Ladd Petroleum Corp. v. Oklahoma Tax Com'n, 62761

• Decision Date: 17 January 1989
• Docket Number: No. 62761,62761
• Parties: LADD PETROLEUM CORPORATION, Appellant, v. OKLAHOMA TAX COMMISSION, Appellee.
• Court: Oklahoma Supreme Court

Page 879

767 P.2d 879

1989 OK 5

LADD PETROLEUM CORPORATION, Appellant, v. OKLAHOMA TAX COMMISSION, Appellee.

No. 62761.

Supreme Court of Oklahoma.

Jan. 17, 1989.

Appeal from the District Court of Oklahoma County; William R. Saied, District Judge.

Plaintiff appeals from an order of the trial court which sustained defendant's demurrer to the evidence following the plaintiff's case in chief in a non-jury trial. The court ruled that plaintiff failed to exhaust its administrative remedies and dismissed the case for want of subject matter jurisdiction.

James M. Chaney, Dan T. Foley, Kirk & Chaney, Oklahoma City, for appellant.

J. Lawrence Blankenship, Gen. Counsel, Donna E. Cox, Oklahoma City, for appellee.

SUMMERS, Justice.

Ladd Petroleum Corporation filed suit in District Court alleging that the Oklahoma Tax Commission's assessment of additional gross production, petroleum excise, and conservation excise taxes violated its rights under the fourteenth amendment of the United States Constitution. At non-jury trial Ladd presented its evidence and the Commission demurred thereto. The court sustained the Commission's demurrer, ruling that Ladd had failed to exhaust its administrative remedies and had failed to invoke the court's subject matter jurisdiction. Ladd appeals. We find plaintiff's evidence sufficient to withstand a demurrer, and accordingly reverse the order of the district court.

For the second time ¹ Ladd contests assessment of additional taxes based upon Ladd's activities as both producer and purchaser of casinghead gas in the North East Enid Field in Garfield County, Oklahoma. The field consists, for purposes of this action, of sixty-nine producing wells. Of those wells, Ladd or its predecessors ² (hereinafter referred to collectively as Ladd) operate fifty-six of the wells, and various outside producers operate the remaining thirteen wells.

Each of the producing wells feeds into a gathering system, and the volume of casinghead gas is measured by orifice meters at the entrance to the gathering system. Ladd owns the gathering system. Ladd transports the gas to a processing plant where certain liquids are extracted from the casinghead (or "wet") gas and sold. Following extraction and sale of the liquifiable hydrocarbons, the remaining residue (or "dry") gas is sold.

Various contracts govern these sales. The first contract defines the terms of the sale of casinghead gas to Ladd at the meter to the gathering system, and provides that transfer of ownership of all casinghead gas occurs at the entrance to Ladd's gathering system. Each of the thirteen outside producers executed identical contracts with Ladd in this regard. Ladd, acting as producer also executed a contract with Ladd as purchaser, which contract is identical to those with the other producers. Under this contract, Ladd purchases 100% of the casinghead gas from these sixty-nine wells, and pays the producers 95% ³ of the proceeds of the sale of the residue gas after first deducting a $.02/MCF gathering, transportation and processing fee. The amounts returned to the producers are controlled by the price paid by the purchaser (Cities Service) for the dry gas sold after processing. Ladd's bookkeeping reflects that it "pays" itself in accordance with the contract at the 95% rate.

In addition to the purchase contract previously described, Ladd contracted with Champlin Refining, as operator of the processing plant. This contract provides that Champlin pay Ladd $.04/MCF for transporting the gas to its plant, $.03/MCF for the right to extract the liquids, plus a percentage of the gross proceeds Champlin receives for the sale of the liquids extracted, which percentage is computed pursuant to a formula set out in the contract.

This suit is concerned with additional tax assessments made for the tax years 1978 through 1981. During the years at issue, Ladd reported its gross production based on the terms of the purchase contracts in which the gross value for purposes of 68 O.S. 1981 § 1001 was determined by the sale price of residue gas after processing. Ladd did not report as gross value the amounts received from Champlin under the liquids extraction contract.

The Commission assessed additional taxes against only the fifty-six wells operated by Ladd. ⁴ These assessments included gross production tax in the amount of $279,259.56, additional petroleum excise tax in the amount of $3,390.07 ⁵ and additional conservation excise tax in the amount of $57,614.05. ⁶ These assessments taxed as gross value 100% of the proceeds of the sale of residue gas and 100% of the proceeds Ladd received from Champlin under the liquids extraction contract. No additional assessments were made against the thirteen outside producers, whose taxes were computed pursuant to the 95% contract formula.

The Commission's conservation excise tax assessment was based not on the volume of residue gas, as were the gross production and petroleum excise assessments, but on the total volume of casinghead gas as measured by the orifice meters at the entrance to gathering system. Ladd contests the additional assessments.

Rather than lodging an administrative protest before the Commission under § 221 et seq, of title sixty-eight of the Oklahoma Statutes, Ladd alleged federal constitutional violations, and brought the matter in district court after remitting the assessed taxes under protest, in the manner set forth in § 226 of title sixty-eight. This statute provides a remedy

"In cases where the taxes complained of are claimed to be an unlawful burden on interstate commerce, or the collection thereof violative of any Congressional Act or provision of the Federal Constitution, or in cases where jurisdiction is vested in any of the Courts of the United States ..." 68 O.S. 1981 § 226(c) (emphasis supplied).

Specifically, Ladd alleges both equal protection and due process violations arising under the fourteenth amendment of the United States Constitution. Ladd contends that these assessments in effect "legislate" a gross production tax on the liquifiable hydrocarbons extracted downstream through the business of processing the dry gas, and that these assessments arbitrarily tax Ladd in a manner different from the other gas producers in the North East Enid Field. In support of its allegations, Ladd presented the testimony of one of its accountants, Mr. Tommy Eubanks, and of Mr. Del Johnson, Ladd's gas contract administrator. Their testimony and the exhibits admitted into evidence generated the facts as set forth herein. Neither party contests these facts.

At the close of Ladd's case in chief, the Commission demurred to the evidence alleging that Ladd failed to meet its burden of establishing a constitutional injury sufficient to vest jurisdiction in the district court under § 226 of title sixty-eight. The trial court sustained the demurrer, ruling both that Ladd had failed to exhaust its administrative remedies, and that the court lacked subject matter jurisdiction, from which order Ladd appeals.

We examine first the trial court's ruling that Ladd failed to exhaust its administrative remedies, and find that no exhaustion requirement exists under § 226 of title 68. Aggrieved taxpayers who protest under § 221 of title 68 must follow the specific administrative procedures set forth therein. Appeals from adverse rulings of the Commission under § 221 lie directly to this court. 68 O.S. 1981 § 225. In contrast, § 226 provides an avenue to district court where the taxes complained of allegedly violate the United States Constitution, and "the judicial remedy granted pursuant to § 226(c) is limited to cases which meet the statutorily delineated criteria." Cimarron Industries, Inc. v. Oklahoma Tax Commission 621 P.2d 539, 542 (Okla.1980).

In Cimmaron, we ruled that one could not short-circuit the administrative process by resort to district court without first meeting the jurisdictional prerequisites of § 226. Here, the converse is equally true. One may not be deprived of his full and fair day in district court by forcing him to surmount nonexistent administrative hurdles. The plain language of § 226(c) contains no exhaustion requirement, and "where the language of a statute is plain and unambiguous, ... the statute will be accorded the meaning as expressed by the language therein employed." Cave Springs Public School District v. Blair, 613 P.2d 1046, 1048 (Okla.1980).

Consequently, the only issue remaining for our review asks whether the court received sufficient evidence to withstand a demurrer. In ruling upon a demurrer to the evidence, ... "the trial court must accept as true all evidence and reasonable inferences therefrom favorable to the party against whom the motion is directed, while disregarding conflicting evidence favorable to the defendant." LeFlore v. Reflections of Tulsa, Inc., 708...