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Commissioner of Revenue v. Enbridge Energy, LP

Supreme Court of Minnesota

February 13, 2019

Commissioner of Revenue, Appellant,
v.
Enbridge Energy, LP, Respondent.

         Tax Court Office of Appellate Courts

          Keith Ellison, Attorney General, Jennifer A. Kitchak, Assistant Attorney General, Saint Paul, Minnesota, for appellant.

          Paul B. Kilgore, Eric S. Johnson, Fryberger, Buchanan, Smith & Frederick, P.A., Duluth, Minnesota, for respondent.

         SYLLABUS

         The tax court is bound by Minnesota Rule 8100 (2017), an administrative rule regarding ad valorem taxes for utilities, including pipeline systems.

         Reversed and remanded.

          OPINION

          LILLEHAUG, JUSTICE.

         This case requires that we decide whether the tax court must follow an administrative rule on how utilities, including pipelines, should be valued for tax purposes. We conclude that the rule, including its valuation formula, is binding on the tax court.

         FACTS

         This case arises from challenges filed by Enbridge Energy, LP ("EELP") to the Commissioner of Revenue's valuation of EELP's petroleum pipeline system for property taxes payable in 2013, 2014, and 2015. The tax court consolidated these challenges for trial in the spring of 2015. Then, the tax court stayed the consolidated proceedings pending the final resolution of Minnesota Energy Resources Corp. v. Commissioner of Revenue ("MERC"), 886 N.W.2d 786 (Minn. 2016). MERC considered, in part, the applicability of administrative rules, promulgated by the Commissioner, to valuation challenges in the tax court.

         Our decision in MERC was filed on November 9, 2016. The tax court then lifted the stay in this case, discovery was conducted in the consolidated proceedings, and a trial was held in October 2017. The tax court, on May 15, 2018, filed its decision, in which it (1) concluded that the Commissioner had overvalued EELP's pipeline system for all three years, (2) issued a new valuation for all three years, and (3) ordered the Commissioner and EELP to "discuss procedures for addressing the method by which the court should allocate" the pipeline system's unit value between Minnesota and other states.

          In determining the value of EELP's pipeline system for the three years at issue, the tax court rejected both the sales-comparison approach and the cost approach. The cost approach is explicitly used in Minnesota Rule 8100 ("Rule 8100" or "the Rule"), an administrative rule adopted by the Commissioner after our decision in Independent School District No. 99 v. Commissioner of Taxation, 211 N.W.2d 886 (Minn. 1973), to guide the valuation of utilities, including pipeline systems. But the tax court concluded that it was not bound by Rule 8100 in determining market value, because the formula in the Rule applied only to the Commissioner during her valuation of the pipeline system.

         After rejecting the cost approach, the tax court applied the income approach to valuation, setting the unit value of the pipeline system for the three years at issue. The court declined, however, "to allocate [the] system unit value between Minnesota and other states," because the court (1) was not limited to the formula the Commissioner used under Rule 8100 and (2) had not utilized the cost approach, which therefore rendered the allocation formula in Rule 8100 unworkable. The tax court therefore "invited the parties to submit proposals for allocating" the system unit value.

         The Commissioner objected to the tax court's conclusion that it is not bound by Rule 8100 when valuing a pipeline system and in allocating system unit value, and filed a timely petition for discretionary ...


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