Over the last two or more years, the Louisiana Department of Revenue (the “Department”) has audited oil and gas producers operating in the state for severance-oil tax compliance.  Of the completed audits, a significant number have resulted in a formal assessment, and many of those assessments are the subject of current, ongoing litigation. The Department has advanced a number of theories of liability over the course of the audits and in support of the assessments, but the basic theory underpinning each assessment has been its determination that pricing formulas contained in industry-standard oil purchase agreements improperly include deductions or adjustments for transportation.

Recently, in separate cases, the Louisiana Board of Tax Appeals and Louisiana’s First Circuit Court of Appeal (on appeal from a Nineteenth Judicial District ruling in favor of the taxpayer), threw cold water on the Department’s theories, finding that the pricing formulas at issue were appropriate and that the taxpayers paid the appropriate amount of taxes on oil sales.  We have been made aware, however, that the Department will appeal the Louisiana Board of Tax Appeals’ decision and may seek the Louisiana Supreme Court’s review of the appellate court’s decision. Importantly, the Department has given every indication that it will continue ongoing audits and even initiate new audits under the theories of liability at issue in the cases.

If you are an oil producer currently under audit or likely to be audited, you will have the right to challenge any assessment through the Louisiana Board of Tax Appeals or state district court, but any challenge must be filed within sixty (60) days of the date of the assessment.  For information on your options contact Jason R. Brown at Kean Miller LLP at (225) 389.3733 or [email protected].