BP Pipelines (Alaska) Inc. v. State, Department of Revenue
325 P.3d 478
Alaska2014Background
- The Trans‑Alaska Pipeline System (TAPS) is an 800‑mile oil pipeline owned by several affiliated oil companies; the State Department of Revenue assessed its 2006 property tax value.
- Department used a mass appraisal cost approach (replacement cost less depreciation) and valued TAPS at $3.641 billion; State Assessment Review Board raised that to ~$4.306 billion.
- Owners sought $850 million; Municipalities sought ~$11.57 billion. Superior Court conducted a de novo trial and set value at $9.977934 billion for 2006.
- Superior Court applied a "use value" (replacement‑cost/use in integrated system) standard rather than tariff‑income (fair market) approach, adjusted replacement cost for physical, functional, and economic obsolescence (including an excess‑capacity scaling deduction), and set interest on supplemental tax from June 30, 2006.
- Owners appealed (arguing fair market/tariff income standard, double taxation of reserves/shippers’ interest, errors in obsolescence deductions, and interest timing); Municipalities cross‑appealed scaling/economic obsolescence scope. Court of Appeals affirmed.
Issues
| Issue | Owners' Argument | State/Municipalities' Argument | Held |
|---|---|---|---|
| Proper valuation standard for TAPS (fair market vs. use value) | AS 43.56.060 requires "full and true value" = fair market value measured by tariff income | Statute allows different methods; use value (replacement cost less depreciation) is permissible for pipeline property | Use value/cost approach appropriate; statute does not compel exclusive fair market standard |
| Whether valuation improperly taxed non‑pipeline (reserves/shippers’ interest) | Superior Court’s use‑value captures value of North Slope reserves or shippers’ below‑market benefit, causing taxation of non‑taxable assets | Superior Court considered reserves only to justify use value; it did not add reserve value or shipper interest to taxable base | No error — court did not tax non‑pipeline property or monetize shippers’ interest in the assessment |
| Whether tariff regulation or other factors required an economic obsolescence deduction | Owners: tariff regulation reduces value vs. a hypothetical new pipeline (income shortfall method) | State: income‑shortfall approach unreliable; no market comparables; tariff regulation irrelevant given integrated ownership/use | Superior Court correctly rejected income‑shortfall tariff deduction; tariff regulation not shown to be external obsolescence |
| Excess capacity and obsolescence (functional vs. economic; double counting) | Owners: insufficient deduction for obsolescence; sought adjustments (largely functional) | Municipalities: superior court overstated economic obsolescence scaling; risk of double counting with age‑life depreciation | Court found sufficient evidence to allow an economic (external) scaling deduction for excess capacity and that it was not double‑counted; affirmed superior court’s approach |
| Timing of interest on supplemental taxes | Owners: interest cannot run before a valid supplemental assessment (i.e., from 2010) | Municipalities/State: interest compensates for use of money and runs from original due date (June 30, 2006) | Interest runs from the original 2006 due date; Cool Homes precedent controls |
Key Cases Cited
- City of Nome v. Catholic Bishop of N. Alaska, 707 P.2d 870 (Alaska 1985) (standard for reviewing superior court factual findings)
- Guin v. H a, 591 P.2d 1281 (Alaska 1979) (adopted rule on appellate review of legal issues)
- Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896 (Alaska 1987) (discussion of market vs. other valuation concepts)
- Cool Homes, Inc. v. Fairbanks North Star Borough, 860 P.2d 1248 (Alaska 1993) (interest on reassessed taxes runs from original due date)
- Alascom, Inc. v. N. Slope Borough, 659 P.2d 1175 (Alaska 1983) (limits on penalties/interest when no valid assessment was made)