Bp America Production v. Dept. of Revenue

• Decision Date: 14 March 2006
• Docket Number: No. 04-157.,04-157.
• Parties: BP AMERICA PRODUCTION COMPANY, f/k/a Amoco Production Company, Appellant (Petitioner), v. DEPARTMENT OF REVENUE, State of Wyoming, Appellee (Respondent).
• Court: Wyoming Supreme Court

130 P.3d 438

2006 WY 27

BP AMERICA PRODUCTION COMPANY, f/k/a Amoco Production Company, Appellant (Petitioner), v. DEPARTMENT OF REVENUE, State of Wyoming, Appellee (Respondent).

No. 04-157.

Supreme Court of Wyoming.

March 14, 2006.

COPYRIGHT MATERIAL OMITTED

Representing Appellant: John L. Bordes Jr., Robert A. Swiech, and Nicole Crighton of Oreck, Bradley, Crighton, Adams & Chase, Boulder, CO. Argument by Mr. Bordes.

Representing Appellee: Patrick J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; and Martin L. Hardsocg, Senior Assistant Attorney General. Argument by Mr. Hardsocg.

Before HILL, C.J., and GOLDEN, KITE, VOIGT, and BURKE, JJ.

HILL, Chief Justice.

[¶ 1] Appellant, BP America Production Company (formerly known as AMOCO Production) (hereafter BP¹), seeks review of an order of the district court that affirmed actions taken by the State Board of Equalization (SBOE). BP raises sixteen issues for our consideration and they are set out in detail below. The Department of Revenue's (DOR's) take on the issues is somewhat different and those issues are also set out in detail below. We will affirm the district court and the SBOE.

ISSUES

[¶ 2] BP articulates these issues:

A. PROCEDURAL

1. Did the district court commit reversible error when it affirmed the Board's Order granting Sweetwater County's request for intervention?

a. Did the court abuse its discretion when it failed to strike from the record at the Board the County's testimony?

2. Was the district court's decision without observance of procedure required by law when it affirmed the Board's reallocation of oil values and its authorization for the "collection" of ad valorem taxes based on partial mill levies?

B. SUBSTANTIAL EVIDENCE

3. Was the district court's decision holding wellhead reporting was the only approved method under the facts of this case supported by substantial evidence and otherwise in accordance with law?

4. Was the district court's determination that Amoco's Wertz Dome Unit allocation method was unreasonable supported by substantial evidence and neither arbitrary, capricious, an abuse of discretion nor contrary to Wyoming law?

5. Was the district court's refusal to consider W.S. 39-2-214 supported by substantial evidence contained in the record and otherwise in accord with Wyoming law?

6. Was the district court's decision concluding that the events triggering the Department's reallocation occurred before the enactment of W.S. § 39-2-211(j) on March 20, 1990 supported by substantial evidence?

C. STATUTORY

7. Did the district court commit reversible error when it held no Wyoming statute precluded the Department's revaluation for production years prior to 1985?

8. Did the district court commit reversible error when it held W.S. § 39-3-102(b) did not apply to the "collection" of ad valorem personal property taxes by the county under the undisputed facts in this case?

9. Did the court commit reversible error when it relied on W.S. § 39-1-304(a)(xiv) and Wyoming State Tax Commission v. BHP, Petroleum Co. Inc., 856 P.2d 428, 436-37 (Wyo.1993) as authority for affirming the Department's actions?

10. Did the court commit reversible error when it relied on Union Pacific Resources Co. v. State, 839 P.2d 356, 361 (Wyo.1992) for its decision that no statute of limitations restricts the "collection" of unpaid ad valorem personal property taxes due on mineral production?

D. RETROSPECTIVE/PROSPECTIVE APPLICATION

11. Did the court commit reversible error when it held W.S. § 39-2-201(j) required retrospective application?

12. Did the court commit reversible error when it failed to apply existing law in its decision on appeal dated June 18, 2004?

E. UNITED STATES AND WYOMING CONSTITUTIONS

13. Does the court's decision violate Article 15, sections 3 and 11 of the Wyoming Constitution?

14. Does the court's decision violate the Fourteenth Amendment of the United States Constitution and Article 1, section 34 of the Wyoming Constitution?

F. INTEREST

15. If the Final Determination issued February 28, 1994 is upheld, should interest be modified based on the facts of this case?

16. Did the court commit reversible error when it upheld the Board's imposition of interest on production years 1987 and 1988 when those production years were not included in the Final Determination Letter dated February 28, 1994 nor appealed by Amoco to the Board?

[¶ 3] DOR refines the issues to these:

1. Was the State Board's rejection of [BP's] production allocation method, because it was arbitrary and inaccurate, supported by substantial evidence?

2. Was the State Board's affirmation of the Department's requirement that Amoco report oil production on a wellhead basis and by county supported by substantial evidence?

3. Was Amoco statutorily required to use an allocation method which reflected a wellhead volume measurement and wellhead production location to report tax liability to the Department of Revenue?

4. Does the State Board's order allowing Sweetwater County to intervene require reversal of the State Board's and District Court's decisions affirming the Department of Revenue's determination that Amoco's oil production be reallocated and additional ad valorem taxes be paid?

5. Did the State Board and District Court properly affirm the Department's final determination that Amoco pay additional ad valorem tax to Sweetwater County totaling only the difference between applicable mill levies imposed in Carbon and Sweetwater Counties between tax years 1981 through 1987?

6. Did the State Board and District Court correctly rule that WYO. STAT. § 39-2-201(j) did not bar the Department's final decision requiring Amoco to correct its 1981 through 1987 tax reports and to remedy misallocated production volumes?

7. Did the State Board and District Court correctly rule that WYO. STAT. § 39-2-214(a) did not bar the Department's final decision requiring Amoco to correct its 1981 through 1987 tax reports and to remedy misallocated production volumes?

8. Did the State Board and District Court correctly rule that WYO. STAT. § 39-3-102(b) did not bar the Department's final decision requiring Amoco to correct its 1981 through 1987 tax reports and to remedy misallocated production volumes?

9. Did the State Board and District Court correctly affirm the imposition of interest?

FACTS AND PROCEEDINGS

[¶ 4] This is indeed a complex case, at least in a procedural sense. It is also complicated because the record is almost 3,000 pages in length. The Board Record, or Agency Record, accounts for almost 2,500 of those pages, and, for the most part, does not appear to be in any particular order. There is no index for the agency record. While the Department's brief is very helpful in parsing this lengthy record, it is apparent that BP's brief was designed as much to further obfuscate the record, as it was to portray the facts and proceedings in any organized fashion.

[¶ 5] While it is not a traditional sort of "fact," it is important to an understanding of this case that we take note of Wyo. Stat. Ann. § 39-2-201(e) (Michie 1985 and Michie 1977):

(e) Annually, on or before the dates hereafter indicated, or as soon thereafter as the taxable value is determined, the board shall certify the valuation determined by the board to the county assessor of the county in which the property is located, to be entered upon the assessment rolls of the county:

(i) June 1, mines and mining claims, pipeline companies, electric utilities and other public utilities; [Emphasis added.]

That statute continued forward into 1990. However, in 1990, Wyo. Stat. Ann. § 39-2-213 (Michie 1990) was enacted:

§ 39-2-213. Location of production for reporting purposes.

For mines and mining claims, the taxpayer shall report the location of the production to the county and tax district in which the well, mine or mining claim is located, based upon the actual taxable production produced by the well or mine in each county or tax district. Other reasonable methods of reporting the location of production may be approved by the department upon written request of the taxpayer, or taxing jurisdiction.²

[¶ 6] A significant part of BP's argument is that until 1990, there was no statute that required reporting of oil production at the wellhead. Continuing that argument, BP asserts that the 1990 amendment, which carries through to this day, specifies wellhead reporting and this circumstance bolsters BP's contention that prior to the 1990 enactment, wellhead reporting was not required.

[¶ 7] At the core of this controversy is the circumstance that production from BP wells located in Sweetwater County was being attributed to Carbon County. BP reported that production accurately to the Wyoming Oil and Gas Conservation Commission (WOGCC) for at least two of the years at issue here, but reported it differently to DOR for tax purposes. Of consequence in this regard is that the mill levy in Carbon County was significantly lower than the same sort of mill levy in Sweetwater County. Thus, Sweetwater County received less tax revenue than it should have, and Carbon County received more tax revenue than it should have.

[¶ 8] The Department has charitably characterized this misreporting of production as a form of tax avoidance scheme. BP, on the other hand, emphasizes that the Wertz Dome Unit straddles Carbon and Sweetwater counties, and that water was injected into the field so as to cause the oil to migrate toward wells. A water flood program changes the whole structure and pattern of a formation and can result in the production of oil that originated in one area of the formation in another. BP contends there was a "strong likelihood" that minerals were moving across county lines because of the water flood project: "In fact, because of the water flood project, the original location of the minerals is unclear, and the minerals were more on the character of a pool of reserves.³" During this time...