Sinclair Oil Corp.. v. Wyo. Dep't Of Revenue

• Decision Date: 26 August 2010
• Docket Number: No. S-09-0231.,S-09-0231.
• Citation: 238 P.3d 568,2010 WY 122
• Parties: SINCLAIR OIL CORPORATION, Appellant (Petitioner), v. WYOMING DEPARTMENT OF REVENUE, Appellee (Respondent).
• Court: Wyoming Supreme Court

238 P.3d 568

2010 WY 122

SINCLAIR OIL CORPORATION, Appellant (Petitioner),

v.WYOMING DEPARTMENT OF REVENUE, Appellee (Respondent).

No. S-09-0231.

Supreme Court of Wyoming.

Aug. 26, 2010.

Representing Appellant: John A. Sundahl, Sundahl, Powers, Kapp & Martin, LLC, Cheyenne, Wyoming.

Representing Appellee: Bruce A. Salzburg, Attorney General; Michael L. Hubbard, Deputy Attorney General; Karl D. Anderson, Senior Assistant Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General. Argument by Mr. Anderson.

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

BURKE, Justice.

[¶ 1] Effective July 1, 2004, the Wyoming Legislature provided a sales tax exemption for machinery used in manufacturing in Wyoming. It is undisputed that this tax exemption applies to two large pieces of machinery owned by Sinclair Oil Corporation. Sinclair further claims, however, that the materials used to construct foundations for these machines also qualify for the tax exemption. Sinclair applied to the Wyoming Department of Revenue for a refund of the sales tax it had paid on the foundation materials. The Department denied that application. Sinclair appealed to the Wyoming State Board of Equalization, and the Board upheld the Department's determination. Sinclair then appealed to the district court, which certified the case for direct review by this Court. We will affirm the Board's decision.

ISSUES

[¶ 2] Sinclair presents two issues:

1. Because the parties have stipulated that the Hydrocracker and Number Two Reformer at Sinclair's Wyoming refineries are “machinery” entitled to the manufacturing exemption found in Wyo. Stat. Ann. § 39-15-105(a)(viii)(O), are the concrete related materials also considered exempt machinery because they were purchased by Sinclair and subsequently incorporated into the foundation[s] of the exempt machinery?

2. Assuming arguendo that the concrete related materials were not tangible personal property at the moment of “sale” as defined in Wyo. Stat. Ann. § 39-15-101(a)(vii), but instead were “real property” as defined in Wyo. Stat. Ann. § 39-15-101(a)(v), should Sinclair be entitled to a refund because real property is not subject to excise tax?

The Department synthesizes the dispute into a single issue:

Did the State Board of Equalization correctly conclude that the manufacturing machinery tax exemption established pursuant to Wyo. Stat. Ann. § 39-15-105(a)(viii)(O) does not apply to materials purchased and used to construct embedded concrete foundations for machinery used to manufacture?

FACTS

[¶ 3] In 2005, ¹ Sinclair installed a new hydrocracker at its petroleum refinery in Sinclair, Wyoming. The hydrocracker is a large piece of equipment that “cracks” crude oil components into different saleable products such as diesel fuel, gasoline, and heavier products. The hydrocracker was designed to be installed on a large foundation. To construct the foundation, Sinclair purchased concrete, rebar, grout, and related components and materials. Sinclair paid a total of $19,118.05 in sales or excise tax when it purchased these materials. Sinclair excavated the site, drilled holes down to and into the bedrock, and placed fabricated concrete piers into the holes. A concrete cap and pedestal were poured on top. The hydrocracker was attached to the foundation with anchor bolts.

[¶ 4] In 2006, Sinclair installed a reformer at its refinery in Casper, Wyoming. A reformer is used to process long petroleum molecules into shorter molecules with higher octane levels. Like the hydrocracker, the reformer was designed to be installed on a large concrete foundation. Sinclair purchased the concrete, rebar, grout, and related materials to construct the foundation, and paid a total of $6,388.68 in sales or excise tax on these materials. This foundation was of a somewhat different design than the one for the hydrocracker, but the construction process was similar. After the foundation was completed, the reformer was bolted into place.

[¶ 5] The Department conducted tax audits of Sinclair in 2006. Sinclair and the Department were in agreement that the hydrocracker and reformer qualified for the sales tax exemption. During the audit process, however, Sinclair also claimed that the tax exemption applied to the materials it had purchased to construct the foundations for the hydrocracker and reformer. The Department disagreed. Sinclair appealed to the Board, which held an evidentiary hearing on September 9 and 10, 2008. The Board issued its decision on June 30, 2009, affirming the Department's determination. Sinclair appealed the Board's decision.

STANDARD OF REVIEW

[¶ 6] We review an administrative agency's decision following the provisions of the Wyoming Administrative Procedure Act, which provides, in pertinent part, that the reviewing court shall:

(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.

Wyo. Stat. Ann. § 16-3-114(c) (LexisNexis 2009). We affirm an agency's findings of fact if they are supported by substantial evidence. Dale v. S & S Builders, LLC, 2008 WY 84, ¶ 22, 188 P.3d 554, 561 (Wyo.2008). In this case, however, there is no real dispute over the facts. Rather, Sinclair claims that the Board incorrectly applied the law to those facts, so that the Board's legal conclusions are not in accordance with the law. “As always, we review an agency's conclusions of law de novo.” Id., ¶ 26, 188 P.3d at 561.

[¶ 7] The basic task before us is to interpret the statute establishing the tax exemption, Wyo. Stat. Ann. § 39-15-105(a)(viii), along with related provisions, to determine whether the Board correctly applied the statute to the largely undisputed facts. Statutory interpretation presents a question of law which we review de novo. Qwest Corp. v. State, 2006 WY 35, ¶ 8, 130 P.3d 507, 511 (Wyo.2006).

When interpreting statutes, we follow an established set of guidelines. First, we determine if the statute is ambiguous or unambiguous. A statute is unambiguous if its wording is such that reasonable persons are able to agree as to its meaning with consistency and predictability. Unless another meaning is clearly intended, words and phrases shall be taken in their ordinary and usual sense. Conversely, a statute is ambiguous only if it is found to be vague or uncertain and subject to varying interpretations.

BP America Production Co. v. Department of Revenue, 2006 WY 27, ¶ 20, 130 P.3d 438, 464 (Wyo.2006). If a statute is clear and unambiguous, we give effect to the plain language of the statute. Wyoming Dep't of Transportation v. Haglund, 982 P.2d 699, 701 (Wyo.1999); State ex rel. Wyo. Dep't of Revenue v. Union Pacific R.R. Co., 2003 WY 54, ¶ 12, 67 P.3d 1176, 1182 (Wyo.2003). Only if a statute is ambiguous will we resort to principles of statutory construction to determine the intent of the legislature. Qwest, ¶ 8, 130 P.3d at 511.

DISCUSSION

[¶ 8] Wyo. Stat. Ann. § 39-15-105(a)(viii) provides the sales tax exemption at issue here:

(viii) For the purpose of exempting sales of services and tangible personal property as an economic incentive, the following are exempt: ...

(O) Until December 31, 2010, the sale or lease of machinery to be used in this state directly and predominantly in manufacturing tangible personal property, if the sale or lease:

(I) Is to a manufacturer classified by the department under the NAICS code manufacturing sector 31-33;

(II) Does not include noncapitalized machinery except machinery expensed in accordance with section 179 of the Internal Revenue Code; and

(III) Is completed in the case of a sale, or executed in the case of a lease, on or after July 1, 2004.

Sinclair and the Department agree, and stipulated to the Board, that both the reformer at the Casper refinery and the hydrocracker at the refinery in Sinclair meet all of these statutory conditions, and qualify for the tax exemption.

[¶ 9] Using the applicable statutory definitions, Sinclair further argued to the Board that the concrete and related materials used to construct the foundations are also “machinery,” and therefore also qualify for the tax exemption. The definition of “machinery,” found in Wyo. Stat. Ann. § 39-15-101(a)(xx), includes:

all tangible personal property ... used to produce an article of tangible personal property. The term includes both the basic unit and any adjunct or attachment necessary for the basic unit to accomplish its intended function, the materials for the construction or repair of the machinery, and machine tools.

According to Sinclair, the reformer and hydrocracker are the basic units, but without foundations, neither piece of machinery could be operated safely and properly. The foundations, Sinclair maintains, fit the definition of an “adjunct or attachment necessary for the basic unit to accomplish its intended function.” Sinclair therefore contends that the foundations are included within the statutory definition of “machinery,” and the materials used to construct the foundations are eligible for the tax exemption.

[¶ 10] The Department did not dispute Sinclair's contention that the foundations could be considered attachments or adjuncts, and one Department witness agreed that the foundations were necessary for the machines to accomplish their intended functions. The Department maintained, however, that whether or not the foundations were attachments or adjuncts to the basic units, the foundations could not be considered “machinery” because they did not satisfy the initial phrase of the definition: “all tangible personal...