BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
LANCE OIL & GAS COMPANY )
FROM A DENIAL OF SEVERANCE TAX ) Docket No. 2001-181
REFUND REQUEST FOR TAX INCENTIVES )
DECISION BY THE MINERALS DIVISION )
OF THE DEPARTMENT OF REVENUE )
(Dec 2000 through Feb 2001) )
FINDINGS OF FACT
CONCLUSIONS OF LAW
DECISION AND ORDER
Lawrence J. Wolfe, P. C., and Walter F. Eggers, III, of Holland & Hart LLP, for Lance Oil & Gas Company, (Lance).
Martin L. Hardscog and Karl D. Anderson, Senior Assistant Attorneys General, for the Department of Revenue (Department).
The State Board of Equalization (Board), consisting of Chairman Roberta A. Coates and Vice-Chairman Alan B. Minier, considered this matter on legal briefs and a stipulation of facts. The appeal arises from a decision of the Department concerning the interpretation and application of Wyoming Statute Section 39-14-205(f), which provides, inter alia, that natural gas produced from certain newly drilled wells is exempted from the severance taxes imposed by Wyoming Statute Section 39-14-204(a)(iii) and (iv) for a period of time, under certain pricing conditions. The parties refer to Wyoming Statute Section 39-14-205(f) as the “Incentive Statute”, and agree to these two legal issues:
Does the incentive terminate on the basis of the net price received (adjusted for transportation), or the gross price received?
Does the incentive terminate on the basis of the price received by Lance [a take-in-kind owner of gas from the well in question], rather than the price received by Barrett [the operator of the well in question]?
Petitioner further requests the Board to determine whether “taxpayers re-qualify for the incentive whenever the price they receive falls below $2.75 per MCF.”
Upon application of any person adversely affected, the Board is mandated 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(c)(iv). The rules of practice and procedure for appeals before the Board involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Wyoming State Board of Equalization, Chapter 2, § 3.
This is an appeal from the Department’s denial of Lance’s application for a refund.
Lance is a take-in-kind owner of natural gas produced by an operator of wells that were entitled to an exemption from certain severance taxes. Based upon gas sales of the operator, the Department terminated the tax exemption. Lance contends that the Department mistakenly applied Wyoming Statute Section 39-14-205(f) in two ways: (1) by not using the net price used for taxable value to also determine the availability of the exemption, and (2) by using the gas prices received by the operator, rather than Lance, to determine the availability of the exemption. Various details of Lance’s arguments are addressed in the Board’s conclusions of law.
The Department contends that the sales price per MCF received by the operator, without regard to deductions that would apply to the determination of taxable value, is the correct method of applying the statute.
The Board finds and concludes, for the reasons set forth below, that the Department reached the correct result in this case, and properly denied the Lance’s request for a refund.
FINDINGS OF FACT
1. This case involves the application of Wyoming Statute Section 39-14-205(f) (“the Incentive Statute”), which provides in relevant part:
Crude oil and natural gas produced from wells drilled between July 1, 1993, and March 31, 2003, except the production from collection wells, is exempt from the severance taxes imposed by W. S. 39-14-204(a)(iii) and (iv) for the first twenty-four (24) months of production on oil production up to sixty (60) barrels per day or its equivalence in gas production, which for purposes of this subsection shall be six (6) MCF gas production for one (1) barrel oil production, or until the price received by the producer for the new production is equal to or exceeds twenty-two dollars ($22.00) per barrel of oil or two dollars and seventy-five cents ($2.75) per MCF of natural gas for the preceding six (6) month period of time. . . . Nothing in this subsection shall apply to natural gas produced from any well completed for production at a depth of less than two thousand feet (2,000) from the earth’s surface if drilling activities commenced on or after April 1, 2000.
[Joint Stipulation of Facts].
2. For the six months prior to December 2000, and from December 2000 through February 2001, Lance was a take-in-kind owner of gas produced from wells in Northeastern Wyoming. Lance sold its share of gas, and reported and paid taxes based on the prices it received for its share of production. During this time, Barrett Resources Corp., (Barrett), as operator, separately sold its share of gas, and reported and paid taxes based on the prices it received for its share of production. [Joint Stipulation of Facts].
3. Lance reported to the Department its costs for the transportation of gas. [Joint Stipulation of Facts].
4. On October 12, 2000, the Department sent a memorandum to “All Petroleum Taxpayers” describing the Department’s interpretation of the Incentive Statute and asking taxpayers to determine if their wells met the incentive.
a. In its memorandum, the Department defined “Price” as “ the gross sales value of the well divided by the gross sales volume of the well for a particular month.”
b. The Department also advised taxpayers in its memorandum as follows:
“Please note that the incentive tax rate for a well expires after the above listed ‘strike’ price has been met or exceeded for six consecutive months for that product on that well. There is no provision in the statute for the re-qualification of a particular product on well for the incentive should the price drop below the above listed price after the incentive has been lost.”
[Joint Stipulation of Facts; Joint Exhibit 100].
The subject of the memorandum was, “New Well Incentive Strike Prices.” [Joint Exhibit 100].
5. On January 23, 2001, the Department sent a letter to Lance informing Lance that the incentive had expired on some of its wells because the price received had exceeded $2.75 per MCF for six consecutive months. The Department based its letter on the fact that Barrett received and reported a price greater than $2.75 per MCF. For the six months prior to December 2000, and from December 2000 through February 2001, the price Lance claims it received for the gas it sold, for determination of the incentive, fell below the price Barrett received and below $2.75 per MCF, at least for one month. [Joint Stipulation of Facts; Joint Exhibit 101].
6. On January 29 and 31, 2001, Lance responded to the Department’s January 23 letter. Lance questioned the Department’s determination that the incentive had expired. In particular, Lance stated that it believed the Department improperly calculated the incentive “strike” price, which Lance believes should be the price purportedly received by Lance, net of deductions including transportation. Lance asked the Department to clarify why deductions that are allowed when determining the taxable value of the product are not considered in the incentive “strike” price calculation. [Joint Stipulation of Facts; Joint Exhibits 102 & 103].
7. The Department responded to Lance on February 5, 2001. The Department cited its October 12, 2000 letter, in which the Department stated that it believed the incentive “strike” price is based on gross price received, as opposed to net price. [Joint Stipulation of Facts; Joint Exhibit 104]. In the same letter, the Department observed that “if the legislature had wanted the [Department] to determine the strike price based on a ‘net price’ (price net of deductions), it would have so indicated in the statutes.” The Department further explained that, “By defining price as the gross sales value divided by the gross sales volume for a particular month, the [Department] has satisfied the mandate that requires [it] to administer the severance tax system in a uniform manner.” [Joint Exhibit 104].
8. On September 26, 2001, Lance, through counsel, wrote the Department and requested a severance tax refund based on Wyoming Statute Section 39-14-205(f). Lance claimed the incentive should be based on Lance’s net price after accounting for transportation, not gross value. Lance calculated the refund at $801,929.79 if the Department agreed that the price should be based on the net price purportedly received by Lance. [Joint Stipulation of Facts; Joint Exhibit 109]. In the alternative, Lance argued that, “[a]t a minimum, the incentive should terminate on Lance’s price, not Barrett’s.” The refund calculated on this basis was $247,682.10. [Joint Exhibit 109].
9. The Department rejected Lance’s refund request on October 19, 2001. In its rejection letter, the Department determined that Lance was not entitled to a severance tax incentive provided by Wyoming Statute Section 39-14-205(f). The Department ruled that the incentive terminated when the price received by the operator, Barrett, reached the $2.75 trigger point. The Department also determined that the $2.75 trigger point represents the gross price received by the producer, as opposed to the net price adjusted for transportation costs. [Joint Stipulation of Facts; Joint Exhibit 110]. The Department went on to address the administrative problems that would result from honoring Lance’s request that the strike price should be that of the take-in-kind interest owner rather than the operator. [Joint Exhibit 110]. In this regard, the Department observed that Lance’s position was contrary to the purpose of taking in-kind, which was that the interest owner “would be able to obtain a better price than the operator if they were allowed to report their own share.” [Id].
10. On November 13, 2001, Lance filed a case notice for review of the Department’s denial of Lance’s request for a severance tax refund pursuant to Wyoming Statute Section 39-14-209(c)(ii). [Joint Stipulation of Facts; Joint Exhibit 111].
11. The record before the Board includes twelve exhibits from which some of the preceding facts are drawn. The record also includes the deposition of Randy Bolles, Administrator of the Department’s Mineral Tax Division. [hereafter, “Bolles deposition”]. The parties have agreed that no further testimony from Mr. Bolles or any other person is necessary for disposition of the case. [Joint Stipulation of Facts]. The Board notes that the affidavit of Ralph E. Thomas, Jr., filed with Petitioner’s Brief, does not appear to contradict the testimony of Mr. Bolles. [Petitioners’ Brief, Exhibit B].
12. Administrator Bolles understood that Wyoming Statute Section 39-14-205(f) was passed in 1993 for the purpose of encouraging the drilling of new oil and gas wells. [Bolles deposition, p. 5].
13. For a number of years, the Department has interpreted Wyoming Statute Section 39-14-205(f) as referring to the price a producer received for gas, and administered the statute that way. [Bolles deposition, p. 10-11].
14. The determination as to whether or not a new well incentive was to be granted for a specific well was made by the Wyoming Oil and Gas Conservation Commission, based on data provided by the well operator. [Bolles deposition, pp. 12, 23]. The Department similarly based the administration of the program on the operator’s information data. [Bolles deposition, pp. 10-11, 23-24]. The Department’s position is that when the operator is granted the right to take advantage of the incentive, it applies to all interest owners in the well, including those that choose to take the product in kind. [Bolles deposition, p. 23]. Similarly, if the operator doesn’t qualify, no interest owner qualifies. [Bolles deposition, p. 24].
15. Producers do not report prices to the Department. Instead, producers report revenue and allowable deductions monthly, on forms that have no specific line item for transportation. Using these monthly forms, the Department divides gross sales by gross volumes to calculate the price which is used to administer Wyoming Statute Section 39-14-205(f). [Bolles deposition, pp. 14-15].
16. The Department understood that the intent of the legislature was to provide an incentive to drill a well, not necessarily to provide an incentive to the owners of the well. [Bolles deposition, p. 18].
17. The Department’s position is that the operator’s prices determine the termination of the incentive for each well. For example, if the operator were able to receive a price below the strike price during a six month period when a take-in-kind interest owner received prices above the strike price, all parties would continue to receive the incentive. [Bolles deposition, pp. 23-24].
18. Take-in-kind interest owners are not required to report to the Wyoming Oil and Gas Conservation Commission in a manner that would enable the Wyoming Oil and Gas Conservation Commission to make a determination with respect to the qualification of a specific take-in-kind interest owner to receive the incentive. [Bolles deposition, pp. 28-29].
19. Administrator Bolles views the strike price as an indicator of whether or not the incentive applies, and does not associate the strike price with fair market value. [Bolles deposition, p. 34].
CONCLUSIONS OF LAW
20. The letter of appeal by Lance was timely filed and the Board has jurisdiction to determine this matter.
21. Although the parties have stipulated to an excerpted text of Wyoming Statute Section 39-14-205(f) as a fact, the complete text of the statute is as follows:
Crude oil and natural gas produced from wells drilled between July 1, 1993, and March 31, 2003, except the production from collection wells, is exempt from the severance taxes imposed by W. S. 39-14-204(a)(iii) and (iv) for the first twenty-four (24) months of production on oil production up to sixty (60) barrels per day or its equivalence in gas production, which for purposes of this subsection shall be six (6) MCF gas production for one (1) barrel oil production, or until the price received by the producer for the new production is equal to or exceeds twenty-two dollars ($22.00) per barrel of oil or two dollars and seventy-five cents ($2.75) per MCF of natural gas for the preceding six (6) month period of time. Provided, however, that a taxpayer claiming a tax reduction under this subsection is prohibited from claiming a tax reduction provided by subsection (c) or (e) of this section. Nothing in this subsection shall apply to natural gas produced from any well completed for production at a depth of less than two thousand feet (2,000) from the earth’s surface if drilling activities commenced on or after April 1, 2000.
22. The Board must look only to the intent of the legislature when enforcing or construing statutes. Allied-Signal, Inc. v. Wyoming State Board of Equalization, 813 P.2d 214, 219 (Wyo. 1991); General Chemical Corp. v. Wyoming State Board of Equalization, 819 P. 2d 418, 420 (Wyo. 1991); Laramie Co. Board of Equalization v. Wyoming State Board of Equalization, 915 P2d. 1184, 1189 (Wyo. 1996). Legislative intent must be ascertained initially and primarily from the words used in the statute. Id. If the language selected by the legislature is sufficiently definitive, that language establishes the rule of law. Id. Any additional construction can be resorted to only if the wording is ambiguous or unclear to the point of demonstrating obscurity with respect to the legislative purpose or mandate. Id. When the words used are clear and unambiguous, the Board risks an impermissible substitution of its own views for the intent of the legislature if any effort is made to interpret or construe statutes on any basis other than the language invoked by the legislature. Allied-Signal, Inc., 813 P.2d at 219.
23. The first question that the parties have asked the Board to decide concerns the meaning of the word “price”, which appears once in Wyoming Statute Section 39-14-205(f): “Crude oil and natural gas produced from [certain] wells....is exempt...until the price received by the producer from the new production...exceeds two dollars and seventy-five cents ($2.75) per MCF of natural gas for the preceding six (6) month period of time....” emphasis added. We conclude that the common meaning of the word “price” is sufficiently definitive. It is, “The amount of money or other consideration asked for or given in exchange for something else; the cost at which something is bought or sold.” Black’s Law Dictionary, p. 1207 (7th Ed. 1999); see also Webster’s Ninth New Collegiate Dictionary, p. 933 (1989) (“the amount of money given or set as consideration for sale of a specified thing”). This contrasts with the equally common meaning of “net price”, which is “The price of something, after deducting cash discounts.” Black’s Law Dictionary, p. 1207 (7th Ed. 1999); see also Webster’s Ninth New Collegiate Dictionary, p. 794 (1989), under “net” (“free from all charges or deductions: as .... remaining after the deduction of all charges, outlay, or loss .... -- compare GROSS”). While there is no definition of “gross price” in Black’s Law Dictionary, we conclude, based on the facts to which the parties have stipulated, that the Department’s Memorandum of October 12, 2000, defined “price” in manner consistent with the intent of the legislature. We further conclude that employing a “net price”, as advocated by Lance, would be inconsistent with the language used in the statute.
24. In view of our reading of the plain language of Wyoming Statute Section 39-14-205(f), we disagree with Lance’s argument that there is any ambiguity in the word “price”. Specifically, the Board finds that the wording of the statute “is such that reasonable persons are able to agree as to its meaning with consistency and predictability.” Allied-Signal, Inc., 813 P. 2d at 220; WCCC v. Casper Community College, 2001 WY 86, ¶17, 31 P.3d 1242, 1249 (Wyo. 2001). That is, the “words set forth in the statute are apt and are adequately definitive of the rule intended by the legislature.” Allied-Signal, Inc., 813 P. 2d at 220.
25. Even if we were to assume that an ambiguity exists, we disagree with the interpretation urged by Lance. Specifically, Lance argues that net price must be read into Wyoming Statute Section 39-14-205(f) if it is construed in pari materia with Wyoming Statute Section 39-14-203(b), which establishes the “basis of [the severance] tax” – albeit without using the words “net price.” The broad purpose of construing statues in pari materia is to construe statutes with the same general purpose “in harmony, or else the law of the State would consist of disjointed and unharmonious parts with a conflicting and confusing result.” Stringer v. Board of County Commissioners of Big Horn County, 347 P. 2d 197, 200 (Wyo. 1959). In this case, there is no unharmonious or absurd result, nor is any portion of the statute rendered meaningless. The value which is used as the basis for the tax is computed in one way, and the value which is used to determine the availability of the tax exemption is computed another. Moreover, the legislature’s choice of language readily gives rise to an inference that the imposition of a tax is a different topic than an exemption from the same tax. This is suggested by the language and section headings of Wyoming Statute Section 39-14-203 and Wyoming Statute Section 39-14-205, as well as by case law cited in the Lance’s brief, State Board of Equalization v. Tenneco Oil Co., 694 P.2d 97 (Wyo. 1985). In view of our conclusion of law that the statute is not ambiguous, we do not need to address the potential application of other principles of law, such as the deference due to interpretations of the agency charged with administration of the statute, or strict construction of tax exemptions.
26. The second question before the Board concerns the Department’s decision to rely on the prices received by the operator of the well, Barrett, rather than Lance, described in the stipulated facts as a “take-in-kind owner of [the] gas produced.” Supra., Paragraph 3 of this opinion. Once again, we begin with “the words used in the statute,” supra., Para. 22 of this opinion, which are: “Crude oil and natural gas produced from [certain] wells....is exempt...until the price received by the producer from the new production...exceeds two dollars and seventy-five cents ($2.75) per MCF of natural gas for the preceding six (6) month period of time....” The word “producer” is used once in Wyo. Stat. §39-14-205(f). The word “taxpayer” is also used once: “Provided, however, that a taxpayer claiming a tax reduction under this subsection is prohibited from claiming a tax reduction provided by subsection (c) or (e) of this section.” Emphasis added.
27. A producer is “one that produces”. Webster’s Ninth New Collegiate Dictionary, p. 938 (1989). One definition of “produce” is “to bring (oil, etc.) to the surface of the earth.” Black’s Law Dictionary. p 1225 (7th Ed. 1999). Although Lance argues that it is “the producer and the taxpayer for the production at issue,” the stipulated facts tell us instead that Lance is “a take-in-kind owner of gas produced.” We accordingly conclude that Lance is not, with respect to the “natural gas produced” in this case, a producer as that word is commonly employed. In contrast, Barrett, as operator, was plainly the producer of that same gas. Since we are obliged to give effect to the language employed by the legislature, we conclude that the Department correctly applied Wyoming Statute Section 39-14-205(f), and terminated the incentive on the basis of the price received by Barrett.
28. Lance nonetheless argues that Wyoming Statute Section 39-14-205(f) “makes clear that” the price received by the producer is the price received by the taxpayer, whether or not the taxpayer is the operator of the wells. To do so, Lance relies on the subsection’s reference to the “taxpayer claiming a tax reduction....” The Board must give effect to “the ordinary and obvious meaning of the words employed according to their arrangement and connection,” Petra Energy, Inc., v. Department of Revenue, 6 P.3d 1267, 1270 (Wyo. 2000), and give “each and every” word its plain and ordinary meaning. Record-Times, Inc., v. Town of Wheatland, Platte County, 650 P.2d 297, 299 (Wyo. 1982). In doing so, we conclude that Lance is a taxpayer, but not a producer. Moreover, we conclude that the arrangement of the statute indicates that the legislature intended a distinction between the producer and taxpayer, and intended the distinction to be significant. The producer is the entity whose price may determine the availability of the exemption. The reference to taxpayer is for a different purpose, i.e., to provide that a taxpayer claiming the benefits of the exemption cannot also claim the benefits of certain other exemptions, a concern which comes into play only if the exemption is already available. We conclude that the different sentences of the subsection, which use the different words “producer” and “taxpayer”, address two separate functions.
29. We specifically find that the actual administrative practices of the Department support and are consistent with our construction of Wyoming Statute Section 39-14-205(f), although this finding is not necessary to support the conclusions we have reached above. Unlike Lance, we do not harbor concerns about the practical implications of the Department’s policy of looking to the price received by the operator. The undisputed testimony is that the Department applies its policy consistently, and that is as far as we are obliged to go, or care to go, under the facts that have been presented by stipulation.
30. Lance argues that we should apply the principle of “noscitur a sociis” to conclude that Wyoming Statute Section 39-14-205(f) is intended to apply to all taxpayers, regardless of the price received by the producer of gas from a specific well. We do not need to reach the question of the proper application of this principle, since it only comes into play “if the legislative intent or meaning of a statute is not clear....” Norman J. Singer, Statutes and Statutory Construction § 47.16, at 265, 270. We do not find any ambiguity in the statute, and therefore must not attempt to apply this principle of interpretation. Id.
31. Lance requests the Board to address one further question, which is whether a taxpayer re-qualifies for the tax incentive whenever the price received falls below $2.75 per MCF. We are inclined to agree with the Department’s concern that the issue was raised late. However, the Department offered argument on this point, and addressing the issue will tend “to ensure the prompt and just disposition of litigation.” See State ex rel. Dept. of Revenue v. Buggy Bath, 2002 WY 181, ¶23,18 P.3d 1182, 1189 (Wyo. 2001). We therefore proceed to answer this third question by reference to the words used in the statute. Supra., Para. 22 of this opinion. In the context presented in this case, the exemption applies “until the price received by the producer for the new production is equal to or exceeds . . . . two dollars and seventy-five cents ($2.75) per MCF of natural gas for the preceding (6) month period of time. . . .” Emphasis added. The ordinary meaning of the word “until” is “up to the time that: till such time as.” Webster’s Ninth New Collegiate Dictionary, p. 1295 (1989). We conclude that the intention of the legislature was to make the exemption available up to the time that the price rose above $2.75 per MCF, and not thereafter. The statutory reference to “new production” reinforces this conclusion, since the gas that Lance proposes to re-qualify would no longer be “new” with respect to the application of the incentive. Further, to the extent that one may argue the existence of an ambiguity due to the absence of specific language to address the event of a price drop as posed by the Lance, we observe that the rule of strict construction against the exemption would apply. General Chemical Corporation, 819 P. 2d at 422; Tenneco Oil Co., 694 P. at 100. In short, we conclude that a taxpayer does not re-qualify for the exemption once it is lost under the circumstances present in this case.
32. In view of the preceding conclusions of law, we further conclude that the request for a refund was properly denied.
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IT IS THEREFORE HEREBY ORDERED: The Department’s denial of Lance’s request for a refund is affirmed.
Pursuant to Wyoming Statute Section 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 25th day of March, 2003.
STATE BOARD OF EQUALIZATION
Roberta A. Coates, Chairman
Alan B. Minier, Vice Chairman
Wendy Soto, Executive Secretary