Eagerton v. Exchange Oil and Gas Corp.

• Decision Date: 10 July 1981
• Citation: 404 So.2d 1
• 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 1

404 So.2d 1

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.

July 10, 1981.

Rehearing Denied Sept. 4, 1981.

Charles A. Graddick, Atty. Gen., Herbert I. Burson, Jr., Counsel, Dept. of Revenue, and Asst. Atty. Gen., and John J. Breckenridge and Charles E. Crumbley, Asst. Counsels, Dept. of Revenue, and Asst. Attys. Gen., for appellant.

Rae M. Crowe and Michael B. Hamar of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, Mobile, and Euel A. Screws, Jr., of Hobbs, Copeland, Franco & Screws, Montgomery, for appellees Exchange Oil and Gas Corp., Getty Oil Co., Placid Oil Co., Union Oil Co. of California, Terra Resources, Inc. and Petroleum Corp. of Texas.

C. B. Arendall, Jr., and Louis E. Braswell of Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, for appellees Exxon Corp., Gulf Oil Corp. and The Louisiana Land and Exploration Co.

James R. Seale of Capell, Howard, Knabe & Cobbs, Montgomery, for appellees Anderman Operating Co., Midroc Operating Co., Pruet Production Co. and Warrior Drilling and Engineering Co., Inc.

BEATTY, Justice.

Fourteen oil and gas producers filed similar suits challenging the constitutionality of Act No. 79-434, approved by the Alabama Legislature in its 1979 Regular Session, and seeking refunds of oil and gas severance taxes paid pursuant to the Act. The trial court held the Act to be unconstitutional. Ralph P. Eagerton, Jr., as Commissioner of Revenue, appealed. We reverse and remand.

Before the legislature enacted Act No. 79-434, the statute governing the amount of oil and gas severance tax was Code of 1975, § 40-20-2. That section in its relevant part read:

(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 five percent of the gross value of said oil or gas at the point of production until October 1, 1973, at which time the rate of such tax shall decrease to four percent, which shall be the applicable rate thereafter.

(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.

Code of 1975, § 40-20-8, dealt with the allocation and distribution of the taxes collected.

The caption of Act No. 434 states that its purpose is: "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 the distribution of the proceeds of the tax; and to provide certain exceptions from the increased rate." Section 1(a) of Act 79-434 provides:

Code of Alabama 1975, § 40-20-2, is amended to read as follows:

" § 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 be then 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...."

The primary issue in this appeal deals with the effect of the phrase which reads "said additional increase shall be limited to those oil and gas wells from between 15,000 and 15,800 feet in the smackover formation," (hereinafter the smackover provision) in Act No. 79-434.

Code of 1975, § 40-20-2 had previously imposed a 4% severance tax on statewide oil and gas production. The commissioner contends that Act No. 79-434, the amendatory Act, was intended to increase that rate from 4% to 6% statewide. The appellees, however, urge that because of the inclusion of the sentence which reads "said additional increase shall be limited to those oil and gas wells from between 15,000 and 15,800 feet in the smackover formation," the entire Act was intended only to impose an increase on the wells which were producing oil and gas from the smackover formation at the depth specified.

It is undisputed that the smackover formation underlies only twelve counties in Alabama and that that is an unchanging fact. It is also clear that at the time of the passage of the Act, the only production in the smackover formation from 15,000 to 15,800 feet in Alabama was in Escambia County. Thus the appellees urge that the increase from 4% to 6% was intended only to apply to those wells in the smackover formation at that depth, all of which were in Escambia County. Since the Act as so interpreted would only apply to one county, appellees contend that it is a local Act.

In Town of Loxley v. Rosinton Water, Sewer and Fire Protection Authority, Inc., Ala., 376 So.2d 705 (1979) this Court said:

In interpreting statutes the underlying consideration, always, is to ascertain and effectuate the intent of the legislature as expressed in the statutes. Employees' Retirement System of Alabama v. Head, 369 So.2d 1227 (Ala.1979). While specific language used by the legislature is subject to explanation, such language cannot be detracted from, or added to. May v. Head, 210 Ala. 112, 96 So. 869 (1923). Furthermore, when the language of a statute is clear and unambiguous there is no room for judicial construction. Employees' Retirement System of Alabama v. Head, supra.... The purpose of interpretation is not to improve a statute but rather to explain the express language used in the statute. Lewis v. Hitt, 370 So.2d 1369 (Ala.1979).

The appellant contends that the language of the smackover provision, which reads, "said additional increase shall be limited to those oil and gas wells from between 15,000 and 15,800 feet in the smackover formation" (emphasis added), should properly be construed by reading that provision in conjunction with the sentence immediately preceding it. The preceding sentence limits the increase on wells that go into production after the effective date of the Act to 4% for a period of ten years and then provides that after ten years it shall be raised to 6%. By reading the two sentences together, appellant urges that the smackover provision would refer only to the increase from 4% to 6% on new wells after a ten-year moratorium and not to the statewide severance tax increase from 4% to 6%. In other words, the appellant urges that the smackover provision requires that new wells will all be taxed at a rate of 4% for ten years, and then there shall be an increase to 6% on those new wells in the smackover formation at the depth specified. According to the appellant, the smackover provision was not intended to limit the entire Act so that wells in the smackover formation at that depth were the only ones to be taxed at a rate of 6%.

The manifested intent of the legislature, as stated in the Act itself, was to levy this tax upon "every person engaging or continuing to engage within the State of Alabama in the business of producing or severing oil or gas...." This a clear and unambiguous statement that the legislature intended for the tax increase to apply statewide. Moreover, Act No. 79-434, specifically replaces and amends Code of 1975, § 40-20-2 which imposed a 4% severance tax statewide. If this Act were interpreted as applying only to those wells in the smackover formation at the specified depth, and only in Escambia County, there would be no provision for taxing the rest of the state. Certainly that was not the intent of the legislature.

After a careful reading of the Act, we are convinced that the smackover provision should logically be read in conjunction with the preceding sentence and should only by construed as a limitation on the taxing of new wells. Although the appellees put forth various forms of extrinsic evidence, some of which was clearly inadmissible, in order to prove the intent of the legislature, the general rule is that when the intent of the legislature can be determined from the language of the statute itself, we do not need to resort to extraneous matters to determine the legislative intent. "Courts can only learn what (the) Legislature intended by what it has said, and have no right to stray into mazes of conjecture or search for an imaginary purpose, in construing (a) statute." Alabama Industrial Bank v. State ex rel. Avinger, 286 Ala. 59, 237 So.2d 108 (1970). We are thus compelled to find that the smackover provision was not intended by the legislature to be a limitation which affected the entire Act.

The trial court held that...