Teavee Oil & Gas, Inc. v. Hardesty, 15609
Decision Date | 19 November 1982 |
Docket Number | No. 15609,15609 |
Citation | 171 W.Va. 123,297 S.E.2d 898 |
Court | West Virginia Supreme Court |
Parties | TEAVEE OIL & GAS, INC. v. David C. HARDESTY, Jr., Tax Commissioner, etc. |
Syllabus by the Court
1. W.Va.Code, 11-13-2a [1971] taxes the fair market value of natural gas produced in this State, and rules and regulations of the State Tax Commissioner implementing this taxing statute and providing for convenient methods for calculating fair market value must be construed in harmony with the legislative intent.
2. Where Business and Occupation Tax Regulation 1.2a(F)(2)(b) provides that fair market value of produced gas at the well mouth may be calculated from the sale price of gas from the same or a proximate field, the proviso in that regulation that "such purchase price accurately represents the well mouth value of the gas severed and produced" qualifies everything else in the subsection and the use of this method of calculation may be disallowed by the tax commissioner where it appears that the "purchase price" of other gas used for comparison purposes is predicated on old contracts that do not reflect the current fair market value of such gas.
Gary G. Markham, Thomas B. Bennett, Bowles, McDavid, Graff & Love, Charleston, for appellant.
Wayne Basconi, Asst. Atty. Gen., Charleston, for appellee.
In 1978 the State Tax Department audited the appellant, Teavee Oil & Gas Company, Inc., and assessed additional business and occupation tax in the amount of $50,237.86 against it for the period 1 January 1973 to 31 December 1977. The State Tax Commissioner disallowed the taxpayer's method for valuing its production of natural gas at the well mouth. On appeal to the Circuit Court of Kanawha County the tax commissioner's decision was affirmed in toto.
The appellant is a West Virginia corporation that operates and maintains an integrated gas production and distribution business consisting of the production of natural gas from its own wells, the purchase of natural gas from other wells, and the transmission of its own and purchased gas through its own pipeline system to industrial customers. It is the value of the gas produced at appellant's own wells that is at issue in this appeal, and in that regard appellant maintains meters to measure the number of thousand cubic feet of gas produced at each well mouth.
During the audit period the taxpayer paid business and occupation tax at the rate of $8.63 for every one hundred dollars of value pursuant to W.Va.Code, 11-13-2a [1982]. The appellant computed its tax based upon § 1.2a(F)(2) of the Business and Occupation Tax Rules and Regulations (BOT Regs.), which provides in relevant part:
[t]he severance and production of natural gas shall be valued for purposes of business and occupation tax at the well mouth of such severance and production ...
This regulation establishes three alternative methods to calculate the well mouth value. The appellant chose valuation method (b), and determined well mouth value on the basis of average purchase price at the well mouth. Method (b) specifies:
As an alternative to the method presented at paragraph (a), supra, the well mouth value of such severance and production may be determined by the average purchase price of natural gas from the same pool or field, or, in the event no gas is purchased from the same pool or field, by the average purchase price of natural gas from the most proximate pool or field and of the same quality and characteristics as that severed and produced, provided that in either case such purchase price accurately represents the well mouth value of the gas severed and produced ...
BOT Regs. § 1.2a(F)(2)(b). [Emphasis supplied].
As a result of the audit, the tax commissioner disallowed the appellants' valuation and revalued the produced gas by reference to the average price at which petitioner sold its gas in the marketplace, deducting from that price 15% for transmission expenses, as provided in alternate valuation method (c) of BOT Regs. § 1.2a(F)(2) which specifies:
The appellant asserts that in the hearing before the tax commissioner it...
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