Gross Production Tax on Processed Gas

摘要

State ex rel. Oklahoma Tax Commission v. Texaco Exploration & Production, Inc., 2005 OK 52 (Okla. June 28, 2005) (unpublished), is the gross production tax counterpart of Howell. The issue addressed in this case was the proper method to determine gross value of the gas when there is no arm's-length sale at the wellhead. The Tax Commission sued Texaco in state district court alleging that Texaco, for the purpose of evading payment of taxes, intentionally had implemented a scheme to calculate gross production tax on a price less than fair market value. The underlying facts, as to the gas to be valued and the point of first arm's-length sale, were identical to Howell, as the same gas was involved. Texaco claimed that it correctly paid taxes based upon the prevailing price established by comparable sales paid under POPs contracts to non-affiliate producers in the field for gas of like kind, quality, and character. The Tax Commission argued that Texaco was required to pay taxes based upon the gross proceeds realized from the first arm's-length sale. The trial court ruled for Texaco, concluding that the gross value of the gas was best reflected by the prevailing price in the field for gas of similar kind, quality, and character at the time of production. The state supreme court first addressed whether the Tax Commission could forego the administrative assessment process and sue in district court for a determination of the taxes. The court held that generally the tax laws were to be enforced through the administrative process prior to bringing suit in court. However, both the Tax Commission and Texaco urged that the Tax Commission's allegations of intentional under-reporting invoked the district court's jurisdiction under a statute permitting a proceeding to go to court without assessment "in the case of either a false or fraudulent report or return." The supreme court concluded that the Tax Commission's allegation of intentional schemes to evade taxes invoked the subject matter jurisdiction of the district court.