PHILLIPS 66 COMPANY v. ASSESSOR WENDY AGUILLARD AND THE CALCASIEU PARISH BOARD OF REVIEW (2025)

The appellant, Phillips 66 Company, appeals the judgment of the Louisiana Board of Tax Appeals, which affirmed the decision of the Louisiana Tax Commission that upheld the Calcasieu Parish Assessor's assessment of Phillips 66's refining assets at its Lake Charles Refinery.

FACTS

Wendy Aguillard, the tax assessor for Calcasieu Parish, is tasked by Article 7, Section 18 of the Louisiana Constitution with assessing the value of the assets of the refinery owned by Phillips 66 in Calcasieu Parish (the Lake Charles Refinery, or LCR) for the purpose of determining the ad valorem taxes due. This appeal involves a dispute about the valuation of the refining assets of the LCR (that is, certain categories of equipment used to refine petroleum).

For tax year 2022, Henry Cisneros, an employee of Phillips 66, submitted property tax returns which included an external obsolescence factor of 64.6%. Mr. Cisneros arrived at this number by referring to the sale of a refinery in the Pacific Northwest in late 2021, from which he derived an estimated sales price for the LCR. He determined the obsolescence factor by dividing this estimated sales price based on the sale of the refinery in the Puget Sound by the depreciated value of the LCR assets. Apart from Mr. Cisneros's explanation of his calculations, there was no evidence supporting the valuation he provided.

As it had in previous years, the Assessor hired an engineering firm, Pritchard & Abbott, to appraise all the assets of the LCR. Using a cost approach,¹ Karen Kahn, an engineer and certified appraiser with Pritchard & Abbott, set the fair market value of the refining assets at $1,211,916,707. This figure includes an 11% obsolescence factor, which reduced the standard market value of the refining assets (generally depreciated cost).²

Phillips 66 objected to this valuation. In his explanation, Mr. Cisneros again referenced the sale of the Puget Sound refinery, though this time he attached a press release about the sale of the refinery and a “sales analysis” comparing the Puget Sound refinery to the LCR. Mr. Cisneros also included other documentation, including an excerpt from the U.S. Refining Survey published in the Oil & Gas Journal, excerpts from a financial statement, a comparison of the LCR clean fuel capacity with other Phillips 66 refineries, a chart comparing Phillips 66 refining margins by region from 2011-2021, and a narrative indicating that the cost to install an Ultra Low Sulfur Diesel unit to the LCR property would be $264,737,000. Ultimately, the Assessor determined that the appropriate obsolescence factor was 20% and set the fair market value at $1,049,204,866.

Phillips 66 appealed that determination to the Calcasieu Parish Board of Review (which is the Calcasieu Parish Police Jury). The Board of Review concurred in the assessments of the Assessor. Phillips 66 filed an appeal with the LTC, pursuant to La.R.S. 47:1989.

At the hearing before the LTC, four witnesses testified: Scott Tyler, the general manager of the LCR, Mr. Cisneros, Assessor Aguillard, and Ms. Khan. After considering the testimony and the documentary evidence presented by the parties, the Tax Commission made the following findings:

The Commission finds that the evidence and testimony presented establishes that the subject property suffers from some amount of economic obsolescence and a reduction in value (in addition to the reduction for physical depreciation) was justified.

However, the Commission finds the Taxpayer's calculation of a 65% (rounded) obsolescence factor to be unreliable. Specifically, the Commission finds several deficiencies in the Taxpayer's calculation of [ ] 65% (rounded). First, the Taxpayer relied on a single sale - the sale of the Puget Sound Refinery. Certainly, sales can - and should be - considered when determining economic obsolescence. However, a sample size of one is generally not a reliable indicator of the market value of an asset. Second, the Taxpayer relied on the published purchase price (via a press release) of the Puget Sound Refinery, rather than actual sales documents. Neither the Taxpayer, the Assessor, nor this Commission can verify that the published “unadjusted sale price” of $350,000,000 is accurate/reliable. Specifically, absent review of the actual sales documents, it is impossible to determine a number of relevant factors, including whether the transaction included an assumption of liabilities. Again, sales can - and should be - considered when determining economic obsolescence; however, such sales must be properly documented.3 A press release, alone, does not constitute a “properly documented” sale. Third, in comparing the subject refinery to the Puget Sound Refinery, the Taxpayer only considered three factors using unverified data. The Taxpayer did not submit any evidence, or testimony, that supported consideration of only three factors (crude capacity, nelson complexity, and distillation capacity), nor was the data associated with these factors supported by documentary evidence. Fourth, the Taxpayer relied upon the sale of another crude refinery, outside of Louisiana, and comparison of that refinery to the subject to determine an “indicated market value”. The Commission questions the reliability of considering and comparing the sale of another crude refinery, outside of Louisiana, to determine an “indicated market value.”

Assessor Aguillard testified that she applied an obsolescence factor of 20% to the refinery's manufacturing assets – the same assets the Taxpayer argued should receive an obsolescence factor of 65%. In support of her obsolescence factor, Assessor Aguillard presented the testimony of Karen Khan – an appraiser with Pritchard and Abbott. As discussed above, Ms, Khan calculated an economic obsolescence factor of 11% employing a throughput/inutility analysis. If applied to all of the Taxpayer's assets, subject to assessment, after performing a cost approach using the economic life prescribed in Chapter 25 of the Commission's rules, the indicated fair market value would be $1,211,916,707.4 In other words, had Assessor Aguillard relied upon Ms. Khan's obsolescence determination, and applied an 11% reduction to all of the Taxpayer's taxable personal property, the total value would still be greater than the value she determined by only applying the 20% reduction to certain. assets, Certainly, Assessor Aguillard would have been justified in assessing the subject property in such a way. An assessor does not automatically abuse her discretion when applying a greater/larger reduction for obsolescence than is indicated mathematically. The Commission, however, does not endorse the notion that an assessor has unfettered discretion to arbitrarily pick an obsolescence factor/percent without an articulable methodology. The Commission also does not endorse the notion that an assessor has discretion to reduce a value/assessment to permit an increase in value to be “eased in.” Nonetheless, Assessor Aguillard's 20% obsolescence factor is generally supported by the evidence and testimony.

With regard to Ms. Khan's throughput/inutility analysis, the Commission finds her consideration and comparison of the plant's known production capacity to its design capacity to be a reasonable and reliable indicator of the plant's overall utilization. The Commission further finds that Ms. Khan's analysis properly applied a scale factor (exponent), often called a “Chilton factor”. Underutilization of an asset does not imply a linear reduction in the value of the asset. Notably, the Taxpayer presented no competing data to suggest that figures on which Ms. Khan relied (for the plant's known production capacity and design capacity) were incorrect.

3 While Chapter 25 of the Tax Commission's Rules and Regulations does not specifically contemplate consideration of properly documented, arms-length sales, such a methodology is recognized as an appropriate consideration for determining economic, as is elsewhere recognized in the Commissions Rules. See Chapter 13, Section 3105(G) (“․ sales, properly documented, should be considered by the assessor as the fair market value; provided the sale meets all tests relative to it being a valid sale.”).

4 .89 multiplied by $1,361,704,165 equals $1,211,706.85.

The LTC affirmed the decision of the Board of Review and upheld the valuation by the Assessor. Phillips 66 appealed that decision to the Board of Tax Appeals. See La.R.S. 47:1998. The Board of Tax Appeals scheduled a hearing, but at the hearing the parties agreed to submit the matter on briefs. The Board of Tax Appeals affirmed the LTC's ruling upholding the Assessor's valuation.

Phillips 66 now appeals that judgment to this court.

ASSIGNMENT OF ERROR

Phillips 66 alleges seven assignments of error:

1. In its Decision, the Commission, although acknowledging that sales of comparable properties should be considered when determining economic obsolescence, disregarded evidence regarding the sale of a comparable refinery property because the Commission concluded that a sample size of “one” is “generally” not a reliable indicator of a market.

2. The Commission erred because it disregarded the evidence submitted by Phillips 66 regarding the sale of the comparable refinery because Phillips 66 relied on a public press release made by the purchaser, a public company, that was subject to Securities and Exchange Commission and other federal reporting requirements.

3. The Commission disregarded the comparable refinery sale because it concluded that “actual” sales documents are required for consideration of comparable sales.

4. The Commission rejected Phillips 66's use of the comparable refinery sale because Phillips 66 only used “three” data points to adjust the sale.

5. The Commission committed error and was arbitrary and capricious in its refusal to consider the comparable refinery sale as it occurred “outside” of Louisiana.

6. The Commission erred and acted in an arbitrary and capricious manner because it did not consider any of the other evidence submitted by Phillips 66 to the Assessor regarding functional and economic obsolescence at the refinery, including the refinery's lack of an ultra-low sulfur diesel (“ULSD”) unit, the impact of the production of low sulfur diesel on refinery equipment, the impact of electric vehicles on the refinery's margins, or the “non-green” product mix manufactured at the refinery.

7. The Commission erred and was arbitrary and capricious in its singular reliance on the throughput/inutility analysis conducted by the Assessor's consultant, Pritchard & Abbott (“P&A”), in preparing its cost approach analysis.

DISCUSSION

In TBM-WC Sabine, LLC v. Sabine Parish Board of Review, 17-1189, pp. 4-5 (La.App. 3 Cir. 7/18/18), 250 So. 3d 1075, 1079 (alteration in original), this court explained:

The Louisiana Constitution provides for review of the correctness of a parish tax assessor's assessment in La. Const. art. 7, § 18(E): “first by the parish governing authority, then by the Louisiana Tax Commission or its successor, and finally by the courts, all in accordance with procedures established by law.” The Louisiana Constitution specifically designates LTC's function in this scheme as one of “review” as opposed to assessment. La. Const., art. 7, § 18(E) TBM asserts “the burden of investigating and obtaining data for determination of fair market value [is] upon the assessor, not the taxpayer.” Our courts have repeatedly rejected this assertion. This court noted in ANR Pipeline [Co. v. ANR Pipeline Co., 11-379 p. 10 (La.App. 3 Cir. 8/10/11), 73 So.3d 398, 404,] that La.R.S. 47:2324 provides a parish assessor “may rely on self-reporting by the taxpayer” and further noted that “our courts have long held that the party seeking obsolescence bears the burden of producing sufficient evidence to the assessor.” ANR Pipeline, 73 So.3d at 402-04 (citations omitted).

Louisiana Revised Statutes 49:978.1(G) sets the scope of review of an agency determination:

The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or

(6) Not supported and sustainable by a preponderance of evidence as determined by the reviewing court. In the application of this rule, the court shall make its own determination and conclusions of fact by a preponderance of evidence based upon its own evaluation of the record reviewed in its entirety upon judicial review. In the application of the rule, where the agency has the opportunity to judge the credibility of witnesses by first-hand observation of demeanor on the witness stand and the reviewing court does not, due regard shall be given to the agency's determination of credibility issues.

In this case, the agency at issue is the LTC. Our review is limited to the administrative record established before the LTC. Williams v. Opportunity Homes Ltd. P'ship, 17-955 (La. 3/13/18), 240 So.3d 161.

Economic obsolescence and functional obsolescence are defined in the LTC regulations at La.Admin.Code, tit. 61, Pt. V, § 301:

External (Economic) Obsolescence--the loss of appraisal value (relative to the cost of replacing a property with property of equal utility) resulting from causes outside the property that suffers the loss. Usually locational in nature in the depreciation of real estate, it is more commonly marketwide in personal property, and is generally considered to be economically infeasible to cure.

․

Functional Obsolescence--loss in value due to lack of utility or desirability of part or all the property, inherent to the improvement or equipment. Thus a new structure or piece of equipment may suffer functional obsolescence.

In her brief to this court, the Assessor argues that our review should be limited to the evidence submitted to the Assessor prior to the Board of Review hearing. Prior to the Tax Commission hearing, the Assessor filed a motion in limine objecting to the inclusion of any evidence not provided to the assessor before the case was submitted to the Board of Review. The assessor cited La.R.S. 47:1989(C)(2)(a)(i), which states:

Review of the correctness of an assessment by an assessor shall be confined to review of evidence presented to the assessor prior to the close of the deadline for filing a complaint with the board of review provided for in R.S. 47:1992. If a taxpayer makes application to present additional evidence before the date set for hearing on the appeal and the Louisiana Tax Commission finds that the additional evidence is material and that there were good reasons for failure to timely present it to the assessor, the Louisiana Tax Commission may order that the additional evidence be taken by the assessor. The assessor may modify the assessment by reason of the additional evidence and shall notify the Louisiana Tax Commission of any modifications to the assessment within fifteen calendar days of receipt of the additional evidence. The Louisiana Tax Commission may then order any evidence that is otherwise admissible be admitted for the purposes of review.

The remainder of section (C)(2), though, sets out certain exceptions to this rule, and allows the Tax Commission to allow the admission of evidence not submitted to the assessor prior to the Board of Review for “good reason.” Pursuant to La.Admin.Code, tit. 61, Pt. V, § 3103(D)(3):

If a taxpayer pre-files evidence which the assessor contends was not presented prior to the deadline for filing a complaint with the Board of Review, then the assessor shall file a written objection into the record. If maintained, the assessor's written objection should include a complete copy of the individual file/log as recommended in Section 213.G. The failure by the assessor to timely file a written objection shall be deemed a waiver. Such waiver shall be deemed to be good reason and shall operate to permit consideration of all evidence timely pre-filed by the taxpayer.

The assessor's written objection to pre-filed evidence must be submitted “at least 30 days prior to the scheduled hearing date. The failure to timely file a written objection may be deemed a waiver.” La.Admin.Code, tit. 61, Pt. V, § 3103(G)(7).

The motion in limine seeking to exclude evidence filed by the assessor is dated September 28, 2023. The hearing before the Tax Commission was held on October 4, 2023. The Tax Commission denied the assessor's motion in limine as untimely during the hearing. Under the Tax Commission's rules, that finding was correct. See also D90 Energy, LLC v. Jefferson Davis Par. Bd. of Rev., 20-200 (La. 10/20/20), 341 So.3d 492 (holding that evidence not submitted to an assessor prior to a Board of Review hearing may be submitted at a Tax Commission hearing pursuant to the Tax Commission's administrative rules).

The first five assignments of error raised by Phillips 66 argue the LTC erred in not considering the evidence presented by Phillips 66 regarding the sale of the Puget Sound refinery to determine a decrease in value because of obsolescence. We find no merit in these arguments.

The analysis provided by Pritchard & Abbott recommended an eleven percent obsolescence factor. The Assessor, after considering the Pritchard & Abbott analysis and the limited documentation provided by Mr. Cisneros, further increased the obsolescence factor to twenty percent. The LTC ultimately determined that the evidence presented by Phillips 66 to support an obsolescence factor of nearly sixty-five percent was unreliable.

In its first assignment of error, Phillips 66 argues the LTC erred when it found that the use of a single sale of a comparable property was insufficient to support the valuation provided by Mr. Cisneros. Here, Phillips 66 argues that Mr. Cisneros provided information on sales of other refinery properties in the evidence submitted to the LTC. Mr. Cisneros's calculation of the obsolescence factor, though, did not include data from those other sales. Phillips 66 also argues that this court has held that a single sale is sufficient to support a decrease in the valuation of property in Warren Energy Resources, LLC v. Louisiana Tax Commission, 02-115 (La.App. 3 Cir. 8/28/02), 825 So.2d 572, writ denied, 02-2450 (La. 12/13/02), 831 So.2d 985. Unlike this case, though, the sale in Warren Energy involved the sale of the property subject to assessment and occurred the year prior to the assessment, the assessor had the sale documents prior to determining the value, and there was no evidence that it was not a valid sale.

In its second and third assignments of error, Phillips 66 argues the LTC erred in requiring actual sales documents for the sale of the Puget Sound refinery. It claims that the press release indicating the Puget Sound refinery sold for $350,000,000 should be sufficient to support its calculation of the obsolescence factor, arguing that the LTC's own regulations do not require actual sale documents. The press release, though, only provides the sale price, not the breakdown of the assets acquired or the liabilities assumed. The LTC's rules for valuation of this type of property do not include a requirement that comparable sales must be “properly documented” to be considered. There is language, though, in the section on the valuation of pipelines that “Pipeline sales, properly documented, should be considered by the assessor as the fair market value, provided the sale meets all tests relative to it being a valid sale.” La.Admin Code. tit. 61, Pt V, § 1305(G). The LTC referred to this section by analogy in its decision in this case. Given the very limited and unverified information provided in the press release, we cannot say the LTC was arbitrary and capricious in determining that the sale of the Puget Sound refinery should not be considered because it was not a “properly documented” sale.

In its fourth assignment of error, Phillips 66 argues the LTC erred because it dismissed Mr. Cisneros's analysis of the comparative value of the Puget Sound refinery and the LCR, finding that it only incorporated three data points. In its fifth assignment of error, Phillips 66 argues the LTC erred in disregarding the sale of the Puget Sound refinery because it was outside of Louisiana.

In his testimony before the tax commission, Mr. Cisneros explained that he thought the taxable value of the refining assets should be determined using an obsolescence factor of 0.645992742. He based this number on the sale of a refinery in the Puget Sound in November 2021. According to press releases, that refinery sold for $3 50,000,000. According to the Oil and Gas Journal, the crude capacity of the Puget Sound refinery was 141,550 barrels of crude oil per day and the crude capacity of the LCR was 263,700 barrels of crude oil per day. Mr. Cisneros determined that the two plants had the same Nelson Complexity Factor, which measures the ability of a plant to refine products from crude oil as compared to other plants. He also used an Equivalent Distillation Capacity, which is just the crude capacity multiplied by the Nelson Complexity Factor. The result was this chart ³ :

REPRESENTATIVE REFINERY SALES 2015-2021

Puget Sound Refinery Sale November 2021 (Shell to HollyFrontier Corporation) Puget Sound, Washington Comparison Factors Unadjusted Lake Charles Puget Sound FMV Using Cost-to-Sale Price Refinery FMV Using Cost-to-Refinery Capacity (Factors 1) Capacity (Factors 6) Crude Capacity (BBL/Day) 350,000.000 263,700.00 141,550.00 652,030,00 508,380,000 Nelson Complexity Factor 350,000.000 9.00 9.00 350,000,000 350,000,000 350,000,000 Equivalent Distillation Capacity 2,383,000 00 1,278,000.00 652,620,000 (BBL/Day) 508,660,000 I. Adjustment for size Average > 551,550,000 455,680,000 Average of Average > 503,620,000

Mr. Cisneros took the six numbers in the two far-right columns and averaged them to determine that the fair market value of the LCR using a market approach was $503,615,000.⁴ Mr. Cisneros stated that the fair market value of certain LCR property using the cost approach (cost less physical depreciation), including refining assets and non-refining assets, was $1,361,704,165. He then created an “External Obsolescence – Indicated Sales Adjustment” of 0.645992742 to get the “Indicated Value by Cost Approach” of $499,170,000.

We agree with the LTC that the information provided in Mr. Cisneros's analysis is too incomplete to support a valid comparison. For example, there is no evidence in the record regarding the equipment in use at the Puget Sound refinery and no evidence of whether the markets for the two refineries are comparable given their disparate locations.

In its sixth assignment of error, Phillips 66 argues the LTC failed to properly consider the evidence of functional and economic obsolescence introduced by Phillips 66, particularly the lack of an ultra-low sulfur diesel unit and the increase in the use of electric cars. The LTC found that the evidence introduced to support its claim for a decrease in the assessed value of the property was speculative. We have reviewed that evidence submitted and find that the LTC did not err in its determination.

In its seventh assignment of error, Phillips 66 argues that the LTC erred because the Assessor relied solely on Ms. Khan's throughput/inutility analysis in determining the valuation of the LCR refining assets. The analysis provided by Ms. Khan was performed according to industry standards and data provided by Phillips 66. Phillips 66 is incorrect that the Assessor relied solely on Ms. Khan's analysis, given that the Assessor increased the obsolescence adjustment upward from eleven percent to twenty percent. Further, as we have discussed, Phillips 66 failed to provide the Assessor or the LTC with any reliable evidence to counter Ms Khan's analysis.

Phillips 66 had the burden of proving by a preponderance of the evidence that the Assessor's calculation of obsolescence was incorrect. We have reviewed the complete record of the evidence presented at the LTC hearing. We find that the LTC did not act arbitrarily or capriciously, did not abuse its discretion in its review of the evidence or applying its own rules, and did not commit an error of law. We find the preponderance of the evidence in the record supports the LTC's judgment upholding Assessor's valuation of the LCR refinery assets.

CONCLUSION

The judgment of the Board of Tax Appeals is affirmed. Costs of this appeal are assessed to Phillips 66 Company.

AFFIRMED.

FOOTNOTES

1.   In her testimony before the Tax Commission, Ms. Kahn indicated there were three methods that could be used to determine the fair market value of the assets: the cost approach, the income approach, and the market approach. The income approach was rejected because there was no information available about the facility's income. The market approach was rejected because there are so few sales of these types of properties to compare. See also La.R.S. 47:2323(C).

2.   The obsolescence factor was determined using the Chilton Factor, which is defined as (Plant throughput/Plant capacity)^(Scale factor). In this case, the Chilton Factor was 0.8897. Subtracting the Chilton Factor from one, results in the eleven percent obsolescence factor.

3.   As mentioned, the chart introduced by Phillips 66 included a similar analysis for the sales of other refineries, but only the sale of the Puget Sound refinery was used by Mr. Cisneros to calculate obsolescence.

4.   Mr. Cisneros's chart indicating the average of the six amounts was $503,620,000 appears to be a calculation error.

ELIZABETH A. PICKETT CHIEF JUDGE