Court Opinion

ID: 7821019
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:54:45.784708+00
Date Added: 2024-06-11T16:30:44.340008
License: Public Domain

John I. Purtle, Justice, dissenting. I respectfully dissent. In order to reverse, the chancellor, the majority has overruled Phillips Petroleum v. Heath, 254 Ark. 847, 497 S.W. 2d 30 (1973) and ignored or misconstrued Ark. Stat. Ann. § 84-2101 (Repl. 1960), particularly (d). Some additional facts are necessary in order to explain my position in this case. Oil is normally collected from the various wells and stored in holding tanks until it is sold to the refineries. When a purchaser takes possession of the oil it is metered when it leaves the storage tank. The outlet from the storage tank is located about one foot above the bottom of the tank. The contents of the oil storage tank below the outflow valve are called BS&W. This portion in the bottom of the tank is not suitable for marketing to the refineries in its present form. Appellant then comes to the tank and takes possession of the product below the outlet line and takes it to his plant where it is processed at considerable expense before being finally placed in a storage tank similar to the ones from which he obtained the material. When he has completed the process he sells to the refineries from the storage tank just as the original producers had sold theirs. It appears to me the severance point has simply been removed from one point to another. Practically all of the oil in the storage tanks has been moved a considerable distance from the well for the purpose of storing it. Appellant’s oil from his tanks, after he has produced the BS&W, is sold and distributed exactly in the same manner as was the product from the tanks from which he obtained the BS&W. Whatever expense he has incurred in refining this product is a business expense and deductible the same as the expense incurred by the owners and producers from whom he obtained his product. His profit is smaller but so are the taxes. The statute defines the “point of severance” as “the place at which transportation of natural resources has been or is about to be commenced for their use or processing after being severed.” I believe the severance point for appellant’s crude oil is at the outlet valve from his storage tank as it is delivered to the refineries just as it is with the original owners. I was unable to find anything in the record, other than the statement of appellant, that the BS&W was worthless when he took possession of it at the storage tanks. In fact, it is obviously not a worthless product. There is no evidence in this record to indicate appellant is connected with the operators or producers in this area other than as a businessman dealing at arm’s length. However, if this product continues to rise in price and the outlet valve is raised another foot from the bottom of the storage tank, it is obvious that the product, whether called BS&W or something else, would be much more valuable. Under these circumstances, a close friend, relative, or subsidiary organization, could make a handsome profit as well as evade severance tax on still more oil. It is logical that it would not be too long before the untaxable oil exceeds the amount in quantity of the taxable oil. No severance tax has been paid on the product which appellant processes. Under the majority opinion no tax will ever be paid on this oil, which is apparently at this time the same grade and quality of that for which taxes are collected from other producers and operators. It is true that some taxable oil is used in the process but it is also true that appellant is given credit for any oil used upon which a severance tax has already been paid. I can see no logical reason to exclude oil from the severance tax simply because a different process is used to place it into the market. The statute, which is set out in the majority opinion, clearly appears to cover this oil as well as the oil sold from the other tanks. For the above reasons I would affirm the decree of the chancellor in this case. I am authorized to state that Mays, J., joins me in this dissent.