LITTLE ROCK — The state Supreme Court on Thursday upheld a judge’s dismissal of a class-action lawsuit alleging that assessing personal property taxes on oil and gas royalty payments is illegal.
A group of taxpayers filed the suit in White County Circuit Court against all Arkansas counties and state officials assessing and collecting a property tax on oil and gas royalties, on behalf of themselves and all other Arkansans who own oil and gas royalty and production interests.
The plaintiffs alleged that royalties are intangible personal property that should not be subject to property taxes. They also alleged that they already have to pay property taxes on the oil and gas on their property before it is extracted, so a tax on the royalties from extracted oil and gas constitutes a double tax.
The plaintiffs further alleged that the tax is a multiple tax because the oil and gas is subject to severance and income taxes; that the tax is not assessed on non-producing properties; that a tax on oil and gas royalties is a privilege or excise tax, not a property tax; and that tax rates do not reflect the actual prices paid for the oil and gas.
White County Circuit Judge Thomas Hughes III dismissed the lawsuit in January 2010. In its unanimous opinion Thursday upholding that ruling, the Supreme Court said mineral interests, including ownership of natural gas deposits, constitute tangible property and are subject to taxation under the Arkansas Constitution.
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The high court also said the state Legislature addressed the issue of duplicative taxation when it wrote into the Arkansas Code that “the severance tax (on oil and gas) is in addition to the general property tax.”
Arguments about tax rates are not proper in an illegal-exaction suit because they address the way a tax is collected, not the legality of the tax, the court said.
“Any issue with the values used in the formula is an issue with the assessment of the tax” rather than the legality of the tax, Justice Paul Danielson wrote in the opinion.
Chief Justice Jim Hannah and Justice Karen Baker did not participate.