BP America Production Co. v. Colorado Department of Revenue
369 P.3d 281
Colo.2016Background
- BP (successor to Atlantic Richfield and Amoco) produced coal‑bed methane in southwest Colorado and built transportation and processing facilities to get gas to market.
- Colorado levies a severance tax on income from extracted natural resources and uses a ‘‘netback’’ method: taxpayers may deduct "any transportation, manufacturing, and processing costs" from sale revenue to value gas at the wellhead. § 39‑29‑102(3)(a).
- BP sought to deduct the "cost of capital" (the opportunity cost/required return on funds invested in those facilities) on amended returns for 2004 and 2008; the Department denied the deduction.
- District court granted summary judgment to BP; the Colorado Court of Appeals reversed, holding the statute ambiguous and excluding cost of capital absent explicit legislative language.
- The Colorado Supreme Court granted review and reversed the court of appeals, holding the statute unambiguous and that cost of capital incurred from investing in transportation/processing facilities is a deductible "cost."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "any transportation, manufacturing, and processing costs" includes the cost of capital | BP: phrase "any ... costs" is broad and plain; cost of capital is a cost resulting from investing in facilities and thus deductible | Dept.: cost of capital is an opportunity cost, not an actual deductible expense; allowing it would permit a double recovery | Court: statute unambiguous; "any ... costs" means all such costs; cost of capital is a deductible transportation/processing cost and not a duplicative recovery |
Key Cases Cited
- Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138 (10th Cir. 2000) (defines cost of capital and permits deduction for capital cost in royalty valuation context)
- Stamp v. Vail Corp., 172 P.3d 437 (Colo. 2007) (statutory use of "any" means "all")
- Wash. Cty. Bd. of Equalization v. Petron Dev. Co., 109 P.3d 146 (Colo. 2005) (describes netback approach and valuation at wellhead)
- Transponder Corp. of Denver v. Prop. Tax Adm'r, 681 P.2d 499 (Colo. 1984) (rule that doubts in tax statute construction are construed in favor of taxpayer)