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Hiland Crude, LLC v. State, Department of Revenue

Supreme Court of Montana

July 3, 2018

HILAND CRUDE, LLC, Plaintiff and Appellee,
v.
STATE OF MONTANA, DEPARTMENT OF REVENUE, Defendant and Appellant.

          Submitted on Briefs: May 2, 2018

          District Court of the First Judicial District, In and For the County of Lewis and Clark, Cause No. ADV-2014-41 Honorable Mike Menahan, Presiding Judge.

          For Appellant: Brendan Beatty, Derek Bell, Jessica M. Demarois, Special Assistant Attorneys General, Helena, Montana

          For Appellee: Robert L. Sterup, Brown Law Firm, P.C., Billings, Montana

          OPINION

          Beth Baker, Justice.

         ¶1 Hiland Crude, LLC, filed a declaratory action in the First Judicial District Court, Lewis and Clark County, challenging the tax classification of its crude oil gathering pipelines in Montana. Beginning in 2013, the Department of Revenue centrally assessed Hiland Crude's property and classified all of its pipeline systems within the State as class nine property. Hiland Crude maintains that its flow and gathering systems are properly classified as class eight property, regardless of whether the property is centrally assessed. The District Court granted summary judgment in favor of Hiland Crude. The Department appeals. We affirm.

         PROCEDURAL AND FACTUAL BACKGROUND

         ¶2 Hiland Crude owns and operates crude oil gathering and transmission systems in Montana. Hiland Crude's systems in Montana include a transmission pipeline (the Double H Transmission Line), and gathering systems (the Richland Gathering System and the Market Center Gathering System). Third-party shippers pay Hiland Crude to transport crude oil through all of its systems.

         ¶3 The Richland Gathering System and Market Center Gathering System comprise a network of small diameter pipelines that are connected to facilities located at or adjacent to crude production wells. The systems operate at a low pressure. The two systems aggregate crude oil from multiple production wells and receipt points and deliver it to an interconnection with larger, high-pressure transmission pipelines, such as the Double H Transmission Line. The Richland Gathering System and Market Center Gathering System are considered "gathering systems" under industry standards, the American Petroleum Institute definition, and Federal Energy Regulatory Commission ("FERC") accounting standards. The Richland and Market Center systems are subject to FERC tariffs for gathering. The Double H transmission pipeline is subject to separate FERC tariffs for transmission.

         ¶4 The Department began centrally assessing Hiland Crude's property in 2013. Prior to 2013, the Department assessed Hiland Crude's gathering systems locally and classified the properties as class eight property. Class eight property is taxed at 1.5% to 3% of its market value. After centrally assessing the gathering systems, the Department determined that Hiland Crude's gathering systems should be classified as class nine property because they meet the definition of a "pipeline carrier" under the class nine statute. Class nine property is taxed at 12% of its market value. Beginning in 2015, Hiland Crude owned and operated Double H Transmission Line, which also is classified as class nine property.

         ¶5 Hiland Crude paid its taxes under protest for the Richland and Market Center Gathering Systems and filed a declaratory action in the District Court. Hiland Crude does not contest that the Double H Transmission Line is appropriately taxed as class nine property. Hiland Crude argues that its gathering pipeline systems, however, should be taxed as class eight property because they are "flow lines and gathering lines" under the class eight statute.

         ¶6 Both parties filed motions for summary judgment, agreeing that there are no disputed issues of material fact. The District Court granted summary judgment in favor of Hiland Crude and ordered the Department to refund Hiland Crude the difference between the class eight tax rate and the class nine tax rate as applied to Hiland Crude's gathering systems.

         STANDARD OF REVIEW

         ¶7 We review a district court's grant of summary judgment de novo. Bresnan Commc'ns, LLC v. State Dep't of Revenue, 2013 MT 357, ¶ 23, 373 Mont. 29, 315 P.3d 921. Summary judgment should be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any ...


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