Amoco Production Co. v. Dept. of Revenue, 02-171.

CourtUnited States State Supreme Court of Wyoming
Citation94 P.3d 430,2004 WY 89
Docket NumberNo. 02-171.,02-171.
PartiesAMOCO PRODUCTION COMPANY, Appellant (Petitioner), v. DEPARTMENT OF REVENUE, State of Wyoming and Board of County Commissioners of Uinta County, Appellees (Respondents).
Decision Date23 July 2004

Representing Appellant: John L. Bordes, Jr., of Oreck, Bradley, Crighton, Adams & Chase, Boulder, Colorado; Robert A. Swiech, Associate General Tax Counsel, BP America, Inc., Houston, Texas. Argument by Mr. Swiech.

Representing Appellee Wyoming Department of Revenue: Patrick J. Crank, Wyoming Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; Karl D. Anderson, Senior Assistant Attorney General. Argument by Mr. Anderson.

Representing Appellee Board of County Commissioners of Uinta County: Bruce A. Salzburg of Freudenthal, Salzburg & Bonds, P.C., Cheyenne, Wyoming.


[¶ 1] This is an appeal by Amoco Production Company (Amoco) from a decision by the State Board of Equalization (Board) assessing Amoco on underpayment of severance taxes and increasing gross product valuation on gas produced from the Whitney Canyon field in Uinta County for the production years 1990 through 1992. We will affirm in part and reverse in part.


[¶ 2] Amoco presents the following issues for review:

A. Uinta County lacks appeal rights in this matter.
B. Royalties and production taxes are not properly included in the direct cost ratio as costs of producing.
C. The decision of the Board confirming the Department's point of valuation was unsupported by substantial evidence and otherwise not in accord with Wyoming law.
D. The Department's disallowance of processing and transportation related expenses was arbitrary, capricious, an abuse of discretion and unsupported by substantial evidence.
E. The imposition of penalties was improper.

The Wyoming Department of Revenue states the issues as:

I. Did the State Board correctly conclude that the point of valuation for Amoco's Whitney Canyon production was the inlet to the initial transportation related compressor?
II. Did the State Board correctly conclude that Amoco failed to meet its burden of proof in regard to Amoco's claim that certain expenses were associated with processing at the Whitney Canyon Plant?
III. Did the State Board correctly conclude that the imposition of penalties by the Department was proper and justified?
IV. Did the State Board correctly conclude that production taxes and royalties are direct production costs?

The Board of County Commissioners of Uinta County states the issues as:

Whether the Board of County Commissioners of Uinta County was properly permitted to intervene as a party in the contested case hearing before the State Board of Equalization?
Whether, if the County was properly allowed to intervene in this case, the Board of Equalization could consider the propriety of the Department of Revenue's proportionate profits calculation used to assess Appellant's production in the years at issue in the case?
Whether the "direct cost ratio" used in calculating the taxable value of oil and gas production under the proportionate profits method includes production taxes and royalties as "direct costs of producing" the oil and gas?

[¶ 3] In 1994, the Department of Audit (DOA) engaged an audit of Amoco's Whitney Canyon production for the years 1989 through 1992. In 1996, pursuant to the results of the audit, the Department of Revenue (the Department) issued a deficiency assessment against Amoco. Amoco timely appealed the deficiency assessment to the Board.

[¶ 4] Amoco and the Department eventually settled all issues involving the production year 1989. The only issues on appeal concern production years 1990 though 1992. Amoco valued its production during the years at issue under the proportionate profits methodology.1 Uinta County intervened in the administrative action and challenged the decision by the Department to not include production taxes and royalties as direct production costs within the context of the proportionate profits equation.

[¶ 5] Ultimately, the Board ruled in favor of Uinta County on the issue it raised and against Amoco on the issues Amoco initially appealed. Amoco requested and was granted reconsideration by the Board, but the reconsidered opinion contained no substantive changes to the issues herein appealed. Amoco timely appealed both the initial decision and the reconsidered opinion to district court. The district court certified the case to this Court pursuant to W.R.A.P. 12.09(b). Further details will be provided during the discussion of each issue as necessary.


[¶ 6] When reviewing administrative decisions, this Court is guided by Wyo. Stat. Ann. § 16-3-114(c)(ii) (LexisNexis 2003), which provides in pertinent part:

(c) To the extent necessary to make a decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. In making the following determinations, the court shall review the whole record or those parts of it cited by a party and due account shall be taken of the rule of prejudicial error. The reviewing court shall:
* * * *
(ii) Hold unlawful and set aside agency action, findings and conclusions found to be:
(A) Arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law;
(B) Contrary to constitutional right, power, privilege or immunity;
(C) In excess of statutory jurisdiction, authority or limitations or lacking statutory right;
(D) Without observance of procedure required by law; or
(E) Unsupported by substantial evidence in a case reviewed on the record of an agency hearing provided by statute.

This Court will defer to an agency's findings of fact if they are supported by substantial evidence. Whiteman v. Workers' Safety and Comp. Div., 984 P.2d 1079, 1081 (Wyo.1999). Substantial evidence is "relevant evidence that a reasonable mind can accept as adequate to support an agency's conclusion." Id. (quoting Casper Oil Co. v. Evenson, 888 P.2d 221, 224 (Wyo.1995)). We will affirm an agency's conclusions of law only if they are in accordance with the law. Snyder v. State ex rel. Workers' Comp. Div., 957 P.2d 289, 293 (Wyo.1998). When an agency's determinations involve elements of law and fact, or ultimate facts, we do not give them the same deference we reserve for findings of basic fact. Basin Electric Power Coop., Inc. v. Dep't of Revenue, 970 P.2d 841, 850 (Wyo.1998). Instead, we separate the factual elements from the legal elements to determine whether the appropriate rule of law has been correctly applied to the facts and defer to the agency's ultimate factual finding only if there is no error in either stating or applying the law. Id. at 850-51. To the extent the controversy in the case at bar involves the proper application of appraisal methods to the facts, this is an issue of ultimate fact and requires de novo review. Id. at 851.

[¶ 7] The Department's valuations for state-assessed property are presumed valid, accurate, and correct. Chicago, Burlington & Quincy R.R. Co. v. Bruch, 400 P.2d 494, 498-99 (Wyo.1965). This presumption can only be overcome by credible evidence to the contrary. Id. In the absence of evidence to the contrary, we presume that the officials charged with establishing value exercised honest judgment in accordance with the applicable rules, regulations, and other directives that have passed public scrutiny, either through legislative enactment or agency rule-making, or both. Id.

[¶ 8] The petitioner has the initial burden to present sufficient credible evidence to overcome the presumption, and a mere difference of opinion as to value is not sufficient. Teton Valley Ranch v. State Board of Equalization, 735 P.2d 107, 113 (Wyo.1987); Chicago, Burlington & Quincy R.R.,400 P.2d at 499. If the petitioner successfully overcomes the presumption, then the Board is required to equally weigh the evidence of all parties and measure it against the appropriate burden of proof. Basin, 970 P.2d at 851. Once the presumption is successfully overcome, the burden of going forward shifts to the Department to defend its valuation. Id. The petitioner, however, by challenging the valuation, bears the ultimate burden of persuasion to prove by a preponderance of the evidence that the valuation was not derived in accordance with the required constitutional and statutory requirements for valuing state-assessed property. Id.

Standing of Uinta County to Intervene

[¶ 9] During the audit process, Amoco and the Department agreed that production taxes and royalties should not be included as direct production costs in the proportionate profits equation. This decision reduced Amoco's tax obligation. After receiving the final deficiency notice from the Department, Amoco appealed to the Board on other issues. In September 1997, Uinta County moved to intervene. In May 1998, Uinta County filed its preliminary statement, which, for the first time, challenged the decision by the Department to not include production taxes and royalties as direct production costs.

[¶ 10] Amoco immediately filed a motion to vacate the order allowing intervention. The Board denied Amoco's motion without discussion or analysis. Uinta County remained a party to the action. Ultimately, the Board ruled in favor of Uinta County on the issue of its proffered definition of direct production costs. In its final order, the Board reviewed its decision to allow Uinta County to intervene. In essence, the Board simply determined that intervention by Uinta County was appropriate in the name of judicial economy.2 On appeal, Amoco argues that Uinta County should never have been allowed to intervene.

[¶ 11] Amoco presents a very fundamental argument. Amoco argues a county has no sovereign authority beyond...

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