City and County of Denver District Court No. 11CV7639. Honorable Robert L. McGahey, Jr., Judge.
Beatty & Wozniak, P.C., Karen L. Spaulding, Denver, Colorado, for Plaintiff-Appellee.
John W. Suthers, Attorney General, Robert H. Dodd, Jr., Senior Assistant Attorney General, Alexander C. Reinhardt, Assistant Solicitor General, Denver, Colorado, for Defendant-Appellant.
Loeb, C.J., and Taubman, J., concur.
[¶1] In this sales tax case, defendant, the Colorado Department of Revenue (DOR), appeals the district court's summary judgment in favor of plaintiff, Pioneer Natural Resources USA, Inc. (Pioneer). The DOR takes issue with the district court's conclusion that pipelines and fittings, which are located in one of Colorado's enterprise zones and are used to gather and deliver natural gas from Pioneer's wells to its processing facilities, qualify for Colorado's sales tax exemption because they " are in direct use in the manufacturing of natural gas" as defined in section 39-26-709, C.R.S. 2013, and section 39-30-106, C.R.S. 2013. Because we disagree with the DOR, we affirm the district court's summary judgment.
[¶2] For the 2003 and 2004 tax years, the DOR determined that the pipelines and fittings were not exempt from state sales tax because they did not fall under the definition of " manufacturing" in sections 39-26-709 and 39-30-106. Pioneer appealed this determination to the Executive Director of the DOR. A DOR hearing officer also determined that the pipelines were not exempt for the same reason.
[¶3] Pioneer then filed a complaint for judicial review of the DOR's determinations in the district court. The DOR and Pioneer filed competing motions for summary judgment. As noted, the district court granted summary judgment in favor of Pioneer.
[¶4] Summary judgment is appropriate " if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." C.R.C.P. 56(c). We review a district court's grant of summary judgment de novo. See Amos v. Aspen Alps 123, LLC, 2012 CO 46, ¶ 13, 280 P.3d 1256.
I. Pioneer's Pipelines and Fittings
[¶5] The material facts are undisputed. Pioneer's Raton Basin gathering system pipelines and fittings, at issue in this appeal, are located in Colorado's South Central Enterprise Zone. Pioneer operates over 2000 wells and ten compressor sites in the Raton Basin. Pioneer uses the gathering system pipelines and fittings to maintain pressure, extract natural gas from each well, and move the gas to compressor/processing stations for final processing before the gas enters an interstate pipeline for commercial distribution.
[¶6] The natural gas gathering is sensitive to line pressure. At the wellhead, Pioneer actively manages the pressures on a daily basis with pressure transducers that are accurate to 0.1 pounds per square inch gauge (psig). Pioneer staff regularly conducts " pigging" operations to keep the gathering system pipelines clean and free of condensed water and other debris. Pioneer also extracts gas from each well with dewatering pumps. Wastewater is removed from the gas on site. The gas progresses through the pipelines to one of Pioneer's compressor stations where it goes through a dehydrator for final processing.
[¶7] In granting summary judgment in favor of Pioneer, the district court found that Pioneer's " gas gathering system extracts natural gas from the earth, which then travels in pipes from the extraction site in a continuous flow to one of [its] ten processing plants." It then determined that Pioneer's pipe and fittings purchased for this gas gathering system qualify for the enterprise zone sales tax ...