Peterson v. Heitkamp

• Decision Date: 06 June 1989
• Docket Number: No. 890008,890008
• Parties: James PETERSON and Ashland Oil, Inc. Appellants, v. M.K. Heidi HEITKAMP, Tax Commissioner, Appellee. Civ.
• Court: North Dakota Supreme Court

Page 219

442 N.W.2d 219

James PETERSON and Ashland Oil, Inc. Appellants, v. M.K. Heidi HEITKAMP, Tax Commissioner, Appellee.

Civ. No. 890008.

Supreme Court of North Dakota.

June 6, 1989.

Clement Beal Thames, Jr., Bismarck, for appellants.

Debra McMartin, Asst. Atty. Gen., Bismarck, for appellee.

LEVINE, Justice.

James Peterson and Ashland Oil, Inc. appeal from a district court order affirming the Tax Commissioner's assessment of an oil extraction tax against Ashland Oil. We affirm.

Section 57-51.1-02, NDCC, ¹ imposes an oil extraction tax on oil produced in North Dakota. Section 57-51.1-03(2), NDCC, ² provides an exemption from the tax for "stripper well property." "Stripper well property" is defined by NDCC Sec. 57-51.1-01(8) ³ as "a 'property' ⁴ whose average daily production of oil ... [meets specified requirements] during any preceding consecutive twelve-month period beginning after December 31, 1972."

On June 17, 1987, the Tax Commissioner assessed against the purchaser, Ashland Oil, an oil extraction tax of $2,143.60 plus interest and penalties for oil produced from a well leased and operated by Peterson. The well met the statutory requirements and was certified as "stripper well property" by the North Dakota Industrial Commission. The tax assessment period included a portion of the twelve-month qualifying period required for certification as stripper well property.

A protest was filed objecting to the assessment on the ground that the stripper well property was exempt from the oil extraction tax during the twelve-month qualifying period. After reconsideration, the Tax Commissioner denied the protest on the ground that the oil produced by the property during the twelve-month period required to qualify for exemption was subject to the oil extraction tax. An administrative complaint was filed and the assessment was upheld.

Peterson and Ashland Oil appealed and submitted the case on stipulated facts. The district court affirmed and Peterson and Ashland Oil appealed.

The sole issue on appeal is whether oil produced from a stripper well property during the twelve-month qualifying period is subject to the oil extraction tax under NDCC ch. 57-51.1.

The Tax Commissioner contends that, under the statute, a property is exempt from the tax only after it qualifies as "stripper well property." She argues that because a property is, by definition, a stripper well property only after it meets the statutory requirements during the twelve-month qualifying period, the stripper-well-property exemption necessarily applies only to the oil produced after the property fulfills the specified requirements and is certified as stripper well property. Peterson and Ashland Oil assert that the oil produced during the twelve-month qualifying period is exempt from the tax.

There are a number of legal principles relevant to our resolution of the issue. One claiming a tax exemption has the burden of establishing exempt status, and the tax exemption statute will receive a strict construction against the claimant. Minot Farmers Elevator v. Conrad, 386 N.W.2d 463, 466 (N.D.1986). However, words describing the object of a tax exemption will be given a liberal and not a harsh or strained construction in order to obtain a reasonable result effectuating the legislative intent in providing a tax exemption. Id.

The interpretation of a statute is fully reviewable by this court. Ladish Malting Co. v. Stutsman County, 351 N.W.2d 712, 718 (N.D.1984). In interpreting a tax statute, we apply the general rules of construction. See Amerada Hess Corp. v. Conrad, 410 N.W.2d 124, 130 n. 6 (N.D.1987). Our primary objective in the interpretation of a statute is to ascertain the intent of the Legislature. Ladish Malting Co., supra. The legislative intent must first be sought from the language of the statute. Rocky Mountain Oil & Gas Ass'n v. Conrad, 405 N.W.2d 279, 281 (N.D.1987). Where the Legislature's intent is apparent from the face of the statute, there is no room for construction and the court will follow the rule of literal interpretation in applying the words of the statute. Coldwell Banker v. Meide & Son, Inc., 422 N.W.2d 375, 379 (N.D.1988).

In interpreting a statute, words must be given their plain, ordinary and commonly understood meaning, and consideration should be given to the ordinary sense of statutory words, the context in which they are used, and the purpose which prompted their enactment. Coldwell Banker, supra; Stutsman County v. State Historical Society, 371 N.W.2d 321, 327 (N.D.1985); NDCC Sec. 1-02-02. When a statute is unambiguous, it is improper for the court to attempt to construe the provisions so as to legislate that which the words of the statute do not themselves provide. Haider v. Montgomery, 423 N.W.2d 494, 495 (N.D.1988).

Finally, the practical construction of a statute by the agency administering the law is entitled to some weight in construing the statute, if the agency interpretation does not contradict clear and unambiguous statutory language. Rocky Mountain Oil & Gas Ass'n, supra at 283.

A "stripper well property" is defined as "a 'property' whose average daily production of oil ... [meets specified requirements] during any preceding consecutive twelve-month period beginning after December 31, 1972." NDCC Sec. 57-51.1-01(8). Our focus is on the meaning of the words "preceding consecutive twelve-month period."

Both parties agree that the statute is unambiguous. The Tax Commissioner argues that we must give the word "preceding" its plain meaning, which is "occur prior to." [Citing The American Heritage Dictionary of the English Language, New College Edition (1982) ]. Thus, the Tax Commissioner asserts that the commonly understood meaning of the phrase "preceding consecutive twelve-month period" is that the twelve-month period must occur prior to the time the property becomes a stripper well property and prior to the time it is exempt. We find the Tax Commissioner's interpretation persuasive because it is consonant with the rule of construction affording words in a statute their commonly understood meaning. The Tax Commissioner's interpretation is also entitled to "some weight" in our interpretation of the statute. Most important, this interpretation is consistent with the clear legislative intent to provide tax relief to marginal oil wells, presumably to encourage production.

However, Peterson and Ashland Oil argue that the twelve-month period merely contemplates a demonstration period which is used simply to identify a stripper well property, and is not a prerequisite that must be met in order for the exemption to apply. We disagree.

The oil extraction tax is paid on a monthly basis. NDCC Secs. 57-51.1-05 and 57-51-05. To interpret the statute in the manner advanced by Peterson and Ashland Oil, the statute would, in effect, provide a refund for stripper well property during the twelve-month qualifying period necessary for its certification as exempt. Yet, neither the law nor the statute supports this interpretation.

"Exempt," as applied to taxation, means "an immunity from a general tax." William Clairmont, Inc. v. State, 261 N.W.2d 780, 783-84 (N.D.1978). In other words, "no tax is payable in the first instance." Id. at 784. An exemption does not mean that a tax is payable and then subject to a refund. Id.

While the Legislature could provide for an "exemption" by authorizing refunds, such an exemption must be spelled out in the statute. Id. We find nothing in the statute to indicate that the Legislature intended to provide a refund for taxes paid on "stripper well property" during the twelve-month qualifying period. NDCC ch. 57-51.1 provides for refunds only for overpayments, duplicate payments and erroneous payments. NDCC Secs. 57-51.1-05; 57-51-19. We do not believe that taxes paid as required by law are overpayments, duplicate payments or erroneous payments.

Given the parties' characterization of the statute as unambiguous, and interpreting the language of the statute in its ordinary sense in light of the statutory purpose, we conclude that the Legislature intended to provide an exemption for stripper well property only after the property has fulfilled the statutory requirements in "any preceding, consecutive twelve-month period." ⁵

We note that in 1987, the Legislature provided a tax exemption "for the initial production of oil" for a period of fifteen months for wells drilled and completed after April 27, 1987. NDCC Sec. 57-51.1-03(3) (see n. 2). This is a clear legislative expression that, to provide tax relief for new wells, the initial production...