WYODAK RESOURCES DEV. v. BD. OF EQUAL.

• Citation: 9 P.3d 987
• Decision Date: 14 August 2000
• Docket Number: No. 99-251.,99-251.
• Parties: WYODAK RESOURCES DEVELOPMENT CORP., Appellant (Petitioner), v. The STATE BOARD OF EQUALIZATION, for the State of Wyoming, and the Wyoming Department of Revenue, Appellees (Respondents).
• Court: United States State Supreme Court of Wyoming

9 P.3d 987

WYODAK RESOURCES DEVELOPMENT CORP., Appellant (Petitioner), v. The STATE BOARD OF EQUALIZATION, for the State of Wyoming, and the Wyoming Department of Revenue, Appellees (Respondents).

No. 99-251.

Supreme Court of Wyoming.

August 14, 2000.

Representing Appellant: Timothy L. Thomas of Morrill Thomas Nooney & Braun, LLP, Rapid City, South Dakota.

Representing Appellee: Vicci Colgan, Chief Deputy Attorney General; Rowena L. Heckert, Deputy Attorney General; and Karl D. Anderson, Assistant Attorney General.

Before LEHMAN, C.J., and THOMAS, MACY,¹ GOLDEN and HILL, JJ.

MACY, Justice.

Appellant Wyodak Resources Development Corp. (Wyodak) appealed to the State Board of Equalization² from the Department of Audit's findings that were adopted by Appellee Wyoming Department of Revenue. The audit involved Wyodak's coal mining operations at its Campbell County mine from 1990 through 1992 and resulted in an increased taxable value of coal production for ad valorem tax purposes for the period. The State Board of Equalization affirmed, and Wyodak appealed to the district court. The district court certified the case to the Wyoming Supreme Court pursuant to W.R.A.P. 12.09(b).

We affirm.

ISSUES

Wyodak presents a single issue for our review:

I. Did the Wyoming State Board of Equalization err in affirming the Department of Revenue determination that Petitioner's road move expenses incurred during coal production years 1990-1992 were direct mining costs rather than indirect costs for purposes of valuing Petitioner's coal production during those same years under Wyo. Stat. § 39-2-209(d)?

FACTS

Wyodak operated a surface coal mine near Gillette. In 1951, it granted a right-of-way to the State of Wyoming across a portion of its property to be used as a section of State Highway 51. Under the terms of the agreement, Wyodak reserved the right to mine the coal located under and around the right-of-way so long as it provided an adequate detour satisfactory to the state at its own expense.

In 1988, Wyodak became interested in mining the coal under and around the right-of-way, and it entered into an agreement with the State Highway Commission of Wyoming to relocate the highway. The highway was moved, and, in 1989, Wyodak reported $687,975 of indirect costs associated with this relocation in valuing its coal production for tax purposes.

In its 1990 production year, Wyodak reported an additional $54,525 of expenses that were associated with this relocation and again classified them as indirect costs. In 1991, Wyodak accrued $750,839 in expenses that it intended to use to fund and construct the permanent replacement of the highway, which actually would not occur until sometime in the future. Wyodak classified these accrued amounts as indirect costs.

In December of 1991, Wyodak sent a letter to the Wyoming Highway Department wherein it explained that it planned to begin hauling overburden on State Highway 51 across the first temporary relocation. Wyodak requested approval for a second temporary relocation of the highway so that it could "maximize the removal of coal affected by State Highway 51" pursuant to the 1988 agreement. The Wyoming Transportation Commission denied Wyodak's proposed temporary detour but suggested an alternative detour, which Wyodak accepted and constructed in 1992. In 1992, Wyodak reported $586,026 in indirect mining costs for the expenses related to this second temporary relocation.

In 1995, the Department of Audit audited Wyodak's operations for the period of 1990 through 1992. On the basis of Wyo. Stat. Ann. § 39-2-209(d)(ii) (Michie 1997) (repealed & recreated at § 39-14-103(b)(vii)(B) in 1998), the Department of Audit disagreed with Wyodak's classification of the 1990, 1991, and 1992 costs associated with the relocation of State Highway 51 as indirect mining costs and reclassified them as direct costs for the purpose of production tax valuation. The Department of Audit's findings resulted in increased severance taxes for the years 1990 through 1992, and the Department of Revenue issued a final assessment notice for the severance tax underpayments.

Wyodak appealed from this assessment to the State Board of Equalization, arguing that the costs should be classified as indirect mining costs. The State Board of Equalization affirmed the classification of the costs as direct mining costs, and Wyodak appealed to the district court. The district court certified the case to the Wyoming Supreme Court pursuant to W.R.A.P. 12.09(b).

STANDARD OF REVIEW

When an administrative decision is certified to the Wyoming Supreme Court pursuant to W.R.A.P. 12.09(b), we apply the appellate standards which are applicable to the court of the first instance. Petroleum Inc. v. State ex rel. State Board of Equalization, 983 P.2d 1237, 1239 (Wyo.1999). Wyo. Stat. Ann. § 16-3-114(c) (LEXIS 1999) governs judicial review of administrative decisions. W.R.A.P. 12.09(a); Everheart v. S & L Industrial, 957 P.2d 847, 851 (Wyo.1998). If substantial evidence supports an agency's findings, we will not substitute our judgment for that of the agency. Peter Kiewit Sons' Co. v. Sheridan County Board of Commissioners (In re Dunning), 982 P.2d 704, 707 (Wyo.1999). If the agency's conclusions of law are in accordance with the law, this Court will affirm them. Corman v. State ex rel. Wyoming Workers' Compensation Division, 909 P.2d 966, 970 (Wyo.1996). When an agency has not invoked or properly applied the correct rule of law, we will correct the error. Petroleum Inc., 983 P.2d at 1239.

DISCUSSION

The single issue to be resolved in this case is whether the expenses associated with the movement of State Highway 51 should be classified as direct or indirect costs in the computation of the taxable value of Wyodak's coal production. Of significant impact on our analysis of this case is the 1988 agreement Wyodak entered into with the State Highway Commission regarding the extraction of the coal beneath and surrounding the right-of-way. That agreement provided in pertinent part:

Under the terms of the right-of-way easement the grant is subject to a condition and reservation of the grantor, the successor in interest of which is the Company, wherein the grantor reserved the right to own and mine the coal by either underground or surface operations as located under and around State Highway 51 and right-of-way; provided, the right to mine is on the condition that the grantor at its own cost and expense shall first provide a detour satisfactory to the State for use by the public as a highway in lieu of the portion of said right-of-way which would be rendered unsafe or unfair for public highway purposes because of the mining operations, and that upon completion of such operations, the grantor is to replace the highway at a similar or same location.

The legislature provided significant guidance for the determination of whether costs incurred by a coal producer are direct or indirect mining costs when it enacted Wyo. Stat. Ann. § 39-2-209(d) (Michie 1997) (repealed & recreated at § 39-14-103(b)(vii)(A-D) & § 39-14-101(a)(viii) in 1998). Under this statute, which applied to all mineral production on or after January 1, 1990, the terms "direct costs" and "indirect costs" were specifically defined. Before its repeal and recreation in 1998, § 39-2-209(d) provided in pertinent part:

(d) For coal sold away from the mouth of the mine pursuant to a bona fide arms-length sale, the department shall calculate the fair cash market value of coal by multiplying the sales value of extracted coal, less transportation to market provided by a third party to the extent included in sales value, all royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees, by the ratio of direct mining costs to total direct costs. Nonexempt royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees shall then be added to determine fair market value. For purposes of this subsection:

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(ii) Direct mining costs include mining labor including mine foremen and supervisory personnel whose primary responsibility is extraction of coal, supplies used for mining, mining equipment depreciation, fuel, power and other utilities used for mining, maintenance of mining equipment, coal transportation from the point of severance to the mouth of the mine, and any other direct costs incurred prior to the mouth of the mine that are specifically attributable to the mining operation;

(iii) Total direct costs include direct mining costs determined under paragraph (ii) of this subsection plus mineral processing labor including plant foremen and supervisory personnel whose primary responsibility is processing coal, supplies used for processing, processing plant and equipment depreciation, fuel, power and other utilities used for processing, maintenance of processing equipment, coal transportation from the mouth of the mine to the point of shipment, coal transportation to market to the extent included in the price and provided by the producer, and any other direct costs incurred that are specifically attributable to the mining, processing or transportation of coal up to the point of loading for shipment to market;

(iv) Indirect costs, royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees shall not be included in the computation of the ratio set forth in this subsection. Indirect costs include but are not limited to allocations of corporate overhead, data processing costs, accounting, legal and clerical costs, and other

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