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Court disallows tax appeal process Alaska Supreme Court ruling will allow more municipality involvement in challenges to oil and gas property tax assessments ALAN BAILEY Petroleum News
In an April 29 decision the Alaska Supreme Court overturned a ruling by state Superior Court in a case relating to the regulations for assessing taxes on oil and gas properties in Alaska. The Supreme Court decision will provide municipalities with more opportunity to participate in administrative appeals over oil and gas property tax assessments, including the hugely contentious issue of assessing property taxes on the trans-Alaska oil pipeline.
Under state statutes, the state of Alaska assesses and collects taxes on oil and gas properties in the state. However, municipalities that have any of these properties within their boundaries also have the right to levy taxes on the oil and gas infrastructure. But, rather allowing than double taxation, the state pays to the municipalities an amount of money equivalent to the property tax that the municipalities would otherwise have collected, with the state determining the taxable value of the properties.
Hence, the amount of oil and gas property tax that a municipality can collect is inherently linked to state property tax assessments.
Annual assessment Each year, the Alaska Department of Revenue issues these property tax assessments and allows the property owners and the impacted municipalities to appeal Revenue’s findings. But in 1986 Revenue decided on two separate appeal routes, one for appeals over decisions on what property would be taxed, and another for decisions on the value of the taxable property.
Valuation appeals would follow a process spelled out by statute for appeals against oil and gas property tax assessments. These appeals would first go to Revenue for an informal adjudication, before being elevated, if necessary, to a body called the State Assessment Review Board, or SARB. If dissatisfied with the SARB decision, the parties to the case could appeal through the state’s court system via Superior Court. The court appeal would involve the collection of testimony for the case, rather than just relying on testimony from the SARB hearing.
But appeals involving decisions over what property would be taxed, which Revenue argued was not formally part of a tax assessment, would not go from the review by Revenue to the SARB. Instead, the appeal would go to a hearing officer appointed by the commissioner of Revenue. An appeal of the hearing officer’s decision could go to Superior Court, but the court judge could decide whether the gathering of fresh evidence was required, or whether to just use the records gathered in the appeal to the hearing officer. Moreover, while under a valuation appeal all parties, including the municipalities, could participate in the court case, participation in the court case emanating from a property taxability appeal was restricted to the appellant.
The trans-Alaska pipeline appeal Major contention over this bifurcated appeals approach came about after the owners of the trans-Alaska oil pipeline appealed Revenue’s assessment of property taxes for the pipeline in 2013. Because the owners appealed both the determination of which components of the pipeline should be taxed and the values placed on those components, the appeal proceeded separately along the two tracks established in 1986. The municipalities that the pipeline crosses, the North Slope Borough, Fairbanks North Star Borough and the City of Valdez, entered the fray by cross-appealing the valuation case, which went from SARB to Superior Court.
But, unable to obtain any information about the property taxability appeal, given their exclusion from being parties to that appeal, the three municipalities appealed to Superior Court, challenging the legality of the manner in which Revenue had bifurcated the tax assessment appeal process. The Superior Court found in favor of Revenue, saying that Revenue’s regulation implementing the bifurcated process was a permissible interpretation of the oil and gas property tax statute.
The City of Valdez appealed to the Supreme Court over the Superior Court decision. And the Supreme Court has now overturned that decision, saying that Revenue’s property tax regulation does not comply with the tax statute.
The Supreme Court ruling In coming to its decision, the Supreme Court justices said that no particular agency expertise is required in interpreting the property tax statute and, so, the court can override Revenue’s interpretation of the statute. Moreover, the justices said, Revenue has been inconsistent in its application of its regulations, with SARB being involved in a property taxability appeal as recently as 2008.
A long section of the court’s opinion revolves around what is meant by a “tax assessment,” and whether the determination of the taxability of property should be viewed as separate from an assessment, as Revenue had claimed in its interpretation of the tax statute. Using various lines of argument, including references to the procedures by which property tax valuations are determined, and including a legal definition of “assessment” from a law dictionary, the justices concluded that an assessment must include a determination of what property should be taxed. Consequently, the justices found, the Revenue procedure for processing property taxability appeals is illegal and must follow the same procedure as is used for property valuation appeals.
The upshot is that, in future, municipalities will be entitled to participate as parties to all aspects of oil and gas property tax appeals, and not just to challenges to property valuations.
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