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November 2010

Vol. 15, No. 47 Week of November 21, 2010

Pipeline owners look to delay tax trial

After adverse ruling on trans-Alaska pipeline’s 2006 assessed value, lawyers want to stay proceedings until after Supreme Court acts

Wesley Loy

For Petroleum News

The trans-Alaska pipeline owners, having recently suffered a costly defeat in a court challenge of their 2006 property tax liability, now appear in no hurry for a ruling on subsequent disputed tax years.

In papers filed Nov. 12 in state Superior Court in Anchorage, the owners ask the judge to postpone a planned trial for the 2007, 2008 and 2009 tax years.

The owners vow to appeal the unfavorable 2006 ruling to the state Supreme Court, and it would be best to wait for the justices to rule before plowing into another lengthy trial on the more recent tax years, lawyers for the owners argue.

Costly ruling

After a five-week trial that began in August 2009, Superior Court Judge Sharon Gleason ruled that the 800-mile pipeline system had an assessed value for 2006 of $9.98 billion.

That was considerably greater than the state’s assessment, and far higher than the $850 million the owners had argued.

Gleason’s ruling, if upheld, will mean the owners will have to pay an extra $113 million in state and municipal property taxes for 2006 alone.

While state officials and the judge focused on the value of the pipeline in terms of its replacement cost and indispensible role in producing Alaska North Slope crude oil, the owners argued the line was worth less based on its declining throughput and tariff income stream.

Now the owners — BP, ConocoPhillips, ExxonMobil, Koch Industries and Chevron — face another trial scheduled to start in the fall of 2011 to consider the consolidated tax years of 2007 through 2009. The owners have challenged the state’s tax assessment for each of those years as too high.

New judge sought

The owners have signaled strongly they would prefer that another judge take over the case.

They have filed papers to exercise their right under the Alaska Rules of Civil Procedure to change judges.

Gleason has appointed fellow Superior Court Judge Peter Michalski to decide the question.

Meantime, Gleason remains the presiding judge over the pipeline tax matter, and planning continues toward the trial on the 2007-2009 tax years in her courtroom.

Regardless of how Michalski rules, it’s possible Gleason will come off the tax case anyway. That’s because she appears to be a leading candidate for a pending U.S. District Court judgeship in Anchorage.

First things first

The pipeline owners argue it only makes sense to put off the trial until after the Supreme Court rules on any appeal of Gleason’s decision on the 2006 tax year.

That decision “addresses many significant issues concerning the interpretation and application” of AS 43.56, the state statute on oil and gas property taxes, lawyers for the owners argue in their Nov. 12 court filing.

These are issues “that have never been addressed by the Alaska Supreme Court,” the lawyers say.

A stay of the 2007-2009 proceedings “will serve the interests of justice by allowing the Supreme Court to review and resolve key questions of first impression addressed in the 2006 decision that could have crucial relevance to issues raised in the 2007-2009 proceedings,” the lawyers argue.

Further, they say, a stay “would also avoid the tremendous injustice and waste that would occur if the 2007-2009 trial were held first, and the Supreme Court then issued a decision in the 2006 case that required the later case to be retried.”

$10 million in costs

The pipeline owners might not be the only parties to appeal Gleason’s ruling on the 2006 tax year. Municipal governments including the Fairbanks North Star Borough and the city of Valdez had argued the pipeline’s assessed value was even higher than what Gleason ruled. A higher assessed value means higher property tax collections for the municipalities.

To prepare for the impending trial on the 2007-2009 tax years, parties on all sides are “expending massive amounts of time and resources,” lawyers for the pipeline owners say. They estimate the total cost for all parties to prepare for trial “could easily exceed $10 million.”

All the effort and money could be saved by allowing the Supreme Court to first review the decision for the 2006 tax year, the lawyers say. That way, many disputed points could be eliminated, resulting in “a shorter and more narrowly focused trial, or perhaps even settlement without trial.”

As Petroleum News went to press, lawyers for the state and the municipalities had not yet weighed in on the idea of deferring the trial.






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