The court rejected the Department’s position that the differential in the pricing formula was an improper transportation cost or other deduction and found that it was an element of the pricing formula in the crude oil purchase agreement. This was in response to the Department’s argument that Avanti and the purchasers conspired to manipulate Avanti’s severance tax liability by taking a producer’s transportation deduction and hiding it in the pricing formula. The court found that the contracts called for the delivery of the oil in the field at the lease and Avanti took no transportation cost deduction.
The opinion confirmed that since the sale was an arm’s length sale, the proper method to value the oil was the higher of the gross receipts received by the producer or the posted field and noted that there was no posted field price and commented that the practice of posted field prices has been in disuse for many years.
Significantly the opinion also concluded that by disallowing the differential in the pricing element in the crude oil contract, the Department was, in effect, attempting to value the oil at a market center price as that would be the result under the contracts when the differential was added back to the gross receipts. The opinion rejects the argument that a market center price is a posted field price or that a market center rice can be used to value the crude oil as the market center price is not reflective of the value of the oil in the field at the lease and the Louisiana Constitution and severance tax statute impose the tax on the value at the time and place of severance.
The decision is a unanimous decision by the three judge panel and the opinion was written by the Chief Judge of the Third Circuit Court of Appeal. The Department will have 14 days from the date of transmission of the notice of the judgment of the appellate court decision to ask for a rehearing. With no dissents and a well written opinion, it is unlikely that the court would grant a rehearing. If the Department doesn’t ask for a rehearing it has 30 days from the date of transmission of the notice of the judgment of the appellate court decision to apply to the Louisiana Supreme Court for a writ of certiorari asking them to review the decision. There is no right to appeal to the Supreme Court from the appellate court as there is from the district court to the court of appeal. The Supreme Court has the discretion to grant or deny review. Only a very small fraction of such writs are granted and usually involve cases with new or undecided legal issues or where the decisions of two courts of appeal are in conflict over an issue and have reached different legal conclusions. We will advise if the Department requests a rehearing or applies for writs.
Read the opinion here.