This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The New Mexico Department of Taxation and Revenue assessed a gas severance tax deficiency of $1,781,690.35 against Chevron U.S.A., Inc. for gas produced and processed at two plants in New Mexico between November 1, 1995, and October 1, 1998. Chevron, a part-owner of these plants, disputed the assessment, arguing that the Department's regulations and valuation methods were invalid and improperly applied (paras 1, 9).
Procedural History
- District Court of Santa Fe County: Denied Chevron's motion for summary judgment, granted the Department's motions for partial summary judgment, and entered final judgment against Chevron after dismissing its remaining claims with prejudice (para 1).
Parties' Submissions
- Appellant (Chevron U.S.A., Inc.): Argued that the Department's regulation presuming control based on 10-50% ownership was irrational and invalid. Chevron also contended that the Department failed to comply with statutory requirements to compare processing costs with those of other producers in the same field or area and that its processing agreements were arm's length transactions (paras 3, 19, 27).
- Appellee (New Mexico Department of Taxation and Revenue): Asserted that Chevron was affiliated with the operators of the processing plants, justifying the presumption of control and the Department's valuation methodology. The Department argued that its assessment was consistent with statutory and regulatory requirements (paras 3, 27, 34-36).
Legal Issues
- Was the Department's regulation presuming control based on 10-50% ownership irrational or invalid?
- Did the Department comply with statutory requirements under Section 7-29-4.2 in determining the value of natural gas for severance tax purposes?
- Was there a genuine issue of material fact regarding Chevron's affiliation with the operators of the processing plants?
Disposition
- The Court of Appeals affirmed the district court's decision, upholding the Department's assessment and rejecting Chevron's claims (para 37).
Reasons
Per Castillo J. (Bustamante C.J. and Fry J. concurring):
Presumption of Control Regulation: The Court held that the Department's regulation presuming control based on 10-50% ownership was valid and not irrational. Chevron failed to meet its burden of proving the regulation's invalidity. The Court declined to adopt the reasoning of the D.C. Circuit in National Mining Ass'n v. U.S. Department of the Interior (paras 16-18).
Statutory Compliance: The Court found that Section 7-29-4.2 does not mandate a specific methodology for determining the value of natural gas. The Department's use of Chevron's reported federal royalty obligations to calculate processing costs was permissible. Chevron did not demonstrate that the Department's valuation was inconsistent with the statutory requirement for commensurate value (paras 19-23).
Affiliation and Arm's Length Transactions: The Court concluded that there was no genuine issue of material fact regarding Chevron's affiliation with the operators of the processing plants. The Department's presumption of control, based on Chevron's ownership interests, was supported by evidence, and Chevron failed to rebut this presumption. The Court also found that Chevron's processing agreements were not arm's length transactions due to its affiliation with the plant operators (paras 27-36).
Expert Affidavit: The Court determined that the exclusion of Chevron's expert affidavit was harmless, as its contents were insufficient to rebut the presumption of affiliation or create a genuine issue of material fact (paras 24-26).
The Court affirmed the district court's rulings in favor of the Department on all issues (para 37).