Kinder Morgan CO2 Co., L.P. v. Montezuma County Board of Commissioners

1 Opinions of the Colorado Supreme Court are available to the
2 public and can be accessed through the Judicial Branch’s homepage at
3 http://www.courts.state.co.us. Opinions are also posted on the
4 Colorado Bar Association’s homepage at http://www.cobar.org.
5
6 ADVANCE SHEET HEADNOTE
7 June 19, 2017
8
9 2017 CO 72
0
1 No. 15SC595, Kinder Morgan CO2 Co., L.P. v. Montezuma Cty. Bd. of Comm’rs—Oil
2 and Gas—Property Taxation—Statutory Construction.
3
4 The supreme court reviews the court of appeals’ conclusion that the Montezuma

5 County Assessor had statutory authority to retroactively assess property taxes on oil

6 and gas leaseholds operated by Kinder Morgan, after the assessor determined that

7 Kinder Morgan had underreported the wellhead selling price of CO2 gas produced at

8 the leaseholds. The supreme court considers whether this assessment was authorized

9 under the statute permitting retroactive property tax assessments when “taxable

0 property has been omitted from the assessment roll,” § 39-5-125(1), C.R.S. (2016). Given

1 Colorado’s self-reporting scheme for property taxation of oil and gas leaseholds and the

2 legislature’s amendments to that scheme—which describe the “underreporting of the

3 selling price or the quantity of oil and gas sold [from a leasehold]” as a form of omitted

4 property, §§ 29-1-301(1), 39-10-107(1), C.R.S. (2016)—the supreme court concludes that

5 the assessor had statutory authority to issue the assessment in this case. The supreme

6 court further concludes that the Board of Assessment Appeals did not err in

7 determining that Kinder Morgan had underreported the wellhead selling price of CO2.

8 The supreme court therefore affirms the judgment of the court of appeals.
1
2
3 The Supreme Court of the State of Colorado
4 2 East 14th Avenue • Denver, Colorado 80203

5 2017 CO 72

6 Supreme Court Case No. 15SC595
7 Certiorari to the Colorado Court of Appeals
8 Court of Appeals Case No. 13CA2187

9 Petitioner:
0 Kinder Morgan CO2 Co., L.P.,
1 v.
2 Respondents:
3 Montezuma County Board of Commissioners; Colorado Board of Assessment Appeals; and
4 Colorado Property Tax Administrator.

5 Judgment Affirmed
6 en banc
7 June 19, 2017
8
9 Attorneys for Petitioner:
0 The Poe Law Office LLC
1 Alan Poe
2 Rachel Poe
3 Centennial, Colorado
4
5 Attorneys for Respondent Montezuma County Board of Commissioners:
6 Dufford, Waldeck, Milburn & Krohn, L.L.P.
7 Nathan A. Keever
8 Grand Junction, Colorado
9
0 Attorneys for Respondent Colorado Property Tax Administrator:
1 Cynthia H. Coffman, Attorney General
2 Frederick R. Yarger, Solicitor General
3 Robert H. Dodd, Senior Assistant Attorney General
4 Denver, Colorado
5
6 No appearance on behalf of Respondent Colorado Board of Assessment Appeals.
7
8 JUSTICE MÁRQUEZ delivered the Opinion of the Court.
¶1 The petitioner in this case, Kinder Morgan CO2 Company, L.P., operates oil and

gas leaseholds in Montezuma County, Colorado. In 2009, the assessor for Montezuma

County issued a corrective tax assessment on these leaseholds for the previous tax year,

retroactively assessing over $2 million in property taxes, after an auditor concluded that

Kinder Morgan underreported the value of gas produced at the leaseholds. Kinder

Morgan contends that the assessor lacked authority to retroactively assess these taxes

because the statutory scheme for property taxation of oil and gas leaseholds—which

authorizes retroactive assessments when “taxable property has been omitted from the

assessment roll,” § 39-5-125(1), C.R.S. (2016)—does not authorize a retroactive

assessment when an operator has correctly reported the volume of oil and gas sold but

has underreported the selling price at the wellhead. We are therefore asked to decide

whether this statutory scheme authorizes retroactive taxation where an operator

underreports the selling price at the wellhead of the oil and gas it produces.

¶2 Because Colorado has established a self-reporting scheme for property taxation

of oil and gas leaseholds, and because the legislature’s amendments to that scheme

describe the “underreporting of the selling price or the quantity of oil and gas sold

[from a leasehold]” as a form of omitted property, see §§ 29-1-301(1), 39-10-107(1),

C.R.S. (2016), we conclude that the statutory scheme authorized the retroactive tax

assessment in this case. We further conclude that the Board of Assessment Appeals did

not err in determining that Kinder Morgan underreported the selling price by claiming

excess transportation deductions, given Kinder Morgan’s relationship to the owner of

2
the pipeline through which the gas was transported. We therefore affirm the judgment

of the court of appeals.

I. Property Taxation of Oil and Gas Leaseholds

¶3 Because this case concerns the assessment of property taxes on oil and gas

leaseholds, we begin by describing the legal framework governing these taxes and the

relation of these taxes to other pertinent forms of taxation.

¶4 An estate in minerals such as oil and gas is a form of real property. § 24-65.5-101,

C.R.S. (2016); § 39-1-102(14), C.R.S. (2016); see Hagood v. Heckers, 513 P.2d 208, 214

(Colo. 1973); Simson v. Langholf, 293 P.2d 302, 307 (Colo. 1956). Once the owner of such

a mineral estate leases the right to extract oil and gas from the land, the lease may create

various interests, which generally take the form of either a working interest (the oil and

gas company’s right to extract the minerals and develop them for profit) or a royalty

interest (the estate owner’s right to receive a share of the production or a share of the

value of proceeds of production). See generally 1 Patrick H. Martin & Bruce M. Kramer,

Williams & Meyers, Oil and Gas Law §§ 201–216 (2014 ed.). Oil and gas leaseholds are

subject to taxation as real property.1 § 39-7-102, C.R.S. (2016); Colo. Const. art. X,

§ 3(1)(b). Unlike most real property interests, however, the value of an oil and gas

leasehold interest comes not from the physical space or land the leasehold occupies, but

1 Oil and gas leaseholds are also subject to severance taxes, which are “a special excise
tax . . . on the nonrenewable natural resources removed from the soil of this state and
sold for private profit.” § 39-29-101(1), C.R.S. (2016). Severance taxes are assessed
because “when nonrenewable natural resources are removed from the earth, the value
of such resources to the state of Colorado is irretrievably lost.” Id.; see also BP Am.
Prod. Co. v. Colo. Dep’t of Revenue, 2016 CO 23, ¶ 11, 369 P.3d 281, 284.

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rather, from the quantity and value of oil and gas underground. See Washington Cty.

Bd. of Equalization v. Petron Dev. Co., 109 P.3d 146, 150–51 (citing Colo. Const. art. X,

§ 3(1)(b)).

¶5 The legislature has plenary authority to assess, levy, and collect taxes, including

taxes on real property. Bd. of Cty. Comm’rs v. Vail Assocs., Inc., 19 P.3d 1263, 1273

(Colo. 2001). Nevertheless, the legislature’s authority to tax is circumscribed by article

X of the Colorado Constitution. Id. (citing Bartlett & Co., Grain v. Bd. of Cty. Comm’rs

of Baca Cty., 382 P.2d 193 (Colo. 1963)). As relevant to this case, section 3 of article X

limits the legislature’s ability to assess property taxes by requiring that taxes be based

on the “actual value” of the property. Petron Dev. Co., 109 P.3d at 149; see also San

Miguel Cty. Bd. of Equalization v. Telluride Co., 947 P.2d 1381, 1383 (Colo. 1997)

(“[A]ctual value is the guiding principle for the taxation of real property in Colorado.”).

¶6 The legislature also has the authority to prescribe appropriate methods for

determining the “actual value” of property. See Petron Dev. Co., 109 P.3d at 149. For

most types of real property, the legislature has required the county assessor to consider

and document three approaches to determine the “actual value” of the property: the

cost approach, the market approach, and the income approach. 2 § 39-1-103(5)(a), C.R.S

(2016).

2 The cost approach values property by estimating the cost of replacing improvements
to a property; the market approach values property by considering sales of comparable
properties in the market; and the income approach considers the income stream a
property is capable of generating, capitalized to value at a rate typical within the

4
¶7 By contrast, oil and gas leaseholds and lands are valued under the provisions of

article 7 of title 39. § 39-1-103(2). Under the provisions of article 7, the holder of an oil

and gas lease must submit an annual statement, from which the county assessor

determines the property’s value and the leaseholder’s property tax liability. See

§§ 39-7-101, -102. The annual statement must include, among other information, the

volume of gas or oil sold and the selling price of the gas or oil “at the wellhead”—a

term that refers to “the physical location where the extracted material emerges from the

ground.” § 39-7-101(1)(c)–(d); Petron Dev. Co., 109 P.3d at 153.

¶8 The sale of unprocessed oil or gas, however, rarely occurs at the wellhead;

instead, the oil or gas is typically gathered from multiple wells, processed, and

transported away from the wellsite before sale. See Petron Dev. Co., 109 P.3d at 151–54.

As a result, an operator typically must estimate its “selling price at the wellhead” for

purposes of section 39-7-101(1)(d) by deducting from its final, downstream selling price

the costs of gathering, processing, and transporting the extracted material. Id. at 153–

54; § 39-7-101(1)(d) (“The net taxable revenues shall be equal to the gross lease

revenues, minus deductions for gathering, transportation, manufacturing, and

processing costs borne by the taxpayer pursuant to guidelines established by the

[Property Tax Administrator].”). This calculation—that is, the deduction of gathering,

processing, and transportation costs from the final, downstream selling price—is known

relevant market. Bd. of Assessment Appeals v. E.E. Sonnenberg & Sons, Inc., 797 P.2d
27, 30–31 nn.8, 9 & 12 (Colo. 1990).

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as a “netback” method of calculating wellhead selling price. Petron Dev. Co., 109 P.3d

at 152.

¶9 An operator’s netback calculation depends on whether the operator contracts

with a related or an unrelated party to perform these gathering, processing, and

transportation services. If the operator enters into a bona fide, arm’s-length transaction

with an unrelated party to perform these services, then the operator may deduct the full

amount paid for these services from its final, downstream sales price in its netback

calculation (the “unrelated-parties netback method”). See 3 Div. of Prop. Taxation,

Colo. Dep’t of Local Affairs, Assessor’s Reference Library: Real Property Valuation

Manual (“ARL”) 6.35–6.36 (Rev. Jan. 2017). If the operator instead enters into a

transaction with a related party (such as another subsidiary of the same parent

company) to perform these services, then it may deduct only a portion of the amount

paid for these services (the “related-parties netback method”).3 3 ARL 6.39–6.41. The

operator need not disclose the methodology or details of its netback calculation in its

annual statement, see § 39-7-101(1)(a)–(f), although an assessor may elect to require this

information to be submitted separately, and the assessor may rely on this information if

it conducts a review or an audit, see 3 ARL 6.34–6.35.

¶10 Section 39-2-109(1)(k), C.R.S. (2016), requires the Property Tax Administrator to

prepare and publish guidelines providing procedures for county assessors to audit oil

3 Specifically, the operator may deduct the allowable direct costs incurred in gathering,
processing, and transportation, as well as amounts representing the return on
investment (“ROI”) and return of investment (“RofI”) on the improvements and
equipment used for gathering, processing, and transportation. 3 ARL 6.40.

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and gas leaseholds for property tax purposes, which the Administrator has done in the

Assessor’s Reference Library. Under these guidelines, an assessor may initiate an audit

and request the source documents regarding sales volume and sales price from which

the operator prepared its annual statement. 3 ARL 6.52. The assessor then determines

whether a change in the property’s valuation is warranted and may issue a corrective

assessment or an abatement. Id. at 6.53–6.58. The guidelines state that retroactive

assessments are authorized under the statutes providing for assessments on property

that has been previously “omitted from the assessment roll” and that abatements are

authorized under the statutory provision allowing for refunds and abatements if taxes

have been “illegally or erroneously levied and collected.” See id. at 6.55 (citing

§ 39-10-107), 6.58 (citing § 39-10-114).

¶11 With this legal framework in mind, we turn to the facts of this case.

II. Facts and Procedural History

¶12 Kinder Morgan CO2 Company, L.P., produces, transports, and sells carbon

dioxide (CO2) for use in oil and gas operations. Kinder Morgan is the operator of the

McElmo Dome Unit,4 a large CO2 deposit in Montezuma County and Dolores County,

near the Four Corners area of Colorado. The CO2 extracted from the McElmo Dome

4 In the oil and gas context, a “unit” is a consolidation of working interests that extract
resources from a single geological reservoir. Units are created for the purpose of
efficiently extracting resources from the reservoir through coordinated engineering and
operation, often by a single operator. See 6 Patrick H. Martin & Bruce M. Kramer,
Williams & Meyers, Oil and Gas Law § 901 (2014 ed.). The Colorado Oil and Gas
Conservation Commission (“COGCC”) approved the unitization of the McElmo Dome
working interests in 1982. COGCC Order No. 389-1 (Nov. 17, 1982).

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Unit is compressed and transported through the Cortez Pipeline across New Mexico

and into West Texas. There, the CO2 is sold to various oil and gas operators, who inject

the CO2 into existing West Texas oil fields to enhance oil recovery.

¶13 In addition to Kinder Morgan, several other companies and individuals own

working interest leaseholds and royalty interests in the unit. As the operator of the

unit, Kinder Morgan manages the unit’s development by paying for the facilities and

equipment and supplying the labor to produce CO2, which the various working interest

leaseholders own in proportion to the relative sizes of their leaseholds. Kinder Morgan

then bills the other working interest leaseholders for its expenses in operating the unit

and arranging for transportation of the CO2 to the point of sale. As the operator, Kinder

Morgan also files annual property tax statements for all of the leaseholds.

¶14 The Cortez Pipeline—through which the CO2 is shipped—is owned by Cortez

Pipeline Company and operated by Kinder Morgan. Cortez Pipeline Company, in turn,

is a partnership. At the time of the disputed tax assessment, Kinder Morgan owned a

50% interest in Cortez Pipeline Company. The remaining interest in the partnership

was owned by Mobil Cortez Pipeline Company (37%) and Cortez Vickers Pipeline

Company (13%). Cortez Pipeline Company charges the same, fixed tariff to any entity

that ships CO2 through the pipeline. In 2007, that tariff was 22 cents per MCF5 of CO2.

¶15 When Kinder Morgan submitted its annual property tax statement for the 2008

tax year, it reported a wellhead selling price of 52 cents per MCF. Kinder Morgan

5An MCF is a common pricing unit for gas, representing one thousand cubic feet of gas.
See, e.g., § 34-60-118.5(2.3)(d), C.R.S. (2016).

8
calculated that wellhead selling price using the unrelated-parties netback methodology,

under which Kinder Morgan deducted (among other costs) the full 22-cent

transportation tariff it paid to Cortez Pipeline Company. Based on Kinder Morgan’s

annual statement, the assessor valued the Montezuma County leaseholds at

approximately $157.5 million and assessed property taxes accordingly.

¶16 Following an audit of Kinder Morgan’s property taxes for the 2008 tax year, the

assessor increased its valuation of the leaseholds by $57 million, largely based on the

auditor’s discovery of Kinder Morgan’s 50% partnership interest in Cortez Pipeline

Company. The auditor concluded that Kinder Morgan and Cortez Pipeline Company

were “related parties,” and that under the related-parties netback methodology, Kinder

Morgan could deduct only a portion of the 22-cent transportation tariff when

calculating its wellhead selling price. Under the auditor’s revised valuation, Kinder

Morgan’s tax liability increased by over $2 million.6

¶17 Based on this audit, the assessor issued Special Notices of Valuation to Kinder

Morgan, assessing the additional $2 million in property taxes in light of the revised

valuation. Kinder Morgan paid the taxes under protest and later filed petitions for

abatement, seeking refunds of the retroactively increased taxes. Those petitions argued,

in relevant part, that the assessor lacked authority to issue the Special Notices of

Valuation because no property had been “omitted” from Kinder Morgan’s annual

statement, and as a result, the retroactive assessment was not authorized under section

6 The exact increase in Kinder Morgan’s property tax liability was $2,028,865.82.

9
39-5-125, which permits retroactive assessment when “taxable property has been

omitted from the assessment roll.” Kinder Morgan further argued that even if the

assessor had authority to retroactively assess these taxes, the retroactive assessment was

erroneous because Kinder Morgan was entitled to deduct the full 22-cent transportation

tariff in calculating its wellhead selling price. The Montezuma County Board of

Commissioners denied the petitions.

¶18 Kinder Morgan appealed to the Colorado Board of Assessment Appeals. After a

two-day hearing, in which Kinder Morgan and the Montezuma County Board of

Commissioners presented witnesses and documentary evidence, the Board of

Assessment Appeals affirmed. The Board of Assessment Appeals concluded that the

Montezuma County Assessor had authority to issue the retroactive assessment under

the audit guidelines of the Assessor’s Reference Library. The Board of Assessment

Appeals further concluded that Kinder Morgan and Cortez Pipeline Company were

“related parties,” meaning that the auditor had properly concluded that Kinder Morgan

was not entitled to deduct the full 22-cent tariff in its netback calculation.

¶19 Kinder Morgan then appealed the Board of Assessment Appeals’ decision to the

court of appeals, which likewise affirmed. In a published opinion, the court of appeals

agreed that the Montezuma County Assessor had statutory authority to issue the

disputed assessment, concluding that House Bill 90-1018 “amended the property tax

code to authorize retroactive property tax assessments on the value of oil and gas

leaseholds and lands omitted due to underreporting of the selling price or quantity of

oil and gas sold therefrom.” Kinder Morgan CO2 Co., L.P. v. Montezuma Cty. Bd. of

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Comm’rs, 2015 COA 72, ¶ 36, ___ P.3d ___. The court of appeals further concluded that

competent evidence supported the Board of Assessment Appeals’ determination that

Kinder Morgan and Cortez Pipeline Company were “related parties” for purposes of

calculating the transportation deduction, given Kinder Morgan’s partnership interest in

Cortez Pipeline Company. Id. at ¶¶ 41–43.

¶20 We granted Kinder Morgan’s petition for writ of certiorari to review the court of

appeals’ ruling,7 and now affirm.

III. Analysis

¶21 We first consider whether the statutory scheme governing property taxation of

oil and gas leaseholds authorizes retroactive assessments when a leaseholder has

correctly reported the volume of oil or gas sold but has underreported the wellhead

selling price of the oil or gas. We conclude that the statutory scheme authorizes these

retroactive assessments, given the self-reporting scheme for property taxation in this

context and the legislature’s amendments to that scheme, which describe the

“underreporting of the selling price or the quantity of oil and gas sold [from a

leasehold]” as a form of omitted property.

7 We granted certiorari on the following issues:
1. Whether the court of appeals properly concluded that House Bill 90-1018
amended section 39-10-107(1), C.R.S. (2016), to permit retroactive assessment of
property taxes on the value of oil and gas leaseholds omitted due to the
underreporting of the selling price of oil and gas or the quantity sold therefrom.
2. Whether the court of appeals applied the proper standard of review of the Board
of Assessment Appeals’ (BAA’s) determination that Kinder Morgan and Cortez
Pipeline Company are “related parties.”

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¶22 We next consider whether the Board of Assessment Appeals erred in concluding

that Kinder Morgan was not entitled to deduct the full price paid for transportation of

gas because Kinder Morgan and Cortez Pipeline Company are “related parties.” Given

Kinder Morgan’s 50% partnership interest in Cortez Pipeline Company, we conclude

that the Board of Assessment Appeals did not err in determining that Kinder Morgan

and Cortez Pipeline Companies are “related parties,” and therefore, that Kinder

Morgan was not entitled to deduct these full amounts.

A. Retroactive Tax Assessment for Oil and Gas Property

1. Standard of Review

¶23 We review questions of statutory interpretation de novo. BP Am. Prod. Co. v.

Colo. Dep’t of Revenue, 2016 CO 23, ¶ 9, 369 P.3d 281, 284.

2. Statutory Interpretation

¶24 Our primary task in construing a statute is to effectuate the intent of the General

Assembly. Id. at ¶ 15, 369 P.3d at 285. We construe statutes related to the same subject

matter alongside one another, with the goal of giving consistent, harmonious, and

sensible effect to all of their parts. Yuma Cty. Bd. of Equalization v. Cabot Petroleum

Corp. (“Cabot II”), 856 P.2d 844, 849 (Colo. 1993). We strive to avoid statutory

interpretations that render certain words or provisions superfluous or ineffective. See

Welby Gardens v. Adams Cty. Bd. of Equalization, 71 P.3d 992, 995 (Colo. 2003).

¶25 Applying these principles of construction to the statutory scheme governing

property taxation of oil and gas leaseholds, we conclude that it authorizes retroactive

tax assessments when an operator underreports the selling price or volume of oil and

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gas. Two statutory provisions provide the authority for an assessor to retroactively

assess taxes on “omitted property.”8 First, under section 39-5-125, “whenever it is

discovered that any taxable property has been omitted from the assessment roll of any

year or series of years, the assessor shall immediately determine the value of such

omitted property and shall list the same on the assessment roll of the year in which the

discovery was made.” § 39-5-125(1) (emphasis added). Second, section 39-10-101

provides that if “the treasurer discovers that any taxable property then located in the

treasurer’s county has been omitted from the tax list and warrant for the current year or

for any prior year . . . , the treasurer shall forthwith list and value such property for

assessment in the same manner as the assessor might have done.” § 39-10-101(2)(a)(I)

(emphasis added).

¶26 Here, we are asked to decide whether an operator’s underreporting of the value

of oil and gas produced at a leasehold constitutes “omitted property” subject to a

corrective assessment under section 39-5-125. Two aspects of the statutory scheme

inform our answer to this question: the legislature’s amendments to the statutory

scheme and the self-reporting procedure for valuation of oil and gas leaseholds in

Colorado.

¶27 In 1990, the legislature approved House Bill 90-1018, which, as relevant here,

amended the statutory scheme governing oil and gas taxation in two ways that

8 In addition, under section 39-7-105, C.R.S. (2016), an assessor may re-value and re-
assess taxes on an oil and gas leasehold if any part of the leaseholder’s annual statement
is “willfully false or misleading.” See, e.g., Cabot II, 856 P.2d at 849. Section 39-7-105 is
not at issue in this case.

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demonstrate the legislature’s intent to treat the underreporting of the selling price of gas

sold from a leasehold as a form of omitted property. First, the bill amended section

29-1-301 to provide that certain “revenues” would not count towards a taxing entity’s

levy limit9—namely, “revenues received as taxes paid on oil and gas leaseholds and

lands that had been previously omitted from the assessment roll due to underreporting

of the selling price or the quantity of oil or gas sold therefrom.” Ch. 277, sec. 39,

§ 29-1-301(1), 1990 Colo. Sess. Laws 1687, 1704 (emphasis added). Second, the bill

amended section 39-10-107 to provide that certain “taxes” would be excepted from a

general rule about the time for apportioning, crediting, and distributing taxes—namely,

“any prior years’ taxes collected during any given year on oil and gas leaseholds and

lands which had previously been omitted from the assessment roll due to

underreporting of the selling price or the quantity of oil and gas sold therefrom.” Ch.

277, sec. 40, § 39-10-107(1), 1990 Colo. Sess. Laws 1687, 1704–05 (emphasis added).

¶28 These amendments demonstrate the legislature’s intent to treat the

underreporting of the selling price of oil and gas as omitted property under the

statutory scheme governing oil and gas taxation. That is, by providing special

procedures for handling taxes that had been retroactively assessed based on

underreported selling price or volume, the legislature necessarily intended for such

taxes to be retroactively assessed. Indeed, by exempting these retroactive assessments

9 Subject to certain exceptions and qualifications, section 29-1-301, C.R.S. (2016),
provides a limit on the amount of taxes that a taxing entity may levy by prohibiting “the
levying of a greater amount of revenue than was levied in the preceding year plus five
and one-half percent.” § 29-1-301(1)(a).

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from the taxing entity’s levy limit, the 1990 amendments removed a potential obstacle

that otherwise might have prevented taxing entities from collecting these taxes. See

§ 29-1-301(1)(a).

¶29 Our conclusion that underreporting of the selling price constitutes the type of

error or omission that falls within the reach of the “omitted property” statutes comports

with the overarching statutory scheme governing property taxation of oil and gas

leaseholds. The value of an oil and gas leasehold is derived from the volume and

selling price of the oil and gas. That is, if a leasehold produces no oil or gas that is then

sold for value, then no property taxes are assessed. See, e.g., 3 ARL 6.50 (“If . . . there

was no production from [a leasehold] during the previous calendar year, no value is

assigned.”). And if a taxpayer underreports the volume or selling price of oil and gas

produced, the assessor does not have the opportunity to value the volume of the oil and

gas or the portion of the selling price that was not reported.

¶30 Moreover, given the statutory timeline and framework for property tax

assessments in this context, the assessor must be able to issue corrective assessments to

avoid under-taxation. The operator’s annual statement is due on April 15.

§ 39-7-101(1). Based on the information reported in that annual statement, the assessor

has a limited period of time—until June 15—to value the property and issue a notice of

valuation. § 39-7-102.5, C.R.S. (2016); § 39-5-121(1.5)(a)(I), C.R.S. (2016). During this

two-month period, the assessor relies on information that is self-reported by the

operator, typically without the means to independently verify the volume and value of

15
oil and gas produced at the leasehold.10 This situation differs from the valuation

methods for other forms of real property, in which the assessor identifies taxable

property and calculates a taxable value based on widely available information. See

§ 39-1-103(5)(a).

¶31 Given that the assessor relies on taxpayer-reported information to initially value

the property during this period, any error in valuation typically will result not from the

assessor’s mistake in calculating the taxable value, but rather, from the taxpayer’s

failure to accurately report information about the leasehold as required by statute. Cf.

Cabot II, 856 P.2d at 846–49 (concluding that Yuma County had authority to

retroactively assess property taxes, where “Cabot knew that it was not accurately

reporting the selling price [of its natural gas] when it filed annual statements”).

Accordingly, the assessor must be able to issue corrective assessments to avoid under-

taxation caused by an operator’s errors in reporting—errors that, because of the

statutory timeline for the valuation process, the assessor has no means of correcting at

an earlier stage.

¶32 Finally, the fact that the statutory scheme governing property taxation of oil and

gas leaseholds includes audit provisions further confirms the authority to issue

retroactive assessments if an operator has underreported the selling price of oil or gas.

10Although an assessor could initiate an audit, as a practical matter, it is unlikely that
the audit process could be concluded within this two-month period: the audit can
commence no sooner than fifteen days after the taxpayer receives notice of the audit,
and the taxpayer has thirty days after receipt of the preliminary audit findings to
submit additional information not considered by the county, which the assessor must
then consider before issuing any corrective assessment. See 3 ARL 6.54–6.56.

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In 1991, the legislature approved Senate Bill 91-214, which, in relevant part, required the

Property Tax Administrator “[t]o prepare and publish guidelines . . . concerning the

audit and compliance review of oil and gas leasehold properties for property tax

purposes.” Ch. 307, sec. 1, § 39-2-109(1)(k), 1991 Colo. Sess. Laws 1953, 1953. This

amendment demonstrates the legislature’s intent to impose uniform property tax

auditing procedures on oil and gas leaseholds.

¶33 Such an audit scheme would be incomplete if assessors lacked the authority to

issue corrective assessments based on the results of their audits. Indeed, the statutory

provision governing tax abatements in this context confirms that audits can lead to

corrective assessments. That provision requires that, when calculating the amount of

the abatement to which the taxpayer is entitled, any taxes due as a result of an audit

must be offset against any overpayment of taxes. § 39-10-114(1)(a)(I)(E), C.R.S. (2016)

(“[W]hen an audit of prior years’ taxes . . . discloses that taxes are due and owing . . . on

oil and gas leaseholds, such taxes shall be subtracted from any overpayment of such

taxes determined to be due . . . .”). In other words, although the power to audit does

not independently authorize retroactive tax assessments, the legislature’s inclusion of

an audit provision further bolsters our interpretation of the statutory scheme, in which

an assessor may issue a corrective assessment if the assessor assigns an inaccurate value

to a leasehold because of the assessor’s reliance on incorrect, taxpayer-supplied

information about the taxable property.

¶34 For these reasons, we conclude that the statutory scheme governing property

taxation of oil and gas leaseholds and lands authorizes the retroactive assessment of

17
property taxes when an operator underreports the volume or selling price of the oil and

gas it produces.

¶35 Kinder Morgan’s arguments in support of its alternative construction of the

statutory scheme are unpersuasive. First, Kinder Morgan argues that the court of

appeals’ 1992 decision in Cabot Petroleum Corp. v. Yuma County Board of Equalization

(“Cabot I”) establishes that the omitted property statutes authorize retroactive

assessments only where taxable properties have been entirely omitted from the tax roll,

not where they have been included in the tax roll yet undervalued. 847 P.2d 152 (Colo.

App. 1992), rev’d on other grounds, Yuma Cty. Bd. of Equalization v. Cabot Petroleum

Corp. (“Cabot II”), 856 P.2d 844 (Colo. 1993). In Cabot I, the court of appeals construed

the omitted property statutes, sections 39-5-125 and 39-10-101(2)(a), to “authorize

retroactive assessments of additional property taxes only against ‘omitted property’ and

not against ‘omitted value.’” 847 P.2d at 155. The court then concluded that the Yuma

County Assessor lacked authority to issue the retroactive assessment because, although

Cabot had reported a selling price below that which it ultimately received (thereby

creating “omitted value”), Cabot had filed annual statements for each one of its oil and

gas leasehold interests (leaving no “omitted property”). Id. at 153–55.

¶36 We reversed on other grounds, concluding that the retroactive assessment was

authorized by a separate provision, section 39-7-105, which provides that an assessor

may re-value and re-assess taxes on an oil and gas leasehold if any part of the

leaseholder’s annual statement is “willfully false or misleading.” Cabot II, 856 P.2d at

848. We concluded that this provision applied because Cabot knowingly reported an

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inaccurate selling price for its gas when it filed its annual statements. Id. Importantly,

in reversing the judgment of the court of appeals, we did not reach the court of appeals’

construction of the omitted property statutes. See id. at 848–50.

¶37 Contrary to Kinder Morgan’s argument, Cabot I does not compel the conclusion

that the omitted property statutes do not authorize retroactive assessments when an

operator has underreported the selling price of oil or gas. The court of appeals’

construction of the omitted property statutes in Cabot I is not binding on this court.

Moreover, Cabot I construed the statutory scheme as applied to assessments made in

tax years 1986 through 1988—before the legislature approved House Bill 90-1018. See

847 P.2d at 154. Our task is to construe the statutory scheme as a whole, Cabot II, 856

P.2d at 849, and the amendments of House Bill 90-1018 inform our interpretation of the

omitted property statutes by describing the statutory scheme, as a whole, as one in

which oil and gas leasehold property may be “omitted . . . due to underreporting of the

selling price” of oil or gas. See §§ 29-1-301(1)(a), 39-10-107(1)(b). In short, Cabot I

simply did not address the question of statutory interpretation that we consider today.

¶38 Second, Kinder Morgan argues that the statutory language added by House Bill

90-1018 cannot authorize the retroactive assessments in this case because the relevant

provisions of House Bill 90-1018 did not amend the omitted property statutes, but

instead amended statutes relating to the treatment of revenues under the tax levy limit

and revenue distribution laws. However, as described above, our task is to construe the

statutory scheme as a whole, Cabot II, 856 P.2d at 849; although House Bill 90-1018 did

not amend the omitted property statutes, the provisions of House Bill 90-1018

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nevertheless inform our understanding of the statutory scheme as a whole because they

reflect clear legislative intent to treat the “underreporting of the selling price or the

quantity of oil and gas sold [from a leasehold]” as a form of omitted property, see

§§ 29-1-301(1)(a), 39-10-107(1)(b). Moreover, Kinder Morgan’s proposed construction—

under which underreported sales price would not constitute “omitted property”—

would render superfluous both statutory references to property that is “omitted . . . due

to underreporting of the selling price,” §§ 29-1-301(1)(a), 39-10-107(1)(b).11 Because we

disfavor constructions that render statutory language superfluous, we decline to adopt

such a construction. See Welby Gardens, 71 P.3d at 995.

¶39 Finally, Kinder Morgan’s reading of the statutory scheme would produce

inequitable results. Kinder Morgan contends that if a taxpayer fails to accurately report

the value of the oil or gas it sells, thereby causing the assessor to undervalue the

taxpayer’s leasehold property, the assessor lacks authority to remedy this

undervaluation by issuing a corrective assessment. In such a scenario, the taxpayer

would never be taxed on the full value of its leasehold property. In short, Kinder

Morgan’s proposed interpretation would produce a tax windfall for the taxpayer—due

to the taxpayer’s own error—and would contravene the constitutional principle that a

11 Kinder Morgan claims that its interpretation would not render superfluous these
statutory references to property that is “omitted . . . due to underreporting of the selling
price” because an operator could report a selling price of zero, in which case the
underreporting would result in “omitted property” contemplated by these provisions.
However, Kinder Morgan’s argument fails because in such a situation, the operator
nevertheless would be required to file an annual statement for the leasehold (from
which the assessor would calculate a value of zero), so the property would not, in fact,
be “omitted from the assessment roll,” see § 39-5-125(1).

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taxpayer’s property tax liability shall be determined based on the “actual value” of the

taxable property. See Colo. Const. art. X, § 3(1).

¶40 For these reasons, we conclude that the statutory scheme governing property

taxation of oil and gas leaseholds and lands authorizes the retroactive assessment of

taxes when an operator has underreported the selling price of oil or gas.

3. Application

¶41 We conclude that the Montezuma County Assessor had the authority to issue the

retroactive property tax assessments in this case. After the assessor initiated an audit of

Kinder Morgan for the 2008 tax year, the auditor concluded that Kinder Morgan had

claimed excess deductions in its annual statement, thereby underreporting the selling

price of its CO2. Based on Kinder Morgan’s underreporting, the assessor undervalued

the leaseholds by approximately $57 million, causing Kinder Morgan to be undertaxed

by more than $2 million. We hold that, under these circumstances, the statutory scheme

governing property taxation of oil and gas leaseholds and lands authorized the assessor

to issue a corrective tax assessment in order to recover the amount by which Kinder

Morgan had previously been undertaxed.

B. Applicability of the Transportation Deduction

1. Standard of Review

¶42 We review decisions of the Board of Assessment Appeals under the

Administrative Procedure Act, sections 24-4-101 to 24-4-108, C.R.S. (2016). § 39-8-108(2),

C.R.S. (2016). Under the standards of review set forth in the Administrative Procedure

Act, we will uphold the factual determinations of the Board of Assessment Appeals

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unless they are “unsupported by substantial evidence when the record is considered as

a whole.” § 24-4-106(7). We review the Board of Assessment Appeals’ interpretation

and application of law de novo. Id.

2. Application

¶43 If an operator contracts with a “related party” to perform gathering, processing,

or transportation services, then the operator is not entitled to deduct the full amount

paid for those services in its netback calculation. 3 ARL 6.39–6.40. The Assessor’s

Reference Library defines “related parties” as:

the individuals who are connected by blood or marriage; or partnerships;
or businesses that are subsidiaries of the same parent company or are
associated by one company controlling or holding ownership of the other
company’s stock or debt.

3 ARL 6.41 (emphasis added).

¶44 The Board of Assessment Appeals determined that Kinder Morgan and Cortez

Pipeline Company were “related parties” because they were in a partnership

relationship with one another, given Kinder Morgan’s 50% ownership interest in the

Cortez Pipeline Company partnership. This finding is supported by substantial

evidence because in reaching its conclusion, the Board of Assessment Appeals relied on

the auditor’s testimony about her examination of Kinder Morgan’s financial records and

Cortez Pipeline Company’s governing documents. Moreover, Kinder Morgan does not

dispute the Board of Assessment Appeals’ finding that Kinder Morgan owned 50% of

Cortez Pipeline Company. Accordingly, the Board of Assessment Appeals did not err

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in concluding that Kinder Morgan was not entitled to claim as a transportation

deduction the full 22-cent tariff it paid to Cortez Pipeline Company.

¶45 We reject Kinder Morgan’s argument that the Board of Assessment Appeals and

court of appeals erroneously interpreted the term “related parties” because, according

to Kinder Morgan, the term “partnerships”—without further elaboration—“is

essentially meaningless.” To the contrary, the Board of Assessment Appeals and the

court of appeals appropriately interpreted the term “partnerships” according to its

ordinary meaning in concluding that Kinder Morgan’s 50% ownership interest in the

Cortez Pipeline Company partnership made Kinder Morgan and Cortez Pipeline

Company “related parties.” We therefore conclude that the Board of Assessment

Appeals and the court of appeals did not erroneously interpret the definition of “related

parties” set forth in the Assessor’s Reference Library.

IV. Conclusion

¶46 For the foregoing reasons, we conclude that the statutory scheme authorized the

Montezuma County Assessor’s tax assessment. We further conclude that the Board of

Assessment Appeals did not err in concluding that Kinder Morgan had underreported

the selling price because it was not entitled to deduct certain transportation costs. We

therefore affirm the judgment of the court of appeals.

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