Severance Tax: Barrel-Back Transactions

摘要

Various oil producers enter into "barrel-back" transactions with Sunoco whereby the producers sell their oil to Sunoco at the well, Sunoco transports the oil to various market centers where it sells the oil back to the producers, who then turn around and sell to third parties at prices higher than the wellhead price. Sunoco pays the severance tax on behalf of the producers based on the wellhead price. The severance tax statute states that the severance tax is based on the "total value of the mineral'oil, gas, or casinghead gas, at the time and place of production . . ." 68 O.S.2001 § 1010(B)(5). The Tax Commission believes that the "barrel-back" transactions are a scheme entered into by the producers and facilitated by Sunoco to sell the oil off of the lease at a higher price which utilizing the lower wellhead price for severance tax calculation purposes. The tax statute imposes upon the first purchaser of the oil the duty to pay the severance tax. Id., § 1010(B)(5). Sunoco argues that after its purchase at the wellehead, the producer loses its status as a producer under the severance tax statute and its subsequent purchase at the market center is not covered by the statute. The Tax Commission argues that the oil is not sold at the wellhead and therefore the producer retains responsibility for paying the severance tax based on the "total value" of the minerals. The trial court and the Court of Civil Appeals find in favor of Sunoco. Held: affirmed. The Supreme Court treats the issue as involving the interpretation of the term "retained" as used in the severance tax statute. Oklahoma applies a number of canons of statutory construction including using the plain meaning canon. The term "retained" means keeping in one's possession which is clearly not the case under the "barrel-back" transaction. While noting that the transaction is a means to evade paying severance taxes based on a higher downstream value, the Commission does not have the authority to interpret the severance tax statute in a manner that eliminates the "loophole." Such loophole closing falls within the province of the Oklahoma Legislature.