BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL )
OF THE TERMO COMPANY )
FROM A FINAL PENALTY ) Docket No. 2000-77
ASSESSMENT BY DECISION )
BY THE DEPARTMENT OF REVENUE )
FINDINGS OF FACT
CONCLUSIONS OF LAW
DECISION AND ORDER
The Termo Company (Petitioner), Donna L. Sheaffer, Lands and
Department of Revenue (DOR), Cathleen C. Parker, Assistant Attorney General.
This matter was considered by Edmund J. Schmidt, Roberta A.
Coates and Ron Arnold, the State Board of Equalization (SBOE), on written
information and argument pursuant to a Briefing Order (Expedited Docket) dated
May 9, 2000. The appeal arises from the assessment of a penalty by DOR for late
filing of gross products returns (ATD-4 forms) on certain oil and gas properties
of Petitioner's for 1997 production.
The issue before the SBOE is:
Did Petitioner make a sufficient showing by a preponderance of credible evidence to refute the DOR's assessment of penalties?
Upon application of any person adversely affected, the SBOE is
mandated to review final DOR actions, including actions to certify taxable
mineral production and demand taxes, interest and penalties on such mineral
production. Wyo. Stat. 39-11-102.1(c). The SBOE shall "[h]old hearings
after due notice in the manner and form provided in the Wyoming Administrative
Procedure Act (Wyo. Stat. 16-3-101 through 16-3-115) and its own rules
and regulations of practice and procedures." Wyo. Stat. 39-11-102.1(c).
The SBOE is required to "[d]ecide all questions that may arise with reference
to the construction of any statute affecting the assessment, levy and collection
of taxes, in accordance with the rules, regulations, orders and instructions
prescribed by the department." Wyo. Stat. 39-11-102.1(a)(iv). The rules
of practice and procedure for appeals before the SBOE involving tax matters
contemplate appeals from final administrative decisions of the DOR. Rules,
Chapter 2, 3, Wyoming State Board of Equalization. The rules require
appeals be filed with the SBOE within thirty days of any final administrative
decision. Rules, Chapter 2, 5, Wyoming State Board of Equalization.
By letter dated February 28, 2000, the DOR initially assessed
Petitioner penalty in the sum of $27,753 for an eleven month delinquent late
filing of annual Gross Products tax reports (4000 Series), ATD-4 forms, for 1997
oil and gas production on certain properties. The Petitioner filed this appeal
challenging the assessment of this administrative penalty. Petitioner argues
that the appropriate forms were prepared and the employee who was assigned the
task of filing the gross products returns left her employment and the Petitioner
assumed the forms were filed at the time the returns were due. The Petitioner
also argues that staffing shortages due to declining oil prices in 1998,
combined with unfamiliarity of the procedures and reporting requirements under
Wyoming statutes caused delinquent filings. In addition, Petitioner argues they
are taking steps to assure prompt filing of reports in the future.
FINDINGS OF FACT
1. The DOR's penalty assessment letter was dated February 28,
2000. The attachment to DOR's penalty assessment letter contained an itemized
breakdown of the penalty per property as follows:
THIS SPACE INTENTIONALLY LEFT BLANK
Date Due: February 28, 2000
Penalty Date: December 28, 1998
|County #5||Property #||Product||Taxable
|Penalty @ 1%||Months
[SBOE Record, Department of Revenue Brief, Exhibit A].
2. The Petitioner filed its appeal letter on March 21, 2000.
3. Petitioner requested the SBOE vacate the penalty assessment because
Petitioner's employee responsible for filing gross product returns left
employment without filing the returns. The form was completed and the Petitioner
assumed the form was filed. The Petitioner stated there were staffing shortages
and an unfamiliarity with the procedures and reporting requirements under
Wyoming statutes. [SBOE Record].
4. The Board entered a Briefing Order (Expedited Docket), dated May 9, 2000,
which provided the following deadlines: Petitioner's opening brief to be filed
by June 12, 2000; Petitioner's request to rely upon letter of appeal to be filed
by June 12, 2000; DOR's brief to be filed by July 13, 2000; and any Petitioner
reply brief to be filed by July 27, 2000. [SBOE Record].
5. Petitioner filed a letter on June 12, 2000, indicating it would rely upon its original appeal letter of March 21, 2000, as its opening brief in the matter. [SBOE Record]
6. The DOR filed its response brief in a timely fashion on July 13, 2000.
7. Petitioner did not file a reply brief.
8. Because of Petitioner's late filed returns, the DOR incurred additional administrative expenses because the initial certified values to the counties had to be amended by issuing notice of valuation changes. [Hopson Affidavit, Exhibits E]
9. Petitioner never filed a return. The DOR relied on the best information
available, information from the Wyoming Oil and Gas Commission. The DOR
attempted to verify the information with the Petitioner by letter dated
September 23, 1998, however the Petitioner failed to respond. The DOR in a
letter dated December 8, 1998, advised the Petitioner that the value for gross
products would be increased. [Hopson Affidavit Para 5 and 6]
10. Any discussion above or Conclusion of Law below which includes a finding
of fact may also be considered a Finding of Fact and, therefore, is incorporated
herein by this reference.
CONCLUSIONS OF LAW
12. The letter of appeal by Petitioner was timely filed and the SBOE has
jurisdiction to determine this matter.
13. The applicable statutes which are determinative in this matter, provide
in relevant part:
Wyo. Stat. 39-14-209(d)(ii)
Returns and reports. The following shall apply:
(i) Annually, on or before February 25 of the year following the year of
production any person whose crude oil, lease condensate or natural gas
production is subject to W.S. 39-14-202(a) shall sign under oath and submit a
statement listing the information relative to the production and affairs of the
company as the department may require to assess the production;
Wyo. Stat. 39-14-208(d)(ii)
If any person fails to file the ad valorem report required by W.S.
39-14-207(a)(i) by the due date or any extension thereof, the department may
impose a penalty equal to a total of one percent (1%) of the taxable value of
the production from the well or property but not to exceed five thousand dollars
($5,000.00) for each calendar month or portion thereof that the report or
information is late. If any person fails to file reports and other information
required by rule of the department of revenue other than those required by W.S.
39-14-207(a)(v) or 39-14-207(a)(i), the department may impose a penalty of up to
one thousand dollars ($1,000.00). The department may waive penalties under this
subsection for good cause. Penalties imposed under this subsection may be
appealed to the state board of equalization.
14. Under the facts presented in this appeal, we conclude noncompliance could
have been avoided through the exercise of reasonable care. In fact, Petitioner
never filed a return but was assessed on information the DOR obtained from a
third party source, the Wyoming Oil and Gas Commission.
15. Wyo. Stat. 39-14-208(d)(ii) provides that, if "any person" fails
to file its annual report, then DOR may impose a penalty. Petitioner was a
"person" whose natural gas production was subject to taxation. The penalty
statute was created as a negative incentive to encourage natural gas producers
to file their annual gross products returns in a timely fashion.
16. The excuses given by Petitioner for its late filing were that an employee
responsible for filing the returns left employment without filing the returns,
staff shortages and unfamiliarity with Wyoming statutory procedures.
17. The SBOE has previously addressed the common principles and objectives
for penalty assessment and waiver that should be followed by the DOR. In the
Matter of the Appeal of Lario Oil & Gas Company, Docket No. A-89-215, (April 12,
1991), p.4. The Board recognizes the following as its penalty objective:
Administrative tax penalties exist for the purpose of encouraging voluntary
compliance and not for other purposes, such as the raising of revenues. For
penalties to be effective, similarly situated taxpayers should be treated
similarly. Penalties should be sufficient to deter noncompliance before it
happens and to encourage noncompliant taxpayers to correct noncompliance.
20. This penalty objective is not achieved without consideration of whether:
(a) noncompliance could have been avoided through the exercise of reasonable
(b) the penalty amount exceeds the bounds of reason under the circumstances. In the Matter of the Appeal of Lario Oil & Gas Company, Docket No.
A-89-215, (April 12, 1991), p.4.
21. The Supreme Court has previously upheld this Board's interpretation of
Wyo. Stat. 39-14-208(d)(ii), formerly W.S. 39-5-101(g), in
Petroleum, Inc. v. State of Wyoming ex rel. State Board of Equalization, 983
P.2d 1237, 1241 (1999). The statute clearly provides for "a penalty equal
to one percent (1%) of the taxable value of the production from the well or
property but not to exceed five thousand dollars ($5000.00) for each calendar
month or portion thereof that the report or information is late."
22. Because Petitioner failed to report the DOR assessed $27,753
in conformance with Wyo. Stat. 39-14-208(d)(ii).
22. The SBOE concludes the penalty assessed by the DOR is reasonable given
the failure to file the returns and the dollar amount of unreported oil and gas
production in this matter.
23. Petitioner has failed to carry its burden to show by a preponderance of
credible evidence that the DOR's penalty assessments were arbitrary, capricious,
an abuse of discretion or otherwise not in accordance with law.
THIS SPACE INTENTIONALLY LEFT BLANK
IT IS THEREFORE HEREBY ORDERED: the DOR penalty assessment of
$27,753.00, shall be, and is AFFIRMED.
Pursuant to Wyo. Stat. 16-3-114 and Rule 12, Wyoming Rules of
Appellate Procedure, any person aggrieved or adversely affected in fact by
this decision may seek judicial review in the appropriate district court by
filing a petition for review within 30 days of the date of this decision.
Dated this 11th day of August, 2000.
STATE BOARD OF EQUALIZATION
Edmund J. Schmidt, Chairman
Roberta A. Coates, Vice-Chairman
Ron Arnold, Member
Wendy J. Soto, Executive Secretary