Jones County School District v. Mississippi State Oil & Gas Board ( 2011 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2011-CA-00712-SCT
JONES COUNTY SCHOOL DISTRICT AND
JONES COUNTY SCHOOL BOARD
v.
MISSISSIPPI DEPARTMENT OF REVENUE f/k/a
MISSISSIPPI STATE TAX COMMISSION;
MISSISSIPPI STATE OIL & GAS BOARD; BEAN
RESOURCES, INC.; DENBURY RESOURCES,
INC.; AND VENTURE OIL & GAS, INC.
AND
MISSISSIPPI DEPARTMENT OF REVENUE f/k/a
MISSISSIPPI STATE TAX COMMISSION
v.
JONES COUNTY SCHOOL DISTRICT; JONES
COUNTY SCHOOL BOARD; BEAN RESOURCES,
INC.; DENBURY RESOURCES, INC.; VENTURE
OIL & GAS, INC.; AND THE SECRETARY OF
STATE OF THE STATE OF MISSISSIPPI
AND
THE SECRETARY OF STATE OF THE STATE OF
MISSISSIPPI
v.
MISSISSIPPI DEPARTMENT OF REVENUE f/k/a
MISSISSIPPI STATE TAX COMMISSION
AND
BEAN RESOURCES, INC.; DENBURY
RESOURCES, INC.; AND VENTURE OIL & GAS,
INC.
v.
MISSISSIPPI DEPARTMENT OF REVENUE f/k/a
MISSISSIPPI STATE TAX COMMISSION AND
MISSISSIPPI STATE OIL & GAS BOARD
DATE OF JUDGMENT: 05/02/2011
TRIAL JUDGE: HON. FRANKLIN C. MCKENZIE, JR.
COURT FROM WHICH APPEALED: JONES COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS: TERRY L. CAVES
JERRY DEAN SHARP
WILLIAM GARNER CHENEY, JR.
OFFICE OF THE ATTORNEY GENERAL
BY: ROGER GOOGE, JR.
NANCY MORSE PARKES
ATTORNEYS FOR APPELLEES: JAMES L. POWELL
BRIDGETTE TRENETTE THOMAS
STEPHANIE V. ROGERS
HOWARD O. LEACH
JOHN JEFFREY TROTTER
GLENN GATES TAYLOR
C. TED SANDERSON, JR.
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED IN PART; REVERSED IN PART
AND REMANDED - 03/07/2013
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
PIERCE, JUSTICE, FOR THE COURT:
¶1. This case concerns three main issues. The first issue is whether a school district is
liable for oil and gas severance taxes on its royalty interests derived from oil and gas
production on sixteenth-section land. The chancellor ruled that it is not. He found that
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sixteenth-section lands are held in trust for the benefit of local township schools and that
payment of severance taxes diverts money from the purposes of that trust. The second issue
is whether the statute of limitations restricts the time period in which a school district can
seek a refund of severance taxes that it had paid erroneously. The chancellor ruled that a
three-year statute of limitations applied to any refund claims. The final issue is whether a
school district is liable for administrative expense taxes on its royalty interests derived from
oil and gas production on sixteenth-section land. The chancellor ruled that it is. He
characterized these assessments as fees, not taxes, and reasoned that trustees are allowed to
pay reasonable expenses associated with administering trust property.
¶2. This Court finds that the judgment should be affirmed in part and reversed in part.
First, we acknowledge that school districts are not liable for oil and gas severance taxes on
sixteenth-section royalty interests, but for different reasons than those cited by the chancellor.
School districts, as political subdivisions of the state, are not included within the definition
of “persons” made subject to these taxes. Second, pursuant to Article 4, Section 104 of the
Mississippi Constitution, statutes of limitation in civil causes do not run against the state or
its subdivisions. The chancery court, however, should make a determination as to whether
the doctrines of waiver and/or estoppel apply in this case. Finally, school districts are liable
for administrative expense taxes on sixteenth-section royalty interests. These assessments
are “fees,” not “taxes”; the Legislature has expressly made the state and its subdivisions
subject to these fees; and no constitutional provision or other law is violated by requiring
school districts to pay them.
FACTS
3
¶3. The Jones County School Board, which governs the Jones County School District,
leased sixteenth-section property to Venture Oil & Gas, Inc., for oil, gas, and mineral
exploration. The School District reserved a one-eighth royalty interest. From November 1,
1997, to September 30, 2006, Venture withheld the School District’s proportionate share of
oil and gas severance taxes from the School District’s royalty interest and remitted those
taxes on behalf of the School District.
¶4. In 2006, Venture and the School District learned of three Attorney General opinions
that had concluded that school districts’ royalty interests from oil and gas production on
sixteenth-section lands are not subject to any severance tax. These opinions are discussed
infra in Issue I.B.2. Based on those opinions, Venture and the School District requested a
refund of $248,277 from the Mississippi Department of Revenue.1 Months later, they also
requested a refund from the Mississippi State Oil and Gas Board of administrative-expense
taxes that Venture had paid to the Oil and Gas Board on the School District’s behalf.
¶5. The Department of Revenue denied Venture’s and the School District’s request for
a severance-tax refund. It found that Venture was “liable for the full amount of the severance
tax,” and it rejected the argument that no severance tax was owed just because oil and gas
production had occurred on state-owned land. Thereafter, Venture continued to withhold the
School District’s portion of the severance taxes, but it did not remit those taxes to the
Department of Revenue.
1
In 2009, as this litigation was pending, the Legislature eliminated the Mississippi
State Tax Commission and created the Mississippi Department of Revenue and the
Mississippi Board of Tax Appeals in its stead. 2009 Miss. Laws 1228-1379; see Miss. Code
Ann. § 27-3-1 (Rev. 2010).
4
¶6. The Oil and Gas Board, in contrast, initially granted a maintenance-tax refund of
$8,338. But, more than one year later, the Oil and Gas Board changed its stance. It took the
position that school districts are required to pay administrative-expense taxes on royalty
interests derived from oil and gas production on sixteenth-section lands.
¶7. Aggrieved by the Department of Revenue’s decision, Venture and the School District
filed suit in the Chancery Court of the Second Judicial District of Jones County. Venture and
the School District requested that the Department of Revenue be ordered to refund severance
taxes paid from November 1, 1997, to September 30, 2006, and sought “temporary,
preliminary, and permanent injunctive and declaratory relief” against further imposition of
any severance taxes.
¶8. Just before filing suit, the School District had written a letter to the Department of
Revenue and to the Oil and Gas Board. In its letter to the Department of Revenue, the
School District requested additional refunds for severance taxes that Eagle Oil and Gas Co.;
Denbury Energy Services, Inc.; and Bean Resources, Inc., had paid on its behalf. The total
refund request exceeded $2 million. The Department of Revenue responded that, according
to its records, the School District itself had never filed an “Oil and Gas Severance tax return.”
Thus, it denied the School District’s refund request because “only [a] taxpayer can seek
refund of an overpayment of taxes.” In its letter to the Oil and Gas Board, the School District
likewise sought a refund for maintenance taxes that Eagle and Denbury had paid on its
behalf.
¶9. More than two months after its initial suit, the School District filed a second suit. It
and the School Board filed suit against Venture, Eagle, Denbury, and Bean (collectively “the
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Oil Companies”). The Department of Revenue and the Oil and Gas Board later were added
as defendants, and the Secretary of State 2 was allowed to intervene as a party plaintiff. The
School District, the School Board, and the Secretary of State (collectively “the Plaintiffs”)
requested: (1) an accounting of all severance and administrative-expense taxes that had been
paid to the Department of Revenue and to the Oil and Gas Board; (2) a declaratory judgment
that the School District was not obligated to pay severance or administrative-expense taxes
on royalties derived from oil and gas production on sixteenth-section land; (3) a preliminary
injunction to prohibit the Oil Companies from remitting any future severance or
administrative-expense tax payments to the Department of Revenue or to the Oil and Gas
Board on the School District’s behalf; and (4) an order directing the Department of Revenue
and the Oil and Gas Board to refund any severance or administrative expense taxes that the
Oil Companies had paid on the School District’s behalf. The Plaintiffs further asserted that
the Oil Companies had breached a fiduciary duty by wrongfully paying severance and
administrative-expense taxes on the School District’s behalf.
¶10. The Oil Companies, in response, asserted cross-claims against the Department of
Revenue and the Oil and Gas Board to recover any severance or administrative-expense taxes
that they had paid erroneously. Bean and Venture, furthermore, asked the chancellor to
enjoin the Department of Revenue and the Oil and Gas Board from attempting to collect
severance and administrative-expense taxes on the School District’s royalty interests.
¶11. The two suits were consolidated, and all the parties requested summary judgment.
2
The Order on Motion for Intervention states the Attorney General authorized the
Secretary of State to intervene in this case. See Miss. Code Ann. § 7-5-1 (Rev. 2002).
6
¶12. After conducting a hearing, the chancellor issued his findings of fact and conclusions
of law. The chancellor first found that the State holds title to sixteenth-section property in
trust for the benefit of schools within the local township; that all revenue derived from
sixteenth-section property must be used exclusively for the benefit of those schools; and that
the Department of Revenue had misappropriated trust funds by collecting severance taxes
on the School District’s royalty interests and distributing those moneys to general-revenue
funds and to other school districts. Accordingly, the chancellor reversed and rendered the
Department of Revenue’s denial of Venture’s and the School District’s request for a refund.
The chancellor further enjoined the Department of Revenue from levying and collecting
severance taxes from the Oil Companies on the School District’s royalty interests.3 Second,
the chancellor labeled the assessments levied by the Oil and Gas Board as fees, not taxes.
The chancellor stated that these assessments fund the regulatory and enforcement functions
of the Oil and Gas Board and that the Plaintiffs had benefitted from the Oil and Gas Board’s
services. The chancellor reasoned that such fees were reasonable expenses associated with
the administration of trust property, and therefore, no fiduciary duties had been violated.
Accordingly, the chancellor granted the Oil and Gas Board’s Motion for Summary Judgment.
¶13. After the chancellor had issued his findings of fact and conclusions of law, the parties
entered an agreed order for the chancellor to amend his findings of fact and conclusions of
3
In its motion for summary judgment, Eagle included an affidavit by its vice
president, who represented that Eagle did not hold leases on sixteenth-section lands in Jones
County. None of the parties disputed this assertion. Thus, the chancellor granted summary
judgment for Eagle and dismissed all claims against it with prejudice. Eagle is not a party
to this appeal.
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law to address whether any or all of the School District’s refund claims were barred by the
statute of limitations or the doctrines of laches, estoppel, or waiver.
¶14. Following the parties’ agreed order, the chancellor entered supplemental findings of
fact and conclusions of law. He found that the three-year statute of limitations under Section
27-73-5 of the Mississippi Code allowed the School District to seek a refund only for taxes
it had paid since July 2, 2005; this was three years prior to the date that Venture and the
School District had filed their initial suit. The chancellor distinguished other cases that had
held that statutes of limitation do not run against the state or its political subdivisions. Those
cases, he said, had involved litigation between the state and a private party; this case, in
contrast, featured one political subdivision of the state suing another. The chancellor also
reasoned that, since the state has the sovereign power to create or abolish local units of
government, it has the power to establish and impose statutes of limitation upon its creations.
¶15. The chancellor entered a Rule 54(b) Final Judgment4 that incorporated by reference
his initial and supplemental findings of fact and conclusions of law.
¶16. The Mississippi Department of Revenue now appeals and raises one issue:
Whether the [c]hancellor erred in finding that the severance taxes
imposed by §§ 27-25-501 et seq. and 27-25-701 et seq., Miss. Code Ann.,
are not owed on production of oil and gas that is allocable to a public
school district’s royalty interest that is owned by a public school district.
¶17. The School District and the School Board appeal and raise three issues:
I. Whether the [c]hancellor erred in finding that the statute of
limitations provided by Miss. Code Ann. § 27-73-5 limits the Jones
County School District’s claim for [a] refund of severance taxes.
4
See Miss. R. Civ. P. 54(b).
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II. Whether the [c]hancellor erred in granting the Oil and Gas
Board’s Motion for Summary Judgment finding that the Oil and
Gas Board is authorized by law to charge an administrative
expense tax against the Jones County School District’s royalty
interest.
III. Whether the [c]hancellor erred in his finding that the time period
for requesting a refund or filing a contest of the severance tax is
three years prior to the date of the filing of the [c]omplaint.
¶18. The Secretary of State also appeals and raises the following issue:
Whether the [c]hancellor erred in finding that the statute of limitations
provided by Miss. Code Ann. § 27-73-5 limits a political subdivision’s
claim for [a] refund of severance taxes to three years prior to the date of
filing the [c]omplaint.
Bean, Denbury, and Venture appeal as well and join the briefs filed by the School District,
the School Board, and the Secretary of State. The Secretary of State, notably, did not oppose
the Oil and Gas Board’s Motion for Summary Judgment and does not appeal the chancellor’s
ruling in favor of the Oil and Gas Board.
DISCUSSION
¶19. Before addressing the issues on appeal, an overview of both the nature and ownership
of sixteenth-section lands is set out below. The basic structure of the oil-and-gas-severance-
tax laws is provided as well. The administrative-expense tax scheme is discussed later, in
Issue III.
Sixteenth-Section Lands
¶20. The origins of public-school lands predate Mississippi’s statehood. Papasan v.
Allain, 478 U.S. 265, 27-71, 106 S. Ct. 2932, 2936-37, 92 L. Ed. 2d 209 (1986). In 1803,
the United States Congress set aside “‘the section number sixteen’” of every township in the
9
Mississippi Territory to be reserved “‘for the support of schools within the same.’” Papasan,
478 U.S. at 271 (quoting 2 Stat. 233-34). And in 1815, Congress authorized the leasing of
sixteenth-section lands to raise financial support for schools within the Territory. Lipscomb
v. Columbus Mun. Separate Sch. Dist., 269 F.3d 494, 498 (5th Cir. 2001) (citing Act of Jan.
9, 1815, 3 Stat. 163).
¶21. When Mississippi became a state in 1817, Congress directed that “‘the section No. 16
in each township . . . shall be reserved for the support of schools therein.’” Papasan, 478
U.S. at 271 (quoting 3 Stat. 375 (1817)).5 Accordingly, Article 6, Section 20 of the
Mississippi Constitution of 1817 directed the Legislature to “take measures to preserve from
unnecessary waste or damage such lands as are or may hereafter be granted by the United
States for the use of schools, within each township in this State, and apply the funds which
may be raised from such lands, by rent or lease, in strict conformity to the object of such
grant . . . .” Miss. Const. art 6, § 20 (1817). Mississippi’s current Constitution provides that:
“The Legislature shall enact such laws as may be necessary to ascertain the true condition
of the title to the sixteenth section lands in this state . . . and shall provide that the sixteenth
section lands reserved for the support of township schools . . . shall not be sold nor shall they
be leased” except as provided under the terms of Article 8, Section 211. Miss. Const. art. 8,
§ 211 (1890).
¶22. From their beginnings, sixteenth-section lands have been held to be trust lands for the
benefit of public schools. Hill v. Thompson, 564 So. 2d 1, 5-6 (Miss. 1989) (citations
5
The creation of sixteenth-section lands and “lieu lands” is discussed in detail in
Papasan, 478 U.S. at 268-73.
10
omitted). These lands are held in two trusts: one federal and one state. Lipscomb, 269 F.3d
at 510. The federal trust is purely honorary; Mississippi holds absolute title to sixteenth-
section lands without federal restriction. Id. at 507 (citing Madison County Bd. of Educ. v.
Illinois Cent.R.R. Co., 939 F.2d 292, 305 (5th Cir.1991), abrogation on other grounds
recognized by Lipscomb, 269 F.3d at 508 n.72). In some cases, this Court has suggested that
the trust is federally enforceable. Hill, 564 So. 2d at 6 (stating that “[t]he school lands trust
was federally created and is federally enforceable”) citing Papasan, 478 U.S. at 268-72));
Turney v. Marion County Bd. of Educ., 481 So. 2d 770, 776 (Miss. 1985) (stating that the
Attorney General of the United States may enforce the trust) (citing Lassen v. Arizona, 385
U.S. 458, 460, 87 S. Ct. 584, 585, 17 L. Ed. 2d 515 (1967)). But the United States Court of
Appeals for the Fifth Circuit has explained that early sixteenth-section land grants, which
included Mississippi’s, conveyed title in fee simple and that the federal trust is purely
honorary as to those grants. Id. at 507 (citing Cooper v. Roberts, 59 U.S. 173, 181-82, 18
How. 173, 15 L. Ed. 338 (1855); Alabama v. Schmidt, 232 U.S. 168, 173-74, 34 S. Ct. 301,
58 L. Ed. 555 (1914)). Regardless, it is clear that, under Mississippi state law, sixteenth-
section lands are held in a binding trust. Lipscomb, 269 F.3d at 507-08 (citing, e.g., Morrow
v. Vinson, 666 So. 2d 802, 805-06 (Miss. 1995)).
¶23. The State is the titleholder of sixteenth-section lands, Hill 564 So. 2d at 6 (citing
Turney, 481 So. 2d at 776), which it holds “in trust for the benefit of the public schools.”
Miss. Code Ann. § 29-3-1(1) (Rev. 2010). The beneficiaries, more specifically, are “the
inhabitants of the respective townships.” Turney, 481 So. 2d at 777 (citing Jones v.
Madison County, 72 Miss. 777, 18 So. 87 (1895)); see also Miss. Const. art. 8, § 211
11
(identifying sixteenth-section lands as having been “reserved for the support of township
schools”).
¶24. The State, as titleholder, has delegated general supervisory authority over sixteenth-
section lands to the Secretary of State. Turney, 481 So. 2d at 777; Miss. Code Ann. § 29-3-
1(1) (Rev. 2010).6 As a matter of practical necessity, these lands are managed through local
county boards of education. Turney, 481 So. 2d at 777. Section 29-3-1(1) states that: “The
board of education under the general supervision of the [Secretary of State], shall have
control and jurisdiction of [sixteenth-section] lands and of all funds arising from any
disposition thereof heretofore or hereafter made.” Miss. Code Ann. § 29-3-1(1) (Rev. 2010).
School boards are directed to manage these lands, and all funds derived therefrom, as trust
property and to ensure that adequate compensation is received for all usage. Miss. Code
Ann. § 29-3-1(1) (Rev. 2010). School boards thus stand as “trustee[s] and as trust
supervisors or managers” of sixteenth-section lands. Hill, 564 So. 2d at 7.
¶25. In their role as trustees, school boards are authorized and empowered to lease
sixteenth-section lands for oil, gas, and mineral exploration. Miss. Code Ann. § 37-7-305(Rev. 2007); see also Miss. Code Ann. § 29-3-99 (Rev. 2010). Royalties received from the
sale of oil and gas are deposited into the local school board’s principal fund, which Section
29-3-113 says “shall be a permanent township fund.” Miss. Code Ann. § 29-3-113 (Rev.
6
Section 29-3-1 gives general supervisory authority to the “state land commissioner.”
Miss. Code Ann. § 29-3-1(1) (Rev. 2010). The office of state land commissioner, however,
was abolished in 1980 and all of its duties and responsibilities were transferred to the office
of the Secretary of State. Turney, 481 So. 2d at 776 (citing Miss. Code Ann. § 7-11-2 (Supp.
1984)).
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2010). Further, Section 29-3-109 directs that “[a]ll expendable funds derived from sixteenth
section or lieu lands shall be credited to the school districts of the township in which such
sixteenth section lands may be located.” Miss. Code. Ann. § 29-3-109 (Rev. 2010). That
statute also states that “[s]uch funds shall not be expended except for the purpose of
education of the educable children of the school district to which they belong, or as otherwise
may be provided by law.” Miss. Code. Ann. § 29-3-109 (Rev. 2010).
Oil and Gas Severance Taxes
¶26. Mississippi imposes annual severance taxes on oil and gas production within the state.
Miss. Code Ann. §§ 27-25-503(1), 27-25-703(1) (Rev. 2010). The oil severance tax statutes
are in Chapter 25, Article 5 of the Mississippi Code, and the natural-gas severance tax
statutes are in Article 7 of that same chapter. Miss. Code Ann. §§ 27-25-501 to 27-25-525,
27-25-701 to 27-25-723 (Miss. 2010). Article 5 and Article 7 are very similar and often use
identical language.
¶27. Oil and gas severance taxes are levied “upon the entire production in this state” and
accrue at the time the oil or gas is severed from the soil or water. Miss. Code Ann. §§ 27-25-
503(2); 27-25-703(2) (Rev. 2010). These taxes are levied “upon every person engaging or
continuing within this state in the business of producing, or severing [oil or gas], as defined
herein, from the soil or water for sale, transport, storage, profit or for commercial use.” Miss.
Code Ann. §§ 27-25-503(1), 27-25-703(1) (Rev. 2010). Exemptions and reduced
assessments are provided in certain instances. Miss. Code Ann. §§ 27-25-503(1)-(5), 27-25-
703(2)-(7) (Rev. 2010).
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¶28. Oil and gas severance taxes, more specifically, are “levied upon the producers of such
[oil or gas] in the proportion of their ownership at the time of severance . . . .” Miss. Code
Ann. §§ 27-25-509(1), 27-25-707(1) (Rev. 2010). The term “producer” is defined broadly
as:
[A]ny person owning, controlling, managing or leasing any [oil or gas]
property, or [oil or gas] well, and any person who produces in any manner any
[oil or gas] by taking it from the earth or water in this state, and shall include
any person owning any royalty or other interest in any [oil or gas] or its value,
whether produced by him, or by some other person on his behalf, either by
lease contract or otherwise.
Miss. Code Ann. §§ 27-25-501(i), 27-25-701(j) (Rev. 2010). A “person,” in turn, is defined
as “any natural person, firm, copartnership, joint venture, association, corporation, estate,
trust[,] or any other group, or combination acting as a unit, and the plural as well as the
singular number.” Miss. Code Ann. §§ 27-25-501(h), 27-25-701(i) (Rev. 2010).
¶29. Though oil and gas severance taxes are levied upon “producers” in proportion to their
ownership interest, Sections 27-25-509(1) and 27-25-707(1) direct that these taxes “shall be
paid by the person in charge of the production operations, who is hereby authorized,
empowered and required to deduct from any amount due to producers of such production at
the time of severance the proportionate amount of the tax herein levied before making
payments to such producer.” Miss. Code Ann. §§ 27-25-509(1), 27-25-707(1) (Rev. 2010).
And, if “the person in charge of production operations fails to pay the tax, then [the
Department of Revenue] shall proceed against the producer to collect the tax in accordance
with the provisions made for the collection of delinquent taxes.” Miss. Code Ann. §§ 27-25-
509(1), 27-25-707(1) (Rev. 2010).
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¶30. Article 8, Section 206A of the Mississippi Constitution and Section 27-25-506 of the
Mississippi Code provide that “[t]he state’s share of all oil and gas severance taxes derived
from oil and gas resources under state-owned lands” is to be deposited into an “education
improvement trust fund” in the State Treasury. Miss. Const. art. 8, § 206A; Miss. Code Ann.
§ 27-25-506 (Rev. 2010).
I. Whether the School District is required to pay oil and gas
severance taxes on its royalty interests derived from oil and gas
production on sixteenth-section land.
¶31. The Department of Revenue argues that the chancellor erred in reversing and
rendering its denial of Venture’s and the School District’s request for a refund of oil and gas
severance taxes.
¶32. This Court will reverse the decision of an administrative agency “‘only if the decision
(1) was unsupported by substantial evidence; (2) was arbitrary and capricious; (3) was
beyond the power of the administrative agency to make; or (4) violated the complaining
party’s statutory or constitutional right.’” Buffington v. Miss. State Tax Comm’n, 43 So.
3d 450, 453-54 (Miss. 2010) (footnote omitted) (quoting Miss. Methodist Hosp. and Rehab.
Ctr., Inc. v. Miss. Div. of Medicaid, 21 So. 3d 600, 606-07 (Miss. 2009)).
¶33. “‘An agency’s interpretation of a rule or statute governing the agency’s operation is
a matter of law that is reviewed de novo, but with great deference to the agency’s
interpretation.’” Buffington, 43 So. 3d at 454 (quoting Miss. Methodist Hosp. and Rehab.
Ctr., Inc., 21 So. 3d at 606-07). Recently, this Court clarified what “deference” means in this
context. Queen City Nursing Ctr., Inc. v. Miss. State Dep’t of Health, 80 So. 3d 73, 84
(Miss. 2011). The Court emphasized that it has the ultimate authority and responsibility for
15
interpreting laws. Id. So, even though an “agency’s interpretation is an important factor that
usually warrants strong consideration,” the Court does not defer to an agency’s
interepretation in the sense that it yields judgment or opinion. Id. Further, no deference is
due if the “‘agency’s interpretation is contrary to the unambiguous terms or best reading of
a statute.’” Buffington, 43 So. 3d at 454 (quoting Miss. Methodist Hosp. and Rehab. Ctr.,
Inc., 21 So. 3d at 606-07).
A. Whether oil and gas severance taxes are levied upon the Oil
Companies or the School District.
¶34. The threshold question that must be addressed is who is responsible for the tax. The
Department of Revenue asserts that the Oil Companies — not the School District — are the
actual taxpayers. It argues that the Oil Companies are the parties liable for the severance
taxes. The chancellor rejected this argument based on this Court’s decision in California Co.
v. State of Mississippi, 221 Miss. 766, 74 So. 2d 856 (1954).
¶35. As discussed above, oil and gas severance taxes are “levied upon the producers of .
. . [oil or gas] in the proportion of their ownership at the time of severance . . . .” Miss. Code
Ann. §§ 27-25-509(1), 27-25-707(1) (Rev. 2010) (emphasis added). And a “producer” is:
[A]ny person owning, controlling, managing or leasing any [oil or gas]
property, or [oil or gas] well, and any person who produces in any manner any
[oil or gas] by taking it from the earth or water in this state, and shall include
any person owning any royalty or other interest in any [oil or gas] or its value,
whether produced by him, or by some other person on his behalf, either by
lease contract or otherwise.
Miss. Code Ann. §§ 27-25-501(i), 27-25-701(j) (Rev. 2010). Even though the taxes are
levied upon “producers,” the “person in charge of the production operations” is required to
deduct the producer’s share of the taxes from the producer’s interest and to remit the taxes
16
on the producer’s behalf. Miss. Code Ann. §§ 27-25-509(1), 27-25-707(1) (Rev. 2010). The
Court explained this procedure in California Co.
¶36. In California Co., this Court recognized that Mississippi’s oil severance tax is levied
upon royalty interest owners. California Co., 74 So. 2d at 857. There, the United States
government, acting through the Bureau of Land Management, had leased lands to a certain
individual; in doing so, it had reserved a one-eighth royalty interest in all oil produced on
such lands. Id. at 856. That individual, in turn, contracted with The California Company for
oil exploration. Id. The California Company paid the oil severance tax on the total
production for almost three years. Id. During that time, the United States refused to allow
The California Company to deduct any oil severance taxes from the United States’ royalty
interest. Id. The California Company paid the taxes on the United States’ behalf anyway but
eventually sought a refund from the Auditor of Public Accounts. Id. The California
Company argued that states cannot tax the federal government; therefore, it was entitled to
a refund for any oil severance taxes that it had paid on the United States’s behalf. Id. at 857.
The Auditor refused The California Company’s request, and the chancery court affirmed the
Auditor’s decision. Id. at 856. This Court held that the oil severance tax was levied on the
United States as a royalty interest owner. Id. at 857. The oil severance tax, it explained, “‘is
levied upon the producers of such oil in the proportion of their ownership at the time of
severance . . . ,’” Id. at 857 (quoting 1944 Miss. Laws 148) (emphasis added); Miss. Code
Ann. § 27-25-509(1) (Rev. 2010); and the term “producer” includes “‘any person owning any
royalty or other interest in any oil or its value.’” California Co., 74 So. 2d at 857 (quoting
1944 Miss. Laws 146); Miss. Code Ann. § 27-25-501(i) (Rev. 2010)). Thus, even though
17
the “person in charge of the production operations,” i.e., The California Company, had paid
the tax on the United States’ behalf, the tax was not levied directly upon The California
Company but was “levied in the first instance on the owners of the oil in proportion to their
interest.” California Co., 74 So. 2d at 858. The Court ultimately held that, because of the
supremacy of the federal government, the oil severance tax was unconstitutional to the extent
that it attempted to tax the United States. Id. The California Company, therefore, was
deemed to be entitled to a credit for the portion of the tax that otherwise would have been
charged to the United States as a royalty owner. Id.
¶37. Though California Co. involved only oil severance taxes, the gas severance statutes
are identical on this point. Both taxes are levied upon “producers,” which includes royalty
owners and actual operators. Miss. Code Ann. §§ 27-25-509(1), 27-25-501(i), 27-25-707(1),
27-25-701(j) (Rev. 2010). The Oil Companies, as the “person[s] in charge of the production
operations,” deduct the School District’s proportionate share of the oil and gas severance
taxes from any payment owed to the School District and remit those taxes to the Department
of Revenue on the School District’s behalf. See California Co., 74 So. 2d at 857-58; Miss.
Code Ann. §§ 27-25-509(1), 27-25-707(1) (Rev. 2010). Though the Oil Companies remit
the taxes, California Co. is clear that the taxes are “levied in the first instance on the owners
of the oil in proportion to their interest.” California Co., 74 So. 2d at 858.
¶38. The last sentences of Section 27-25-509(1) and Section 27-25-707(1) further support
that oil and gas severance taxes are levied upon the School District. Miss. Code Ann. §§ 27-
25-509(1), 27-25-707(1) (Rev. 2010). Both statutes state that: “In the event the person in
charge of production operations fails to pay the [oil or gas severance] tax, then the
18
[Department of Revenue] shall proceed against the producer to collect the tax in accordance
with the provisions made for the collection of delinquent taxes . . . .” Miss. Code Ann. §§
27-25-509(1), 27-25-707(1) (Rev. 2010). In other words, if the Oil Companies fail to remit
the taxes, the Department of Revenue is directed to proceed against the producer, i.e. the
School District — not the Oil Companies — to collect delinquent taxes.
¶39. Accordingly, we find that oil and gas severance taxes are levied upon the School
District as a royalty owner.
B. Whether the School District is excepted from paying oil and
gas severance taxes on its sixteenth-section royalty interests.
¶40. From the outset here, it is important to note that school districts are considered
political subdivisions of the state. Gressett By & Through Gressett v. Newton Separate
Mun. Sch. Dist., 697 So. 2d 444, 446 (Miss. 1997) (citing Miss. Code Ann. § 11-46-1(i)
(Rev. 2004)).
¶41. The Department of Revenue argues that neither the oil severance tax statutes in
Sections 27-25-501to 27-25-525, nor the natural gas severance tax statutes in Sections 27-25-
701 to 27-25-723, expressly exempt school districts or sixteenth-section lands from taxation.
It argues that taxation is the rule unless an exemption is stated expressly and that no taxpayer
has a vested right to an exemption. It offers several examples in which the state has
expressly exempted itself from taxation. See Miss. Code Ann. § 27-31-1(b) (Rev. 2010)
(exempting all real or personal property “belonging to the State of Mississippi or any of its
political subdivisions” from ad valorem taxes); Miss. Code Ann. § 27-19-27 (Rev. 2010)
(exempting state and local government vehicles from motor vehicle privilege taxes); Miss.
19
Code Ann. § 27-65-105 (Rev. 2010) (providing governmental exemptions from sales taxes);
Miss. Code Ann. § 27-55-12(1) (Rev. 2010) (exempting “the State of Mississippi, counties,
municipalities, school districts and all other political subdivisions of the state” from gasoline,
special fuel, and compressed gas excise taxes); Miss. Code Ann. § 27-15-103(1) (Rev. 2010)
(providing that foreign insurance carriers that furnish service under the State Employees Life
and Health Insurance Plan are not required to pay the annual license or privilege tax on
premiums collected)).
¶42. The Plaintiffs, on the other hand, assert that neither the state nor its political
subdivisions are subject to a tax unless the law clearly says they are.
¶43. In determining whether a person or entity is subject to a tax, different standards apply,
depending upon whether the object of the tax is of public or private nature. Generally, “he
who claims exemption must show affirmatively an exemption expressly declared, and that
the claimant is clearly embraced within the terms of the exemption.” Morris Ice Co. v.
Adams, 75 Miss. 410, 22 So. 944, 945 (1898); see also Barnes v. Jones, 139 Miss. 675, 103
So. 773, 776 (1925) (stating that a tax exemption is never presumed and that a claimant has
the burden to establish clearly his right to an exemption); Bridges v. Barr, 245 Miss. 137,
143, 146 So. 2d 544, 546 (1962) (stating that tax exemptions are strictly construed against
the exemptionist and that one who asserts the exemption must establish it clearly). This is
consistent with the Department of Revenue’s position. But taxation of public property is
treated differently. As a general rule, the state does not tax its own property. State v. Bd. of
Miss. Levee Comm’rs, 75 Miss. 132, 21 So. 661 (1897). Further, this Court has said that
where a statute attempts to impose liabilities upon the state or its political subdivisions, the
20
statute is “inapplicable to them, unless they are included expressly or by necessary
implication.” Coleman v. Whipple, 191 Miss. 287, 2 So. 2d 566, 568 (1941) (quoting City
of Jackson v. State, 156 Miss. 306, 126 So. 2, 4 (1930)).
¶44. Here, the Plaintiffs are correct: Neither the state nor its political subdivisions are
subject to a tax unless the law includes them expressly or by necessary implication. True,
the Legislature has chosen in several instances expressly to exempt the state or its political
subdivisions from certain taxes. But that does not alter the general, common-law rule
concerning taxation of public property.
¶45. The Court, therefore, must consider whether the School District is included expressly
or by necessary implication within the oil-and-gas-severance-tax laws.
1. Whether the School District is included expressly or
by necessary implication within the oil-and-gas-
severance-tax laws.
¶46. The School District and the School Board argue that they are not required to pay oil
and gas severance taxes because they are not a “person,” as defined in Sections 27-25-501(h)
or 27-25-701(i), made subject to such taxes.
¶47. As discussed above, Sections 27-25-503(1) and 27-25-703(1) levy “annual privilege
taxes upon every person engaging or continuing within this state in the business of
producing, or severing [oil and gas] . . . .” Miss. Code Ann. §§ 27-25-503(1), 27-25-703(1)
(Rev. 2010) (emphasis added). These taxes, more specifically, are “levied upon the
producers of such [oil and gas] in the proportion of their ownership at the time of severance
. . . .” Miss. Code Ann. §§ 27-25-509(1), 27-25-707(1) (Rev. 2010). A “producer,” in turn,
is:
21
[A]ny person owning, controlling, managing or leasing any [oil or gas]
property, or [oil or gas] well, and any person who produces in any manner any
[oil or gas] by taking it from the earth or water in this state, and shall include
any person owning any royalty or other interest in any [oil or gas] or its value,
whether produced by him, or by some other person on his behalf, either by
lease contract or otherwise.
Miss. Code Ann. §§ 27-25-501(i), 27-25-701(j) (Rev. 2010) (emphasis added). Thus, oil and
gas severance taxes are levied upon “producers” who, based on the definition of that specific
term, must be “persons.”
¶48. Sections 27-25-501(h) and 27-25-701(i) both define a “person” as “any natural
person, firm, copartnership, joint venture, association, corporation, estate, trust or any other
group, or combination acting as a unit, and the plural as well as the singular number.” Miss.
Code Ann. §§ 27-25-501(h), 27-25-701(i) (Rev. 2010). Neither the state nor its political
subdivisions are included within this definition.
¶49. This Court has stated that, where “‘a statute enumerates and specifies the subject or
things upon which it is to operate, it is to be construed as excluding from its effect all those
not expressly mentioned or under a general clause, those not of like kind or classification as
those enumerated . . . .’” Lee v. Alexander, 607 So. 2d 30, 36 (Miss. 1992) (quoting
Southwest Drug Co. v. Howard Bros. Pharmacy of Jackson, Inc., 320 So. 2d 776, 779
(Miss. 1975)).
¶50. Title 1, Chapter 3 of the Mississippi Code sets forth some general rules for construing
statutes. Miss. Code Ann. §§ 1-3-1 (Rev. 2005). Notably, Section 1-3-39 states that:
The term “person,” when used in any statute, shall apply to artificial as well
as natural persons; and when used to designate the party whose property may
be the subject of offense, shall include the United States, this state, or any
other state, territory, or country, and any county, city, town or village which
22
may lawfully own property in this state; also all public and private
corporations, as well as individuals.
Miss. Code. Ann. § 1-3-39 (Rev. 2005). Section 1-3-1, however, states that “[t]his chapter
is applicable to every statute unless its general object, or the context of language construed,
or other provisions of law indicate that a different meaning or application was intended from
that required by this chapter.” Miss. Code Ann. § 1-3-1 (Rev. 2005). Accordingly, the
definitions and constructs within that chapter do not apply if another provision of law
indicates that a different meaning is intended.
¶51. This Court cannot apply the general statutory definition of “person” here because the
oil-and-gas-severance-tax statutes provide a specific, distinct definition of “person.”
Sections 27-25-501(h) and 27-25-701(i) show that a different meaning of “person” than that
contained in Section 1-3-39 was intended for the purposes of oil and gas severance taxation.
¶52. The oil and gas severance taxes levied under Sections 27-25-501 to 27-25-525 and 27-
25-701 to 27-25-723 are levied upon “persons” only. Such taxes do not apply to the School
District because it does not meet the definition of “person” set forth within those provisions.
Further we find nothing in these sections that indicates the School District is subject to oil
and gas severance taxes by necessary implication.
¶53. Three Attorney General opinions support our conclusion. In November 1979, the
Attorney General was asked to determine whether the state, as a royalty owner, was liable
for oil and gas severance taxes on its royalty. Haddock, Op. Att’y Gen. #80-0552 (March
21, 1980). The Attorney General found that the state was considered a “producer,” but that
oil and gas severance taxes could not be levied upon it because there was no “manifest
23
declaration” in Sections 27-25-501 to 27-25-525 or 27-25-701 to 27-25-723 to indicate that
it was subject to such taxes. Id.
¶54. An Attorney General opinion issued in December 1995 addresses the “person” issue
more specifically. Kuehnle, Op. Att’y Gen. #95-0772 (December 6, 1995). There, the
Attorney General had been asked to determine “whether school districts are exempt from the
imposition of a tax on royalties they receive from the production of oil or gas from sixteenth
section lands.” Id. The Attorney General found that school districts are not subject to oil
and gas severance taxes on such royalties because “a ‘governmental entity’ such as a school
district does not fall within any of the categories that would expressly classify the school as
a person to subject it to” such taxes. Id. Months later, the Chief Attorney for the Mississippi
Tax Commission requested that the Attorney General reconsider the December 1995 opinion.
Long, Op. Att’y Gen. #96-0258 (May 10, 1996). The Attorney General once again affirmed
the position that school districts’ sixteenth-section royalty interests are not subject to
severance taxes. Id.
¶55. Attorney General opinions are not binding, but they certainly are useful in offering
guidance to the Court. Shelter Mut. Ins. Co. v. Dale, 914 So. 2d 698, 703 (Miss. 2005)
(quoting In re Assessment of Ad Valorem Taxes on Leasehold Interest Held by Reed Mfg.,
Inc. ex rel. Itawamba County Bd. of Supervisors, 854 So. 2d 1066, 1071 (Miss. 2003)).
¶56. The Department of Revenue, however, argues that, because the definition of “person”
under Sections 27-25-501(h) and 27-25-701(i) includes “trusts,” the severance tax should
apply, because the royalty owner here is the sixteenth-section land trust. This argument is
strained. Sixteenth-section lands are indeed public-trust lands. E.g., Bayview Land, Ltd. v.
24
State ex rel. Clark, 950 So. 2d 966, 972 (Miss. 2006) (citations omitted). Yet, the taxpayer
here is the School District and not a “trust” per se. And it is difficult to read “public trust”
into “trust,” given that nothing else in the statute implicates any type of public or
governmental entity.
2. Whether the state or its political subdivisions can be
required to pay oil and gas severance taxes on its
sixteenth-section royalty interests under the
Mississippi Constitution.
¶57. The Department of Revenue argues that Article 8, Section 206A of the Mississippi
Constitution shows that the state is obligated to pay oil and gas severance taxes on state-
owned lands. And the Department of Revenue contends that Section 27-25-506 of the
Mississippi Code further recognizes that the state pays severance taxes. The School Board
and the School District disagree. They insist that Section 206A requires that all moneys
derived from oil and gas production on sixteenth-section lands be used only for the benefit
of the schools within the local township.
¶58. We find, however, that Section 206A does not require the state or its political
subdivisions to pay oil and gas severance taxes on its sixteenth-section royalty interests, nor
does it exempt them from such taxes.
¶59. Section 206A of the Mississippi Constitution established an “education improvement
trust fund” to be used for improving education in Mississippi. Miss. Const. art. 8, § 206A.
It states, in pertinent part, that
There is hereby created and established in the State Treasury a trust fund
which may be used, as hereinafter provided, for the improvement of education
within the State of Mississippi. There shall be deposited in such trust fund:
25
(a) The state’s share of all oil severance taxes and gas severance
taxes derived from oil and gas resources under state-owned
lands or from severed state-owned minerals;
(b) Any and all monies received by the state from the
development, production and utilization of oil and gas resources
under state-owned lands or from severed state-owned minerals,
except for the following portions of such monies:
...
(ii) Monies derived from sixteenth section lands
and lands held in lieu thereof or from minerals
severed from sixteenth section lands and lands
held in lieu thereof; and
...
(c) Any gift, donation, bequest, trust, grant, endowment or
transfer of money or securities designated for said trust fund;
and
(d) All such monies from any other source whatsoever as the
Legislature shall, in its discretion, so appropriate or shall, by
general law, so direct.
Miss. Const. art. 8, § 206A. Consistent with this constitutional provision, Section 27-25-506
provides that “[t]he state’s share of all oil and gas severance taxes derived from oil and gas
resources under state-owned lands or from severed state-owned minerals shall be deposited
into the State Treasury to the credit of the trust fund created in Section 206A . . . .” Miss.
Code Ann. § 27-25-506 (Rev. 2010).
¶60. Section 206A thus delineates four categories of moneys that are to be deposited into
the education improvement trust fund; this case concerns subsections (a) and (b)(ii)
specifically.
26
¶61. Subsection (a) directs that “[t]he state’s share of all oil severance taxes and gas
severance taxes derived from oil and gas resources under state-owned lands or from severed
state-owned minerals” shall be deposited into the Section 206A trust fund. Miss. Const. art.
8, § 206A(a). The Department of Revenue argues that this means that state-owned lands,
which includes sixteenth-section lands, are taxable and that the state is required to pay
severance taxes on oil and gas derived from those lands. The School District and School
Board contend that subsection (a) must be read together with subsection (b)(ii).
¶62. Subsection (b)(ii) states that “[a]ny and all monies received by the state from the
development, production and utilization of oil and gas resources under state-owned lands or
from severed state-owned minerals” are to be deposited into the Section 206A trust fund
except for “[m]onies derived from sixteenth section lands and lands held in lieu thereof or
from minerals severed from sixteenth section lands . . . .” Miss. Const. art. 8, § 206A(b)(ii).
The School District and the School Board argue that subsection (b)(ii) means that all moneys
derived from sixteenth-section lands are excepted from being deposited into the Section
206A trust fund; they insist that all such moneys must go into the local township fund
instead. They maintain that their interpretation is consistent with Section 29-3-113, which
states that “[a]ll expendable funds derived from sixteenth section or lieu lands shall be
credited to the school districts of the township in which such sixteenth section lands may be
located” and that “[s]uch funds shall not be expended except for the purpose of education of
the educable children of the school district to which they belong, or as otherwise may be
provided by law.” (citing Miss. Code Ann. 29-3-109 (Rev. 2010)).
27
¶63. The Department of Revenue interprets subsection (b)(ii) differently. It argues that
subsection (b)(ii) excepts the income or revenue derived from oil and gas production on
sixteenth-section lands from being deposited into Section 206A trust fund but does not
exempt severance taxes from being deposited into that fund.
¶64. We disagree with the Department of Revenue to the extent that it interprets subsection
(a) as proving that the state pays severance taxes on state-owned lands. Subsection (a) says
only that all severance taxes received from oil and gas resources on state-owned lands must
go into the Section 206A trust fund. Miss. Const. art. 8, § 206A(b). It says nothing,
however, about who is or is not required to pay those taxes. Section 206A’s only concern
is that the state’s share of the severance taxes be deposited into the trust fund; it is not
concerned with who the taxpayer might be. Accordingly, subsection (a) neither subjects the
state to nor excludes the state from paying oil and gas severance-taxes: It is silent on that
issue.
¶65. We also disagree with the School District’s and School Board’s position that Section
206A excepts all moneys derived from oil and gas production on state-owned lands from
being deposited into the Section 206A trust fund. Subsection (a) addresses oil and gas
severance taxes, while Subsection (b) refers specifically to “[a]ny and all monies received
by the state” from oil and gas production on state-owned lands. Miss. Const. art. 8, §
206A(a),(b). The fact that Section 206A treats severance taxes separately from “[a]ny and
all monies received” indicates that these two categories are distinct. Thus, contrary to the
School District’s and the School Board’s assertions, “[a]ny and all monies received” cannot
be interpreted as encompassing severance-tax moneys. If “[a]ny and all monies received”
28
under subsection (b) encompassed severance taxes, then subsection (a) would be rendered
meaningless. The most reasonable interpretation then is that subsection (b) refers only to net
income, i.e., “monies received,” and not severance taxes. Thus, under subsection (b)(ii), only
the net income derived from sixteenth-section lands is excepted from being deposited into
the Section 206A trust fund.
¶66. The Court finds that, read together, the most reasonable interpretation of Section
206A(a) and (b)(ii) is as follows: The state’s share of all oil and gas severance taxes derived
from state-owned lands — regardless of who the taxpayer may be — is to be deposited into
the Section 206A trust fund; additionally, any and all net income received by the state from
oil and gas production on state-owned lands is to go into the Section 206A trust fund as well,
except for any and all net income derived from sixteenth-section lands.
¶67. The above construction of Section 206A is not contrary to Section 211 of the
Mississippi Constitution or to Sections 29-3-109 or 29-3-113 of the Mississippi Code.
Section 211 of the Mississippi Constitution affirms that sixteenth-section lands are reserved
for the support or benefit of township schools. Miss. Const. art. 8, § 211. That section,
however, does not necessarily prohibit taxes or fees from being assessed on such lands.
Section 29-3-109 states that “[a]ll expendable funds derived from sixteenth section or lieu
lands shall be credited to the school districts of the township in which such sixteenth section
lands may be located . . . . [and] [s]uch funds shall not be expended except for the purpose
of education of the educable children of the school district to which they belong, or as
otherwise may be provided by law.” Miss. Code Ann. § 29-3-109 (Rev. 2010). And Section
29-3-113(d) directs that “royalties received from the sale of . . . oil and gas” are to be
29
deposited into the school board’s principal fund. Miss. Code Ann. § 29-3-113(d) (Rev.
2010). These two code sections, however, cannot mean that every cent derived from
sixteenth-section lands must be used only for the education of the children within the
township. Other statutes show that this position is untenable. Section 29-3-73, for example,
provides that sixteenth-section lands that lie within, and are benefitted by, a drainage district
are liable for their “pro rata share of the costs, expenses, taxes, and assessments relating to
said district.” Miss. Code Ann. § 29-3-73 (Rev. 2010). If the land is held by a lessee, the
lease contract is to fix whether the lessee or the school board is liable for these taxes and
assessments. Id. And if the land is not leased, the school board is obligated to pay all
drainage taxes and assessments and can do so “out of any sixteenth section funds belonging
to the township in which such lands are located.” Id. Drainage taxes and assessments are
thus payable out of funds that otherwise would be used for the local schools. Additionally,
Section 29-3-99 states that school districts’ royalty interests from oil and gas production on
sixteenth-section lands are computed after deducting any use by the lessee. Miss. Code Ann.
§ 29-3-99 (Rev. 2010). Such deduction reduces the amount of money that otherwise would
be paid as part of the school district’s royalty interest. Sections 29-3-73 and 29-3-99 thus
indicate that local schools are not always entitled to every cent derived from sixteenth-section
lands.
¶68. Here, though, we conclude that Section 206A neither requires the state or its political
subdivisions to pay oil and gas severance taxes on its sixteenth-section royalty interests nor
exempts them from such taxes.
30
II. Whether the statute of limitations restricts the period of time in
which the School District can seek a refund of severance taxes that
it has paid erroneously.
¶69. After finding that the School District was not required to pay severance taxes, the
chancellor found that the three-year statute of limitations in Section 27-73-5 barred the
School District and the Oil Companies from claiming a refund for any taxes paid before July
2, 2005 – three years prior to the date that Venture and the School District had filed their
initial complaint. The chancellor found that the cases in which this Court had held that the
statute of limitations and laches do not run against the state or its subdivisions had involved
litigation between the state, or one of its subdivisions, and a private party. He could not find
any case that had addressed whether the statute of limitations applied in a dispute between
a political subdivision of the state and a state agency. The chancellor thus reasoned that,
since the state had created the School District, it had the power to set statutes of limitations
for any claims that the School District made against its creator. The state, he said, has
“‘authority to control its political subdivisions.’”(citing State v. Hinds County Board of
Supervisors, 635 So. 2d 839, 843 (Miss. 1994)).
A. Whether the statute of limitations applies.
¶70. The Plaintiffs assert that Article 4, Section 104 of the Mississippi Constitution and
Section 15-1-51 of the Mississippi Code are clear that the statutes of limitation do not run
against the state or any of its subdivisions. They argue that the Constitution governs this
issue. Newell v. State, 308 So. 2d 71, 77 (Miss. 1975); Chevron U.S.A., Inc. v. State, 578
So. 2d 644, 648 (Miss. 1991); Town of Crenshaw v. Panola County, 115 Miss. 891, 76 So.
741 (1917). Further, they contend that the chancellor erred in relying upon Hinds County
31
Board of Supervisors in reaching his decision, as the statutes of limitations were not at issue
in that case.
¶71. The Department of Revenue, on the other hand, asserts that the Oil Companies — not
the School District — are the taxpayers; therefore, the statute of limitations is not being
applied to the State or its subdivisions. It argues further that the state and its subdivisions,
on occasion, have been deemed subject to statutes of limitation. It cites three cases as
support: Town of Tutwiler v. Gibson, 117 Miss. 879, 78 So. 926 (1918); Tallahatchie
County v. Little, 93 Miss. 88, 46 So. 257 (1908); and Gully v. Bew, 170 Miss. 427, 154 So.
284 (1934). The Department of Revenue also warns that failure to apply a statute of
limitations could result in “a severe blow to the state’s coffers.” Additionally, it asserts that
records dating back beyond three years have been destroyed under the “State Document
Retention Policy.”
¶72. We already have addressed the Department of Revenue’s contention that the Oil
Companies — not the School District — are the taxpayers and found that argument to be
without merit. See, supra Issue I.A. California Co. is clear that the severance taxes are
levied upon the School District in the first instance. California Co., 74 So. 2d at 858. Even
though the Oil Companies may remit these taxes, the taxes are deducted from the School
District’s ownership share; any refund, therefore, would belong to the School District.
¶73. Article 4, Section 104 of the Mississippi Constitution states that: “[s]tatutes of
limitation in civil causes shall not run against the state, or any subdivision or municipal
corporation thereof.” Miss. Const. art. IV, § 104. Section 15-1-51 repeats this same
language. Miss. Code Ann. § 15-1-51 (Rev. 2012).
32
¶74. This Court has said that the purpose of Sections 104 and 15-1-51 “is that the body
politic should not suffer because of the neglect or procrastination of its public servants in
promptly asserting and protecting rights of the general public in civil matters.” Miss. State
Highway Comm'n v. New Albany Gas Sys., 534 So. 2d 204, 207 (Miss. 1988). Since
Section 104 was enacted, this Court consistently has upheld the “immunity” a governmental
entity enjoys from these provisions. Enroth v. Mem’l Hosp. at Gulfport, 566 So. 2d 202,
206 (Miss. 1990); see also Murphree v. Aberdeen-Monroe County Hosp., 671 So. 2d 1300(Miss. 1996); State Highway Comm'n v. New Albany Gas Sys., 534 So. 2d 204, 207 (Miss.
1988); Board of Educ. of Itawamba County v. Loague, 405 So. 2d 122, 124-25 (Miss.
1981); Nugent & Pullen v. Robertson, 126 Miss. 419, 88 So. 895, 897-98 (1921); Grenada
Lumber Co. v. State, 98 Miss. 536, 54 So. 8, 9 (1911); Adams v. Illinois Cent. R. Co., 71
Miss. 752, 15 So. 640 (1894).
¶75. None of the cases cited by the Department of Revenue is persuasive to the contrary.
In Gibson, the Court held that a municipality was subject to the time limitations for filing an
appeal. Gibson, 78 So. at 926-27. The Court said that “the time within which appeals to the
Supreme Court must be taken is not a statute of limitation in the ordinary sense.” Id. at 926.
Therefore, it found that Article 4, Section 104 of the Constitution had no bearing upon that
case. Id. In Little, the Court held only that the two-year period allowed for redemption from
a tax sale did not constitute a “statute of limitations” under Article 4, Section 104. Little, 46
So. at 258. Finally, in Gully, the Court held that the state tax collector was subject to a six-
year statutory limitations period for filing suit to foreclose two mortgages securing illegal
loans made by a county. Gully, 154 So. at 288. The Court said that the county’s cause of
33
action had accrued as soon as the loans had been made, and it noted that, under Article 4,
Section 104 of the Mississippi Constitution, the statute of limitations did not run against the
county. Id. But, it found that the six-year statute of limitations applied in that case, because
that particular statute of limitations was “not a limitation on the cause of action but a
limitation on the right of the [state tax collector] to sue on an existing cause of action in favor
of the county.” Id.
¶76. All of the above-mentioned cases, however, involved suits between governmental and
private entities. Here we have a suit between governmental entities. The only case that
appears to address the question before us is Town of Crenshaw v. Panola County, 115 Miss.
891, 76 So. 741 (1917).
¶77. There, the Town of Crenshaw had presented a claim to the Panola County Board of
Supervisors in 1915 for its share of the ad valorem taxes Panola County had collected for the
years 1907 and 1908. Id. After the board of supervisors rejected the claim, the Town sued
in justice court, which rendered judgment in favor of the Town. Id. Panola County appealed
to the circuit court, asserting that the Town’s suit was barred by a six-year statute of
limitations. Id. 741-42. The circuit court agreed with Panola County. Id. at 742. Like the
chancery court here, the court took the position that Section 104 prohibited the Legislature
only from authorizing a statute of limitations against the state, its subdivisions, and municipal
corporations when private parties are involved. Id. This Court rejected the circuit court’s
interpretation of Section 104 and held that the statute of limitations did not apply against the
town:
34
Section 104 of our Constitution expressly provides that the statutes of
limitation shall not run against municipal corporations. The plaintiff in this
case is a municipal corporation, and we can find nothing in the Constitution to
warrant the exception sought to be made in this case. The county could, of
course, invoke the statute against a natural person or private corporation, but
the Constitution closes the door when the plaintiff is a municipal corporation.
Town of Crenshaw, 76 So. at 743. Town of Crenshaw thus supports that Section 104
applies even when the state, or any of its subdivisions, is either plaintiff or defendant.
¶78. That said, because the chancellor based his decision on the statute of limitations, he
did not reach the question of whether the doctrines of waiver and/or estoppel should apply
in this case.7 We believe they warrant consideration in this instance. Accordingly, we
remand this issue to the chancery court to allow these doctrines to be considered fully.
III. Whether the School District is liable for administrative expense
taxes on its royalty interests derived from oil and gas production on
sixteenth-section land.
¶79. A trial court’s grant of summary judgment is reviewed de novo. Hooker v. Greer, 81
So. 3d 1103, 1108 (Miss. 2012) (citing Waggoner v. Williamson, 8 So. 3d 147, 152 (Miss.
2009)). Summary judgment is proper when “the pleadings, depositions, answers to
interrogatories and admissions on file . . . 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.” Miss.
R. Civ. P. 56(c). The evidence is considered in the light most favorable to the nonmoving
party. Hooker, So. 3d at 1108 (citing Waggoner, 8 So. 3d at 152). The movant has the
7
We acknowledge that the doctrine of laches was raised below, but the well-settled
law in Mississippi is that neither the state nor its entities is subject to the statutes of
limitations or chargeable with the laches of its officials. Board of Education of Lamar
County v. Hudson, 585 So. 2d 683, 688 (Miss.1991); Hill v. Thompson, 564 So. 2d 1, 14
(Miss. 1989).
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burden of showing that no genuine issue of material fact exists, and the nonmoving party is
given the benefit of the doubt as to the existence of a material fact. Hooker, 81 So. 3d at
1108 (citing Waggoner, 8 So. 3d at 152-53).
¶80. The chancellor found that the School District was required to pay administrative
expense taxes on its sixteenth-section royalty interests. The chancellor relied on Bidart
Brothers v. California Apple Commission, 73 F.3d 925, 927 (9th Cir. 1996), to determine
that these assessments are fees, not taxes. The chancellor said that these fees fund the
regulatory and enforcement functions of the Oil and Gas Board and that the Plaintiffs
benefitted directly from the Oil and Gas Board’s services. He noted that the Oil and Gas
Board ensures that the School District is paid its fair royalty share.
¶81. Once again, we note that the Secretary of State does not appeal the chancellor’s grant
of summary judgment for the Oil and Gas Board. The School District and School Board,
however, assert that the chancellor’s tax-fee distinction is inconsequential: All monies,
whether taxes or fees, must go to the School District. Alternatively, the School District and
School Board challenge that these fees are not reasonably related to sixteenth-section lands.
The operations of the Oil and Gas Board, they argue, are expansive and serve the broad
interests of the public, not just sixteenth-section lands.
¶82. Section 53-1-73 of the Mississippi Code levies an administrative expense tax on each
barrel of oil produced in the state. Miss. Code Ann. § 53-1-73 (Rev. 2003). The moneys
collected are to be “used exclusively to pay the expenses and other costs in connection with
the functioning of the State Oil and Gas Board and the administration of the oil and gas
conservation laws of the State of Mississippi now in force or hereafter enacted and the rules,
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regulations and orders of said board.” Miss. Code. Ann. § 53-1-73 (Rev. 2003). The Oil and
Gas Board has the power to increase or reduce the amount charged within the limits set forth
in Section 53-1-73. Id.
¶83. All “persons” owning a royalty interest are liable for administrative expense taxes in
proportion to their ownership at the time of production. Miss. Code Ann. § 53-1-75 (Rev.
2003). Unlike the definition of “person” under the oil-and-gas-severance-tax statutes, the
definition of “person” for the purposes of administrative expense taxes does include the state
and its political subdivisions. Miss. Code Ann. § 53-1-71 (Rev. 2003). Section 53-1-71
states, in pertinent part, that the term “person,” as used in Section 53-1-73, “shall mean any
individual, corporation, partnership, association, or any state, municipality, political
subdivision of any state . . . .” Miss. Code. Ann. § 53-1-71 (Rev. 2003). The Legislature
first included individuals, partnerships, associations, states, municipalities, political
subdivisions of a state, and any agency, in the statute in 2009 Miss. Code.
¶84. The School District is required to pay administrative expense taxes to the Oil and Gas
Board. The assessments levied under Section 53-1-73 are labeled more appropriately as fees
rather than taxes.
¶85. In San Juan Cellular Telephone Co. v. Public Service Commission of Puerto Rico,
967 F.2d 683 (1st Cir. 1992), then-Chief Judge Breyer discussed the general approach that
courts have used to distinguish taxes from fees:
Courts have had to distinguish “taxes” from regulatory “fees” in a variety of
statutory contexts. Yet, in doing so, they have analyzed the legal issues in
similar ways. They have sketched a spectrum with a paradigmatic tax at one
end and a paradigmatic fee at the other. The classic “tax” is imposed by a
legislature upon many, or all, citizens. It raises money, contributed to a general
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fund, and spent for the benefit of the entire community. The classic “regulatory
fee” is imposed by an agency upon those subject to its regulation. It may serve
regulatory purposes directly by, for example, deliberately discouraging
particular conduct by making it more expensive. Or, it may serve such
purposes indirectly by, for example, raising money placed in a special fund to
help defray the agency’s regulation-related expenses.
Courts facing cases that lie near the middle of this spectrum have tended
(sometimes with minor differences reflecting the different statutes at issue) to
emphasize the revenue’s ultimate use, asking whether it provides a general
benefit to the public, of a sort often financed by a general tax, or whether it
provides more narrow benefits to regulated companies or defrays the agency’s
costs of regulation.
San Juan Cellular Tel. Co., 967 F.2d at 685 (1st Cir. 1992) (citations omitted). The United
States Court of Appeals for the First Circuit held that the “period rate” or “periodic fee” in
that particular case was a fee, and not a tax, because: (1) a regulatory agency assessed the
fee; (2) the agency placed the money in a special fund; and (3) the money was used to defray
the expenses of agency rather than for a general purpose. Id. at 686.
¶86. The administrative expense tax levied under Section 53-1-73 is more a fee than a tax.
The Oil and Gas Board fixes the actual charge and collects the assessments. Miss. Code
Ann. § 53-1-73 (Rev. 2003). The money is then deposited into a special fund known as the
“Oil and Gas Conservation Fund.” Miss. Code Ann. § 53-1-77(1) (Rev. 2003). That money
is “held in trust for the use of the board to pay the expenses and costs incurred in connection
with the administration and enforcement of the oil and gas conservation laws of the State of
Mississippi and the rules, regulations and orders” of the Oil and Gas Board. Miss. Code Ann.
§ 53-1-77(2) (Rev. 2003). The Oil and Gas Board is self-funded and relies heavily on these
assessments. These assessments accounted for $2.88 million of the Oil and Gas Board’s
$3.62 million budget for fiscal year 2009, and $1.96 million of its $2.24 million budget for
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fiscal year 2010. Excess money within the Oil and Gas Conservation Fund is used to plug
oil or gas “orphan” wells that present imminent threats to the environment. Miss. Code Ann.
§ 53-1-77(4)-(7) (Rev. 2003).
¶87. The assessments under Section 53-1-73 satisfy all the criteria of a fee: The Oil and
Gas Board assesses the fee, the money goes into a special fund, and the money is used to
defray the Oil and Gas Board’s costs of operation.
¶88. If the assessments under Section 53-1-73 are fees, no constitutional provision or law
would preclude the School District from having to pay these fees. Section 206A of the
Mississippi Constitution, discussed supra, Issue I.B.1., does not require that every cent
derived from sixteenth-section property be used for the local schools. Other statutes support
this as well. See supra, Issue I.B.1.
¶89. In the absence of any constitutional or other lawful barrier, the School District can be
required to pay the administrative expense tax because it is expressly included within the
statute. The School District fits within the definition of “person” owing administrative
expense taxes. Unlike the oil-and-gas-severance-tax statutes, the Legislature has expressly
made the state and its political subdivisions subject to this assessment.
¶90. For these reasons, the chancellor did not err in granting summary judgment for the Oil
and Gas Board.
CONCLUSION
¶91. We find that the School District is not required to pay oil and gas severance taxes on
its sixteenth-section royalty interests. But the School District is required to pay
administrative expense taxes on its sixteenth-section royalty interests. On remand, the
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chancery court shall determine whether the doctrines of waiver and/or estoppel should apply
to the Plaintiffs’ refund claims. Accordingly, the judgment of the Jones County Chancery
Court is affirmed in part and reversed in part and remanded for further proceedings consistent
with this opinion.
¶92. AFFIRMED IN PART; REVERSED IN PART AND REMANDED.
DICKINSON AND RANDOLPH, P.JJ., LAMAR, KITCHENS, CHANDLER,
KING AND COLEMAN, JJ., CONCUR. WALLER, C.J., NOT PARTICIPATING.
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