hosp. v. Horton, 897 P.2d 833, 836 (Colo. 1995). A statute should be interpreted as a whole, giving effect to all of its parts. Zab, Inc. v. Berenergy Corp., 136 P.3d 252, 255 (Colo.2006). "[W]e look at the context in which a statutory term appears, and the meaning of a word may be ascertained by reference to the meaning of words associated with it." Wolf Creek Ski Corp. v. Bd. of County Comm'rs, 170 P.3d 821, 825 (Colo. App.2007) (quoting Robinson v. Colo. State Lottery Div., 155 P.3d 409, 413 (Colo.App. 2006), aff'd in part and rev'd in part, 179 P.3d 998 (Colo.2008)); see Premier Farm Credit, PCA v. W-Cattle, LLC, 155 P.3d 504, 513 (Colo.App.2006).

If the language of a statute "is clear and the intent of the General Assembly may be discerned with certainty, we need not resort to other rules of...