Powder River Coal v. STATE BD. OF EQUALIZ.

• Citation: 2002 WY 5,38 P.3d 423
• Decision Date: 17 January 2002
• Docket Number: No. 00-282.,00-282.
• Parties: POWDER RIVER COAL COMPANY, Appellant (Petitioner), v. WYOMING STATE BOARD OF EQUALIZATION and Wyoming Department of Revenue, Appellees (Respondents).
• Court: Wyoming Supreme Court

38 P.3d 423

2002 WY 5

POWDER RIVER COAL COMPANY, Appellant (Petitioner), v. WYOMING STATE BOARD OF EQUALIZATION and Wyoming Department of Revenue, Appellees (Respondents).

No. 00-282.

Supreme Court of Wyoming.

January 17, 2002.

Rehearing Denied February 27, 2002.

Lawrence J. Wolfe, P.C.; Patrick R. Day, P.C.; and Melissa L. Hughes of Holland & Hart LLP, Cheyenne, WY, Representing Appellant.

Gay Woodhouse, Attorney General; Rowena L. Heckert, Deputy Attorney General; and Karl D. Anderson, Assistant Attorney General, Representing Appellee Wyoming Department of Revenue.

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

KITE, Justice.

[¶ 1] Powder River Coal Company (taxpayer) challenges the Wyoming Department of Revenue's (Department) valuation of its coal production for ad valorem and severance tax purposes, as affirmed by the Wyoming State Board of Equalization (Board). The taxpayer contends the bonus it paid to the federal government when it purchased the federal coal lease was the same as a royalty and should have been treated as such in the application of the proportionate profits calculation required by the statute and regulations. In the alternative, the taxpayer argues the bonus is an indirect, rather than a direct, mining cost under the statute. We agree with the Department that a lease bonus is not a royalty. However, we also agree with the taxpayer that the bonus is not a direct mining cost as contemplated by the statute and regulations. Therefore, we affirm in part, reverse in part, and remand.

ISSUES

[¶ 2] The taxpayer frames these issues:

A. Is the taxation of lease bonus payments which Powder River Coal Company, as lessee, made to the United States, as lessor, in order to acquire a federal coal lease, a violation of Article 15 § 12 of the Wyoming Constitution which prohibits taxation of federal interests in property?

B. Are lease bonus payments properly classified as royalties to avoid an unconstitutional tax for purposes of determining the severance and ad valorem taxes payable on coal mined from a federal coal lease?

C. Are lease bonus payments properly classified as royalties rather than direct mining costs for purposes of determining the severance and ad valorem taxes payable on coal mined?

The Department restates the issues:

[A]. For Wyoming coal tax valuation purposes, are federal coal lease bonus payments analogous with exempt federal royalties?

[B]. Are federal coal lease bonus payments properly treated as direct mining costs under Wyo. Stat. § 39-2-209(d) currently recodified at Wyo. Stat. § 39-14-103(b)(vii)?

In its reply brief, the taxpayer reiterates the following question:

Since the Department argues that the costs for FLBPs [federal lease bonus payments] are not related to production, the FLBPs cannot be direct mining costs. FLBPs are royalties or should be treated as indirect costs.

FACTS

[¶ 3] In 1992, the taxpayer successfully bid on a federal coal lease by offering $86,987,765 in bonus payments. The lease also required payment of a 12½ percent royalty on any production. The Mineral Leasing Act of 1920 authorizes the Secretary of the Interior to dispose of coal reserved by the federal government through a complicated and competitive bidding process. Historically, the bonus bid was viewed as a token payment, often in the range of $1 to $10 per acre, and the remainder of the value of the coal was realized through the royalty payments. In 1976, Congress passed the Federal Coal Leasing Amendments Act which mandated no federal coal lease could be sold for less than fair market value as determined by the Secretary of the Interior. Fair market value is defined as "that amount in cash, or on terms reasonably equivalent to cash, for which in all probability the coal deposit would be sold or leased by a knowledgeable owner willing but not obligated to sell or lease to a knowledgeable purchaser who desires but is not obligated to buy or lease." 43 C.F.R. § 3400.0-5(n) (2000). The current bidding system requires a fixed cash bonus and acceptance of the statutory minimum fixed royalty of 12½ percent. 43 C.F.R. §§ 3422, 3473.3-2(a)(1) (2000). The federal regulations define bonus as "that value in excess of the rentals and royalties that accrues to the United States because of coal resource ownership that is paid as part of the consideration for receiving a lease." 43 C.F.R. § 3400.0-5(c) (2000).

[¶ 4] In all years prior to 1996, the taxpayer filed its Annual Gross Products Report for Coal for its Rochelle Mine treating the amortized bonus payment as a direct mining cost in the statutory formula used to determine the value of the gross product mined. In 1996, the taxpayer changed its reporting procedure and amortized the bonus payment treating it as an exempt federal royalty payment. The Department promptly reclassified the amortized bonus payment as a direct mining cost and issued a Notice of Valuation on June 19, 1997. The taxpayer appealed its Notice of Valuation to the Board which considered the matter based on briefs and supporting documents. The taxpayer contended the bonus payments were royalty payments exempt under the Wyoming statutes and the constitution. The Department disagreed and contended the taxpayer had not met its burden of proof to show that treatment of the bonus payments as a direct mining cost was arbitrary, capricious, or an abuse of discretion. On appeal, the Board affirmed the Department's valuation. The taxpayer filed a petition for review which the district court certified to this court.

STANDARD OF REVIEW

[¶ 5] When we review cases certified pursuant to W.R.A.P. 12.09(b), we apply the appellate standards which are applicable to the court of the first instance. State by and through Wyoming Department of Revenue v. Buggy Bath Unlimited, Inc., 2001 WY 27, ¶ 5, 18 P.3d 1182, ¶ 5 (Wyo.2001); see also Union Telephone Company, Inc. v. Wyoming Public Service Commission, 907 P.2d 340, 341-42 (Wyo.1995). Judicial review of administrative decisions is governed by Wyo. Stat. Ann. § 16-3-114(c) (LexisNexis 2001). Buggy Bath Unlimited, Inc., ¶ 5; W.R.A.P. 12.09(a); Everheart v. S & L Industrial, 957 P.2d 847, 851 (Wyo.1998).

[¶ 6] The issues in this case—whether a bonus payment should be treated as an exempt royalty and, if not, whether it constitutes a direct or indirect cost of mining for mineral valuation and taxation purposes—present pure questions of law. Their resolution requires interpretation of the applicable statutes and Department rules. Statutory interpretation is a question of law which we review de novo. Chevron U.S.A., Inc. v. State, 918 P.2d 980, 983 (Wyo.1996). We affirm an agency's conclusions of law when they are in accordance with the law. Buggy Bath Unlimited, Inc., ¶ 6. However, when the agency has failed to properly invoke and apply the correct rule of law, we correct the agency's error. Id. The rules of statutory interpretation also apply to the interpretation of administrative rules and regulations. Id. These rules are often cited and are well recognized:

We first decide whether the statute is clear or ambiguous. This Court makes that determination as a matter of law. A "statute is unambiguous if its wording is such that reasonable persons are able to agree as to its meaning with consistency and predictability." Allied-Signal, Inc. [v. Wyoming State Board of Equalization], 813 P.2d [214,] 220 [(Wyo.1991)]. A "statute is ambiguous only if it is found to be vague or uncertain and subject to varying interpretations." 813 P.2d at 219-20.

If we determine that a statute is clear and unambiguous, we give effect to the plain language of the statute.

We begin by making an "`inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection.'" Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo.1993) (quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 823 (1897)). We construe the statute as a whole, giving effect to every word, clause, and sentence, and we construe together all parts of the statute in pari materia.

State Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo.1994). If we determine that the statute is ambiguous, we resort to general principles of statutory construction to determine the legislature's intent.

State v. Bannon Energy Corporation, 999 P.2d 1306, 1308-09 (Wyo.2000) (some citations omitted).

DISCUSSION

[¶ 7] The genesis of this dispute lies in the constitutional and statutory construct for the taxation of minerals in Wyoming. The Wyoming Constitution provides that all mines "shall be taxed ... in lieu of taxes on the lands[] on the gross product thereof ...; provided, that the product of all mines shall be taxed in proportion to the value thereof." Wyo. Const. art. 15, § 3. The statutes then impose ad valorem and severance taxes upon the value of the gross product mined. Wyo. Stat. Ann. §§ 39-13-103, 39-14-103 (LexisNexis 2001). "The value of the gross product shall be the fair market value of the product at the mouth of the mine where produced, after the mining or production process is completed." Section 39-14-103(b)(ii). The mining or production process is deemed complete when the mineral product reaches the mouth of the mine, and "[i]n no event shall the value of the mineral product include any processing functions or operations regardless of where the processing is performed." Section 39-14-103(b)(iii). The mouth of the mine is defined as "the point at which a mineral is brought to the surface of the ground and is taken out of the pit.... For a surface mine, this point shall be the top of the ramp where the road or conveying system leaves the pit." Wyo. Stat. Ann. § 39-14-101(a)(vi) (LexisNexis 2001). Processing is defined as crushing, storing, loading for shipment, transportation from the mouth of the mine to the loadout, and similar activities including any other function "after...