Stored Gas and Property Taxes

Stored gas and property taxes

August 11, 2016 | By Keith Martin in Washington, DC

Oklahoma cannot collect property taxes on natural gas temporarily stored in the state by interstate pipelines while awaiting shipment to customers in other states, a state appeals court said in late June.

Missouri Gas Energy is a local gas distribution company in Missouri. It buys gas out of state and has it transported by interstate gas pipelines. One of the pipelines, Southern Star Central Gas Pipeline, has a storage facility in Grant County, Oklahoma where it stores gas belonging to transportation customers. The gas does not originate in Oklahoma.

Southern Star allocates the gas among the customers each year and lets the Grant County assessor know the allocations. The county collects a personal property tax on the gas.

Missouri Gas Energy challenged whether the tax can be collected on its gas. The court said no because the gas cannot be taxed under the “Freeport exemption” in the state constitution.

Gas qualifies for an exemption if it is “consigned to a consignee in this State from outside this State to be forwarded to a point outside this State.” Property generally cannot sit in Oklahoma for more than 90 days, but this is extended to nine months in the case of “goods, wares and merchandise . . . held for assembly, storage, manufacturing, processing or fabricating purposes.”

The issue was whether gas is “goods, wares and merchandise.” A lower court said it is not, but the state legislature then changed the law to make clear that it is while the case was awaiting appeal. The state argued that the legislature could not change the law retroactively, but the court disagreed. It said the legislature was merely clarifying what the law had said all along.

Missouri Gas Energy also argued that the gas does not have enough connection to Oklahoma — what tax lawyers call a “taxable situs” — for the county to be able to collect a property tax. The court disagreed. It said the county could have taxed the gas if the Freeport exemption had not applied.

The case is Missouri Gas Energy v. Grant County Board of Equalization.