Rme Petroleum Co. v. Wyoming Dept. of Rev.
| Decision Date | 26 January 2007 |
| Docket Number | No. 04-190.,No. 04-185.,No. 04-204.,04-185.,04-190.,04-204. |
| Citation | 150 P.3d 673,2007 WY 16 |
| Parties | RME PETROLEUM COMPANY, Appellant (Petitioner), v. WYOMING DEPARTMENT OF REVENUE, Appellee (Respondent). Chevron U.S.A., Inc., Appellant (Petitioner), v. Department of Revenue, State of Wyoming, Appellee (Respondent). The Louisiana Land and Exploration Company; and Burlington Resources Oil & Gas Co., LP, Appellants (Petitioners), v. Wyoming Department of Revenue; and Board of County Commissioners of the County of Fremont, Appellees (Respondents). |
| Court | Wyoming Supreme Court |
Representing Appellants RME, The Louisiana Land and Exploration Company, and Burlington Resources Oil & Gas Co. LP: Lawrence J. Wolfe, Patrick R. Day, and Walter F. Eggers, III, of Holland & Hart, LLP, Cheyenne, Wyoming. Argument by Mr. Wolfe.
Representing Appellant Chevron U.S.A., Inc.: William J. Thomson, III, Randall B. Reed, and Brian J. Hanify, of Dray, Thomson & Dyekman, P.C., Cheyenne, Wyoming. Argument by Mr. Thomson.
Representing Appellee: Patrick J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; Karl D. Anderson, Senior Assistant Attorney General; Cathleen D. Parker, Senior Assistant Attorney General. Argument by Mr. Anderson.
Before VOIGT, C.J., and GOLDEN, HILL*, KITE, and BURKE, JJ.
[¶ 1] In three consolidated appeals, RME Petroleum Company, Chevron U.S.A., Inc., Louisiana Land and Exploration Company, and Burlington Resources Oil & Gas Co., LP, ("Taxpayers"), challenge taxation and valuation determinations made by the Department of Revenue ("Department"). Taxpayers' appeals involve oil and gas production valued under the statutory proportionate profits method as stated in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D).
[¶ 2] Taxpayers pursued appeals before the Wyoming State Board of Equalization ("Board"). The Board upheld the Department's determinations, finding in each instance that production taxes and royalties must be treated as "direct costs of producing" in the proportionate profits formula. We conclude the Board's interpretation of the statute was erroneous and reverse the orders of the Board.
[¶ 3] Louisiana Land and Exploration Company and Burlington Resources Oil & Gas Co., LP, (collectively "Burlington"), present these issues:
1) Pursuant to properly promulgated rules the Department of Revenue has defined "direct costs of producing" in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) to exclude taxes and royalties. This rule is binding upon both the State Board of Equalization and the Department of Revenue. Both agencies have chosen to ignore the rule, and thereby exceeded their statutory authority.
2) Taxes and royalties are not "direct costs of producing" under the proportionate profits valuation method set forth in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D).
3) The Board erred in allowing Fremont County to intervene in Burlington's tax appeals.
RME Petroleum Company adopts the issues presented by Burlington, and states three additional issues:
1) This Court's decision in Hillard v. Big Horn Coal, 549 P.2d 293 (Wyo.1976) does not support the Board's conclusion that taxes and royalties are "direct costs of producing."
2) The actions of the 2002 Legislature on Senate File 69 do not support the Board's position.
3) As a tax statute, Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) must be strictly construed.
Chevron U.S.A., Inc. presents the following issues:
1) Whether the Board erred as a matter of law in concluding that Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) unambiguously includes exempt royalties, nonexempt royalties, and production taxes as a direct cost of producing despite the fact that the statute neither includes nor excludes them as a direct cost of producing.
2) Whether the Board erred as a matter of law when interpreting Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) to include production taxes, exempt royalties, and nonexempt royalties as a "direct cost of producing," when that interpretation is contrary to the Department's rule and previous policy, is contrary to the legislative history of the statute, results in taxation of exempt federal royalties, and is contrary to canons of statutory construction.
3) Whether Chevron was denied its constitutional right to uniform and equal taxation because it was treated disparately from other producer/processors of natural gas that reported taxable values for production years 1993-1995, and because oil and gas producers are treated differently from other mineral taxpayers within the same class.
In response, the Department of Revenue phrases the issues in each of the three appeals as:
1) Did the State Board of Equalization properly affirm the Department of Revenue's application of Wyo. Stat. Ann. § 39-14-203(b)(vi)(D), in which the Department classified production taxes and royalties as direct production costs within the direct cost ratio?
2) Was the Department of Revenue required to institute new rules to correct its previous erroneous interpretation and application of Wyo. Stat. Ann. § 39-14-203(b)(vi)(D)?
3) Did the Supreme Court's decision in Amoco Prod. Co. v. Wyoming Dep't of Revenue, 2004 WY 89, 94 P.3d 430 (Wyo. 2004), foreclose the Department of Revenue's determination that production taxes and royalties are a direct cost of producing within the direct cost ratio of the proportionate profits method?
4) Did the State Board properly affirm the Department of Revenue's determination that exclusion of production taxes and royalties from the direct cost ratio produces an absurd result and a taxable value which is less than fair market value?
The Board's decision in Amoco 96-216
[¶ 4] In this case the parties and the Board refer to earlier proceedings involving a different taxpayer that addressed the issue presented in the instant case. In order to understand the procedural developments that led to these appeals and for ease of reference throughout this opinion, we will briefly describe what is referred to as "Amoco 96-216." In an administrative appeal concerning Amoco Production Company's Whitney Canyon production for years 1990 through 1992, the Board considered the classification of direct costs of production in the oil and gas proportionate profits formula. See Amoco Production Co. v. Dept. of Revenue, 2004 WY 89, ¶¶ 3-4, 94 P.3d 430, 434-35 (Wyo.2004). The Board allowed Uinta County to intervene and argue that production taxes and royalties should be treated as direct costs of producing in the statutory proportionate profits formula. In proceedings before the Board, the Department aligned with the taxpayer and argued that production taxes and royalties should not be included in the direct cost ratio. The Board issued its decision, Amoco 96-216, on June 29, 2001. The Board rejected the approach urged by Amoco and the Department and concluded that royalties and production taxes are direct costs of producing for purposes of applying the oil and gas proportionate profits formula. Id., ¶ 5, 94 P.3d at 435.
[¶ 5] When Amoco 96-216 was appealed to this Court, the Department changed its position and accepted the ruling of the Board. Upon review, we concluded that the county should not have been allowed to intervene. Amoco Production Co., ¶ 26, 94 P.3d at 442. For that reason, we vacated the portion of the Board's decision that addressed the direct cost ratio issue raised by the county without specifying how royalties and production taxes should be treated under the proportionate profits formula in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D). Id., ¶ 54, 94 P.3d at 450. Although Amoco 96-216 was vacated, the Department thereafter administered Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) in accordance with the Board's decision.
[¶ 6] During production years 1996 and 1997, RME was the operator of the Brady Unit in Sweetwater County. RME's oil and gas production from the Brady Unit was valued by the Department under the proportionate profits method. When RME reported its production, it did not classify production taxes and royalties as direct costs of production. Following an audit and the Board's decision in Amoco 96-216, the Department assessed additional severance taxes, based upon an inclusion of production taxes and royalties as direct costs of production under the proportionate profits valuation method. RME appealed to the State Board of Equalization. The appeal was expedited, and the parties stipulated to the pertinent facts. RME asserted that production taxes and royalties should not be considered direct costs of producing in applying the proportionate profits formula. The Board rejected RME's position and issued its Findings of Fact, Conclusions of Law, Decision and Order on November 20, 2003.
[¶ 7] From 1993 to 1995, Chevron produced oil and gas from property in Uinta and Lincoln Counties.1 Production from these areas was valued under the proportionate profits method. Chevron did not include royalties or production taxes in the direct cost ratio when it reported its production for 1993, 1994, and 1995, in accordance with the Department's policy at the time. In 1999, the Department of Audit initiated audits of Chevron's production for the tax years 1993-1995. While the final results of the audit were pending, the Board issued Amoco 96-216.2 Subsequently, the Department of Audit issued its final determination letters, including production taxes and royalties in the direct cost ratio. The Department of Revenue assessed additional severance taxes, interest, and increased the ad valorem taxable value of the properties.
[¶ 8] In three appeals to the State Board of Equalization, Chevron challenged the additional assessments for the 1993-1995 production years. Chevron's appeals were consolidated and were placed on the Board's expedited docket to be decided on stipulated facts and briefing by the parties.3 The Board issued its Findings of Fact, Conclusions...
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