Arkansas Court of Appeals Recognizes Challenge to Property Tax Assessment on Mineral Rights

The Arkansas Court of Appeals recognized the validity of a taxpayer's challenge to the valuation of mineral rights in SWN Production Company (Arkansas), LLC V. Stobaugh, 2021 Ark. App. 324 (September 8, 2021). The opinion, which reversed the circuit court's dismissal of the valuation challenge, continues the trend of limiting authority of Assessment Coordination Division (ACD) guidelines and is also notable for recognizing that a valuation challenge no longer involves deference to the assessor.

The taxpayer was challenging valuation of mineral rights in Conway County for the 2017 tax year. The price of natural gas had plunged, and so the value of the mineral rights was diminished. The County Assessor applied ACD guidelines that took more of a multi-year valuation methodology. The taxpayer claimed that the true market value of its mineral interest was about a third of what was assessed and pursued its appeals through the county board of equalization and the county court. It then appealed to circuit court, where the county moved to dismiss for failure to state a cause of action and for failure to join necessary and indispensable parties. That motion to dismiss was granted, and the taxpayer appealed.

Here are three takeaways for Arkansas property taxpayers:

  • A taxpayer can challenge a valuation based on ACD guidelines. The dismissal for failure to state a claim presumed that the assessor was bound by the ACD guidelines and could not depart from them, citing the mandatory nature of Ark. Code Ann. § 26-26-1110(c)(4). But consistent with case law that ACD guidelines are not mandatory, including the recent Chaney v. Union Producing, LLC, 2020 Ark. 388, the Court of Appeals here held that the ACD guidelines on valuation of mineral rights were not binding. Since they were not binding, it was improper for the circuit court to dismiss a claim that the guidelines were leading to the wrong result in the situation of a specific taxpayer.
  • Recognition of the equalized burden of proof in valuation cases. In evaluating the complaint and whether it stated a sufficient claim, the Court of Appeals noted that the taxpayer only had to plead the "true and correct value of the property for ad valorem tax purposes." The taxpayer "was not required to plead that the assessment was manifestly excessive, clearly erroneous, or confiscatory." 2021 Ark. App. 324, at 5. The Arkansas Court of Appeals thus appears to acknowledge that Act 659 of 2017 properly equalized the burden of proof in property tax valuation cases.
  • ACD and school districts were unnecessary parties. To the county defendants' argument that the taxpayer had failed to join necessary and indispensable parties, ACD was not a necessary party after the Chaney v. Union Producing case allowed the ACD Director to claim sovereign immunity with reasoning that ACD guidelines were not binding. The need to name the school districts as parties was also rejected, viewing mere beneficiaries of property tax revenues as unnecessary parties, consistent with prior case law.

With the circuit court's dismissal reversed, the case was remanded for further proceedings consistent with the opinion.

While this opinion will affect mineral rights valuations for recent years and going forward, note that Act 668 of 2021 provides new legislative requirements for valuation of mineral rights and particularly oil wells. These may control where applicable.

 

 


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