Appeal from Court of Tax Appeals.
SYLLABUS BY THE COURT 1. Issues involving statutory interpretation are questions of law over which appellate courts have unlimited review. 2. In interpreting a statute, the intent of the legislature controls. When the plain language of a statue is unambiguous, appellate courts must give effect to that language without resorting to principles of statutory construction or legislative history. 3. Appellate courts must strictly construe statutes providing an exemption from taxation against the party claiming the exemption. Nevertheless, strict construction does not compel unreasonable construction. 4. K.S.A. 2010 Supp. 79-227 provides a property tax exemption to any "new qualifying pipeline property" primarily used for the transportation of crude oil or natural gas liquids for a period of 10 years from the year in which the construction or installation of the pipeline is completed. 5. The definition of a "qualifying pipeline", as used in K.S.A. 2010 Supp. 79-227, is found at K.S.A. 2010 Supp. 79-32,223(d). 6. The plain language of K.S.A. 2010 Supp. 79-32,223(d) does not require that Kansas refineries have direct access to a qualifying crude oil or natural gas liquid pipeline within the geographical boundaries of Kansas. 7. The "access" requirement in K.S.A. 2010 Supp. 79-32,223(d) is met when Kansas refineries can obtain crude oil or natural gas liquid transported through a qualifying pipeline.
The opinion of the court was delivered by: Bruns, J.:
Before PIERRON, P.J., BRUNS and POWELL, JJ.
TransCanada Keystone Pipeline, L.P. (Keystone) applied for a tax exemption under K.S.A. 2010 Supp. 79-227 for a portion of its pipeline known as the Cushing Extension. This portion of the pipeline transports Canadian crude oil through Kansas to a terminal located in Cushing, Oklahoma. Although it is undisputed that Kansas refineries have access to the Canadian crude oil by means of existing pipelines that connect to the Cushing terminal, the Director of Property Valuation (Director) recommended denying the application because refineries do not have direct access to the pipeline in this state. The Court of Tax Appeals (COTA) granted summary judgment in favor of Keystone, finding that the plain language of K.S.A. 2010 Supp. 79-32,223(d)- which defines the term "qualifying pipeline"-does not require Kansas refineries to have a direct connection to the Cushing Extension within the boundaries of Kansas. Because we also find that the plain and unambiguous language of K.S.A. 2010 Supp. 79-32,223(d) does not require that Kansas refineries have direct access to the Cushing Extension in Kansas, we affirm the COTA's decision.
The material facts of this case are not in dispute. Keystone is a limited partnership authorized to do business in the state of Kansas. The partnership is engaged in the business of constructing and/or operating pipelines for the transportation of oil and natural gas. In February 2005, Keystone announced plans to construct a 2,148-mile pipeline-known as the "Mainline"-from Alberta, Canada, to Illinois. Ultimately, the Mainline is to pass through the states of North Dakota, South Dakota, Nebraska, Kansas, Missouri, and Illinois.
The Cushing Extension-which is the portion of the pipeline project at issue in this case-begins in Steele City, Nebraska, traverses Kansas for approximately 210 miles, and ends at an oil terminal in Cushing, Oklahoma. The Cushing terminal is one of the largest crude oil storage and pipeline hubs in the United States. Keystone first proposed the Cushing Extension in late 2005, and it began to examine the possibility in earnest during early 2006. At the same time, the Kansas Legislature was considering whether to provide income tax credits and property tax exemptions to encourage new qualifying pipeline projects.
In June 2006, the Kansas Legislature passed the Kansas Energy Development Act (the Act), L. 2006, ch. 209. As part of the Act, K.S.A. 2010 Supp. 79-227 provides a 10-year property tax exemption for "new qualifying pipeline property" constructed after December 31, 2005. K.S.A. 2010 Supp. 79-32,223(d) defines "qualifying pipeline" to mean "a pipeline which is located in this state, is used primarily for transportation of crude oil or natural gas liquids and has a length of more than 190 miles in this state and to which refineries or natural gas liquid processing facilities in this state have access."
On July 3, 2007, after securing contracts for an additional 155,000 barrels of Canadian crude oil per day, Keystone announced its decision to move forward with plans to construct the Cushing Extension through Kansas. Construction began on the project in the spring of 2010, and the Cushing Extension began commercial operation in February 2011. The pipeline, which passes through Washington, Marion, Dickinson, Cowley, Clay, and Butler counties, delivers approximately 156,000 barrels of crude oil each day from Steele City, Nebraska, to Cushing, Oklahoma. It is undisputed that all three Kansas refineries have access to the crude oil by means of existing pipelines that connect with the Cushing terminal.
On October 17, 2008, Keystone filed an initial request for a property tax exemption as required by K.S.A. 2010 Supp. 79-213. The then Director of Property Valuation, Mark S. Beck, issued a written recommendation on October 29, 2010, recommending the denial of Keystone's request for a property tax exemption. Specifically, the Director noted that "[a]lthough refineries in this state have access to crude oil being transported into Cushing, Oklahoma via the subject pipeline, no evidence has been submitted establishing that they have access to a 'pipeline which is located in this state.'" The Director recognized, however, that the issue required interpretation of K.S.A. 2010 Supp. 79-227 and K.S.A. 2010 Supp. 79-32,223 by COTA.
After the Director made his written recommendation, Keystone's application for exemption was filed with COTA on November 1, 2010. At the same time, the parties filed a joint statement of stipulated facts. Subsequently, Keystone and the Director filed motions for summary judgment. Both parties recognized that the issue of whether Keystone is entitled to a property tax exemption involves statutory interpretation, which is a question of law subject to de novo review.
COTA granted summary judgment to Keystone on April 13, 2012, finding that "the refinery access requirement of K.S.A. 79-32,223(d) is susceptible of but one reasonable meaning and is, therefore, unambiguous." Further, COTA rejected the Director's argument, concluding that "[t]he statute requires no direct connection and no particular means of access. Nor does the statute ...