Shell Oil Co. v. Secretary, Revenue and Taxation

• Decision Date: 25 November 1996
• Citation: 683 So.2d 1204
• Parties: 96-0929 La
• Court: Louisiana Supreme Court

Page 1204

683 So.2d 1204

96-0929 La. 11/25/96

SHELL OIL COMPANY, et al. v. SECRETARY, REVENUE AND TAXATION.

No. 96-C-0929.

Supreme Court of Louisiana.

Nov. 25, 1996.

Mark Brent Meyers, Mark S. Stein, Charles DeWitt Hunley, Randall G. Durfee, Lowe, Stein, Hoffman, Allweiss & Hauver, New Orleans, for Applicant.

Robert G. Pugh, Pugh, Pugh & Pugh, Shreveport, for Respondent.

J. Edgerton Pierson, Jr., Shreveport, for NorAm Energy Corporation, Mississippi River Transportation Corp., Murphy Oil USA, Inc., Total Minatome Corporation, and Pennzoil Exploration and Production Corporation (Amicus Curiae).

Malcolm Stanton Murchison, Shreveport, for Pennzoil Exploration and Production Corporation (Amicus Curiae).

[96-0929 La. 1] MARCUS, Justice. ^*

Pursuant to La.R.S. 47:1541-1565, the Department of Revenue and Taxation, State of Louisiana, conducted an audit and thereafter assessed Shell Oil Company and Shell Western E & P Inc. (hereinafter collectively referred to as "Shell") for severance taxes on oil and gas produced under mineral leases granted by the United States Department of Interior covering certain lands within the confines of Barksdale Air Force Base. The taxes were assessed for the taxable period from January 1, 1980 through February 28, 1986. Shell filed petitions with the Louisiana Board of Tax Appeals disputing the taxes and interest assessed. ¹ Initially, Shell took the position that the imposition of state severance taxes on minerals produced pursuant to the Barksdale leases for any taxable period violates Art. I, § 8, cl. 17 of the United States Constitution, which grants exclusive legislative jurisdiction over federal enclave lands to the United States Congress when the state has consented thereto.

The Board of Tax Appeals rendered judgment in favor of Shell, [96-0929 La. 2] whereupon the state timely filed a petition for review to the Civil District Court for the Parish of Orleans. The trial judge reversed the Board of Tax Appeals and held that the state could assess and collect the severance taxes at issue from January 1, 1980 forward. Judgment was rendered in favor of the state for the severance taxes owed plus interest and attorney fees. On appeal, the Court of Appeal, Fourth Circuit, affirmed the judgment of the trial judge, holding: (1) that 1973 amendments to state law regarding the method of calculation of severance taxes brought the taxes imposed within the meaning of an "income tax," as that term is used in the Buck Act, 4 U.S.C. § 106, which permits a state to levy an income tax within a federal enclave; and (2) that 1976 amendments to the Mineral Leasing Act for Acquired Lands, 30 U.S.C. §§ 351-359, also support imposition of the severance tax. ²

In its writ application to this court, Shell abandons the argument that federal law prohibits imposition of the taxes at issue. Rather, it argues that collection of severance taxes was not authorized under state law until September 10, 1982, the effective date of an amendment to La.R.S. 52:1. We granted certiorari to determine whether the decision of the court of appeal permitting imposition of the severance tax was correct as to the limited period of time from January 1, 1980 through September 10, 1982, the effective date of the amendment to La.R.S. 52:1. ³

The narrow issue presented for our review is whether the State of Louisiana, through the Secretary of the Department of Revenue and Taxation, can lawfully impose severance taxes on fugitive oil and gas captured by Shell from beneath a portion of the lands within the confines of Barksdale Air Force Base, a federal enclave, for the taxable period of January 1, 1980 through September 10, 1982. In order to fully address the issue before us, it is necessary to review the history of Barksdale Air Force Base and pertinent state and federal legislation and jurisprudence.

In 1930, the State of Louisiana, the City of Shreveport, and [96-0929 La. 3] the Bossier Levee District donated approximately 22,000 acres of land and the beds of the waters within the area to the United States to be used as an Army Air Force Base. At that time the Louisiana Constitution provided for the imposition of a severance tax on fugitive oil and gas and the legislature had already enacted revenue laws governing the assessment of severance taxes. ⁴ Louisiana's law with respect to the nature of fugitive oil and gas was also clearly established. Oil and gas beneath the surface of the earth was and still is regarded as insusceptible of private ownership and is not part of the land through and under which it flows. Frost-Johnson Lumber Co. v. Salling's Heirs, 150 La. 756, 91 So. 207 (1920).

In 1943, the Department of the Army transferred the right to grant mineral leases for exploration and production of fugitive oil and gas beneath certain areas of the Barksdale Base to the Department of Interior, and the Department subsequently granted mineral leases to various private companies, beginning in 1951. ⁵ Soon after production commenced pursuant to the first leases granted, the state assessed severance taxes against the Barksdale mineral lessees. The lessees paid the taxes under protest and filed a petition for refund, arguing that Louisiana was divested of its taxing powers relative to Barksdale by virtue of Article I, § 8, cl. 17, of the Constitution of the United States and La.R.S. 52:1. Murphy Corp. v. Fontenot, 225 La. 379, 73 So.2d 180, cert. denied, 348 U.S. 831, 75 S.Ct. 54, 99 L.Ed. 655; reh'g denied, 348 U.S. 890, 75 S.Ct. 204, 99 L.Ed. 699 (1954).

In Murphy, we held that neither the federal constitution nor La.R.S. 52:1 prohibit the imposition of severance taxes on the actions of mineral lessees in capturing and severing fugitive oil and gas beneath the Barksdale Base. Prior to its amendment in 1982, La.R.S. 52:1 provided in pertinent part:

[96-0929 La. 4] The United States ... may acquire and occupy any land in Louisiana for the purposes of the federal government. The United States shall have exclusive jurisdiction over the property during the time that the United States is the owner or lessee of the property. The property shall be exempt from all taxation, assessments, or charges levied under authority of the state (emphasis added).

We held that the tax exemption provision in La.R.S. 52:1 did not preclude assessment of severance taxes on Barksdale mineral lessees, despite its seemingly broad prohibition of taxation of federal lands. We noted:

The fugitive oil and gas when captured did not belong to the Federal Government but to private owners. No severance tax is levied against the Government nor is there any tax levied on the lands or the instrumentalities of the Federal Government. Murphy, 73 So.2d at 184.

Thus, we interpreted La.R.S. 52:1, prior to its amendment in 1982, as creating no impediment to the imposition of severance taxes on Barksdale mineral lessees.

Art. I, § 8, cl. 17 of the federal Constitution provides that Congress shall have the power to:

exercise exclusive Legislation in all Cases whatsoever ... over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings (emphasis added). ⁶

We held in Murphy that our cession of exclusive jurisdiction over lands acquired by the United States did not carry with it such exclusive jurisdiction over underlying fugitive oil and gas that the state is without authority to impose severance taxes on mineral lessees who sever Louisiana's natural resources flowing beneath the Barksdale Base. ⁷

Perhaps hoping to find a more sympathetic ear in a federal forum, other Barksdale mineral lessees raised the same state statutory and federal constitutional issues in federal court in [96-0929 La. 5] Mississippi River Fuel Corporation v. Fontenot, 234 F.2d 898 (5th Cir.1956), cert. denied, 352 U.S. 916, 77 S.Ct. 213, 1 L.Ed.2d 122, arguing that since Louisiana had ceded exclusive jurisdiction over the base to the federal government, it had no remaining jurisdiction to impose any taxes whatsoever with respect to the base. The United States Court of Appeals for the Fifth Circuit rejected that argument and agreed with the result we reached in Murphy. It held that the mineral lessees' arguments were "based upon the wholly incorrect assumption that the severance taxes in question represent an attempt on the part of the State of Louisiana to exercise legislative and executive jurisdiction over the lands in question...." 234 F.2d at 901 (emphasis added). Instead, the Fifth Circuit found that the distinctive nature of the severance tax and Louisiana's laws with respect to fugitive oil and gas demonstrated the fallacy of that argument. The court explained:

the object and purpose of the general severance tax and its effect is not to levy a tax upon the lands included in the base or upon the oil or gas while a part of the base. The tax is expressly made to apply not while the oil or gas is in the earth but when it is severed from its surface, and then it obliges the person severing to file a statement of his business and to pay his tax. In Louisiana, as is well known, there is no ownership of oil and gas in place, and neither in theory nor in fact is the tax here in question imposed upon it while it is a part of the soil or ground. 234 F.2d at 901-902.

Accordingly, the Fifth Circuit concluded, as did this court in Murphy, that the imposition of the severance tax did not fall within the immunity from taxation granted by La.R.S. 52:1 and that the tax did not constitute an infringement on the exclusive federal jurisdiction over the base.

In 1964, the United States Supreme Court rendered a decision which, although addressing the imposition of an altogether different type of tax, would later be interpreted by the Fifth Circuit as casting doubt on the continued validity of our holding in Murphy and its own decision in Mississippi River Fuel Corporation...