J. Ray McDermott & Co. v. Hudson

• Decision Date: 11 April 1962
• Docket Number: No. 3056,3056
• Citation: 370 P.2d 364
• Parties: J. RAY McDERMOTT & CO., Inc., a Corporation, Appellant (Plaintiff below), v. Walter W. HUDSON, Richard J. Luman, and William M. 'Scotty' Jack, Constituting the Board of Equalization and Public Service Commission of the State of Wyoming, Appellees (Defendants below).
• Court: Wyoming Supreme Court

Page 364

370 P.2d 364

J. RAY McDERMOTT & CO., Inc., a Corporation, Appellant (Plaintiff below), v. Walter W. HUDSON, Richard J. Luman, and William M. 'Scotty' Jack, Constituting the Board of Equalization and Public Service Commission of the State of Wyoming, Appellees (Defendants below).

No. 3056.

Supreme Court of Wyoming.

April 11, 1962.

Guy & Phelan, George F. Guy, Ward A. White, Cheyenne, for appellant.

Norman B. Gray, Atty. Gen., and James R. Mothershead, Sp. Asst. Atty. Gen., Cheyenne, for appellees.

A. G. McClintock, Cheyenne, amicus curiae for Forest Oil Co.

Before BLUME, C. J., and PARKER, HARNSBERGER and McINTYRE, JJ.

Mr. Justice PARKER delivered the opinion of the court.

This is an appeal from a judgment of the district court affirming four board of equalization decisions fixing the tax valuation of oil which was produced by plaintiff in the Ash Creek Fields but for lack of pipeline facilities there was trucked at plaintiff's expense to Salt Creek, the point of sale, some 138 miles distant.

For 1952, the first year of operation, plaintiff reported on the form provided by the board the full selling price of the oil without deducting any transportation charges. For 1953 and 1954, plaintiff reported the selling price less the cost of transportation to the pipeline. These figures were not questioned, and plaintiff paid the tax on that basis for 1953 and 1954. In 1956 the board challenged plaintiff's deduction for trucking charges, and set the 1955 valuation without allowance for transportation. Plaintiff protested but did not appeal to the court and paid the tax. When the board refused to allow trucking charges as to the 1956 assessment, plaintiff appealed to the district court. There all evidence regarding the propriety of the tax and method of computing it was excluded on the theory that such matters had previously been considered by the board and were not competent. This court reversed the judgment because of that ruling and remanded for further proceedings. J. Ray McDermott & Co. v. Hudson, Wyo., 348 P.2d 73. Meanwhile, the valuation decision had been made by the board on the production for 1957, 1958, and 1959, each of which had been appealed to the district court. The four cases, being similar, were consolidated for trial. After hearing evidence which included testimony as to the board's method of computing valuation, the court affirmed the board in each of the cases, and the matter is now here on appeal.

The pertinent constitutional provision concerning the tax in question is Art. 15, § 3, Wyo.Const., 'All mines * * * from which * * * mineral oil * * * is or may be produced shall be taxed in additional to the surface improvements, and in lieu of taxes on the lands, on the gross product thereof, as may be prescribed by law; provided, that the product of all mines shall be taxed in proportion to the value thereof.' Other portions of the constitution which must be borne in mind in a consideration of the problem are Art. 15, § 9, directing the legislature to provide by law for a state board of equalization; Art. 15, § 10, delineating the duties of the board; Art. 15, § 11, 'All property, except as in this constitution otherwise provided, shall be uniformly assessed for taxation'; and Art. 1, § 28, 'All taxation shall be equal and uniform.' The provision of Art. 1, § 6, Wyo.Const. similar in effect to § 1, amend. XIV, U.S.Const., is also of underlying importance, 'No person shall be deprived of * * * property without due process of law.'

The statutes directly in issue are § 39-222, W.S.1957, 'The gross product of all mines * * * from which * * * petroleum, or other crude mineral oil * * * may * * * be produced * * * shall be * * * assessed for taxation, and taxed * * * in lieu of taxes upon the land'; § 39-223, W.S.1957, which relates to the filing of the assessment schedules; and § 39-224, W.S.1957, 'The state board of equalization shall, as soon as the board is in possession of the facts, classify and prescribe and fix the valuation, each year, for the assessment of the gross product, in * * * gallons * * * of all mines * * * from which * * * petroleum, or other crude or mineral oil * * * is produced.' Of significance also is a portion of § 39-26(a), W.S.1957, dealing with the equalization of assessments and § 39-26(l), W.S.1957, directing the board to prescribe forms and uniform valuation systems:

§ 39-26. Duties generally.--It shall be the duty of said board to make all necessary rules and regulations for the performance of its duties * * *.

'(a) * * * To * * * compare the returns of the assessment of the property in the several counties, * * * so that all taxable property in the state shall be assessed at its true and full value * * *.'

'(l) * * * to the end that all property may be uniformly valued the board shall prescribe the system or systems of establishing such uniform valuation of all properties, both real and personal * * *.'

From the outset, it must be borne in mind that according to the concession of both litigants the oil is to be valued for taxation purposes at the wellhead and that both agree, in accordance with the holding in Oregon Basin Oil & Gas Co. v. Ohio Oil Co., 70 Wyo. 263, 248 P.2d 198; Miller v. Buck Creek Oil Co., 38 Wyo. 505, 269 P. 43, 73 A.L.R. 821; and First Nat. Bank of Chicago v. Central Coal & Coke Co., D. Wyo., 3 F.Supp. 433, that the gross product tax is one upon personal property.

Plaintiff charges that the decisions of the board were illegal, fraudulent, unconstitutional, arbitrary, capricious, and a grave abuse of discretion. Its principal contention is that the amount on which it should pay is the market value of the oil at the wellhead and since there is no sale for the product at such point the true market value is the amount received less the sum necessary for transportation to the place where the market exists and that the assessing of the difference between the amount and the posted filed price is a tax on transportation rather than the gross product. Although the testimony of the witnesses might be subject to some ambiguity, posted field prices, as we understand them, do not necessarily connote a market but are those prices contained in bulletins issued by oil companies for points at which the value of crude oil is of some importance, either in arranging settlements between interested persons or for purchase. In this State at the places where there is a main pipeline tariff point the prevailing posted filed prices are fairly uniform.

Defendants' position in brief is that the present valuation is beyond challenge. In support they urge that the board is the only entity which can determine fair value, that uniformity is of utmost importance and here was achieved by classification, and that any other method employed would be impractical, rob the board of its rightful authority, and result in serious administrative difficulties.

There is no dispute in the facts. The Ash Creek Fields are relatively small with no pipeline facilities, and the oil produced there cannot be advantageously sold except at main pipeline tariff points. Plaintiff made some effort to dispose of it and accepted and only reasonable offer at Salt Creek. The trucking charges which were necessarily borne by plaintiff were normal but were substantial, being approximately one-fourth of the selling price of the oil. The tax valuation establish by defendants was the posted price of the nearest field for which bulletins were issued, in this case, Meadow Creek; but the Meadow Creek prices were approximately the same as those for Salt Creek, only a few miles distant. The basic issue in the case is the propriety of the board's valuation of plaintiff's oil.

Witnesses outlined the dealings between oil companies in the purchase and sale of crude, noting that at fields away from main pipeline tariff points there was sometimes established by the oil companies as 'adopted price' which was the nearest posted field price less the cost of trucking from the wellhead. According to the uncontroverted evidence, the adopted price method was used in sales between oil companies, a producer in all instances bearing the trucking charge and receiving only the posted field price less the cost of transportation. Plaintiff also presented evidence indicating that the Geological Survey, United States Department of the Interior, in arriving at the royalty to be paid on Government oil lands employed a formula by which the cost of transportation of the product from the wellhead to the main pipeline tariff point was deducted from the posted filed price. Numerous cases from courts of states which collect license, privilege, or occupation taxes are cited by plaintiff, and attention is called to such holdings wherein the cost of transportation from the wellhead to the point of sale is authorized to be deducted from the market price in establishing the basis of taxation. While practices of the oil companies concerning sales of crude in fields such as Ash Creek, the criteria used by the Geological Survey in fixing royalty charges, and the reasoning of courts in cases dealing with specific rather than ad valorem taxes all relate to questions of valuation and merit careful consideration, it is obvious that they present no solution of the present problem, which can be solved only by reference to our constitution and statutes.

It is claimed by defendants that any ruling which would allow a deduction of transportation costs in the fixing of tax valuation would be an entering wedge for the oil companies to claim all operational expenses, including depreciation, as an exemption. This fear is unfounded since the constitutional provision for the taxation of the gross products of mines does not admit of such an interpretation, and this is especially true in view of the fact that the concept of the tax is valuation at the wellhead. Defendants also maintain that any necessity of the board's considering transportation...