BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
UNION PACIFIC RAILROAD COMPANY )
FROM A FINAL AUDIT ASSESSMENT ) Docket No. 2000-67
DECISION BY THE DEPARTMENT )
OF REVENUE )
ORDER DENYING MOTION FOR RECONSIDERATION
THIS MATTER having come before the Board upon a Motion for
Reconsideration filed by the Wyoming Department of Revenue (DOR); a response in opposition
having been timely filed by the Union Pacific Railroad Company (Union Pacific); the Board
having considered the same and being fully advised in the premises; the Board does hereby
find and order as follows:
1. On December 19, 2001, the Board issued its Findings of Fact, Conclusions of Law,
Decision and Order in the above-entitled matter. In the Matter of the Appeal of Union
Pacific Railroad Company, Docket 2000-67 [hereinafter "UPRR Decision"]. At
issue was the nonpayment of sales tax for ballast used in the maintenance and construction
of railroad beds. Based on the evidence in the case, and the law pertaining to destination
sales, the Board found a distinction between ballast purchased for maintenance purposes,
and that purchased for construction needs, because of contractual differences in the point
of delivery. The Board ruled that the point of delivery determined the taxability of the
2. The DOR filed its Motion for Reconsideration on December 28, 2001. The motion was
timely filed pursuant to Chapter 2, Section 34(b) of the Rules of the State Board of
3. The DOR objects to that portion of the Board's decision that distinguished between
maintenance ballast and construction ballast. The DOR asks the Board to expunge two
paragraphs of the Conclusions of Law, Paragraphs 70 and 71, and Paragraph 4 of its Order.
The DOR further asks that the Union Pacific be required to pay sales tax on all purchases
of ballast occurring within the State of Wyoming. The DOR makes five arguments in support
of its motion. Although the DOR's motion amounts to little more than a re-argument of its
contention that all purchases of ballast by the Union Pacific are subject to state sales
tax, the Board will address each argument separately.
The Board's decision did not deprive the parties of due process or notice.
4. The DOR contends that it had no notice that the distinction between maintenance and
construction ballast was an issue in the case, or that such distinction would serve as the
basis for a portion of the Board's decision. The DOR misconstrues the Board's decision,
and mis-characterizes an evidentiary determination as an "issue."
5. Parties are entitled to know the nature of a case, and the matters that are in
dispute. Wyo. Stat. 16-3-107(b); White v. Board of Trustees, 648 P.2d 528 (Wyo. 1982),
cert. denied 459 U.S. 1107 (1983). In this case, the question of the taxability of
ballast purchased for first use outside the state was at issue throughout the audit, and
was clearly stated in the Notice of Appeal filed by the Union Pacific in February, 2000. [Notice
of Appeal]. The applicability of the law of destination sales was argued by the
Union Pacific in its Summary of Contentions, filed two months prior to the hearing. [Petitioner's
Updated Summary of Contentions, Paragraphs 1, 4]. The DOR refuted this contention
in its own filings. [Wyoming Department of Revenue's Updated Summary of
Contentions, Paragraphs 7 - 8]. Thus, the issue of the location of the
ballast sales, and the subsequent taxability of those sales, was clearly articulated by
and to the parties from the inception of this case. As in the case of Bruns v. TW
Services, Inc., 36 P.3d 508, 616, 2001 WY 127, 23, the "pleadings gave the
parties notice of the nature of claims and defenses, permitted the issues to be narrowed,
and guided all concerned in the conduct of the case." The DOR received adequate
notice to "permit [its] informed response." Id.
6. The Board's decision in this case turned on a factual distinction: the
contractual point of delivery as determining the applicability of the law of destination
sales, and thus the taxability of the ballast. The evidence presented in this case, both
oral and written, showed a difference in the handling of maintenance and construction
ballast. This difference affected the application of the relevant law, and thus the
taxability of the ballast.
7. The Board must resolve each case on the basis of the evidence in the record, and the
applicable law. In this matter, the taxability of the ballast was the issue. The DOR
argued that all of the ballast was taxable. Conversely, the Union Pacific consistently
contended that shipments of ballast purchased for first use outside of Wyoming were exempt
from sales tax. The fact that the parties took opposing "all or nothing"
positions on the issue of taxability did not mean the Board was required to adopt either
position in its entirety. Furthermore, the fact that the application of relevant law to
the evidence in the case resulted in an outcome with which the DOR does not agree, does
not make an "issue" out of a factual distinction, nor does it constitute a
"lack of notice" or deprivation of due process.
The Board made appropriate findings of fact to support its decision.
8. The DOR expends much effort arguing that the Board failed to make the required
findings of fact to support its distinction between maintenance and construction ballast.
The DOR simply ignores a portion of the Findings on this very issue.
9. In Paragraphs 41 and 42 of its decision, the Board makes specific findings regarding
the two types of ballast. Additional findings related to the purchase and shipment of the
ballast, and to the contractual arrangements made by the Union Pacific for such purchase
and shipment, are set forth in Paragraphs 36 through 40. The Board thus fulfilled its duty
to make "findings of fact and conclusions of law separately stated." Wyo.
The Board did not create an "exception" between actual and constructive
10. The DOR contends that the Board created an "exception" between actual and
constructive possession. The DOR misreads paragraph 70 of the decision, which states:
70. Based on the evidence presented, we find a distinction, for tax purposes, between ballast purchased for construction projects, and ballast purchased for maintenance. Construction ballast purchased under the Amendment to the Ballast Sales Agreement is not subject to sales tax. Pursuant to the Amendment, title and constructive possession of the ballast passes to Petitioner at specified destinations, not at the quarry in Laramie County, Wyoming. Petitioner's transportation of this ballast by regular rail car is as a common carrier pursuant to the Rail Transportation Contract. Thus, the purchases of this ballast does not occur in Wyoming, and no sales tax is due. However, Petitioner must pay use tax at the time and place where the construction ballast is first used.
11. The Board does agree, however, that the use of the term "constructive
possession" in Paragraph 70 is confusing, if not in fact incorrect. The Board's
findings correctly state that "the Ballast Sales Agreement . . . provide[s] that
constructive possession and title to the ballast remained with Granite Canyon Quarry until
the ballast was delivered to Petitioner at delivery points designated by Petitioner. [Petitioner
Exhibit 101]. The purpose of the change was to clearly show that title to the
ballast passed at the ballast delivery location at the job site. [Tr. p. 147]."
UPRR Decision, Paragraph 37. Thus, the evidence and findings are clear that
constructive possession of construction ballast remained with the quarry, until the Union
Pacific took actual possession at the specified destination, the job
12. Because there is a disparity between the findings in Paragraph 37 and the language
of Paragraph 70, the Board will amend Paragraph 70. The only change is in the third
sentence, in which the word "constructive" is corrected to "actual." A
separate order amending the paragraph will be issued, so that it will read as follows:
70. Based on the evidence presented, we find a distinction, for tax purposes, between ballast purchased for construction projects, and ballast purchased for maintenance. Construction ballast purchased under the Amendment to the Ballast Sales Agreement is not subject to sales tax. Pursuant to the Amendment, title and actual possession of the ballast passes to Petitioner at specified destinations, not at the quarry in Laramie County, Wyoming. Petitioner's transportation of this ballast by regular rail car is as a common carrier pursuant to the Rail Transportation Contract. Thus, the purchases of this ballast does not occur in Wyoming, and no sales tax is due. However, Petitioner must pay use tax at the time and place where the construction ballast is first used.
The Board's decision does not result in an arbitrary and unreasonable outcome.
13. The DOR contends that implementation of the Board's decision will result in
"arbitrary and unreasonable outcomes." The DOR's argument is without merit,
based as it is on a misreading of Paragraphs 70 and 71.
14. The DOR argues that the distinction between maintenance and construction ballast
hinges on how quickly it is used after it is loaded on to the railroad cars. This
"timing" factor simply is not a component of the Board's decision. The decision
clearly states that the determinative factor is whether, at the time the ballast is
loaded, its destination and use are known. If it is construction ballast with a specified
"f.o.b. destination," it is a destination sale, subject to taxation at the point
of delivery. If the ballast is for future use at an unknown location, it is maintenance
ballast. Title to maintenance ballast passes to the Union Pacific at the quarry, and
maintenance ballast is subject to sales tax. UPRR Decision, Paragraphs 70 - 71; Order
15. The DOR's numerous rhetorical questions, based as they are on a complete misreading
of the Board's decision, do not constitute any basis for overturning the decision.
Furthermore, the DOR's complaints about the difficulty in reporting and auditing pursuant
to the Board's decision ignore the fact that Wyoming is a self-reporting state, and the
burden is on the taxpayer to both report accurately and to keep proper and adequate
records to support its filings. Wyo. Stat. 39-15-107, 39-15-107.1.
16. Finally, the tone of the DOR's argument that the Union Pacific may not actually
deliver the ballast to an out-of-state destination pursuant to the Ballast Sales
Agreement, evinces a significant level of mistrust of the taxpayer. The Board notes that
the taxpayer is under oath when it files its tax returns, and those returns are subject to
verification by the Department of Audit. Wyo. Stat. 9-2-2003(e). The Department
of Audit, in turn, has the ability to utilize investigative subpoenas for the production
or disclosure of books, records and documents. Wyo. Stat. 9-2-2003(g)(iv). Thus,
it would not seem particularly difficult for the Department of Audit to verify whether or
not ballast was in fact delivered in accordance with the sales agreements. The Ballast
Sales Agreement is the best evidence of destination sales on the record before this Board.
If there is no express delivery point evidenced by a sales contract or invoice, then the
DOR may infer that the sale did, in fact, occur in Wyoming, and sales tax is due and owing
The Board correctly applied the law of destination sales.
17. The DOR argues that the Board misapplied the law, and thereby created a
"constructive possession" exemption from taxation. As noted above, in paragraphs
9 through 11, the use of the term "constructive possession" was confusing and
will be corrected. Thus the Board did not create any tax exemption. Furthermore, the Board
correctly applied the law of destination sales.
18. The cases upon which the Board relied in its decision stand for the proposition
that the intent of the parties as to the point of delivery, and the f.o.b. designation in
the contracts or sales agreements, are controlling in determining the applicability of the
law of destination sales. In State Board of Equalization v. Blind Bull Coal Co., 55
Wyo. 438, 101 P.2d 70 (1940), for example, the stipulated facts showed that the sales
were made, and all coal "delivered to and received by" the purchasers in Lincoln
County. Furthermore, the stipulation provided that there was no evidence in the coal
company's records that the coal was purchased for transportation out of state nor that any
purchaser had claimed a destination sale exemption. Id., 101 P.2d at 71.
Similarly, in Morrison-Knudson Co., Inc. v. State Board of Equalization, 58 Wyo. 500,
135 P.2d 927 (1943), the vendors specifically stated that all sales were to be
"f.o.b. Parco, Wyoming," and thus, absent "any intention to the
contrary," the delivery was within Wyoming. Id., 135 P.2d at 933-934. In
these cases, then, the place of delivery was, by contract and intent of the parties,
within Wyoming, and thus the sales were subject to tax.
Conversely, the evidence in this case clearly demonstrated that the sale of
construction ballast from the Granite Canyon Quarry to the Union Pacific was "f.o.b.
destination." Consistent with previous Wyoming cases, the intent of the
parties was to deliver the ballast to the destination, at which point the title
In this instance, the evidence further demonstrated that the Union Pacific was acting
as a common carrier. The law of destination sales clearly provides that under such
circumstances, the purchase in Wyoming is not subject to sales tax.
19. The DOR has failed to demonstrate that reconsideration should be granted on any of
the grounds set forth in Chapter 2, Section 34(b) of the Rules of the State Board of
Equalization. There was no irregularity in the proceedings; no fraud, misrepresentation or
other misconduct by a party; no error in any valuation, assessment or calculation within
the order; no newly discovered material evidence was alleged; nor was there any error of
law within the decision.
For the foregoing reasons, it is hereby ordered that the Motion for
Reconsideration filed by the DOR shall be and is denied. It is further
ordered that the opinion of the Board shall be amended by the deletion of the original
paragraph 70, and the inclusion of the corrected paragraph 70, as set forth in this order
and in a separate Order Amending Decision which shall be contemporaneously issued.
DATED this 26th day of March, 2002.
STATE BOARD OF EQUALIZATION
Edmund J. Schmidt, Chairman
Roberta A. Coates, Vice Chairman
Sylvia Lee Hackl, Member
Wendy J. Soto, Executive Secretary