BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the Petition of the City of Billings and Montana-Dakota Utilities Co. for a Declaratory Ruling that the capture and processing of landfill gas at the Billings Regional Landfill is not subject to taxation under Montana's oil and gas production tax, Sections
15-36-301, MCA, et seq.
Docket No. DO 14-14
1. The Department has received a Petition for Declaratory Ruling. The question presented is whether the landfill gas captured and processed by Montana-Dakota Utilities Co. at the Billings Regional Landfill is subject to Montana's oil and gas production tax. Sections 15-36-301, MCA, et seq. The Petition and any other documents submitted or representations made comprise the Department's records of this declaratory ruling proceeding, as provided by ARM 42.2.105. This ruling will be published pursuant to 2-4-501, MCA.
2. The Petition sets forth the following pertinent facts:
(a) The City of Billings ("City") is the largest incorporated city in the State of Montana. Its estimated population in 2012 is 106,954. Approximately 16 percent of the entire population of the State of Montana resides in the Billings metropolitan area.
(b) Montana-Dakota Utilities Co., a Division of MDU Resources Group, Inc., ("Montana-Dakota") is a combination gas and electric utility serving eastern Montana, North Dakota, western and central South Dakota, and northeastern Wyoming. The City of Billings is the largest city in Montana-Dakota's service territory.
(c) The City owns and operates the Billings Regional Landfill. It is the largest landfill in the State of Montana, and serves five Montana counties. Its landfill site encompasses 800 acres, of which 250 acres are currently permitted to receive garbage (waste).
(d) The garbage placed in a landfill rots and decays over time, producing landfill gas. By volume, methane gas, a potent greenhouse gas, makes up approximately half of the total volume of landfill gas emitted by the Billings Regional Landfill. Landfill gas must either be vented into the atmosphere, or captured and disposed of through an alternative means.
(e) Under federal law, landfills emitting above a certain level of landfill gas are required to capture their landfill gas, and dispose of it through a means other than venting into the atmosphere. The Billings Regional Landfill is not currently required to capture its landfill gas. However, as the largest landfill in Montana, it is likely to eventually reach the size where it is required by federal law to capture its landfill gas.
(f) The City and Montana-Dakota have entered into an agreement under which Montana-Dakota has agreed to capture landfill gas emitted by the Billings Landfill, and process it into a useable commodity. It has installed in the Billings Landfill vertical and horizontal piping which collects the landfill gas and moves it to a processing unit that extracts the methane gas and any liquids, and burns the remainder of the landfill gas. A blower at the processing unit produces negative pressure in the installed piping, allowing the landfill gas to flow into the piping and to the processing unit. The processed landfill gas, which has been reduced to methane gas, can then be used as a supplement to the natural gas used by Montana-Dakota's gas customers, or sold as a special transportation fuel.
3. The question presented by this Petition for Declaratory Ruling is whether the landfill gas captured and processed by Montana-Dakota at the Billings Regional Landfill is subject to Montana's oil and gas production tax. Sections 15-36-301, MCA, et seq.
4. Sections 15-36-301, MCA, et seq., provide for the taxation of the production of oil and natural gas. Pursuant to 15-36-303(10), MCA, "natural gas" is defined as "natural gas and other fluid hydrocarbons, other than oil, produced at the wellhead." Section 15-36-304(2), MCA, imposes tax rates upon the production of natural gas.
5. Sections 15-36-301, MCA, et seq., do not expressly limit its definition of "natural gas" to definitions set forth in code sections governing other agencies. While the Petitioners contend that the Department should couple its definitions with those set forth in 82-11-101, MCA, et seq., Petitioners' argument to do so may result in far reaching effects not contemplated by the Legislature. Additionally, the analysis below demonstrates that Petitioners' suggestion is unnecessary.
6. Section 15-36-304(8), MCA, provides that "(a)ny interest in production owned by the state or a local government is exempt from taxation under this section." Based upon the facts presented above, the City of Billings owns the natural gas produced at the Billings Regional Landfill. The City of Billings is a local government entity. Thus, because the gas is owned by a local government entity, any production of natural gas from the landfill is exempt from the tax set forth in 15-36-301, MCA, et seq.
7. We rule, based on the particular facts and circumstances of this case, that the Department interprets 15-36-304(8), MCA, as applicable to the natural gas produced from the Billings Regional Landfill and that is owned by the City of Billings. The Department therefore grants Petitioners' request that such gas is exempt from taxation under the Montana Oil and Gas Production tax. This ruling applies only as long as there is no change in a material fact on which this determination is based.
Dated this 3rd day of June, 2014.
MONTANA DEPARTMENT OF REVENUE
/s/ Mike Kadas
NOTICE: Petitioners have the right to appeal the decision of this agency by filing a petition for judicial review in district court within 30 days after service of this decision. Judicial review is conducted pursuant to 2-4-702, MCA.
CERTIFICATE OF MAILING
The undersigned hereby certifies that on the 3rd day of June, 2014, a true and accurate copy of the foregoing Declaratory Ruling was served by placing same in the U.S. mail, postage prepaid, addressed as follows:
OFFICE OF THE CITY ATTORNEY
210 North 27th Street
Billings MT 59101
HUGHES, KELLNER, SULLIVAN & ALKE, PLLP
40 W. Lawrence, Suite A
PO Box 1166
Helena MT 59624-1166
/s/ Dianne Page