This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
Producers of natural gas in the San Juan Basin, New Mexico, processed coal seam gas by removing carbon dioxide to meet interstate pipeline specifications. The New Mexico Taxation and Revenue Department (TRD) assessed the Natural Gas Processor's Tax (NGPT) on this activity for the period between December 1991 and December 1995. Producers disputed the applicability of the NGPT, arguing that the removal of carbon dioxide was not "processing" under the relevant statute (paras 1-5, 9-12).
Procedural History
- District Court of Santa Fe County: Granted summary judgment in favor of the New Mexico Taxation and Revenue Department, holding that the Producers were processors under the Natural Gas Processor's Tax Act and liable for the NGPT, including interest and penalties (para 5).
Parties' Submissions
- Appellants (Producers): Argued that (1) the removal of carbon dioxide from coal seam gas does not constitute "processing" under the Natural Gas Processor's Tax Act; (2) the TRD's ruling on the tax should not have retroactive effect; and (3) they should not be liable for interest and penalties (para 1).
- Appellee (New Mexico Taxation and Revenue Department): Contended that the removal of carbon dioxide constitutes processing under the Act, that the tax was applicable retroactively, and that interest and penalties were properly assessed.
Legal Issues
- Whether the removal of carbon dioxide from coal seam gas constitutes "processing" under the Natural Gas Processor's Tax Act.
- Whether the TRD's ruling on the NGPT could be applied retroactively.
- Whether the Producers were liable for interest and penalties on unpaid NGPT.
Disposition
- The Court of Appeals affirmed the district court's decision that the removal of carbon dioxide constitutes processing and that the NGPT applies retroactively.
- The Court of Appeals affirmed the liability for interest but reversed the imposition of penalties (paras 25-26).
Reasons
Per Castillo J. (Sutin and Fry JJ. concurring):
Processing Definition: The court held that the removal of carbon dioxide at the Val Verde and Milagro plants constitutes processing because it changes the inherent nature of the gas, making it marketable and acceptable for interstate pipelines. The statutory exemption for "field or lease operations" does not apply, as the removal of 100% of carbon dioxide at the plants goes beyond wellhead purification (paras 9-14).
Retroactivity: The court determined that the TRD's ruling was interpretive and clarified existing law rather than creating new obligations. Therefore, the NGPT applied to the Producers' activities during the relevant period, regardless of the ruling's lack of retroactive effect (paras 15-19).
Interest: The court upheld the assessment of interest on unpaid taxes, finding no statutory basis to absolve the Producers of this obligation, even if plant operators failed to remit taxes (paras 20-21).
Penalties: The court reversed the imposition of penalties, reasoning that the Producers were not negligent in failing to pay the NGPT. The unique circumstances, including the novelty of coal seam gas processing and TRD's initial lack of clarity, justified this conclusion (paras 22-24).