State ex rel. Wyo. Dept. of Revenue v. UPRC

• Decision Date: 30 April 2003
• Docket Number: No. 02-91., No. 02-70
• Citation: 67 P.3d 1176,2003 WY 54
• Parties: The STATE of Wyoming by and through the WYOMING DEPARTMENT OF REVENUE, Appellant (Petitioner), v. UNION PACIFIC RAILROAD COMPANY, Appellee (Respondent). Union Pacific Railroad Company, Cross-Appellant (Cross-Petitioner), v. The State of Wyoming by and through the Wyoming Department of Revenue, Appellee (Respondent).
• Court: Wyoming Supreme Court

67 P.3d 1176

2003 WY 54

The STATE of Wyoming by and through the WYOMING DEPARTMENT OF REVENUE, Appellant (Petitioner), v. UNION PACIFIC RAILROAD COMPANY, Appellee (Respondent).

Union Pacific Railroad Company, Cross-Appellant (Cross-Petitioner), v. The State of Wyoming by and through the Wyoming Department of Revenue, Appellee (Respondent).

Nos. 02-70, 02-91.

Supreme Court of Wyoming.

April 30, 2003.

Hoke MacMillan, Attorney General; John W. Renneisen, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; and Cathleen D. Parker, Assistant Attorney General, Representing Appellant State, Dep't of Rev. Argument by Ms. Parker.

Gregory C. Dyekman of Dray, Thomson & Dyekman, P.C., Cheyenne, WY, Representing Appellee Union Pacific Railroad Co. Argument by Mr. Dyekman.

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

LEHMAN, Justice.

[¶ 1] This case involves review of a decision of the State of Wyoming, Board of Equalization (SBOE) regarding purchases of ballast from a quarry located in Laramie County, by Respondent/Cross-Petitioner Union Pacific Railroad Company (UPRC). After hearing, SBOE ruled that sales tax did not need to be paid by UPRC with respect to purchases of "construction" ballast since these purchases constituted destination sales. However, SBOE ruled that sales tax must be paid by UPRC with respect to its purchases of "maintenance" ballast. In addition, SBOE ruled that the UPRC "authority" had been properly revoked by DOR.

[¶ 2] A petition for review was filed by both parties in the First Judicial District Court in Laramie County, and later certified before this court. Upon our review, we affirm.

ISSUES

[¶ 3] Petitioner/Cross-Respondent State of Wyoming, Department of Revenue (DOR) sets forth the following issues regarding its petition:

1. Did the [SBOE] incorrectly hold that the purchase of "construction" ballast in the State of Wyoming was not taxable pursuant to Wyo. Stat. §§ 39-15-101(a)(vii) and 39-15-103(a)(i)(A)?

2. Was the [SBOE's] decision to except "construction" ballast from taxation supported by substantial evidence as required by the Wyoming Administrative Procedure Act?

3. Did the [SBOE] fail to follow procedures required by law when it raised, sua sponte, factual and legal issues regarding the distinction between "construction" and "maintenance" ballast?

UPRC counters with these stated issues:

1. The [SBOE's] decision concerning taxability of "construction" ballast was consistent with the Wyoming law of "destination sales" and supported by substantial evidence.

2. The [SBOE's] distinction between "construction" and "maintenance" ballast was based upon the evidence and arguments of the parties at the hearing and not a "new issue."

UPRC, in its petition, phrases the issue as:

Did the [SBOE] err in concluding that [DOR] adequately and properly revoked [UPRC's] "authority" concerning sales and use taxes effective June 1, 1998 by complying with the requirements set out in the [SBOE's] 1991 decision In the Matter of the Appeal of Union Pacific Railroad Company, Wyoming Board of Equalization Docket Nos. 88-110 and 89-61 (1991)?

DOR sets forth the issues to be addressed on UPRC's petition as:

1. Did the [SBOE] correctly hold that the retail purchase of ballast was taxable in the State of Wyoming?

2. Did the [SBOE] correctly determine that the [SBOE] did not have the statutory authority to direct [DOR] in the revocation of [DOR's] tax policy?

3. Did the [SBOE] correctly hold that [DOR] properly revoked [UPRC's] authority to purchase ballast tax free in the State of Wyoming?

FACTS AND HISTORICAL BACKGROUND

[¶ 4] Ballast is crushed granite rock used to construct or maintain railroad beds. UPRC is involved in the purchase of ballast in Laramie County in two different ways. In some instances, ballast is bought for construction purposes, and UPRC acts as a common carrier delivering the ballast to the ultimate user of the product. This type of purchase is made pursuant to a contract between the vendor and the ultimate user that calls for acceptance of the ballast upon inspection at the time of delivery outside of Wyoming.¹ At the time of sale, this ballast is designated solely for use outside of Wyoming.² In other instances, UPRC purchases ballast for maintenance purposes without a specific contract in place, and the ballast is retained by UPRC until an end use is discovered for the product.³

[¶ 5] In 1975, DOR granted UPRC an exemption from paying sales tax on its purchase of inventory, including ballast, within Wyoming. Rather, UPRC was required to pay a "use" tax to the state where the inventory, including ballast, was removed from inventory for use, if such a tax was imposed by that particular state. Therefore, when ballast was used in Wyoming by UPRC, UPRC was required to pay use tax to Wyoming. This exemption was known as the UPRC "authority."

[¶ 6] During a meeting on June 17, 1997, Johnnie Burton, Director of DOR, advised UPRC that DOR had no statutory authority to agree to the UPRC "authority" and that the UPRC "authority" would not be continued. In subsequent meetings between DOR and UPRC, DOR again expressed that the UPRC "authority" had been revoked. This revocation was confirmed by UPRC. On March 12, 1998, the legislature enacted a direct pay statute, Wyo. Stat. Ann. § 39-15-107.1. During consideration of this legislation, UPRC lobbied for an amendment that would provide statutory authority for the UPRC "authority." However, the requested language suggested by UPRC was not included in Wyo. Stat. Ann. § 39-15-107.1.

[¶ 7] The State of Wyoming, Department of Audit (DOA) audited UPRC for the period of April 1, 1996, through March 31, 1999. After the audit, DOR sent UPRC a final determination letter dated January 10, 2000, assessing UPRC a tax deficiency of $1,211,814.15 for ballast purchases. In November of 2000, Dan Noble, Administrator of the Excise Tax Division of DOR, adjusted the audit assessment to include only ballast purchased after June 1, 1998. This adjustment reduced the tax assessment to $661,428.70 plus interest and penalty. In making this adjustment, DOR determined that the UPRC "authority" had clearly been revoked in writing on April 29, 1998.

STANDARD OF REVIEW

[¶ 8] In Sinclair Oil Corp. v. Public Serv. Comm'n, 2003 WY 22, ¶¶ 6-8, 63 P.3d 887, ¶¶ 6-8 (Wyo.2003), we set forth:

Our review of administrative decisions is guided by the standards set forth in Wyo. Stat. Ann. § 16-3-114(c):

(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 Newman v. State ex rel. Workers' Safety & Compensation Div., 2002 WY 91, ¶ 9, 49 P.3d 163,

¶ 9 (Wyo.2002) and McTiernan v. Scott, 2001 WY 87, ¶ 11, 31 P.3d 749, ¶ 11 (Wyo.2001).

We further enunciated in Powder River Coal Co. v. State Bd. of Equalization, 2002 WY 5, ¶ 5, 38 P.3d 423, ¶ 5 (Wyo.2002):

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).

In addition, in Powder River Coal Co., at ¶ 6 (citing Chevron U.S.A., Inc. v. State, 918 P.2d 980, 983 (Wyo.1996) and State by and through Dep't of Rev. v. Buggy Bath Unlimited, Inc., 2001 WY 27, ¶ 6, 18 P.3d 1182,

¶ 6 (Wyo.2001)), we noted when this court reviews questions of law posed in an administrative context, this court must conduct a de novo review. We affirm an agency's conclusions of law when they are in accordance with the law. However, when the agency has failed to properly invoke and apply the correct rule of law, we correct the agency's error. Id. See also State ex rel. Workers' Safety & Compensation Div. v. Garl, 2001 WY 59, ¶¶ 8-9, 26 P.3d 1029, ¶¶ 8-9 (Wyo.2001).

When issues are presented to us concerning whether there exists substantial evidence in the record to support the administrative decision, we have described substantial evidence as: "relevant evidence which a reasonable mind might accept in support of the conclusions of the agency." McTiernan v. Scott, at ¶ 11.

The substantial evidence standard also requires that there be more than a scintilla of evidence. It is not required that the proof attain such a degree of certainty as to support only one conclusion to the exclusion of all others. Once the measure of evidence has surpassed the scintilla threshold, the possibility of drawing two inconsistent conclusions from the entire record does not mean that the conclusion drawn by the administrative agency is not supported by substantial evidence. Even where this court, after

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