Case Title: IN THE MATTER OF THE ASSESSMENT FOR THE YEAR 2000 OF CERTAIN PROPERTY OWNED BY ONEOK FIELD SERVICES GATHERING, LLC.

Citation: 

Docket Number: 95776

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2001-12-18T00:00:00Z

Document:
IN THE MATTER OF THE ASSESSMENT FOR THE YEAR 2000 OF CERTAIN PROPERTY OWNED BY ONEOK FIELD SERVICES GATHERING, LLC. 2001 OK 116 38 P.3d 900 72 OBJ 3701 Case Number: 95776 Decided: 12/18/2001 Modified: 12/28/2001 Mandate Issued: 01/11/2002 As Corrected: December 28, 2001 THE SUPREME COURT OF THE STATE OF OKLAHOMA IN THE MATTER OF THE ASSESSMENT FOR THE YEAR 2000 OF CERTAIN PROPERTY OWNED BY ONEOK FIELD SERVICES GATHERING, LLC Appeal from the District Court in Washita County, Oklahoma, The Honorable Richard B. Darby, District Judge ¶0 Oneok Field Services Gathering, LLC, protested the Washita County Assessor's personal property valuation for the 2000 tax year. The Washita County Board of Equalization sustained the assessor's valuation. Oneok appealed to the district court raising a single legal issue as to whether pipeline rights of way may be included in the valuation of personal property. The district court entered summary judgment in favor of Oneok. The district court ordered a reduction in the valuation of Oneok's personal property by the amount attributable to Oneok's pipeline rights of way, concluding, as a matter of law, that rights of way are interests in real property as defined in the ad valorem tax statutes and all interests in real property are taxed to the fee owner. The district court denied the assessor's motion for new trial. The county appealed to this Court. We, sua sponte, retained the appeal. SUMMARY JUDGMENT AFFIRMED. Mart Tisdal, Clinton, Oklahoma, for appellants. William K. Elias and Freda L. Williams, Oklahoma City, Oklahoma, for appellee. Scott D. Caldwell and Julie L. Vogt, Oklahoma City, Oklahoma, for Oklahoma State School Board Association, amicus curiae. Chris J. Collins and Michael L. Carr, Oklahoma City, Oklahoma, for Association of County Commissioners, amicus curiae. Michael E. Smith, Sharon Taylor Thomas and Rand Phipps, Oklahoma City, Oklahoma, for Mid-Continent Oil & Gas Association, amicus curiae. BOUDREAU, Justice: ¶1 This is an appeal from an order of the district court reducing the ad valorem tax valuation of the personal property of Oneok Field Services Gathering, LLC, in Washita County, Oklahoma, for the 2000 tax year. A statutory construction issue is presented: Has the Legislature classified pipeline rights of way as real property or personal property for assessment by a county assessor? We conclude that for purposes of ad valorem tax assessment by a county assessor, pipeline rights of way are within the statutory definition of real property. We hold the district court did not err in granting summary judgment on this issue in favor of Oneok Field Services, LLC. I. Background ¶2 Oneok Field Services Gathering, LLC, (Oneok), is in the business of gathering natural gas. Oneok has a natural gas pipeline gathering system in Washita County. For the 2000 tax year, Oneok submitted sworn schedules of its business personal property to the Washita County Assessor (county assessor). 1 The county assessor, using the cost approach, estimated a fair cash value for Oneok's natural gas pipeline gathering system to be $2,711,847.00. In arriving at this valuation, the county assessor included $347,210.00 for the pipeline rights of way as a cost of construction. The county assessor classified Oneok's property as personal property.2 ¶3 Oneok protested the valuation before the county assessor and then the Washita County Board of Equalization (county board). ¶4 Oneok appealed to the District Court in Washita County, Oklahoma. The $2,711,847 valuation . . . is in excess of the actual fair market value of the subject property for the reason that such value includes $347,210 ($2.00 per foot of gathering line) for value attributable to rights-of-way. The valuation recommended by the County Assessor and affirmed by the Board is erroneous as a matter of law to the extent that the Board's valuation taxes right-of-way as personal property. Under Oklahoma law, right-of-way is an interest in real property taxable to the fee owner. It is not taxable as personal property. As a result, the determination of the fair market value for the property by the County Assessor and the Board is arbitrary, excessive, and fails to take into account the actual value and situation of the subject property. The county assessor denied that she failed to used a proper methodology in determining fair cash value or that her valuation was arbitrary and excessive. ¶5 Oneok moved for summary judgment arguing that the Legislature has not classified pipeline rights of way as personal property for ad valorem tax purposes; and, that pipeline rights of way constitute interests in real property taxable to the fee owner. The district court granted summary judgment, finding there was no substantial controversy as to any material fact and concluding that rights of way are interests in real property as defined in ¶6 The county timely commenced appeal to this Court asserting that the district court erroneously held that pipeline rights of way are not taxable ad valorem. The county also raised questions as to whether there is any evidence establishing that the county assessor's valuation exceeds Oneok's fair cash value or that the valuation should be reduced by $347,210.00. We, sua sponte, retained the appeal. II. Standard of Review ¶7 Oneok's appeal to the district court raised a first impression issue as to whether the Legislature classified pipeline rights of way as personal property for purposes of ad valorem taxation. The definitions of real property and personal property set forth in the ad valorem tax statutes are critical to the resolution of this issue. Because the meaning of statutory language is a pure issue of law and because the trial court's disposition was effected by summary judgment, the issue stands before us for de novo review. III. Taxable status of Oneok's pipeline rights of way under the existing statutory taxing scheme ¶8 The power to tax is an exclusively legislative function that can be exercised only under statutory authority and in the manner provided by law.7 Subject only to constitutional restrictions8 and the will of the people expressed through elections, the Legislature has plenary power in regard to taxation.9 ¶9 Our state constitution provides that "(a)ll property which may be taxed ad valorem shall be assessed at its fair cash value". ¶10 Within constitutional limitations, the Legislature has power to classify property for purposes of taxation. The Legislature may arrange and divide the various subjects of taxation into distinct classes and it may exercise wide discretion in selecting and classifying the subjects of taxation. ¶11 The controversy in this case relates to the character of pipeline rights of way for purposes of assessment by the county assessor, i.e., whether they should be taxed as real or personal property. This controversy must be resolved by determining whether pipeline rights of way generally have the important characteristics which distinguish the interests described by the tax statutes to be applied. Oklahoma has two tax statutes which define the general terms "real property" and "personal property". Neither specifically refers to pipeline rights of way. ¶12 Defining "real property," Real property, for the purpose of ad valorem taxation, shall be construed to mean the land itself, and all rights and privileges thereto belonging or in any wise appertaining, such as permanent irrigation, or any other right or privilege that adds value to real property, and all mines, minerals, quarries and trees on or under the same, and all buildings, structures and improvements or other fixtures, including but not limited to improvements such as barns, bins or cattle pens, or other improvements or fixtures of whatsoever kind thereon, exclusive of such machinery and fixtures on the same as are, for the purpose of ad valorem taxation, defined as personal property. ¶13 Defining "personal property," Personal property, for the purpose of ad valorem taxation, shall be construed to include: . . . . 12. a. All tanks and containers used to store or hold crude oil or any of its products or byproducts and all tanks and containers used to store or hold gasoline, water, or other liquids or gases, b. All oil, gas, water or other pipelines, c. All telegraph and telephone lines, d. All railroad tracks, e. All oil and petroleum products in storage; and 13. All other property, having an actual, constructive or taxable situs in this state, and not included within the definition of real property. ¶14 Oneok argues that pipeline rights of way cannot be taxed as personal property because they fall within the definition of real property. Oneok maintains that the Legislature defined real property in § 2806 as not only the land itself and any right or privilege that adds value to real property, but "all rights and privileges thereto belonging or in any wise appertaining" to the land itself. Oneok contends that pipeline rights of way fall within this latter category of real property for purposes of ad valorem taxation. Oneok points out that § 2807(13) expressly excludes from the definition of personal property all property included within the definition of real property. ¶15 The county assessor asserts that pipeline rights of way are personal property for ad valorem taxation. The county assessor points out that oil and gas pipelines are unambiguously defined as personal property under § 2807(12)(b). Accordingly, the assessor argues that all pipeline components, including the value attributable to pipeline rights of way, are taxable as personal property. ¶16 Clearly the types of interests which we here consider, interests arising from pipeline rights of way, are interests in land. ¶17 Although we cannot determine from the record on summary judgment the duration of the pipeline rights of way, this inability does not prevent us from deciding this controversy. The Legislature is not constrained within the straitjacket of common law concepts in classifying a particular interest as realty or personalty for tax purposes. ¶18 The Legislature has defined real property in § 2806 as not only the land itself but also "all rights and privileges thereto belonging or in any wise appertaining" to the land itself. The word appertaining has been defined alternately as "connected with in use or occupancy" ¶19 In an effort to demonstrate that pipeline rights of way are not encompassed within the Legislature's definition of real property, the county assessor argues that the language "all rights and privileges thereto belonging or in any wise appertaining" as used in § 2806 is qualified by the subsequent language "or any other right or privilege that adds value to the land". The county assessor maintains that because pipeline rights of way burden the land they traverse, they are neither rights or privileges belonging to the land nor appurtenant to the land. ¶20 We disagree. The use of the word "or" in the definition introduces another, independent category of interests included in real property, "or any other right or privilege that adds value to the land". As used in § 2806, the word "or" does not introduce a subordinate general qualification to the category of "all rights and privileges thereto belonging or in any wise appertaining". Stated otherwise, the fact that pipeline rights of way do not add value to the land does not exclude them from the legislatively designed definition of real property in § 2806. ¶21 In summary, Oneok's pipeline rights of way are rights and privileges appertaining to the land and fall within the class of real property for purposes of ad valorem taxation. Because they fall within the definition of real property, they cannot qualify as personal property under the terms of § 2807. IV. In the absence of a statute providing otherwise, the various interests which may be held in realty are not severable for the purposes of taxation ¶22 The county assessor argues that even if pipeline rights of way fall within the statutory definition of real property, they should be taxed separate from the fee. As legal support, the county assessor relies upon Gulf Refining Company v. Jenkins.28 The Gulf Refining case is readily distinguishable. The issue in Gulf Refining was whether a resale tax deed conveying the fee extinguished the pipeline right of way of a public service corporation. Gulf Refining concluded that the pipeline right of way was not affected by the resale tax deed because Gulf, as a public service corporation, reported its taxable property, including its rights of way, to the State Board of Equalization for assessment. ¶23 By suggesting that pipeline rights of way should be taxed separately from the fee, the county assessor is asking us to overrule a line of cases beginning with Indian Territory Illuminating Oil Co., holding that in the absence of a statute providing otherwise, the various interests which may be held in realty are not severable for the purposes of taxation.29 In effect, the county assessor is calling for a change in the statutory taxing scheme that would permit the assessment to be made against the holder of the pipeline right of way instead of the fee owner of record. This cannot be done. ¶24 The county assessor also contends that pipeline rights of way can be of tremendous market value, but add nothing to the value of the fee. The county assessor asserts that a pipeline right of way is a benefit to the pipeline and a detriment to the fee. The county assessor argues that unless the pipeline right of way is taxed to the holder, it will effectively escape taxation. ¶25 This is the same argument offered by the county in Oklahoma Industries Authority v. Barnes. This Court dismissed that argument stating:30 While a lessee's possessory interest may doubtless be a valuable species of property, its characterization as an asset of great market value does not transform that interest, absent some statutory authority, into a separate legal estate that is subject to taxation. To be taxable, an interest in real property must fall within an established legislative classification. (Footnote omitted.) ¶26 The county assessor also points to the statute which provides that all property which is not exempted is subject to tax. V. Conclusion ¶27 In defining the types and kinds of property subject to assessment by a county assessor, the Legislature has classified pipeline rights of way as real property. In the absence of a statute providing otherwise, the various interests which may be held in real property are not severable for the purpose of ad valorem tax assessment by a county assessor. The county assessor has no authority to assess pipeline rights of way as personal property. We hold the district court did not err in granting summary judgment on this issue in favor of Oneok Field Services, LLC. SUMMARY JUDGMENT AFFIRMED. ¶28 HARGRAVE, C.J., WATT, V.C.J., and HODGES, LAVENDER, OPALA, SUMMERS, BOUDREAU, and WINCHESTER, JJ., concur. ¶29 KAUGER, J., concurs in result. FOOT