On October 20, 2020, the Louisiana Supreme Court issued a major decision in an ad valorem (property) tax case involving oil and gas wells.  D90 Energy, LLC v. Jefferson Davis Parish Board of Review, 2020-C-200 (La. 10/20/2020).

D90 Energy, an independent oil and gas operator, purchased from Goldking two gas wells and one salt-water disposal well for $100,000.  Facing an assessment of over $3 million, the producer paid over $100,000 in taxes under protest for two of the tax years and appealed the Assessor’s decision.  The Louisiana Tax Commission reduced the assessed value to $235,000, considering a Tax Commission regulation that allows recent, valid sales that are properly documented to be a measure of fair market value.  The District Court for Jefferson Davis Parish affirmed the Tax Commission’s correction of the Assessor’s valuation, but the Third Circuit Court of Appeal reversed, reasoning that the Tax Commission should have afforded “much discretion” to the Assessor’s determination of value.  The Louisiana Supreme Court granted D90 Energy’s application to review the Third Circuit’s decision.

In a unanimous decision, the Supreme Court reversed the Court of Appeal’s decision and reinstated the Tax Commission’s decisions in favor of D90 Energy.  The Supreme Court found that the Tax Commission properly corrected the Assessor’s market value determination by considering the recent arms-length sale from Goldking to D90 Energy.  The Supreme Court found that the Tax Commission possessed the authority to correct the Assessor’s valuation, and the record evidence supported the correction.  The recent sale, as opposed to regulatory tax tables, was a proper measure of value for D90 Energy’s wells under the facts.  The Supreme Court also found that the Tax Commission was not limited to reviewing just the information provided to the Assessor, but could take evidence, hear testimony, and consider the administrative record established before it in an appeal of an Assessor’s determination.  Finally, the Supreme Court addressed the effect of a taxpayer’s failure to pay under protest when it is successful at a Tax Commission hearing, finding that such payment is not required when the taxpayer prevails before the Tax Commission.

This ruling is a key Louisiana tax decision on the scope of authority possessed by Assessors in ad valorem (property) tax matters and for the Louisiana Tax Commission as a reviewing body.

** Kyle Polozola and Phyllis Sims of Kean Miller LLP represented D90 Energy, LLC in this litigation.

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Kean Miller’s oil and gas and tax attorneys stand ready to assist on matters of ad valorem (property) tax that affect energy companies and other businesses.