Summit Operating, LLC v. Utah State Tax Commission
2012 UT 91
Utah2012Background
- Utah Tax Exemption Statute 59-5-102(5)(c) provides a six-month exemption for development wells started after January 1, 1990.
- Summit argued the exemption runs during first six months of production if the well started after 1990, i.e., when commercial production begins.
- The Utah State Tax Commission and Auditing Division took the opposite view: a well starts when drilling (spudding) begins, not when production commences.
- Horsehead Point well spudded on August 28, 1983, completed in 1984, then shut-in until Summit acquired it in 2006 and invested in a pipeline to enable production.
- Summit began commercial production on January 7, 2008, but drilling had occurred in 1983, leaving eligibility for the exemption at issue.
- The Commission granted summary judgment to the Auditing Division, denying Summit the six-month exemption; Summit petitioned for review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What does 'started' mean in the Tax Exemption Statute? | Summit: 'started' means production begins; exemption applies if production started after 1990. | Commission: 'started' means the well is spudded; exemption limited to wells spudded after 1990. | Started means spudding; exemption limited to wells spudded after 1990. |
| Should the statute be read in isolation or in the context of its history? | Summit: plain language supports production-based reading; ambiguity may exist. | Commission: context and prior versions show 'started' as spudding, resolving ambiguity. | Context and prior versions confirm spudding as the start. |
| Do the statute's prior versions and grandfather clause affect interpretation? | Summit contends grandfather clause is irrelevant to a production-start reading. | Commission and court: grandfather clause supports treating 'start' as spudding; shows legislative intent. | Grandfather clause supports spudding interpretation; intends starts at spudding. |
Key Cases Cited
- Harken Southwest Corp. v. Board of Oil, Gas, & Mining, 920 P.2d 1176 (Utah 1996) (precedent on wildeat vs development wells and start timing)
- ExxonMobil Corp. v. Utah State Tax Comm'n, 86 P.3d 706 (Utah 2003) (statutory interpretation in tax context)
- ABCO Enters. v. Utah State Tax Comm'n, 211 P.3d 382 (Utah 2009) (statutory interpretation and tax exemptions)
- Ivory Homes, Ltd. v. Utah State Tax Comm'n, 266 P.3d 751 (Utah 2011) (interpretation of tax exemptions and statutory language)
- Marion Energy, Inc. v. KFJ Ranch P'ship, 267 P.3d 863 (Utah 2011) (statutory interpretation and start/production concepts)
- Hegarty v. Bd. of Oil, Gas, & Mining, 57 P.3d 1042 (Utah 2002) (earlier reference clarifying spudding semantics)