Post Oak Oil Co. v. Oklahoma Tax Commission

• Decision Date: 21 February 1978
• Docket Number: Nos. 51662,51669,s. 51662
• Citation: 575 P.2d 964
• Parties: POST OAK OIL COMPANY, a Domestic Corporation, Petitioner, v. OKLAHOMA TAX COMMISSION, Respondent. Forrest ROZZELL, Petitioner, v. OKLAHOMA TAX COMMISSION, Respondent.
• Court: Oklahoma Supreme Court

Page 964

575 P.2d 964

POST OAK OIL COMPANY, a Domestic Corporation, Petitioner, v. OKLAHOMA TAX COMMISSION, Respondent.

Forrest ROZZELL, Petitioner, v. OKLAHOMA TAX COMMISSION, Respondent.

Nos. 51662, 51669.

Supreme Court of Oklahoma.

Feb. 21, 1978.

JURISDICTION ASSUMED AND WRIT OF PROHIBITION DENIED.

John Joseph Snider, K. Nicholas Wilson, Margaret M. Love, Fellers, Snider, Blankenship & Bailey, Oklahoma City, for petitioner, Post Oak Oil Co.

Marjorie Patmon, Gen. Counsel, Clyde E. Fosdyke, Joe Mark ElKouri, Ann McNeil

Threlkeld, Oklahoma Tax Commission, Oklahoma City, for respondent.

Gene Stipe, Stephen H. Buzin, Stipe, Gossett, Stipe & Harper, Oklahoma City, for petitioner, Forrest Rozzell.

Curtis M. Long, Tulsa, for Gene C. Howard, President pro tem. of Oklahoma State Senate, amicus curiae.

LAVENDER, Vice Chief Justice.

For the purpose of this opinion, the two original actions are consolidated since the constitutionality of the same levied tax is involved, the conservation excise tax. 68 O.S.Supp.1977, §§ 1107 et seq. ¹

Petitioner, Post Oak Oil Company (Post Oak), is an Oklahoma corporation that produces gas in Oklahoma. That gas is sold in both intrastate and interstate commerce. Petitioner, Forrest Rozzell (Rozzell) is a Little Rock, Arkansas, resident and consumer of gas produced in Oklahoma and repurchased by him from a purchaser buying in interstate commerce from Oklahoma gas producers. Respondent in each action is the Oklahoma Tax Commission, the state agency authorized to enforce the tax.

The attack on the constitutionality of the conservation excise tax comes under the federal constitution as an undue burden on interstate commerce. Petitioner, Post Oak, principally argues the formula for calculating the amount of the levied tax is discriminatory to interstate commerce. § 1108 A. Petitioner, Rozzell, principally argues discrimination when the tax is considered with credits for excise taxes levied by the state on produced minerals, including gas, allowed against any Oklahoma state income tax. 68 O.S.Supp.1977, § 2357 D. ²

Tax Commission contends the tax to be on the local state act of severance or production of gas without regard to sale in intrastate or interstate commerce that occurs after severance and after the levying of the tax. Commission says any income tax credit goes to all producers ³ of Oklahoma gas, but to them only. Of necessity, these producers have Oklahoma state income and earn credit against that income tax, coming from actual payment of the conservation excise tax, without regard to producer's residence, within or without of this state. It sees no discrimination in the tax.

First, we examine the jurisdiction of this court over the controversy, here. All parties agree on the jurisdiction of this court and urge this court to exercise its discretion in assuming original jurisdiction. Involved is the collection by a state commission of a conservation excise tax relating to a valuable natural resource of this state. The additional new revenue to the state from the yield of the conservation excise tax is approximated as some forty million dollars during 1978. This court has general superintending control over commissions of this state created by law. Okl.Const. Art. 7, § 4. This includes the Tax Commission. We conclude the effect of the newly generated tax on the production of gas, a natural resource of this state, and the effect on the fiscal affairs of this state's government make the validity of the called-into-question tax a matter of general public importance. We follow the rationale of Wiseman v. Boren, Okl., 545 P.2d 753 (1976) and court syllabus of State v. Mathews, 134 Okl. 288, 273 P. 352 (1928). That syllabus said:

"Where the constitutionality of an act is questioned and is of such general public importance that there is a general public need for a speedy determination of its constitutionality, this court, in its discretion, will assume original jurisdiction of the question of its constitutionality. * * *."

We assume original jurisdiction of the question of the constitutionality of the conservation excise tax.

An abstract of the conservation excise taxing statute shows:

The legislative intent is to levy the tax on the act of severance, § 1107;

The levy is on all ⁴ natural gas and/or casinghead gas produced including both working interest and royalty interest, §§ 1108, 1110;

Liability for the tax attaches only to the producers and made a first lien on their property, both real and personal, § 1110;

If a producer is reimbursed by his purchaser for the tax, then remittance of the tax by the purchaser is to the commission and not the producer, § 1108 C;

Requiring the purchaser to remit that portion of tax the producer is reimbursed by the purchaser does not release the producer from tax liability, if the purchaser fails to remit, § 1110; and

The amount of tax is calculated as seven cents on each thousand cubic feet (MCF) of produced gas less seven percent of the gross value of that MCF of produced gas with the levied tax not to exceed one-third of the gross value of that MCF of produced gas, nor shall the levied tax be less than zero. § 1108 A.

Under the calculating formula, the seven cents is offset when the gross value of the MCF of produced gas reaches one dollar and the limitation as to one-third of the gross value comes into play when the gross value of the MCF of produced gas is seventeen and one-half cents. The levied tax operates on the production of gas having a gross value per MCF between one dollar and seventeen and one-half cents with the amount of tax increasing as the value of produced tax decreases. Post Oak argues a two tier pricing system of unregulated gas prices in intrastate selling and federally regulated lower gas prices in interstate selling places more tax and a greater burden on gas entering interstate commerce.

We have given close judicial scrutiny of the levied tax. The excise tax is on the act of severance, and the production, of an Oklahoma natural resource. Severance can occur only once and in this state. The levy is prior to entrance of any gas into interstate commerce and is on all gas so severed and produced without regard to subsequent entrance into either intra or interstate commerce.

A tax of similar nature was found constitutional in Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 43 S.Ct. 526, 67 L.Ed. 929 (1923). This involved an occupational tax, or excise tax, levied by the state on iron ore mined in Minnesota. The United States Supreme Court found the extraction to be a local business subject to local tax even though most of the ore was subsequently shipped in interstate commerce with practically no break in the continuity from severance until the beginning of interstate commerce. There, the tax was computed on the value of the ore when brought to the surface. Amount of royalty, which might vary by the mining contract or lease, was allowed to be deducted to arrive at the taxable value. The decision refused to find an undue burden on interstate commerce, for the effect of the tax was indirect. Nor was the tax stricken for some production, due to variance in the royalty amount, might carry a higher tax load through entering interstate commerce.

In the present case, the tax is upon the local act of severance. The tax amount is computed evenly on each MCF of severed gas less a percentage of the gross value at the surface or "wellhead" with the tax commencing at a gross value of one dollar for each MCF of gas and the amount of tax increasing with the decreasing of the gross value of each MCF of gas until seventeen and one-half cents is reached. This calculation is uniform without reference to sale in intrastate or interstate commerce. If there is an effect on produced gas entering on interstate commerce, that effect is incidental. The state taxing statute makes no distinction between gas entering intrastate and interstate commerce. Under Oliver Iron Mining Co., supra, the taxing statute here is not unconstitutional as placing an undue and discriminatory burden on interstate commerce.

Although argued as applicable in present case, we do not believe Boston Stock Exch. v. State Tax Com'n, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977) is controlling. There, the taxing statute gave a direct advantage by a reduction of the stock transfer tax by 50%, if the transaction involved an in-state sale by a nonresident. There was no similar benefit on a taxable transaction by residents (regardless of where the sale was made) and by nonresidents selling outside the state.

The tax here questioned does not by its terms give a greater commercial advantage to users of gas sold within this state than is accorded users or purchasers of gas outside of Oklahoma. There is no intent to create such a discriminatory situation nor, in fact, does it appear that such a discrimination may occur. Intrastate as well as interstate purchasers are affected alike by the terms of the act. Even if it could be demonstrated that a larger part of the gas affected by this act eventually passes in interstate commerce, we do not believe that the act therefore is unconstitutional. The New York act involved in the Boston Stock Exchange case, supra, is clearly distinguishable.

On the argument leveled at the credit given on Oklahoma state income tax for the unreimbursed, and actually paid, portion of the excise tax, ⁵ we find the term "taxpayer" to be unclear and ambiguous in its meaning or understanding. Tax Commission argues the credit is limited and can be claimed only by the taxpayer made liable for the conservation excise tax. This would include only the owners of the working interest and of the royalty interest (producers). If the term "taxpayer" included any Oklahoma income taxpayers, then a non-resident interstate purchaser for resale with Oklahoma income could receive income tax credit, and reimbursement for the conservation excise tax, as opposed to...