Ex Parte Exxon Mobil Corp.

• Decision Date: 02 September 2005
• Docket Number: 1040538.
• Citation: 926 So.2d 303
• Parties: Ex parte EXXON MOBIL CORPORATION. (In re Exxon Mobil Corporation v. Baldwin County et al.)
• Court: Alabama Supreme Court

926 So.2d 303

Ex parte EXXON MOBIL CORPORATION (In re Exxon Mobil Corporation v. Baldwin County et al.)

1040538.

Supreme Court of Alabama.

September 2, 2005.

Duana A. Graham of Armbrecht Jackson, LLP, Mobile, for petitioner.

Robert A. Wills of Wills & Simon, Bay Minette, for respondent Baldwin County Commission.

HARWOOD, Justice.

Exxon Mobil Corporation ("Exxon") petitioned this Court for a writ of certiorari seeking review of the judgment of the Court of Civil Appeals affirming, without an opinion, the judgment of the Baldwin Circuit Court upholding a final assessment against Exxon by Baldwin County of a use tax. Exxon Mobil Corp. v. Baldwin County (No. 2030648, Dec. 30, 2004), 921 So.2d 478 (Ala.Civ.App.2004) (table). We granted the petition to review an issue of first impression concerning the interpretation of § 40-20-2(c) and (d), Ala.Code 1975, imposing limitations on the power of a county to impose taxes on businesses such as Exxon. We reverse and remand.

Exxon produces natural gas from offshore wells located in Mobile Bay and in the Gulf of Mexico. To accomplish that purpose, Exxon established offshore drilling and production facilities. Some time before 1993, Exxon contracted with McDermott, Inc., a Louisiana company, to construct at McDermott's plant in Morgan City, Louisiana, "platforms" and "templates" that compose the basic structures of offshore drilling and production facilities. The record contains the testimony of a design engineer for Exxon, who explained the nature and function of "platforms" and "templates":

"[A platform] is the main facility that gathers, treats, and processes natural gas from the wells out there. . . . [The templates] are structures adjacent or outlying to the main production platform that gathers [sic] natural gas before it is transported to the main hub ... [A] platform has many more facilities on it... [;] the template serves only really one purpose, and that's to gather the gas coming out of a well, or multiple wells, and then it cools the gas down, because it is very hot. And then it just transports those fluids across the bridge structure to the main platform, where that gas — water is removed from it, and it's dehydrated. It's treated so that some of the contaminants are removed so that it doesn't corrode the pipelines on the way to the plant."

After they were manufactured, the platforms and templates were transported by water to their intended offshore locations, being either towed or carried on a barge. One of these platforms and its associated templates were eventually located on submerged lands within the taxing jurisdiction of Baldwin County.

Although not entirely clear from the record, it would appear that Exxon itself purchased all of the materials, supplies, and equipment used to manufacture the platforms and templates, and, although again not entirely clear from the record, it apparently did so in Louisiana. Baldwin County notes in its brief, without any real explanation, that Exxon had obtained a "direct pay permit," which allowed it to purchase the materials, supplies, and equipment without paying a sales tax in Louisiana. A letter in the record dated November 16, 1995, from an employee in the "foreign audit section" of the Alabama Department of Revenue to another employee, advises that "Exxon received a direct pay permit RA 000 RA 322 for the construction of Onshore treating facility and Offshore production platforms in state waters."

In his testimony, the Exxon design engineer explained that once platforms and templates have been transported to the desired location over the gas well or wells to be serviced, the structures are placed on submerged caissons or foundations. The facility is then hooked up to pipelines to the processing plant and production commences. The interval between that setup and the production of natural gas can be as short as a couple of weeks or as long as several months. No witness testified concerning the time frame involved for the offshore drilling and production facility located in the submerged waters off the coast of Baldwin County. The portions of § 40-20-2, Ala.Code 1975, pertinent to an understanding of the issues in this case are as follows:

"(a)(1) 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 eight percent of the gross value of said oil or gas at the point of production except as provided in subsequent subdivisions of this subsection.

"....

"(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 on which severance taxes have been paid to the State of Alabama, or upon the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas, or upon the ownership, operation or maintenance of plants, facilities, machinery, pipelines, gathering lines or any equipment whatsoever, which are, or may be, necessary or convenient to the production, treating, processing, ownership, storage, sale, purchase, marketing or transportation of such oil or gas; provided, that nothing herein shall be construed to prohibit, limit or restrict a county, city, town or municipality from imposing and collecting ad valorem taxes on any property, real or personal, not otherwise now exempted by law; further, the limitation herein imposed upon counties, cities, towns and municipalities shall not apply to any county, city, town or municipality which does not receive a share of the severance tax levied upon production other than offshore production as defined in Section 40-20-1 under the provisions of this article. Said limitation herein imposed upon counties, cities, towns and municipalities shall remain in full force and effect in regard to offshore production as defined in Section 40-20-1.

"(d) Nothing contained herein shall be deemed to limit or to enlarge the authority of a county, city, town or municipality to levy taxes or licenses on oil refining facilities located therein or on the suppliers of services or goods not including oil or gas to those persons engaging in the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas. Provided, however, no such taxes or licenses shall be levied on offshore drilling or production facilities as defined in Section 40-20-1."

Consistent with the terminology used by the parties, § 40-20-2 is hereinafter sometimes referred to as "the severance tax statute," and the tax imposed by it as "the severance tax."

Section 40-23-61(a) imposes an excise tax, also known and hereinafter referred to as a "use tax," which, relevant to the instant action, is imposed upon "the storage, use or other consumption in this state of tangible personal property ... purchased at retail ... for storage, use or other consumption in this state at the rate of four percent of the sales price of such property or the amount of tax collected by the seller, whichever is greater ...."

By adopting two virtually identical and overlapping ordinances, Baldwin County has established its own use tax. The ordinances contain the following language: "An excise tax is hereby imposed on the storage, use, or other consumption in Baldwin County of tangible personal property... purchased at retail ... for storage use or other consumption in Baldwin County ...."

It is undisputed that Exxon paid the State the use taxes associated with the offshore drilling and production facility located within Baldwin County (hereinafter "the Baldwin offshore facility"), that it has paid all ad valorem taxes due with respect to the facility, and that it has paid the State substantial severance taxes due under § 40-20-2(a)(1) for the production of natural gas from the Baldwin offshore facility. Pursuant to § 40-20-8, prescribing the allocation and distribution of oil and gas severance taxes among the State, counties, and municipalities, Baldwin County has received 10 percent of all severance taxes paid by Exxon to the State based on the production of natural gas from the Baldwin offshore facility. Additionally, by virtue of a statute enacted on October 1, 1971, for the sole benefit of Baldwin County, it receives an additional 1% severance tax on oil and gas removed from its soil or waters or from beneath its soil or waters. Act No. 2120, Ala. Acts 1971.

At various times, Baldwin County has directly handled the assessment and collection of its use taxes, has arranged for the Alabama Department of Revenue to do so, or has outsourced the work to an independent contractor. On February 27, 1996, after Baldwin County had elected to change its collecting agent from the Alabama Department of Revenue to an independent contractor — Pash & Company, Inc. — an official with the Department of Revenue...