On December 6th the Louisiana Board of Tax Appeals rendered a decision in favor of the taxpayer in a “test case” involving the Department of Revenue’s assessment of additional oil severance taxes on producers based on allegations that producers took improper transportation or other contractual deductions or should have paid severance tax based on an index price or market center price if higher than the producer’s gross receipts. The Board selected as the test case one case (Avanti Exploration, LLC) out of over 30 appeals of Department of Revenue assessments against oil and gas producers. The results of this test case will be applied to all of the other appeals.
The Board rejected the Department’s position that the location differentials in determining the price in the crude oil purchase contracts between the producer and the purchaser should be added back to the producer’s gross receipts to determine the value of the oil for severance tax purposes. It found that there is no legal basis to impute amounts to the producer’s gross receipts that were larger than what it actually received.
The Board ruled that the statute requires that the oil be valued at the time and place of severance which is in the field and not at a market center where the price is higher. The Board noted that the tax is levied on the higher of the producer’s gross receipts or the posted field price. The Board also noted that there was no posted field price and agreed that a posted field price cannot mean a market center price as in the modern economy there is generally no posted field price and the market center price would necessarily be higher than the price in the field.
The Department may appeal the Board’s decision to the Court of Appeal.
Onebane attorneys Larry Lewis (firstname.lastname@example.org) (337)266-1130 and Randy Songy (email@example.com) (337)266-1126 are representing producers in many of these appeals and may be contacted for further information.