Northern Border Pipeline Company v. Commissioner of Revenue, No. A08-0309 (Minn. App. 1/27/2009)
| Decision Date | 27 January 2009 |
| Docket Number | No. A08-0310,No. A08-0309,A08-0309,A08-0310 |
| Parties | Northern Border Pipeline Company, Appellant (A08-309), Great Lakes Gas Transmission Limited Partnership, Appellant (A08-310), v. Commissioner of Revenue, Respondent. |
| Court | Minnesota Court of Appeals |
Appeal from the District Court, Ramsey County, File No. 62-C0-06-012758.
John W. Windhorst, Jr., Christopher T. Shaheen, Jenny Winkler, Dorsey & Whitney, LLP, Minneapolis, MN (for appellants)
Lori Swanson, Attorney General, Rita Coyle DeMeules, Assistant Attorney General, Tamar N. Gronvall, Assistant Attorney General, Street, St. Paul, MN (for respondent)
Considered and decided by Ross, Presiding Judge; Connolly, Judge; and Bjorkman, Judge.
UNPUBLISHED OPINION
These consolidated appeals require us to decide whether transporters of natural gas should be refunded the state use taxes they paid on gas that they diverted from their pipelines to fuel the compressors that keep the remaining transported gas moving through their pipelines. The district court granted summary judgment in favor of the commissioner of revenue against Great Lakes Gas Transmission Limited Partnership and Northern Border Pipeline Company, refusing to order the commissioner to refund approximately $7,500,000 in use taxes that the companies paid on natural gas consumed to fuel their compressors. The district court determined that their compressor-fuel consumption meets the requirements for imposing a use tax under Minnesota Statutes section 297A.63, subdivision 1. Because we conclude that Great Lakes and Northern Border used, purchased, and consumed the compressor fuel in Minnesota, we affirm.
Great Lakes Gas Transmission Limited Partnership operates a pipeline that transports natural gas from Canada through Michigan, Wisconsin, and Minnesota. Northern Border Pipeline Company operates a pipeline that transports natural gas from Canada through Montana, North Dakota, South Dakota, Minnesota, Iowa, Illinois, and Indiana. Every 60 to 75 miles along the pipelines, the gas passes through a compressor station. Each station generates pressure necessary to push the gas to the next station and ultimately to its final destination. Great Lakes' pipeline has 14 compressor stations, five of which are in Minnesota. Northern Border's pipeline has 17 compressor stations, with two in Minnesota. Great Lakes and Northern Border divert a relatively small portion of the transported natural gas from the pipelines to fuel these compressors. The taxability of this diverted gas is the subject of this appeal.
From August 1, 2005, to July 31, 2006, these companies paid a use tax to the State of Minnesota on the diverted gas. Great Lakes paid $5,815,424 in use taxes and Northern Border paid $1,720,525. The companies amended their tax returns, claiming that they were entitled to refunds because their compressor-fuel consumption was not taxable under the operable statutes, and contending that the Commerce Clause, Supremacy Clause, and Equal Protection Clause of the federal Constitution prohibit state taxation. The commissioner of revenue denied the request for refunds.
The companies appealed the commissioner's decision to the Ramsey County District Court, making the same arguments. The parties cross-moved for summary judgment. The district court held that the compressor-fuel consumption satisfied the statutory taxability requirements because the companies "purchased" and "used" the compressor fuel, within the meaning of chapter 297A. The district court also addressed and rejected the companies' constitutional arguments. The companies appeal.
Great Lakes and Northern Border argue that their compressor-fuel consumption should not be subject to the use tax for several reasons. The companies contend they do not "purchase" the compressor fuel "for a consideration in money or by exchange or barter" as required for taxation under Minnesota Statutes section 297A.61, subdivision 3. They also maintain that their customers supply the compressor fuel and that federal regulations prohibit the companies from purchasing the compressor fuel or receiving anything of value in that exchange. They contend that in purportedly analogous situations, the commissioner of revenue has instructed that the use-tax statute does not apply. Finally, they maintain that the pipeline companies do not "purchase" the compressor fuel under generally accepted accounting principles.
Some ancillary background bears on our opinion. First, the companies operate "transportation only" pipelines—that is, they originally own none of the gas that their pipelines transport. The companies' customers are shippers who purchase gas and make agreements with them to transport gas through the pipelines. These agreements are listed in what the natural gas industry refers to as "tariffs." As part of its federal regulatory duties, the Federal Energy Regulatory Commission (FERC) must approve these tariffs. The companies' FERC-approved tariffs state that the shippers must provide natural gas to fuel the compressors. Great Lakes' tariff refers to this diverted natural gas as "Transporter's Use" gas, and Northern Border's tariff refers to it as "Company Use" gas. To simplify, we refer to the Transporter's Use gas and Company Use gas as "compressor fuel."
Second, the question of taxability of compressor fuel has already been the subject of litigation by one of the companies, as well as clarifying legislative action. In 2000, Great Lakes challenged the use tax as applied to its compressor-fuel consumption in Minnesota tax court. Great Lakes Gas Transmission L.P. v. Comm'r of Revenue, No. 7106-R, 2000 WL 1719923 (Minn. Tax Ct. Nov. 16, 2000). In that case, Great Lakes argued that its compressor-fuel consumption was not a taxable event under Minnesota's use-tax statute based on statutory prerequisites. Great Lakes argued alternatively that it was exempt from tax because of the statutory industrial-production exemption. The tax court concluded that Minnesota's use tax applied to Great Lakes' compressor-fuel consumption because Great Lakes "used" and "purchased" the fuel in Minnesota. But the tax court also concluded that Great Lakes nevertheless was entitled to a use-tax refund because it found that the industrial-production exemption applied to Great Lakes' compressor-fuel consumption.
Additional judicial review addressed both issues, and the legislature also weighed in. The commissioner of revenue obtained review by the Minnesota Supreme Court. See Great Lakes Gas Transmission L.P. v. Comm'r of Revenue (Great Lakes I), 638 N.W.2d 435 (Minn. 2002). The supreme court affirmed the tax court's decision, concluding that the compressor fuel was used, purchased, and consumed in Minnesota for the purposes of Minnesota's use-tax statute. Id. at 438—39. But it went on to hold that Great Lakes' compressor-fuel consumption was exempt from the use tax because the industrial-production exemption also applied. Id. at 439—41. After Great Lakes I, the Minnesota legislature amended the industrial-production exemption and explicitly excluded transportation of natural gas from industrial production. See Minn. Stat. § 297A.68, subd. 2(d)(2) (2006) ().
After the statutory amendment, the companies began paying the use tax but requested a refund. When the commissioner of revenue denied their refund requests, the companies began the current litigation in district court. Given the apparent applicability of Great Lakes I, their consolidated appeals to this court require us to decide whether collateral estoppel affects the companies' claims before addressing whether the statute requires the companies to pay the use tax.
The companies contend that collateral estoppel does not preclude their argument because Great Lakes prevailed in Great Lakes I and, alternatively, because the supreme court's decision that the use tax applied was dictum, wholly unnecessary to its decision. The district court did not decide whether to consider Great Lakes I as a matter of collateral estoppel or stare decisis because it concluded that "even in the absence of estoppel" the facts support a conclusion that the companies were subject to the use tax. The commissioner asks us to apply collateral estoppel de novo. We will consider collateral estoppel, since whether it applies is a mixed question of law and fact, subject to our de novo review. Falgren v. State Bd. of Teaching, 545 N.W.2d 901, 905 (Minn. 1996).
Collateral estoppel precludes parties from relitigating issues that were actually presented and necessarily determined in prior actions. In re Special Assessment for Water Main Extension in the Village of Byron, 255 N.W.2d 226, 228 (Minn. 1977). It applies when each of the following elements is satisfied: (1) the issue litigated in the present action is identical to one in a prior adjudication; (2) there was a final judgment on the merits; (3) the allegedly estopped party was a party, or in privity with a party, in the prior action; and (4) the estopped party had a full and fair opportunity to be heard on the issue. A & H Vending Co. v. Comm'r of Revenue, 608 N.W.2d 544, 547 (Minn. 2000). Additionally, collateral estoppel applies only if resolving the disputed issue was a "necessary component" in the original decision. Transamerica Ins. Group v. Paul, 267 N.W.2d 180, 182 (Minn. 1978). Collateral estoppel is an affirmative defense, and the party seeking to use the defense bears the burden of proving these elements. Tarutis v. Comm'r of Revenue, 393 N.W.2d 667, 669 (Minn. 1986).
We agree with the commissioner that the issue the companies seek to litigate now is identical to an issue litigated and decided in Great Lakes I. In Great...
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