Exxon Corp. v. Wyoming State Bd. of Equalization

• Decision Date: 07 December 1989
• Docket Number: No. 88-132,88-132
• Citation: 783 P.2d 685
• Parties: EXXON CORPORATION, a New Jersey corporation, Petitioner, v. WYOMING STATE BOARD OF EQUALIZATION, Respondent.
• Court: Wyoming Supreme Court

Page 685

783 P.2d 685

EXXON CORPORATION, a New Jersey corporation, Petitioner, v. WYOMING STATE BOARD OF EQUALIZATION, Respondent.

No. 88-132.

Supreme Court of Wyoming.

Dec. 7, 1989.

Lawrence J. Wolfe (argued) of Holland & Hart, Cheyenne, Alan Poe of Holland &amp Hart, Englewood, Colo., and Kenneth Reither, Exxon Co. U.S.A., Houston, Tex., for petitioner.

Joseph B. Meyer, Atty. Gen., Peter J. Mulvaney, Deputy Atty. Gen., Michael L. Hubbard, Senior Asst. Atty. Gen. (argued), and Robert J. Walters, Asst. Atty. Gen., for respondent.

Before CARDINE, C.J., and THOMAS, URBIGKIT, MACY and GOLDEN, JJ.

CARDINE, Chief Justice.

Petitioner, Exxon Corporation, challenges the State's imposition of a use tax on pipe purchased out of the state and installed in a pipeline operating in Wyoming and the failure of the State to grant Exxon a credit against that tax for taxes already paid to the state of Colorado. The State Board of Equalization found that the tax was properly assessed, that it did not violate the commerce clause of the United States Constitution, and that the denial of the offsetting credit was proper.

We affirm.

Petitioner states the issues as:

"I. Did the Board err in upholding a Wyoming use tax assessment against Exxon's use of certain line pipe in Wyoming, when the first use of that pipe, as the term 'use' is defined under Wyoming law, occurred in Colorado?

"II. Did the Board err in refusing to grant a credit against the Wyoming use tax assessment for taxes paid by Exxon to the State of Colorado with respect to the pipe, where such taxes were legally imposed under Colorado law?

"III. Did the Board's imposition of the Wyoming use tax against Exxon's use of the pipe in Wyoming, without providing a credit for the Colorado tax paid by Exxon, violate the commerce clause of the United States Constitution?"

Respondent phrases the issues:

"I. Is the decision of the appellee [respondent] State Board of Equalization holding appellant [petitioner] liable for Wyoming use taxes despite initial delivery of the underlying property to the State of Colorado is not [sic] arbitrary, capricious, an abuse of discretion, contrary to law, or unsupported by substantial evidence?

"II. Does the decision of the appellee [respondent] below violate the Commerce Clause of the United States Constitution?"

The essential facts of this case are not disputed and are as follows. Between February and May of 1985, Exxon Corporation (Exxon), a New Jersey corporation, purchased 258,000 feet of 24-inch pipe from Marubeni American Corporation (Marubeni), a Texas vendor. The pipe, costing a total of $13,179,894.83, was to be installed as part of the Shute Creek to Rock Springs CO sub2 pipeline in Wyoming. After purchase, the pipe was shipped from Kasaoka, Japan, through Portland, Oregon, to Fort Collins, Colorado. There it was inspected, sand blasted, and coated with a thin-film epoxy, processes necessary for the ultimate use of the pipe. After these processes were completed, which took approximately 90 to 120 days, the pipe was shipped to Wyoming and installed in the pipeline.

Exxon later discovered through an internal audit that Marubeni had not collected any tax with respect to the pipe. Exxon determined that a 3 percent tax was due the state of Colorado and voluntarily filed an amended return covering the months of March and May, 1985, and paid a tax in the amount of $395,396.84 plus interest.

Later, the Wyoming Department of Revenue and Taxation (Department) conducted a sales and use tax audit of Exxon, for the period of March 1, 1983, through February 28, 1986; the Department determined that Exxon was liable for a 4 percent use tax to the state of Wyoming on the pipe, pursuant to W.S. 39-6-504, 39-6-412, and 39-6-518. ¹ In a final administrative decision, the Department concluded that the first use of the pipe ² had occurred in Wyoming and assessed a use tax against Exxon in the amount of $527,195.79 plus interest. In assessing the tax, the Department further denied Exxon a credit against the use tax for the amount of tax previously paid to Colorado because the tax paid to Colorado was a use tax for which no credit was permitted under the governing statutes.

Exxon timely appealed the Department's assessment to the State Board of Equalization (Board). At an evidentiary hearing, Exxon contended that its use of the pipe in Wyoming was not subject to the use tax because the "first use" of the pipe, as that phrase is contemplated in the tax commission's rules and regulations and as the term "use" is defined by Wyoming law, occurred in Colorado. Alternatively, Exxon argued that if a use tax were indeed owed, such a tax should be offset by the amount of tax paid to the state of Colorado as a result of the activities with respect to the pipe in that state. Finally, Exxon contended that the imposition of the use tax by Wyoming, without the offsetting credit for the tax already paid to Colorado, constituted a violation of the commerce clause by creating an undue burden on and discrimination against interstate commerce. The Board rejected each of Exxon's arguments and affirmed the use tax assessment against Exxon and the denial of the offsetting credit.

Exxon paid the assessment and interest under protest and filed a timely petition for review of the Board's order in the First Judicial District Court. Pursuant to Rule 12.09, W.R.A.P., the case was certified to this court.

When a case is certified to this court under Rule 12.09, "we must review the decision of the [Board] under the appellate standards applicable to a reviewing court of the first instance." Application of Campbell County, 731 P.2d 1174, 1175 (Wyo.1987). The scope of review of an agency action is established in W.S. 16-3-114(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:

"(i) Compel agency action unlawfully withheld or unreasonably delayed; and

"(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."

See Safety Medical Services, Inc. v. Employment Security Comm'n, 724 P.2d 468, 471-72 (Wyo.1986); Trout v. Wyoming Oil and Gas Conservation Comm'n, 721 P.2d 1047, 1049 (Wyo.1986); Board of County Comm'rs v. Teton County Youth Services, Inc., 652 P.2d 400, 411 (Wyo.1982). This court must examine the entire record to determine if there is substantial evidence to support the agency's findings; if an agency's decision is supported by substantial evidence, this court cannot properly substitute its judgment for that of the agency and must uphold the agency's findings on appeal. Trout, 721 P.2d at 1050. Substantial evidence is "relevant evidence which a reasonable mind might accept in support of the conclusions of the agency." Id.

In its brief on appeal, Exxon claims that the Board's order upholding the use tax assessment is arbitrary and capricious, unsupported by substantial evidence, and lacks statutory right in that it alters or impairs "the statutory definition of 'use.' " The Board made findings of fact and conclusions of law in support of its order. Exxon agrees that the facts are not in dispute but contends that the Board's application of relevant law to the facts was erroneous.

The Wyoming use tax statutes, W.S. 39-6-501 through -518, impose an excise tax upon "persons storing, using or consuming tangible personal property" in Wyoming. W.S. 39-6-504(b). The legislature intended that the use tax be complementary to the Wyoming sales tax. Morrison-Knudson Co., Inc. v. State Board of Equalization, 58 Wyo. 500, 135 P.2d 927, 932 (1943). See also Chap. IV, § 3, Rules and Regulations of the Wyoming State Tax Commission--Department of Revenue & Taxation. The use tax is applied to property purchased outside the state and brought into the state for storage, use or consumption, so as to put that property on an equal footing with property purchased within the state that is subject to the Wyoming sales tax. Id.

Wyoming has placed a self-imposed limitation on the broad authority to tax property bought outside but used inside this state. Through Chapter IV, §§ 3 and 8 of the Rules and Regulations of the Wyoming State Tax Commission--Department of Revenue and Taxation (hereinafter referred to as Chap. IV, §§ 3 and 8), the State is permitted to apply the use tax to particular tangible personal property bought out of state only if the use of the property in Wyoming constitutes its "first use." ³ "Use" is defined in Wyoming as "the exercise of any right or power over tangible personal property incident to ownership or by any transaction where possession is given by lease or contract." W.S. 39-6-502(a)(vii). By implication, and as a logical extension, if the first use of the property occurs in another state, Wyoming's use tax is inapplicable.

Petitioner argues that the use tax imposed by Wyoming was improper because the "first use" of the pipe, as that phrase is contemplated by Chap. IV, § 3 and as the term "use" is statutorily defined, occurred in Colorado through its delivery and the coating process that occurred there. Thus, the question we must determine is whether the activities in Colorado constitute a bona fide...