Wyodak Resources Development Corp. v. Wyoming Dept. of Revenue

• Decision Date: 17 December 2002
• Docket Number: No. 01-249.,01-249.
• Citation: Wyodak Resources Development Corp. v. Wyoming Dept. of Revenue, 60 P.3d 129, 2002 WY 181 (Wyo. 2002)
• Parties: WYODAK RESOURCES DEVELOPMENT CORPORATION, Appellant (Petitioner), v. WYOMING DEPARTMENT OF REVENUE, Appellee (Respondent).
• Court: Wyoming Supreme Court

60 P.3d 129

2002 WY 181

WYODAK RESOURCES DEVELOPMENT CORPORATION, Appellant (Petitioner), v.WYOMING DEPARTMENT OF REVENUE, Appellee (Respondent).

No. 01-249.

Supreme Court of Wyoming.

December 17, 2002.

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

Hoke MacMillan, Attorney General; Rowena L. Heckert, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; and Karl D. Anderson, Senior Assistant Attorney General, Representing Appellee.

Before HILL, C.J., and GOLDEN, LEHMAN,¹KITE, and VOIGT, JJ.

KITE, Justice.

[¶ 1]Wyodak Resources Development Corporation(Wyodak) challenged the valuation of coal produced from its mine in Campbell County for the years 1992 through 1995, 1998, and 1999.Most of Wyodak's coal is sold under one long term contract with the joint owners of the nearby Wyodak power plant: Black Hills Corporation(Black Hills)—Wyodak's parent company—and PacifiCorp.Historically, Wyodak reported the value of the gross product sold to its parent company based upon the price it received under that contract.However, in 1997, Wyodak began claiming that, because the sale to Black Hills was not an arms length transaction, Wyo. Stat. Ann. § 39-14-103(b)(viii)(LexisNexis 2001)² provided spot market prices must be used to determine the fair market value of that coal.³This approach yielded a lower value resulting in a lower tax obligation.The Wyoming Department of Revenue(DOR) rejected Wyodak's position for years 1992 through 1995 on res judicata and other procedural grounds, and, for years 1998 and 1999, DOR determined the statutes did not allow use of spot market prices to determine the value of coal sold under this long term contract.The State Board of Equalization(SBOE) upheld DOR's decision.We affirm in part on somewhat different grounds and reverse in part.

ISSUES

[¶ 2] Wyodak presents these issues:

1.Whether the board erred in holding that petitioner's claim for refund of severance taxes paid for the 1992 coal production year is barred by the doctrines of res judicata and claim preclusion.

2.Whether the board erred in holding that petitioner waived its right to request refunds of severance taxes paid for coal production years 1993, 1994 and 1995 by failing to appeal from the original notices of valuation within 30 days.

3.Whether the board erred in holding that petitioner is barred by the doctrine of laches from challenging the valuation method used by the department in issuing notices of valuation for coal production years 1992, 1993, 1994 and 1995.

4.Whether the board erred in upholding the department's position that the nonarms-length sales of coal between petitioner and its parent company, Black Hills Corporation, cannot be valued under Wyo. Stat. Ann. § 39-2-209(e) or its identical successor statute.

5.Whether the board erred in holding that the department properly valued the sales of coal from petitioner to the Wyodak power plant for the use of both Black Hills Corporation and PacifiCorp for coal production years 1995, 1998 and 1999 as mine mouth sales under Wyo. Stat. Ann. § 39-2-209(b) and its identical successor statute.

6.Whether the board erred in holding that the department may use an alternate valuation method under Wyo. Stat. Ann. § 39-2-202(d) for production years 1993, 1994, 1995, 1998 and 1999 when coal is specifically required to be valued under Wyo. Stat. Ann. § 39-2-209 and its identical successor statute.

7.Whether the board erred in affirming or upholding the department's valuation of coal sold by petitioner in non-arms-length sales to Black Hills Corporation's plants other than the Wyodak power plant when the valuation was based upon the transfer price between related entities.

8.Whether the board erred in holding that the sale transactions used by petitioner's coal valuation expert were not comparable contracts under Wyo. Stat. § 39-2-209(e).

Responsively, DOR frames the issues in the following manner:

1.Could Wyodak, which had previously appealed and fully litigated its 1992 coal valuation, raise new valuation issues concerning its 1992 production, or do the doctrines of res judicata, claim preclusion and waiver bar such new claims?

2.Was Wyodak, after it knowingly and intentionally did not timely appeal the Department's notices of valuation as required by statute, permitted to challenge the Department's valuation methodology through refund requests?

3.Under the facts of this case, was Wyodak permitted to value its non-arms-length coal sales to parent company Black Hills, using a spot market average price pursuant to WYO. STAT. § 39-2-209(e), and its identical recodification, which required that comparable long-term or spot market sales of like quality, quantity, terms and conditions be used?

4.Did the Department properly value Wyodak's coal sales to Pacificorp and parent company Black Hills for production years 1995, 1998 and 1999, as mine mouth sales pursuant to WYO. STAT. § 39-2-209(b) and its recodification, WYO. STAT. § 39-14-103(b)(v)?

5.In the event that no methodology pursuant to WYO. STAT. § 39-2-209, or its recodification, WYO. STAT. § 39-14-103, applies or renders a fair market valuation for taxation purposes, may the Department alternatively use recognized appraisal techniques pursuant to WYO. STAT. § 39-2-202(d), recodified asWYO. STAT. § 39-14-102(c)?

6.Assuming a recognized appraisal technique could be used pursuant to WYO. STAT. § 39-2-202(d) and its recodification, could the Department value Wyodak's coal sales to parent Black Hills using Wyodak's arms-length sales to Pacificorp, under the same contract, as a comparable to determine the revenue number, and then perform a proportionate profits calculation to derive taxable value?

FACTS

[¶ 3] Wyodak sells most of the coal it produces to the owners of the power plant located immediately adjacent to the mine.PacifiCorp owns eighty percent of the plant, and Black Hills—Wyodak's parent company—owns twenty percent.In 1987, Wyodak entered into a coal supply agreement with the two companies which provided for the sale to them of all coal required to fuel the plant for twenty-six years in proportion to their respective interest in the plant.Pursuant to the applicable statutes and regulations, Wyodak filed annual reports of the value of the gross product it produced for use by DOR in determining the appropriate assessment for ad valorem tax and severance tax purposes.Wyo. Stat. Ann. § 39-14-107(LexisNexis 2001).Until 1997, Wyodak filed its gross product reports using the contract price it received for the coal from PacifiCorp and Black Hills.From 1992 through 1995, that price ranged from $9.57 per ton to $10.33 per ton.Each year, DOR issued its Notice of Valuation (NOV), and Wyodak paid its taxes based upon those reported values.

[¶ 4] DOR conducted an audit of certain Wyodak annual production reports including those filed for the 1992 tax year.Upon receipt of DOR's final determination and assessment, Wyodak filed an appeal with SBOE challenging DOR's treatment of the costs to relocate a state highway as direct mining costs.SBOE affirmed DOR's final determination, Wyodak appealed that decision to this court, and we also affirmed DOR's actions. Wyodak Resources Development Corp. v. State Board of Equalization, 9 P.3d 987(Wyo.2000).During the appeal process, Wyodak did not raise any other issue concerning the propriety of its previously reported gross product values.

[¶ 5] Beginning in 1997, Wyodak changed its position regarding gross value.First, it filed an amended gross product report and a request for refund for production year 1992.Ultimately, it filed amended reports and refund requests for 1993 through 1995, 1998, and 1999 production, claiming a lower gross product value for each year based on its interpretation of § 39-14-103(b)(viii) that spot market prices must be utilized to determine the value of nonarms length sales.In addition, it requested a refund of the taxes it contended were overpaid.DOR refused to process the amended production report and refund request for 1992 concluding they represented an effort to reopen that tax year which had been audited, appealed, and affirmed by SBOE and Wyodak had waived its right to appeal and change the valuation methodology with regard to that year.DOR contended the doctrine of res judicata precluded such an effort.DOR likewise rejected the amended production reports and requests for refund filed for the years 1993 through 1995.For these years, DOR concluded the statutory requirement that valuations be appealed within thirty days precluded later refund requests which raised issues that could have been raised in an appeal.Wyo. Stat. Ann. § 39-14-209(b)(iv)(LexisNexis 2001).

[¶ 6] DOR also rejected the spot market values Wyodak reported for 1998 and 1999 and instead issued NOVs which utilized the contract price.DOR took the position that spot market prices were not comparable to Wyodak's contract and, therefore, § 39-14-103(b)(viii) did not apply.Instead, DOR contended the sale was at the mouth of the mine and Wyo. Stat. Ann. § 39-14-103(b)(v)(LexisNexis 2001) applied or, in the alternative, it was entitled to utilize accepted appraisal techniques pursuant to Wyo. Stat. Ann. § 39-14-102(c)(LexisNexis 2001) which included use of comparable sales to value nonarms length sales and the PacifiCorp sale at the contract price was the most comparable.Wyodak appealed the 1998 and 1999 NOVs as well as DOR's refusal to process 1992 through 1995 amended production reports and requests for refund.SBOE consolidated all the appeals and held a three-day contested case hearing in January of 2001.

[¶ 7] At the hearing, in addition to contending § 39-14-103(b)(viii) was the exclusive method for valuing its coal production, Wyodak claimed the facts did not support a finding the sale occurred at the mouth of the mine.DOR contended a 1992...