May v. Akers–Lang
| Decision Date | 12 January 2012 |
| Docket Number | No. 11–652.,11–652. |
| Citation | 386 S.W.3d 378,2012 Ark. 7 |
| Court | Arkansas Supreme Court |
| Parties | Kenneth Joe MAY; Mary A. May; Michael Bryant; Donna Bryant; Ralph Bryant; Christi Bryant; C.M. Sneed; Carolyn Sneed; E.C. Rowlett Limited Partnership; B.J. McNair; Donna McNair; Danny Snowden; and Shelia Snowden, on behalf of themselves and all other Owners of Oil and Gas Royalty and Production Interests in the State of Arkansas, Appellants v. Debra AKERS–LANG, Tax Assessor of White County, Arkansas; Sue Liles, Tax Collector of White County, Arkansas; White County, Arkansas; Jeff Stephens, Tax Assessor of Faulkner County, Arkansas; Steve Simon, Tax Collector of Faulkner County, Arkansas; Faulkner County, Arkansas; Helen Noll, Tax Assessor of Conway County, Arkansas; Catherine Bradshaw, Tax Collector of Conway County, Arkansas; Conway County, Arkansas; Trina Jones, Tax Assessor of Van Buren County, Arkansas; Lisa Nunley, Tax Collector of Van Buren County, Arkansas; Van Buren County, Arkansas; Karen Reed, Tax Assessor of Cleburne County, Arkansas; Kathy White, Tax Collector of Cleburne County, Arkansas; and all other Tax Assessors, Tax Collectors, and Counties in the State of Arkansas that Assess and Collect an Ad Valorem Tax on Oil and Gas Royalties, Appellees. |
OPINION TEXT STARTS HERE
Mays & White, PLLC, by: Richard H. Mays, Heber Springs, for appellants.
C. Eric Hance, Batesville, for separate appellees Odus Fulmer, Independence County Assessor, and Janet Perkey, Independence County Collector.
John K. Griffin, Lewisville, for separate appellees Becky Barnes, Lafayette County Tax Assessor, and Barbara Hovarter, Lafayette County Tax Collector.
Rainwater, Holt & Sexton, P.A., by: Jason F. Owens, Little Rock, for separate appellees Debra Akers–Lang, White County Tax Collector, and Mac Murphy, Ouachita County Tax Assessor.
Mark J. Whitmore, Conway, for separate appellees Helen Noll, Conway County Assessor, and Catherine Bradshaw, Conway County Collector.
Rebecca A. Jones, Magnolia, for separate appellees Sandra Cawyer, Columbia County Assessor, and Cindy Walker, Columbia County Collector.
Stephen Hawks, Conway, for separate appellees Jeff Stephens, Eaulkner County Assessor, and Steve Simon, Eaulkner County Collector.
Ralph C. Ohm, for separate appellee Regina Mannis, Arkansas County Tax Assessor.
Joe M. Rogers, West Memphis, for separate appellees Bill Eddings, Crittenden County Assessor, and Ellen Steele Foote, Crittenden County Collector.
Dustin McDaniel, Att'y Gen., by: Scott P. Richardson, Ass't Att'y Gen., Little Rock, for amicus curiae The State of Arkansas.
Appellants Kenneth Joe May; Mary A. May; Michael Bryant; Donna Bryant; Ralph Bryant; Christi Bryant; C.M. Sneed; Carolyn Sneed; E.C. Rowlett Limited Partnership; B.J. McNair; Donna McNair; Danny Snowden; and Shelia Snowden, on behalf of themselves and all other owners of oil and gas royalty and production interests in the state of Arkansas (collectively, “the Taxpayers”), appeal from an order of the White County Circuit Court dismissing their complaint against appellees Debra Akers–Lang, tax assessor of White County, Arkansas; Sue Liles, tax collector of White County, Arkansas; White County, Arkansas; Jeff Stephens, tax assessor of Faulkner County, Arkansas; Steve Simon, tax collector of Faulkner County, Arkansas; Faulkner County, Arkansas; Helen Noll, tax assessor of Conway County, Arkansas; Catherine Bradshaw, tax collector of Conway County, Arkansas; Conway County, Arkansas; Trina Jones, tax assessor of Van Buren County, Arkansas; Lisa Nunley, tax collector of Van Buren County, Arkansas; Van Buren County, Arkansas; Karen Reed, tax assessor of Cleburne County, Arkansas; Kathy White, tax collector of Cleburne County, Arkansas; and all other tax assessors, tax collectors, and counties in the state of Arkansas that assess and collect an ad valorem tax on oil and gas royalties (collectively, “the Counties”). The Taxpayers argue that the circuit court erred in finding that their complaint failed to state a claim of illegal exaction under the Arkansas Constitution and, as a result of that finding, dismissing their complaint. We affirm the order of the circuit court.
The Taxpayers are the owners of all or a portion of the oil, gas, and other minerals in, on, and under each of their real property located in the counties party to this lawsuit. On April 1, 2010, the Taxpayers filed a complaint against the Counties, seeking declaratory judgment and injunctive relief. The first-amended complaint, adding additional parties, was filed on October 7, 2010.
The Taxpayers asserted the following: (1) the Taxpayers are the owners of all or a portion of the oil, gas, and other minerals in, on, and under their real property; (2) the Taxpayers have leased the oil, gas, and other minerals to third-party oil and gas exploration and production companies that, pursuant to the lease agreements, have installed wells and pipelines on the Taxpayers' property, or lands unitized therewith; (3) those third-party companies are producing oil or gas from the wells and selling the oil or gas at market value, which fluctuates substantially over short periods of time, to one or more third-party purchasers; (4) the Taxpayers are paid royalties on the oil or gas, or both, that is produced from their properties and lands unitized therewith, while the production companies are paid the remainder of the purchase price of the gas as their “production” or “working interest”; [2012 Ark. 4]5) the producedoil or gas resulting in the royalty and working interest payments is also subject to a severance tax assessed by the State of Arkansas and to income tax assessed by the United States government and the State of Arkansas; (6) the tax assessors of the Counties obtain the amounts of royalty paid on an annual basis by the third-party companies to owners of the oil, gas, and other minerals pursuant to leases under which those companies produce and market oil or gas, and which show the amounts received by the gas exploration and production companies as their “working interests”; (7) the tax assessors of the Counties assess owners and companies an ad valorem tax on behalf of their respective counties by using an “average contract price” for the sale of the oil or gas derived from the owner's property; multiplying that price by the “working interest percent”; subtracting therefrom the production expenses (arbitrarily set at 13%), multiplied by a .20 assessment rate to obtain an “Assessment Value per Thousand Cubic Feet (“MCF”) of Average Daily Production (“ADP”)”; (8) the tax assessors of the Counties used the figure of $6.60 per MCF as the average contract price to be used in applying the above-stated formula for assessing the ad valorem for the taxable year 2009 and, the Taxpayers believe, beginning in the taxable year 2008; and (9) the “ad valorem royalty tax” is an illegal exaction prohibited by Arkansas Constitution article 16, section 13.
The Taxpayers cited the following reasons for alleging the tax described is an illegal exaction: (1) the assessment of an ad valorem tax on properties from which there is production of oil and gas, without assessment of such ad valorem tax on properties that contain oil and gas but from which there is no production violates the Equal Protection Clauses of Arkansas Constitution article 2, section 18, and of the Fourteenth Amendment to the United States Constitution; (2) money paid to the Taxpayers as royalty for the sale of oil or gas produced from their properties is “intangible personal property,” and as such, Ark.Code Ann. § 26–3–302 prohibits levying an ad valorem tax on the money; (3) the oil or gas upon which the royalty is paid is included in the ad valorem taxes assessed against the Taxpayers prior to the time that the oil or gas is removed from the Taxpayers' property, resulting in double or multiple taxation of the same property; (4) the oil or gas upon which the royalty is paid is assessed a severance tax and an income tax that is paid to the State of Arkansas, again resulting in multiple taxation of the same property; (5) the tax upon which royalty is paid for oil or gas production and sale is a privilege or excise tax in that it is assessed after the oil or gas is separated from the realty in which it is located, and is a tax upon the privilege of separating such oil or gas, or upon the sale of such oil or gas, and is therefore a privilege or excise tax in violation of Ark.Code Ann. § 28–58–110; (6) payments received by the Taxpayers from the royalty paid for oil or gas extracted from their property are assessed an income tax by the United States Government and the State of Arkansas and the tax the Counties assess upon the Taxpayers is also an income tax that they are not authorized by law to assess; and (7) the “average contract price” used in the determination of the ad valorem tax is not based upon and does not reflect the actual contract prices paid for oil or gas produced from the property owned by the Taxpayers, a violation of Arkansas Constitution article 16, section 5.
Various motions to dismiss were filed, and the circuit court held a hearing on January 14, 2011. The circuit court concluded that the Taxpayers had failed to make a proper illegal-exactionchallenge and dismissed their lawsuit. Specifically, the circuit court found that Arkansas Constitution article 16, section 5 provides that all real and tangible property shall be taxed according to its value, a value to be ascertained in such manner as the General Assembly shall direct; the value of real property includes the value of both surface rights and mineral rights; the Arkansas General Assembly has directed that the value of gas and oil deposits be assessed at the time the deposits are removed from the land; the tax at issue is not an income tax; the tax at issue is a valid, legally adopted, ad valorem tax on the value of mineral rights; and, the lawsuit filed by the Taxpayers did not properly...
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