American Gas Association: State and Local Tax Update

Transcription

1 American Gas Association: State and Local Tax Update

2 Presenters Mike Semes Principal Ernst & Young LLP michael.semes@ey.com Rob Harrill Principal Ernst & Young LLP rob.harrill@ey.com Page 2

3 State and Local Tax Update Current Economic Environment Legislative Update New York State and New York City Reform Tennessee Revenue Modernization Act Missouri Legislative Update Judicial Maryland Comptroller of the Treasury v. Wynne Natural Gas Storage Issues Powerex Corp. v. Dept. of Rev. Other Recent Notable Developments Page 3

4 Current Economic Environment Page 4

5 Challenging Oil and Gas Prices Source: EY analysis of data from US Energy Information Administration Page 5

6 State tax growth slows as nationwide local property tax growth remains stable 15% 11.7% 10% 8.1% 5% 1.8% 0% % -4.4% -10% -15% 12-month % change, state taxes 12-month % change, local property taxes Note: Growth rates shown are for 12-month periods ending in each quarter versus the 12-month period ending in the same quarter the previous year. Source: US census, quarterly state tax collections, various quarters % Page 6

7 Individual income, corporate income, and general sales taxes growing at different rates 30% 23% 20% 14% 10% 0% % -8% -20% Individual income Corporation net income General sales and gross receipts -30% Note: Tax collections shown are for 12-month periods ending in each quarter, relative to 2006 (12-month period ending the 4 th quarter of 2006). Source: U.S. Census, Quarterly State Tax Collections, various quarters. Page 7

8 Total state tax collections level-off in 2014 after relatively strong growth through 2013 $900 $850 As of Q3 2014, state taxes were approximately equal to the prior year (+2%) $859 $874 2% $800 $750 However, since the recession, state tax collections have grown 27%. 27% Billions of nominal dollars $700 $650 $600 $550 $688 $500 $450 Total 12-month state tax collections, $billions Note: Dollar amounts are total state taxes for 12-month periods ending in each quarter. Y-axis starts at $400 billion Source: US census, quarterly state and local government tax collections, various quarters. $ Page 8

9 2015 Tax Policy Discussion With state revenues expected to continue to grow, is it the right time for states to consider. Tax rate increases Tax reform Tax relief Tax rate reductions coupled with targeted tax increases to help fund specific expenditures (e.g., transportation, education) No tax relief, instead resort/enhance services, save for a rainy day Page 9

10 2015 Legislative Scorecard Key: Green enacted; Red dead; Purple vetoed; Black proposed Repeal/phase-out tax Rates Nexus Income tax Sales tax Property tax Controversy Other Corporate income/franchise: HI, MS, NY (all manufacturers), TX Personal income: GA, MS, TN Business surcharges or entity level tax/fee: CT (business entity fee), ME (AMT) Increase: Corporate income: CA, CT (extend corporate surcharge), SD (new franchise tax); Personal income: AK (new tax), PA, UT; Sales/use: DC, GA, ID, KS, LA, ME, MI (voter approval needed), NE, OH, OR (new tax), PA, SD (local); Other business tax: NV, OH; Gas: IL, IA, MO, PA (new severance tax), SC Decrease: Corporate income: CT, GA, ID, IL, ME, NE, NH, NM, NC, ND, PA, TX; Personal income: AR, GA, ID, IL, ME, MS, MT, NM, NC, ND, OH, OR, SC; Sales/use: CT, NM, TN, TX Affiliate/remote retailers: FL, LA, MD, NV, SC, TN, WA Economic: MS, NYC, TN, WA Market sourcing: IN, KY, MO, NM, NYC, NC, TN, VA (study commission) Single sales factor: NYC, NM, NC, ND (electable), TN (but did adopt triple weighted sales factor), VA (certain data centers) Combined reporting: AL, FL, KY, LA, MD, MO, PA; Consolidated returns: MN, MT (both amend current rules) Tax havens: AL, CO, FL, KY, ME, MA, MT, NH, OR, PA, VT Miscellaneous: Close loopholes: CT, LA, MN; Expand related party add-back: IN, TN Tax services: CA, IL, ME, NV, OH, PA, VT Expand base/eliminate exemptions: GA, TN (software) Close loopholes: NY, WA Property tax relief: ID, IL, ME, MD, NE, NV, ND, PA, TX, WI Amnesty program: AZ, IN, KS, KY (property taxes), MD, MA, MA (2 nd program), MO, NH, NM, PR, SC Independent tax court: NM, WA Limit tax credits: LA (film, refundable credits), MA (film), WI (historic rehabilitation), NJ, ND, OK (study effectiveness) Create/expand credits: AL, AR, GA, HI, KY, NM, NY, NC, ND, PA, RI, UT, VA Adopt a VAT: PR Inversions: MO, NJ, VA Payroll tax: VT Page 10

11 Notable state proposals Pennsylvania Cut corporate tax rate in half (to 4.99%) Adopt combined reporting Impose severance tax on natural gas Increase sales tax rate and expand base to include services Property tax relief Increase personal income tax rate (from 3.07% to 3.7%) Texas Reduce franchise tax rate Increase franchise tax exemption Property tax relief Page 11

12 Notable state proposals (continued) Ohio Individual income tax cut First revision to Commercial Activity Tax (CAT) (increase gross receipts tax rate from 0.26% to 0.32% 23% business tax increase) Increase sales/use tax rates, extend sales tax to more services Modernize severance tax Page 12

13 New York State and City Tax Reform Page Jun 2015 American Gas Association State and Local Tax Update

14 New York State Tax Reform Effective Date January 1, 2015 Salient provisions Mandatory combined reporting Nexus Expansion of the economic nexus standards already in place for credit card companies Sales factor Sourcing sales of electricity and natural gas Sourcing of commodity and hedging receipts Technical corrections Page 14

15 New York City Tax Reform General conformity Effective Date January 1, 2015 Salient differences Maintains a physical presence nexus standard, except for credit card companies 8.85% tax rate on business income Maximum 4.425% rate reduction for qualified NYC manufacturing corporations Continued phase-in of single sales factor with full phase in by 2018 $10,000 reduction to the capital base tax and increased cap on capital base tax from $1 million to $10 million for all taxpayers Subtraction modification for interest income from qualifying loans No 40% safe harbor exception for certain dividends Not applicable to S corporations Page 15

16 Tennessee: Revenue Modernization Act Page 16

17 Tennessee: Revenue Modernization Act Revenue Modernization Act ( RMA ), HB644, enacted 20 May 2015 Expanded Nexus Provisions Enacts economic nexus and a factor presence standard for excise (income), franchise (net worth) and the Business Tax (gross receipts) effective for tax years beginning on or after January 1, Substantial nexus is created where a taxpayer: Owns or uses capital in the state; Has systematic and continuous business activity; Licenses intangible property in the state; or Has bright line nexus, meaning at least $500,000 TN sourced receipts or 25% of receipts in TN; or property or payroll of $50,000 in TN or 25% of either in TN TN Atty. General Opinion No (22 April 2015) concludes that expanded nexus provisions are constitutional and that JC Penney National Bank vs. Johnson (Tenn. Ct. Appeals 1999) does not present an impediment to enforcement of the RMA Foreign entities with no effectively connected income are excluded from these provisions, i.e., no nexus for excise, franchise or Business Tax Page 17

18 Tennessee: Revenue Modernization Act Apportionment and Other Changes Apportionment Changes per RMA: Enacts a triple weighted sales factor Market Sourcing for Sales of Services and non-tangible personal property (TPP) Elective receipts factor calculation for taxpayers having at least $1 B and 10% its TPP sales in Tennessee numerator Effective for tax years beginning on or after July 1, 2016 Other favorable excise and franchise tax law changes per HB 291, effective for tax years ending on or after July 1, 2015: R&D equipment as industrial machinery (sales tax free and eligible for Industrial Machinery Credit) Jobs Tax Credits back office operations added as a qualifying business enterprise Page 18

19 Missouri Legislative Update Page 19

20 Missouri S.B. 19 Optional Single Sales Factor Apportionment Method Missouri S.B. 19 enacted 6 May 2015 Clarifying law Optional single sales factor method available for sales other than TPP Sales of non-tpp use market-based sourcing rules Sourcing rules Sale, rental, lease, or license of real property, if property is located in Missouri Rental, lease, or license of TPP, if property is located in Missouri Services to the extent the ultimate beneficiary is located in Missouri Rental, lease, or license of IP in Missouri to the extent used in the state Effective date Ninety days after legislature adjourns or August 13, 2015 (most publications still reference August, 28, 2015 based on historical adjournments) Unclear if the election is applicable to returns filed or due after the effective date, for tax years beginning on or after the effective date, or some other date Page 20

21 US Supreme Court Issues Opinion in Wynne Page 21

22 Maryland Comptroller of the Treasury v. Wynne ISSUE: Does the dormant Commerce Clause require a state to provide its residents an other state tax credit against ALL income taxes levied by the state? Maryland imposes two income taxes State income tax (5%), and County income tax (up to 3%) Reported and collected on the SAME FORM! Maryland resident S corporation shareholder paid taxes on multistate tax business to all states Not only claimed credit against the Maryland state income tax (allowed specifically by statute) but also against county tax (for which no statutory credit was available) Page 22

23 Maryland Comptroller of the Treasury v. Wynne Holding: The US Supreme Court affirmed MD Court of Appeals ruling that Maryland s personal income tax scheme violates the dormant Commerce Clause Relied on previous precedent which invalidated state tax schemes that lead to double taxation of out-of-state income an discriminated in favor of intra-state economic activity The Maryland's tax scheme failed the internal consistency test because it is "inherently discriminatory and operates like a tariff," causing a higher, total tax burden on interstate commerce Further, The Court determined that under the dormant Commerce Clause, states cannot subject corporations to tax schemes like those employed by Maryland, and found no reason to treat income earned by individuals less favorably Page 23

24 Maryland HB 72 Updates Statute to Reflect the Wynne Decision Amends the credit for income taxes paid to other states (Md. TAX-GEN ) to provide credit against the county income tax in addition to the State income tax. For the bill to take effect, Md. Attorney General (AG) must advise Department of Legislative Services (DLS) and Comptroller whether Wynne decision, invalidates the current practice of allowing the credit only against the State income tax. The credit would then apply to taxable years beginning after 31 December AG must also advise Comptroller whether Wynne decision requires payment of refunds and interest attributable to tax years beginning after 31 December 2005, but before 1 January Bill was not signed by Governor Hogan during the final scheduled bill signing (May 12). Passed into law without the Governor s signature pursuant to Article II, Section 17(c) of the Maryland Constitution 2014 legislation reduced the interest rate on any Wynne related refunds to average prime rate of interest quoted by commercial banks to large businesses during fiscal 2015, compared to 13% for all other refunds. Remains to be seen if there will be challenges to the constitutionality of this law. Page 24

25 Natural Gas Storage Tax Issues Page 25

26 Natural Gas Storage Property Tax Cases In re Appeals of Various Applicants from a Decision of the Division of Property Valuation, Dkt. No. 105,785 (Kan. Sup. Ct. 6 December 2013) Natural gas owned by an out-of-state company and stored in facilities located in Kansas pursuant to contracts with interstate pipelines is subject to property tax The most important factor in determining whether substantial nexus exists is that the gas to which the taxpayer held legal title was stored in the state on the assessment date Cert. denied Mo. Gas Energy v. Kan. Div. of Prop. Valuation, 135 S. Ct. 51 (U.S. 2014) ETC Mktg. v. Harris County Appraisal Dist., 2014 Tex. App. LEXIS (Tex. App. Houston 1st Dist. 2 October 2014) Ad valorem tax on an in-state natural gas marketer, whose affiliated natural gas pipeline operator stores the natural gas in a reservoir in Harris County, Texas, does not violate the dormant Commerce Clause Court looked to whether the taxpayer deliberately intended to store gas in the county Opinion withdrawn by, Substituted opinion at, Vacated by, in part, On rehearing at ETC Mktg., LTD v. Harris County Appraisal Dist., 2015 Tex. App. LEXIS 225 (Tex. App. Houston 1st Dist. 5 May 2015) Page 26

27 History of Property Tax Cases A Consensus? Case State Court Year Subject to Property Tax Missouri Gas Energy (2008 Ok. 94) Oklahoma Ok. Sup. Ct Yes Peoples Gas, Light & Coke Co. (270 S.W.3d 208) Texas Tex. App. Texarkana 2008 No BP Am. Prod. Co., (282 S.W.3d 215) In re Appeals of Various Applicants (Dkt. No. 105,785) Texas Tex. App. Eastland 2009 No Kansas Kan. Sup. Ct Yes ETC Mktg. v. Harris County Appraisal Dist., (2014 Tex. App. LEXIS 10984) Texas Tex. App. Houston 1st Dist Yes Page 27

28 Non-property tax issues related to gas storage Sales and Use Tax Registration required? Resale and exemption certificates? Retroactive relief available? Exemptions vs. exclusions Castigliola v. Miss. Dept. of Rev., Dkt. No SA SCT (Miss. Sup. Ct. 30 April 2015) Exclusion State bears the burden to prove that a transaction falls within its power to tax Statute strictly construed against the taxing power Exemption Taxpayer bears the burden to prove a statute or regulation exempts it from tax Strictly construed against the taxpayer When interpreting a state s SUT rules read carefully and distinguish between exempt and excluded transactions Page 28

29 Non-property tax issues related to gas storage Income Tax Substantial nexus Commerce Clause nexus Does the presence of natural gas stored in a state by a third-party interstate pipeline establish substantial nexus for income tax purposes? Due process nexus? Don t assume it exists, several Judges on the Kansas Supreme Court indicated it may not but the taxpayer s counsel did not pursue the issue Impact of SUT registration Will SUT registration trigger an income tax audit? Page 29

30 Powerex Corp. v. Department of Revenue Page 30

31 Powerex Corp., 357 Or. 40 (Or. Sup. Ct. March 26, 2015) Facts: Canadian-based company sells electricity and natural gas on the wholesale markets. Contracts specified a contractual delivery point located in Oregon. None of the natural gas was used in Oregon No agreement as to where the electricity is consumed. Department: All gross receipts sourced to the contractual delivery point Court Holding: None of the natural gas sales should be sourced to Oregon; Electricity is tangible personal property, but additional facts are needed to determine sourcing. Page 31

32 Powerex Corp., 357 Or. 40 (Or. Sup. Ct. March 26, 2015) (cont.) Ultimate Destination Test The natural gas was not consumed at the Oregon hub point but rather transferred to consumers in another state. The court compared the hub transfer point to that of a common carrier and applied an ultimate destination test Applicability to other industries Electricity and Definition of TPP The Court held that electricity is TPP because TPP is property that is perceptible to the senses, can be located physically within a state and could be delivered or shipped to a place Application of Yates decision to definitions and contextual analysis Page 32

33 Other Recent Notable Developments Page 33

34 Income/Franchise Tax California Harley-Davidson, Inc. v. Franchise Tax Board, Dkt. No. D (Cal. Ct. App. 28 May 2015) California Code allowed an intrastate unitary business to elect to compute its tax liability using the combined reporting method or the separate accounting method, but required an interstate unitary business to compute its tax using the combined reporting method. Provisions violated the Commerce Clause because they facially discriminate on the basis of an interstate element Taxpayer s subsidiaries had sufficient nexus with California to overcome due process and Commerce Clause limitations on taxing foreign entities California FTB Tax News (1 March 2015) Provides that California follows the IRS repairs regulations Contains guidance on the California approval of an IRS method change associated with a repairs study District of Columbia Market-based Sourcing Inter Alia Clarification Temporary Amendment Act of 2015 (L. 2015, Act (Law )) The temporary legislation amends recently enacted statutory provisions to clarify that the market-based sourcing legislation is applicable for tax years beginning after December 31, 2014, effective 04/30/2015 (expires 12/11/2015) Page 34

35 Income/Franchise Tax (cont.) Iowa LSCP, LLLP v. Courtney M. Kay-Decker, Director, Iowa Dept. of Rev., Dkt. No (Iowa Sup. Ct. 10 April 2015) The statutory framework for Iowa's taxation of the delivery of natural gas at variable tax rates depending on volume and the taxpayer's geographic location within Iowa does not violating the Equal Protection Clause or the dormant Commerce Clause Indiana Revenue Ruling IT (18 March 2015) Taxpayer in the service industry permitted to use a market-based sourcing alternative apportionment approach to determine its Indiana taxable income Services sourced to location of actual receipt of use, or if unknown, to the location to which the service are billed Service not subject to throwback rule Louisiana Bridges v. Polychim USA, Inc., Dkt. No CA 0307 (La. Ct. App., 1st Cir. 24 April 2015) Corporation franchise tax does not apply to a foreign corporation by virtue of its ownership interests in entities that owned property and did business in Louisiana Page 35

36 Income/Franchise Tax (cont.) New York In re Petition of Joseph and Nancy Francoforte, Dkt. No , (NYS Division of Tax Appeals 19 February 2015) Division of Taxation properly disallowed certain losses claimed on the taxpayer's personal income tax returns because the claimed losses resulted from improper and abusive tax avoidance transactions involving oil and gas drilling expenses of certain partnerships in which the taxpayer participated North Dakota L. 2015, S2292, effective for tax years beginning after 31 December 2014 Amends provisions relating to the apportionment of business income Creates a voluntarily election for businesses that are not pass-through entities to use an alternative apportionment formula Repeals the optional apportionment computation of the multistate tax compact that allowed an equally weighted 3-factor apportionment formula Page 36

37 Income/Franchise Tax (cont.) Pennsylvania Informational Notice No. Corporation (12 Dec 2014) Under Act 52 of 2013, receipts from sales of services are sourced based upon where the service is delivered effective The notice expresses the Department s point of view on sourcing certain types of receipts from services Neither the statute nor the Notice expressly define the key terms: services, deliver and location. As a result, taxpayers continue to face a significant amount of uncertainty the new rules. The Notice could create additional uncertainty by: Apparently contradicting a 2006 letter ruling in which the Department interpreted Section 17; and Providing examples that may be viewed as inconsistent. Page 37

38 Income/Franchise Tax (cont.) South Carolina SC Rev. Proc. #15-x (DRAFT 21 April 2015) Draft revenue procedures explain how a taxpayer may apply to use an alternative apportionment method Comments due by 14 May 2015 Duke Energy v. S.C. Dept. of Rev., 764 S.E.2d 712 (S.C. Ct. App. 2014) Electric generation is manufacturing for South Carolina income tax purposes Manufacturing not defined in statute Court relied on common meaning and upheld the lower court's definition of manufacturing Electric generation is manufacturing because it creates an electrical charge that did not previously exist On April 9, 2015, the South Carolina Supreme Court granted a limited writ of certiorari on the issue of whether Duke should include gross receipts, as opposed to net receipts, from sales of short-term investments in its sales factor Page 38

39 Income/Franchise Tax (cont.) Texas Gulf Chemical and Metallurgical Corp. v. Comptroller,, Dkt. No CV (Tex. Ct. App. 3rd Dist. 26 March 2015) A company that provides environmental disposal and recycling services for oil refineries can reduce its gross receipts for environmental service fee discounts Page 39

40 Sales and Use Tax Arkansas L. 2015, S801 (Act 1125) Amends Ark. Code Ann (c)(2)(B) to reinsert and exemption for sand and other proppants used to complete a new oil or gas well or to re-complete, redrill, or expand an existing oil or gas well while the state Supreme Court resolves litigation regarding the taxability of proppants under Arkansas law Colorado Colorado Dept. of Revenue v. Public Service Co. of Colorado, 2014 CO 59 (Colo. Sup. Ct. 30 June 2014) Electricity furnished and sold for commercial consumption is taxed as a service Because electricity is a taxed as a service, it does not constitute "tangible personal property" as required to fall within the machinery exemption Page 40

41 Sales and Use Tax (cont.) Louisiana Thomas v. Bridges, 144 So. 3d 1001 (La. Sup. Ct. 7 May 2014) Nebraska The Department of Revenue could not collect sales and use tax from a single member LLC admittedly formed for the sole purposes of avoiding sales and use tax Nebraska Information Guide (1 May 2015) Updated for Kerford Limestone Co. v. Nebraska Department of Revenue, Dkt. No. S (Neb. Sup. Ct. 14 March 2014). In Kerford Limestone, the court rejected Nebraska's requirement that qualified equipment must be used more than 50% in manufacturing, and held that manufacturing equipment was exempt from sales and use tax when any amount of its use was in manufacturing. Page 41

42 Sales and Use Tax (cont.) North Carolina Important Notice: Rate Change for Piped Natural Gas Sold or Consumed By a Gas City, N.C. Dept. of Rev., (22 May 2015) Reflects the increased SUT rate applicable to the gross receipts derived from sales of piped natural gas billed on or after July 1, 2015 for piped natural gas: received by a gas city for consumption by that city; and delivered by a gas city to a sales customer or transportation customer of the gas city. The tax rate is increased from 3.5% to the 7% combined general SUT rate for sales and purchases billed on or after 1 July North Dakota L. 2015, S2318 Gross receipts from sales of tangible personal property used to construct or expand a system for gas compressing, gathering, collecting, storing, transporting, or injecting carbon dioxide for use in enhanced recovery of oil or natural gas in North Dakota are exempt from sales tax effective for tax periods beginning after 30 June Page 42

43 Sales and Use Tax (cont.) Texas Texas Private Letter Ruling L (19 December 2014) Conversion of pipeline quality natural gas into liquefied natural gas (LNG) at a proposed LNG plant in Texas is a manufacturing process, but Texas does not recognize a self-contained, unified manufacturing process in large integrated plants as being all-inclusive for tax purposes. Rules that the taxpayer's proposed LNG plant will consist of many items of tangible personal property that will be purchased and used at the facility, and each piece of equipment used must meet the qualifications for the exemption. Page 43

44 Sales and Use Tax (cont.) Wyoming Appeal of Bar S Services, Inc., Dkt. No (Wyo. BOE 31 March 2015) A company engaged in the business of transporting oil field equipment throughout the United States failed to prove that certain purchases of equipment added to vehicles for use in interstate commerce were exempt from tax. L. 2015, H51, effective 1 July 2015 Amends the definition of a well site, for sales tax purposes, to mean an area where production equipment is installed to store or prepare oil or gas for transportation off the well site. Production equipment includes, but is not limited to, wellheads, valves, tanks, dehydrators, heater-treaters, separators, flow lines, meters, flares, vapor recovery units and emission equipment. For purposes of defining a well site, except as otherwise provided, production equipment does not include compressors, off well site gathering lines and processing facilities. Previously, a well site was defined by statute as an area within a 250 foot radius of an oil or gas wellbore. Page 44

45 Property Tax Colorado Kinder Morgan CO2 Co., L.P. v. Montezuma County Board of Commissioners, Dkt. No. 13CA2187 (Colo. Ct. App. 29 January 2015) (unpublished opinion) The Board of Assessment Appeals erred in finding that the statutory scheme allowed for retroactive taxation based on the undervaluation of oil and gas leaseholds because the undervaluation was not premised on a willfully false and misleading statement Kansas In re ExxonMobil Oil Corp., Dkt. No EQ (Kansas Ct. of Tax App. 10 January 2014) The in-place value of reserves methodology used by county appraisers to value gas wells owned by ExxonMobil Corp. for tax year 2012 deviated from valuation guidance for 2012 and the counties failed to show just cause for deviation specific to individual pieces of property Page 45

46 Property Tax (cont.) Louisiana Sapphire Land Co., LLC v. Chesapeake Louisiana, L.P., Dkt. No. 49,712- CA, (La. Ct. App., 2d Cir. 20 May 2015) A parish executed a valid mineral lease of tax delinquent property that had been adjudicated to the parish after no bids were received at a tax sale of the property Maryland Genon Mid-Atlantic, LLC v. State Dept. of Assessments & Tax., Dkt. No. 10-RP-CH-0743 (Md. Tax Ct. 18 February 2015) Taxpayer failed to prove that the existing coal fired generation facility was not the highest and best use of the property. Minnesota Minnesota Energy Resources Corp. v. Comm n. of Rev., Dkt. No (Minn. Tax Ct. 29 September 2014) A gas distribution system did not suffer from economic obsolescence due to rate lags, mild weather, energy efficient appliances, and the 2008 economic crisis A failure to meet sales projects, standing alone, does not demonstrate obsolescence Intangible property, including franchises and consents, farm taps, and asset retirement costs, should be excluded from the valuation formula Page 46

47 Property Tax (cont.) Montana L. 2015, H156, effective 5 May 2015 Oklahoma Provides property tax exemptions for certain pollution control equipment HB 1962, effective 6 May 2015 Modifies the definition of personal property to include all goods, wares, and merchandise including oil, gas, and petroleum products that have been severed from the ground or are currently in storage L. 2015, S335, effective 1 November 2015 Requires the Oklahoma Tax Commission to audit information provided by pipeline companies to ensure that property owned by a pipeline is accounted for Page 47

48 Property Tax (cont.) Tennessee The Coal Creek Co., (State Bd. of Equalization, 28 January 2014) Assessment of oil and gas mineral interests based on the value of the oil and gas removed from the mineral interest in the prior year is an improper severance tax on oil and gas production Texas L. 2015, S1985, effective 1 January 2016 Provides a method for calculating the price adjustment factor for valuing a property interest in oil or gas in place that is appraised by a method that takes the future income from the sale of oil or gas to be produced into account Valerus Compression Services, et al. v. Gregg County Appraisal District, Dkt. No CV (Tex. Ct. App. (12th Dist. 7 January 2015) Natural gas compressor packages leased by the taxpayer had taxable situs in the county where the packages were located, The taxpayer fail to provide sufficient evidence to support the valuation of the packages as heavy equipment inventory because it did not explain how the packages function and insufficient Page 48

49 Property Tax (cont.) West Virginia Notice (27 Jan 2015) Discusses the methodology for valuing producing oil and gas properties Notice Addresses the development of industry capitalization rates for properties containing oil and gas Notice Sets forth procedures used in developing production decline rates for 2015 Notice Sets forth procedures used in determining oil and gas operating expenses for 2015 Notice Discusses the rules for the appraisal of reserve oil and gas properties Notice Discusses the appraisal of industrial personal property, i.e., industrial machinery, equipment, furniture, fixtures, and leasehold improvements Page 49

50 Excise Tax Idaho L. 2015, H268 Aligns tax collection policies with industry and market practices to allow for uniform assessment of oil and gas produced in state Defines "gross income" as the amount realized by the producer for sale of the oil or gas, without deduction for transportation, manufacturing, and processing costs borne by the producer L. 2015, H269, effective 1 July 2015 Imposes the Idaho oil and gas severance tax on the gross income of the oil or gas produced that is received by the produce Previously, the oil and gas severance tax was imposed on the market value of the oil or gas produced at the site of production L. 2015, H125 effective 1 July 2015 Amends the definition of gas for purposes of the gas severance tax. Gas means any petroleum hydrocarbon existing in the gaseous phase, including condensate because it originally existed in the gaseous phase. Page 50

51 Excise Tax (cont.) Kentucky Revelation Energy, LLC v. Ky. Dept. of Rev., Dkt. No. 14-CI (Ky. Commw. Ct. Pike Cir. Ct. (Div. 1) 20 May 2015) Mississippi The pre-purchase refund requirement violated the Due Process Clause because it did not provide a an adequate post-deprivation remedy L. 2015, S2832, effective 1 July 2015 Montana The costs of completing an oil or gas well are included in the 3.5% tax rate levied on either the contract price or the compensation received for drilling the well when the total compensation exceeds $10,000 L. 2015, H67, effective 1 October 2015 Removes the Wall Street Journal as the source used to determine the price of oil for purposes of calculating the tax rates on oil production L. 2015, H411, effective 1 July 2015 Increases the calendar quarter WTI price needed to qualify oil production for stripper well exemption production to $54 per barrel from the current $38 per barrel Page 51

52 Excise Tax (cont.) New York In re East Coast Fueling Services, Inc., Dkt. No (NYS Tax App. Trib. 19 February 2015) A taxpayer's sales of number two fuel oil were subject to petroleum business tax and to sales and use tax, absent an applicable statutory exemption North Dakota L. 2015, H1476 Replaces the oil extraction tax triggered rate reductions with a single, permanent tax rate of 5% beginning 1 January 2016 If the average price of a barrel of oil is above $90 for three consecutive months, the extraction tax will increase to 6%, for a total effective tax rate of 11% Adds an oil extraction tax exemption for a 5-year period for the incremental production from a tertiary recovery project that uses carbon dioxide for certain wells Page 52

53 Excise Tax (cont.) Utah Anadarko Petroleum Corp. v. Utah State Tax Comm'n, Dkt. No (Utah Sup. Ct. 30 January 2015) Held that a taxpayer properly made deductions for tax-exempt federal, state and Indian tribe royalty interests from the net taxable value of an oil or gas interest for purposes of calculating the applicable severance tax rate. Wyoming L. 2015, S42, effective 2 March 2015 Creates a task force to study and make recommendations for a fair, viable and simplified system of valuation and taxation for minerals. The task force must issue a final report to the committee and the governor no later than November 30, The committee will exist until December 31, Page 53