Eagerton v. Exchange Oil and Gas Corp.

• Decision Date: 04 November 1983
• Citation: 440 So.2d 1031
• Parties: Ralph P. EAGERTON, Jr., as Commissioner of Revenue of the State of Alabama v. EXCHANGE OIL AND GAS CORPORATION, et al. 79-823.
• Court: Alabama Supreme Court

Page 1031

440 So.2d 1031

Ralph P. EAGERTON, Jr., as Commissioner of Revenue of the State of Alabama v. EXCHANGE OIL AND GAS CORPORATION, et al.

79-823.

Supreme Court of Alabama.

Nov. 4, 1983.

Charles A. Graddick, Atty. Gen., and B. Frank Loeb, Chief Counsel, and Charles E. Crumbley and John J. Breckenridge, Asst. Counsel, Department of Revenue and Asst. Attys. Gen., for appellant.

Rae M. Crowe and Edward A. Dean of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, Mobile, and Euel A. Screws, Jr. of Copeland, Franco, Screws & Gill, Montgomery, for appellees Union Oil Co. of California, Getty Oil Company and Exchange Oil & Gas Corp.

C.B. Arendall, Jr. and Louis E. Braswell of Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, for appellee The Louisiana Land and Exploration Co.

BEATTY, Justice.

This case was remanded by the Supreme Court of the United States to enable this Court to determine whether the partial invalidity of the pass-through provisions of Act 79-434 entitled the plaintiff oil and gas producers to a refund of taxes paid by them under protest.

For a review of the litigation which culminated in that order, see Eagerton, Commissioner v. Exchange Oil and Gas Corporation, 404 So.2d 1 (Ala.1981); Exxon Corporation v. Eagerton, Commissioner, 462 U.S. 176, 103 S.Ct. 2296, 76 L.Ed.2d 497 (1983).

In its opinion of June 8, 1983, the Supreme Court of the United States decided that the pass-through provision of Act 79-434 was pre-empted by federal authority "over wholesale sales of gas in interstate commerce, for it barred gas producers from increasing their prices to pass on a particular expense--the increase in the severance tax--to their purchasers." The pass-through prohibition was upheld, however, insofar as it applied to sales of gas in intrastate commerce.

The Commissioner of Revenue now concedes the invalidity of the entire pass-through provision, for, as stated in his brief:

"[T]he only question which remains with regard to the interpretation and implementation of the severability clause is whether Act 79-434 is still capable of fulfilling the apparent legislative intent, after the Pass-Through Prohibition is deleted."

And further stated in brief:

"In view of the foregoing arguments and cited authorities, it is the position of the Commissioner of Revenue of the State of Alabama that the separability clause contained in Act 79-434 Acts of Alabama is to be given effect and the remainder of Act 79-434 is sufficient to accomplish the legislative purpose as stated in the Act and thus the remainder of the Act should be sustained with the Pass-Through Prohibition omitted."

The narrow issue before this Court, therefore, is whether the remaining provisions of Act 79-434 are enforceable, absent the statutory proscription against passing on the applicable severance tax by the producer.

On remandment, this Court has been favored with excellent briefs by the parties.

As stated in its title, Act No. 79-434 was an act:

"To amend Code of Alabama 1975, Sections 40-20-2 and 40-20-8, so as to increase the rate of tax; to provide further for distribution of the proceeds of the tax; and to provide certain exemptions from the increased rate."

This statement was followed by Section 1, whose language expressly amended Code of Ala.1975, § 40-20-2, which also had imposed a severance tax. The statute as amended by Act 79-434 read:

" § 40-20-2. (a) There is hereby levied, to be collected hereafter, as herein provided, annual privilege taxes upon every person engaging or continuing to engage within the State of Alabama in the business of producing or severing oil or gas as defined herein, from the soil or the waters, or from beneath the soil or the waters, of the state for sale, transport, storage, profit or for use. The amount of such tax shall be measured at the rate of six per centum of the gross value of said oil or gas at the point of production. All wells producing less than 26 barrels of oil per day shall be taxed at the rate of four per centum (4%) of the gross value of said oil or gas at the point of production. All wells that come into production after the effective date of this Act shall be taxed at the rate of four per centum (4%) of the gross value of said oil or gas at the point of production for a period of ten years after production begins. Ten years after production begins, such tax shall then be imposed at the rate of six per centum (6%) on such wells that go into production after the effective date of this Act. Provided, however, that said additional increase shall be limited to those oil and gas wells from between 15,000 and 15,800 feet in the smackover formation. (b) The tax is hereby levied upon the basis of the entire production in this state, including what is known as the royalty interest, on which production the amount of such tax shall be a lien, regardless of the place of sale or to whom sold, or by whom used, or the fact that the delivery may be made to points outside the state; and the tax shall accrue at the time such oil or gas is severed from the soil or the waters, or from beneath the soil or the waters, and in its natural, unrefined, or unmanufactured condition. (c) A county, city, town or municipality of the state of Alabama shall not establish, levy, impose or collect as a condition of doing business or otherwise, any tax, fee, license or charge, whatsoever, directly or indirectly, on or with respect to the production, treating, processing, ownership, sale, storage, purchase, marketing, or transportation on any oil or gas produced in the state of Alabama and...