Opinion ID: 2520528
Heading Depth: 2
Heading Rank: 4

Heading: The Tax Administrator's Assessor's Manual

Text: Under the statute, [e]very operator of, or if there is no operator, every person owning any oil or gas leasehold or lands within this state ... [which] are producing or capable of producing oil or gas must provide an annual tax statement to the assessor of the county where the leasehold is located. § 39-7-101(1), C.R.S. (2004). This statement must include: leasehold location; operator's fractional interest; barrels of oil or quantity of gas delivered to the United States government; selling price at the wellhead; and information regarding the fractional interest of each interest owner taking production in kind. § 39-7-101(1)(a)-(e), C.R.S. (2004). The assessor's duty is to verify that the information provided in the statement is valid. § 39-7-105, C.R.S. (2004). When this case arose, the Tax Administrator's Manual recognized that each oil and gas producer may have different points of sale and suggested a variety of methodologies for leasehold valuation. ARL, § 6.30 (rev.Jan.2001). [9] Priority was to be given to valuation based upon the actual wellhead sales price when there is sufficient, reliable information to determine that price. ARL, § 6.30 (rev.Jan.2001). But this was not always possible. In these situations, the ARL provided that [t]o determine what the `selling price at the wellhead' would have been, oil and gas producers may deduct allowed expenses incurred in gathering, processing, manufacturing, and transporting the product to the point of sale from the gross sales price received at the downstream sales point. Id. This is known as the netback method of determining the wellhead sales price. Prior to 2004, assessors were encouraged to use the wellhead pricing procedure that is most comparable to how and where the product is sold by the producer. Id. (emphasis added). They were to use the ARL and other administrative guidelines to make this determination. § 39-7-105, C.R.S. (2004). Unfortunately, at the time of the Washington County Assessor's valuation at issue here, the ARL contained imprecise and contradictory provisions. In her brief and oral argument to us, the Property Tax Administrator clearly states that, in arriving at the taxable value for valuation, assessment, levy, and assessment of the property tax, the costs Petron incurred in separating the oil from the unprocessed material and storing it at the leasehold site for sale are deductible by law from the gross revenues Petron obtained from the sale. [10] We agree that this methodology accords with the Colorado Constitution and the implementing statute.