BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
AMOCO PRODUCTION COMPANY FROM ) Docket No. 2001-56
A PRODUCTION TAX AUDIT ASSESSMENT )
BY THE DEPARTMENT OF REVENUE )
(Production years 1993-1995, )
Beaver Creek field) )
FINDINGS OF FACT, CONCLUSIONS OF LAW, DECISION AND ORDER
APPEARANCES
John L. Bordes, Jr., Jesse R. Adams, III, and Nicole Crighton of Oreck, Bradley, Crighton, Adams & Chase, appeared on behalf of Amoco Production Company (Amoco), Petitioner.
Karl D. Anderson, Senior Assistant Attorney General, Wyoming Attorney General’s Office, appeared on behalf of the Wyoming Department of Revenue (Department), Respondent.
Norman E. Young, Fremont County and Prosecuting Attorney, and Terrance R. Martin, Deputy Fremont County and Prosecuting Attorney, appeared on behalf of Fremont County, a body corporate and politic, acting through the Board of County Commissioners for Fremont County, Wyoming (Fremont County), Intervenor.
Ms. Crighton, Mr. Anderson, Mr. Young and Mr. Martin appeared on behalf of their respective clients at the hearing in this matter.
DIGEST
This matter came on for hearing on February 19 and 20, 2002, before the State Board of Equalization (Board), consisting of Chairman Edmund J. Schmidt, Vice Chairman Roberta A. Coates (Chairman at the time of the Decision and Order), and Board Member Sylvia Lee Hackl, with Gayle R. Stewart acting as hearing officer. Mr. Schmidt and Ms. Hackl resigned from the Board prior to the Decision and Order. Vice Chairman Alan B. Minier considered the matter by reviewing the Board file, hearing transcript, and exhibits, and participated in the Decision and Order. Board Member Thomas R. Satterfield recused himself from consideration of this matter. This appeal arises from an audit by the Department of Audit (Audit) of Petitioner’s1993 through 1995 production from the Beaver Creek Field in Fremont County, Wyoming, and the resulting Department of Revenue final determination letter notifying Amoco of additional severance taxes and increase in taxable value for ad valorem tax purposes.
JURISDICTION
The Board shall review final decisions of the Department on application of any interested person adversely affected, including boards of county commissioners. Wyo. Stat. Ann. § 39-11-102.1(c). Taxpayers are specifically authorized to appeal final decisions of the Department concerning oil and gas valuation amendments. Wyo. Stat. Ann. § 39-14-209(b)(v). The taxpayer’s appeal must be filed with the Board within thirty days of the Department’s final decision. Wyo. Stat. Ann. § 39-14-209(b)(iv); Rules, Wyoming State Board of Equalization, Chap. 2, § 5(a). Amoco filed a timely appeal from the Final Determination Letter, a final decision of the Department.
A board of county commissioners has the right to appeal from a post audit, final decision of the Department. Board of County Commissioners for Sublette County, Wyoming v. Exxon Mobil Corp., 2002 WY 151 ¶¶ 33, 35, 55 P.3d 714 , 723-724 ¶¶ 33, 35 (Wyo. 2002). Fremont County filed a timely appeal from the Department’s Notice of Valuation Change, a post audit final decision of the Department. In the Matter of the Appeal of Fremont County, State Board Docket No. 2001-94. While its appeal was pending, Fremont County filed a motion to intervene in this case noting its general agreement with the changes in valuation made by the Department while reserving its right to review the returns, amended returns, audit findings and supporting data. It further noted that allowing intervention in this case would prevent duplication of effort if it were allowed to intervene and its pending appeal of the Notice of Valuation Change was either consolidated with this case or dismissed. Amoco failed to file a timely objection to Fremont County’s Motion to Intervene. The Board granted Fremont County’s Motion to Intervene on August 17, 2001. On August 20, 2001, the Board dismissed Fremont County’s separate appeal of the Notice of Valuation Change. [In the Matter of the Appeal of Fremont County, State Board Docket No. 2001-94]. On August 21, 2001, Amoco filed an untimely Objection to Fremont County’s Motion to Intervene and Request for Order Vacating Joinder which the Board denied. Fremont County filed a timely motion to intervene and is a proper party to this appeal. Rules, Wyoming State Board of Equalization, Chap. 2, § 14. The Board subsequently granted Fremont County’s motion to amend its pleadings to reflect Fremont County, a body corporate and politic, acting through the Board of County Commissioners of Fremont County, as the intervenor. Therefore, we have jurisdiction to determine the issue raised by Fremont County.
DISCUSSION
In 1993 through 1995, Amoco Production Company produced oil and gas from leases in the Beaver Creek Field located in Fremont County, Wyoming. The Wyoming Department of Audit (Audit), audited Amoco’s severance and ad valorem tax returns. Based on the audit, the Department determined that additional severance tax was due, together with interest, and that an increase in ad valorem taxable value should be certified to Fremont County.
The Department issued a Final Determination Letter to Amoco notifying it of the severance tax due and the increase in taxable value it intended to certify to Fremont County. Amoco filed a timely appeal from the Final Determination Letter, identifying four errors: 1) the inclusion of margins; 2) the use of an average weighted price; 3) the exclusion of numerous plant expenses in calculating the direct cost ratio; and 4) the failure of the Department of conduct an independent review of the audit findings.
The Department issued a Notice of Valuation Change to Fremont County notifying it of the increase in taxable value. Fremont County filed a timely appeal from the Notice of Valuation Change. [In the Matter of the Appeal of Fremont County, State Board Docket No. 2001-94]. Fremont County also moved to intervene in this appeal. In its motion to intervene, Fremont County noted its general agreement with the changes in valuation made by the Department while reserving its right to review the returns, amended returns, audit findings and supporting data. It further noted that allowing intervention in this case would prevent duplication of effort if it were allowed to intervene and its pending appeal of the Notice of Valuation Change was either consolidated with this case or dismissed. Amoco failed to file a timely objection to Fremont County’s Motion to Intervene. The Board granted Fremont County’s Motion to Intervene on August 17, 2001. On August 20, 2001, the Board dismissed Fremont County’s separate appeal of the Notice of Valuation Change. [In the Matter of the Appeal of Fremont County, State Board Docket No. 2001-94]. On August 21, 2001, Amoco filed an untimely Objection to Fremont County’s Motion to Intervene and Request for Order Vacating Joinder which the Board denied.
While this appeal was pending, the Board issued its decision in In the Matter of the Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 770800, (June 29, 2001); In the Matter of the Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 1150220 (Order on Reconsideration, Sept. 24, 2001) (hereinafter “Amoco 96-216"). The Board ruled that both production taxes and royalties are “direct costs of producing” and must be included by the Department in the direct cost ratio of the proportionate profits method. Fremont County raised the issue in this case in its August 27, 2001, Preliminary Statement.
By the time of the hearing in this matter, the complexion of the case had changed dramatically. The Department and Amoco had settled the issues raised by Amoco in its Notice of Appeal. [Joint Stipulation of Facts ¶ 13, Exhibit “A” to Joint Stipulation of Facts]. The Department had conceded the issue raised by Fremont County that it had erred in not including royalties and production taxes as direct costs of production in computing the taxable value of Amoco’s production using the proportionate profits method based on our decision in Amoco 96-216. Amoco was left in the position of defending the Department’s valuation of its production against Fremont County’s challenge.
With the case in that posture, we must determine the following issues:
1. Is Fremont County, Wyoming, by and through Norman E. Young, County and Prosecuting Attorney, a proper party to appear before this Board when Wyo. Stat. Ann. § 18-2-109 specifically requires counties to sue and be sued as the “board of county commissioners of the county of ....”?
2. Even if Fremont County had properly brought its Motion for Intervention as the Board of County Commissioners for Fremont County, is that intervention proper?
3. Did the Board err in allowing Fremont County’s witness, Randy Fetterolf, to testify as an expert?
4. Should royalties and production taxes be included in calculating the direct cost ratio of the proportionate profits methodology set forth in Wyo. Stat. Ann. § 39-2-208(d)(iv) (currently codified as Wyo. Stat. Ann. § 39-14-203(b)(v)(D)(LexisNexus 2003)), to achieve fair cash market value for the production at issue?
We conclude that our grant of Fremont County’s motion to amend its pleadings substituting Fremont County, a body corporate and politic, acting through the Board of County Commissioners for Fremont County previously granted by the Board was proper. We further conclude that intervention by Fremont County is proper and that the Board has jurisdiction to resolve the substantive issue raised by Fremont County in this appeal. Further, we conclude that we did not err in allowing Mr. Fetterolf to express his expert opinions.
Finally, we conclude, as we have in three prior decisions, that royalties and production taxes must be included as direct costs of producing in the direct cost ratio of the proportionate profits methodology. See: In the Matter of the Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 770800, (June 29, 2001); In the Matter of the Appeal of Amoco Production Company, Docket No. 96-216, 2001 WL 1150220 (Order on Reconsideration, Sept. 24, 2001) (hereinafter “Amoco 96-216"); In the Matter of the Appeal of Fremont County, Docket No. 2000-203, 2003 WL 21774604 (April 30, 2003); In the Matter of the Appeal of RME Petroleum Company, Docket No. 2002-52, 2003 WL 22814612 (November 20, 2003).
FINDINGS OF FACT
1. In 1993 through 1995, Amoco held leases on and produced oil and gas from properties located in the Beaver Creek Field in Fremont County, Wyoming. Of the 32 leases, 31 were with either the Mineral Management Service or the State of Wyoming. One lease was with an individual. [Transcript Vol. I, p. 158].
2. The royalty interest is a retained interest that the landowner may either convey to the producer to sell for them or to market on their own. [Transcript Vol. I, p. 160]. Pursuant to the division order for the Beaver Creek Field, Amoco sold the mineral for the royalty owners. Amoco paid the royalty owner for the production and treated it as gas purchased for resale on its books. [Transcript Vol. I, pp. 160-162, 192].
3. Amoco’s senior property tax representative, Paul Syring, explained that the royalty interest is a production cost, an expense carried on Amoco’s books as a cost of goods for resale. [Transcript Vol. I, p. 192]. However, he characterized it as an indirect production cost. [Transcript Vol. I, p. 192].
4. The Department allowed Amoco to use the proportionate profits method to value its oil and gas production from the Beaver Creek Field for production years 1993 through 1995. [Transcript Vol. I, pp. 39-40, 41-42, 55, 150].
5. The Department did not require Amoco to include royalties or production taxes in the direct cost ratio when it initially filed its tax reports for its production from the Beaver Creek Field. [Transcript Vol. I, p. 56, 150].
6. Audit conducted an audit of Amoco’s Wyoming severance and ad valorem tax returns for production years 1993 through 1995 for eight properties located in the Beaver Creek Field in Fremont County, Wyoming. [Joint Stipulation of Facts ¶ 1].
7. As a result of the audit, the Department of Audit issued a Preliminary Issue Letter to Amoco on October 24, 2000. [Exhibit 102; Joint Stipulation Facts ¶ 2].
8. In its Preliminary Issue Letter, Audit found that Amoco owed additional severance tax as set out in the parties Joint Stipulation of Facts. [Joint Stipulation Facts ¶ 3].
9. Audit issued its Final Issue Letter to Amoco on January 22, 2001. [Exhibits 101, 505; Joint Stipulation of Facts ¶ 4].
10. The Department issued its Final Determination Letter based on Audit’s Final Issue Letter on January 22, 2001, notifying Amoco of additional severance taxes due and the increase in ad valorem taxable value that would be certified to the counties, including Fremont County. [Exhibits 100, 305, 506; Joint Stipulation of Facts ¶ 5].
11. Amoco filed a timely appeal of the Department’s Final Determination on February 22, 2001. [Board Record; Joint Stipulation of Facts ¶ 6].
12. The Department issued NOVC 2001-0307 to Fremont County on April 20, 2001, advising it of the changes in valuation to Amoco’s production consistent with its final determination letter, and advising Fremont County of its right to appeal. [Exhibits 300, 504; Joint Stipulation of Facts ¶ 7].
13. Fremont County filed a timely appeal of NOVC 2001-0307 on May 10, 2001. [Exhibit 306; Joint Stipulation of Facts ¶ 8]. Amoco filed a Motion to Intervene and a Motion to Dismiss Fremont County’s appeal of NOVC 2001-0307 on July 9, 2001. [Board Record, In the Matter of the Appeal of Fremont County, Board Docket No. 2001-94; Joint Stipulation of Facts ¶ 9]. The Board subsequently issued an order dismissing Fremont County’s appeal of NOVC 2001-0307 on August 20, 2001, after it allowed Fremont County to intervene in this appeal. [Exhibit 308; Joint Stipulation of Facts ¶ 12].
14. Fremont County filed a Motion to Intervene in the above captioned appeal on July 31, 2001. [Board Record, In the Matter of the Appeal of Fremont County, Board Docket No. 2001-94; Joint Stipulation of Facts ¶ 10]. The Motion to Intervene was filed by the Fremont County and Prosecuting Attorney and named Fremont County as the party seeking to intervene. [Board Record].
15. The Board issued an order granting the Fremont County’s intervention in this case on August 17, 2001. [Board Record; Joint Stipulation of Facts ¶ 11].
16. After both appeals were filed, the Board issued its initial decision in Amoco 96-216 supra.
17. Without consideration of the inclusion of production taxes and royalties in the direct cost ratio, the Department and Amoco agree that the calculation of taxable value and severance tax amounts for the properties at issue for 1993, 1994 and 1995 is accurately reflected in the schedule marked as Exhibit “A” attached to and incorporated in the Joint Stipulation of Facts. [Joint Stipulation of Facts ¶ 13].
18. Gross revenue amounts for the properties at issue for 1993, 1994 and 1995 are $18,959,751, $18,037,688 and $16,073,102, respectively. [Joint Stipulation of Facts ¶ 14, Exhibit “A” to Joint Stipulation of Facts].
19. Expenses associated with the Phosphoria Plant, in the amount of $1,943,106, $2,096,387 and $2,069,695 will be added to the direct costs of producing, processing and transportation in 1993, 1994 and 1995, respectively. [Joint Stipulation of Facts ¶ 15, Exhibit “A” to Joint Stipulation of Facts].
20. Expenses recorded in sub-accounts 9272-10, 9272-11, 9272-29, 9272-34, 9272-80 and 9635-71 in the total amounts of $347,590, $330,623 and $264,111 will be treated as direct costs of producing, processing and transportation in each of 1993, 1994 and 1995, respectively. [Joint Stipulation of Facts ¶ 16, Exhibit “A” to Joint Stipulation of Facts].
21. Expenses recorded in sub-accounts 9201-10, 9201-53, 9201-66 and 9201-80 in the amounts of $107,387, $61,850 and $50,301 will be treated as direct cost of producing in each of 1993, 1994 and 1995, respectively. This concession will not apply to future tax periods or other fields of production. [Joint Stipulation of Facts ¶ 17, Exhibit “A” to Joint Stipulation of Facts].
22. Direct production expenses for the properties at issue for 1993, 1994 and 1995 are $2,747,784, $2,678,171, and $2,350,906, respectively. [Joint Stipulation of Facts ¶ 18, Exhibit “A” to Joint Stipulation of Facts].
23. After making the foregoing adjustments (without consideration of the inclusion of production taxes and royalties in the direct cost ratio), the Department and Amoco stipulate that the additional taxable value for the properties at issue for 1993, 1994 and 1995 is $1,874,060, $1,007,007 and $275,222, respectively. [Joint Stipulation of Facts ¶ 19, Exhibit “A” to Joint Stipulation of Facts].
24. After making the foregoing adjustments (without consideration of the inclusion of production taxes and royalties in the direct cost ratio), the Department and Amoco stipulate that the total taxable value for the properties at issue for 1993, 1994 and 1995 is $8,162,634, $7,247,031 and $6,012,706, respectively. [Joint Stipulation of Facts ¶ 20, Exhibit “A” to Joint Stipulation of Facts].
25. After making the foregoing adjustments (without consideration of the inclusion of production taxes and royalties in the direct cost ratio), the Department and Amoco stipulate that the additional severance tax owed by Amoco to the Department in 1993, 1994 and 1995 is $112,444, $60,420 and $16,513, respectively. Interest will be added to the tax through the date of payment of the additional severance tax as the result of the above calculations. [Joint Stipulation of Facts ¶ 21, Exhibit “A” to Joint Stipulation of Facts].
26. At the time the Department issued NOVC 2001-0307, the Department took the position that production taxes and royalties were not required in the direct cost ratio. [Joint Stipulation of Facts ¶ 22].
27. In the Final Determination Letter dated January 22, 2001, the Department did not include production taxes and royalties in the direct cost ratio, consistent with its policy at that time. [Joint Stipulation of Facts ¶ 23].
28. Prior to the Board’s decision in Amoco 96-216, supra, the Department had not required the inclusion of production taxes and royalties in the direct cost ratio of the proportionate profits formula. [Transcript Vol. I, pp. 45, 79, 88]. That rationale, followed since the passage of the proportionate profits method, was based on the Department’s interpretation of the oil and gas statutes similar to the coal statutes which specifically indicated that taxes and royalties were not included in the direct cost ratio. The Department also had a difficult time understanding whether the inclusion of royalties and production taxes worked mathematically or was mathematically correct. [Transcript Vol. I, pp. 45-46, 78].
29. The production taxes for each of 1993, 1994 and 1995 are $879,827, $785,908 and $709,517, respectively. [Joint Stipulation of Facts ¶ 26; Exhibit “A” to Joint Stipulation of Facts].
30. The exempt royalties for each of 1993, 1994 and 1995 are $1,261,007, $1,398,782 and $1,814,188, respectively. [Joint Stipulation of Facts ¶ 27; Exhibit “A” to Joint Stipulation of Facts].
31. The non-exempt royalties for each of 1993, 1994 and 1995 are $1,013,646, $1,042,072 and $893,396, respectively. [Joint Stipulation of Facts ¶ 28, Exhibit “A” to Joint Stipulation of Facts].
32. When production taxes and royalties are included as direct production cost in the direct cost ratio, the additional taxable value for the properties at issue calculated using a static, as opposed to a simultaneous (or quadratic) equation is as follows:
1993 $ 4,857,758
1994 $ 3,884,915
1995 $ 3,335,906
TOTAL $12,078,597
[Joint Stipulation of Facts ¶ 29].
33. When production taxes and royalties are included as direct production cost in the direct cost ratio, the total taxable value for the properties as issue, calculated using a static, as opposed to a simultaneous (or quadratic) equation, is as follows:
1993 $11,146,337
1994 $10,120,514
1995 $ 8,785,016
TOTAL $30,051,867
[Joint Stipulation of Facts ¶ 30].
34. When production taxes and royalties are included as direct production cost in the direct cost ratio, the additional ad valorem tax liability of Amoco to Fremont County (exclusive of interest), calculated using a static, as opposed to a simultaneous (or quadratic) equation, is as follows:
1993 $ 378,293
1994 $ 295,687
1995 $ 260,121
TOTAL $ 934,101
[Joint Stipulation of Facts ¶ 31].
35. When production taxes and royalties are omitted from the numerator of the proportionate profits formula, the result of the proportionate profits ratio times the adjusted gross income in 1993, 1994 and 1995, calculated using a static, as opposed to a simultaneous (or quadratic) equation, is 228%, 202% and 188% greater than actual direct processing costs for each of those years. [Joint Stipulation of Facts ¶ 32].
36. When production taxes and royalties are included in the numerator of the proportionate profits formula as direct production costs, the result of the proportionate profits ratio times the adjusted gross income in 1993, 1994 and 1995, calculated using a static, as opposed to a simultaneous (or quadratic) equation, is 157%, 140% and 125% greater than actual direct production costs for each of those years. [Joint Stipulation of Facts ¶ 33].
37. Amoco presented the Board with a calculation of the taxable value performed by an Amoco engineer who was not present to testify. Using a simultaneous or quadratic calculation, he was able to calculate the taxable value of Amoco’s production including royalties and production taxes as direct costs of production. [Exhibit 105].
38. Because of the stipulations entered into by the parties, the use of a simultaneous or quadratic calculation is not required in this case. [Transcript Vol. I, pp. 61, 62, 179]. Simultaneous calculations are used by other taxpayers to determine the taxable value of their production. [Transcript Vol. I, p. 61].
39. On January 24, 2002, approximately three weeks prior to the scheduled hearing, Amoco raised for the first time the issue of whether or not Fremont County was a proper party to the appeal. [Board Record, Amoco’s Issues of Fact and Law and Exhibit List]. However, Amoco did not file a written motion to dismiss. Rather Amoco chose to present an oral motion to dismiss Fremont County from the case at the start of the hearing in this matter. [Board Record; Transcript Vol. I, pp. 8-19].
40. During the hearing on the motion, Amoco’s counsel represented that the only prejudice to Amoco was that “it is the wrong name” and that Amoco required no additional discovery as a result of the failure of the caption to state that Fremont County was acting through its board of county commissioners. [Transcript Vol. I, p. 17]. Amoco did not request a continuance of the hearing in response to the Fremont County’s motion to amend its pleadings.
41. Amoco did not establish that it would be prejudiced by allowing the substitution of the Fremont County, a body corporate and politic, acting by and through the Board of County Commissioners for Fremont County as the proper party in place of Fremont County. [Transcript Vol. I, p. 17].
42. In response to the oral motion to dismiss Fremont County, the Fremont County and Prosecuting Attorney moved to amend the Motion to Intervene to reflect the Board of County Commissioners for Fremont County as the proper party. [Transcript Vol. I, pp. 14-15].
43. Mr. Randy Fetterolf was called to testify on behalf of Fremont County. Mr. Fetterolf earned a Bachelor of Science degree from the University of Colorado in accounting in 1978. He then worked for Mobil Oil Corporation as an internal auditor until 1981. From 1981 through 1986, he was employed by the Wyoming State Auditor as chief auditor for federal and state oil and gas and coal royalties. During that time he was also engaged in a joint effort with the Department to examine production taxes, including the audit of tax returns to determine if they were reaching fair market value. In 1986 he left his employment with the Wyoming State Auditor and began consulting work as a principal with Wyoming Royalties providing oil and gas consulting services, primarily in the area of royalties and taxes. [Transcript Vol. I, pp. 100-102, 123]. Mr. Fetterolf was not trained or certified as an appraiser. [Transcript Vol. I, pp. 121-122]. Based on that training and experience, and over the Amoco’s objection, the Board allowed Mr. Fetterolf to express his opinions concerning the fair market value of Amoco’s oil and gas production at issue in this case.
44. Based on his training and experience, we found Mr. Fetterolf qualified to express the opinions presented to the Board at the hearing.
45. The expert opinions elicited by Fremont County from Mr. Fetterolf were that production taxes and royalties are costs necessary to produce and that the inclusion of production taxes and royalties produces a result which is closer to fair market value. [Transcript Vol. I, p. 124]. Additional opinion testimony was elicited by Amoco during cross examination and by the Board. [Transcript Vol. I, pp. 128-137, 140].
46. Any Discussion set forth above or Conclusion of Law set forth below which includes a Finding of Fact may also be considered a finding of fact and, therefore, is incorporated herein by reference.
CONCLUSIONS OF LAW
47. Amoco’s notice of appeal was timely filed within thirty days after the Department’s final administrative decision. Rules, Wyoming State Board of Equalization, Chap. 2, § 5(e). The Board has jurisdiction to determine this matter. Wyo. Stat. Ann. § 39-11-102.1(c); Wyo. Stat. Ann. § 39-14-209(b); Antelope Valley Imp. v. State Bd. of Equalization for State of Wyo., 992 P.2d 563 (Wyo. 1999).
48. The role of this Board is strictly adjudicatory:
It is only by either approving the determination of the Department, or by disapproving the determination and remanding the matter to the Department, that the issues brought before the Board can be resolved successfully without invading the statutory prerogatives of the Department.
Amoco Production Company v. Wyoming State Board of Equalization, 12 P.2d 668, 674 (Wyo. 2000). The Board’s duty is to adjudicate the dispute between the taxpayers and the Department.
49. The Board 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. Ann. § 39-11-102.1(c)(iv).
50. “The burden of proof is on the party asserting an improper valuation.” Amoco Production Company v. Wyoming State Board of Equalization, 899 P. 2d 855, 858 (Wyo. 1995); Teton Valley Ranch v. State Board of Equalization, 735 P. 2d 107, 113 (Wyo. 1987). The Board’s Rules provide that:
the Petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action....
Rules, Wyoming State Board of Equalization, Chap. 2, § 20.
51. The Department and Amoco settled the issues raised by Amoco in its appeal. [Joint Stipulation of Facts ¶13, Exhibit “A” to Joint Stipulation of Facts]. This leaves for Board determination the issues raised by Amoco concerning Fremont County’s participation as intervenor and Fremont County’s contention that royalties and production taxes are a component of the numerator of the direct cost ratio of the proportionate profits method. [Joint Stipulation of Facts ¶¶ 24, 25].
52. Fremont County bears the burden of proof on the issue it raised. Because the Department has accepted our decision in Amoco, 96-216, supra, Amoco has stepped up to defend the Department’s actions. Amoco bears the burden of proof on the issues it raised concerning Fremont County’s participation in this appeal.
Fremont County Intervention
53. In its hearing brief and proposed findings of fact and conclusions of law, Amoco urges us to reverse our August 17, 2001, order authorizing the intervention of Fremont County. In support of its position Amoco argues that the applicable statutes and Board rules only permit a board of county commissioners to participate in a contested case as a “petitioner” through the timely filing of a separate appeal. Amoco then argues that there is no specific authority for a county to appeal an oil and gas determination to the Board.
54. After the briefs were filed in this case, the Wyoming Supreme Court addressed Amoco’s fundamental argument that the applicable statutes do not provide any authority to the board of county commissioners or the county to appeal an oil and gas determination to the Board. In Board of County Commissioners for Sublette County, Wyoming v. Exxon Mobil Corp., 2002 WY 151, 55 P.3d 714 (Wyo. 2002), the Wyoming Supreme Court recognized a county’s authority to file a contested case appealing post audit ad valorem tax decisions of the Department and to raise certain types of issues in such an appeal. Fremont County filed an appeal from the post audit, final decision of the Department reflected in the Notice of Valuation Change, the Notice of Valuation Change the Department advised Amoco it would issue in its Final Determination Letter which Amoco appealed.
55. Therefore, the question before us is not whether Fremont County had a right to appeal. It did. Nor is the question whether Fremont County filed a timely appeal. It did. Rather, the question is whether or not the procedural decisions made by the Board deprived Fremont County of the right to participate in this appeal. Those procedural decisions were to first grant Fremont County’s Motion to Intervene in this case, and to then dismiss Fremont County’s appeal of the Department’s Notice of Valuation Change.
56. Our rules specifically provide for intervention by a board of county commissioners. Rules, Wyoming State Board of Equalization, Chap. 2, § 14(a). In its motion to intervene, Fremont County noted its general agreement with the changes in valuation made by the Department while reserving its right to review the returns, amended returns, audit findings and supporting data. It further noted that allowing intervention in this case would prevent duplication of effort and its pending appeal of the Notice of Valuation Change could be consolidated with this case or dismissed. We find that intervention is particularly appropriate in a case such as this where the county has exercised its independent right to appeal from a post audit, final decision of the Department and then sought to intervene in a taxpayer’s separate appeal of the same post audit, final determination of the Department. We believe our Order on Intervention was proper. Fremont County was entitled to participate fully in this appeal and to raise any issues it identified concerning the Department’s final determination brought into question by Amoco’s appeal. See: In the Matter of the Appeal of Union Pacific Resources Company, et al., 2003 WL 21774603, Board Docket No. 2000-147, ¶¶ 208-212 (June 9, 2003).
57. The same result could have been achieved by consolidating the appeals of Amoco and Fremont County and proceeding with the consolidated case. We chose instead to allow Fremont County to intervene in Amoco’s appeal and to dismiss Fremont County’s separate appeal. We conclude that it was proper to allow Fremont County to intervene in this case.
Objection Based on Use of Fremont County Name
58. At the beginning of the hearing, Amoco made an oral motion to dismiss Fremont County from the case, asserting that Fremont County was not a proper party. In support of its Motion, Amoco cited a 1892 Wyoming Supreme Count decision, Board of County Commissioners of Sweetwater County v. Young, 3 Wyo. 684, 29 P. 1002 (Wyo. 1892). Fremont County responded by moving orally to amend its pleadings to reflect that the intervention was sought by the Board of County Commissioners of the County of Fremont. The Board took the cross motions under advisement, continued with the hearing on the merits and requested the parties file briefs after the close of the hearing supporting their respective positions. The Board subsequently issued its Order allowing Fremont County to amend its pleadings. However, the Board has not formally ruled on Amoco’s oral motion to dismiss.
59. Section 18-2-109 of the Wyoming Statutes requires that a county sue or be sued through the “board of county commissioners of the county of . . .”. This requirement was confirmed in Board of County Commissioners of Sweetwater County v. Young, id. Therefore, Amoco is correct in its assertion that the motion to intervene was filed by Fremont County using an incorrect name. That being said, the issue is one of the proper remedy to correct the misnomer. Amoco sought a dismissal of Fremont County from the appeal. Fremont County sought to amend its pleadings to substitute the proper party.
60. Because the situations are analogous, we believe it is proper to apply the law regarding the substitution of parties from the civil setting to determining the propriety of allowing the substitution of the Fremont County, a body corporate and politic, acting by and through the Board of County Commissioners of the County of Fremont for Fremont County. In civil cases, the Wyoming Rules of Civil Procedure provide for the liberal substitution of parties.
No action shall be dismissed on the ground that it is not prosecuted the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.
Rule 17(a), W.R.C.P.
61. As the Oklahoma Supreme Court recently observed the purpose of this rule is to do substantial justice. “‘[C]ourts should be inclined to disregard subtleties and answer technical objections to the sufficiency of a pleading in an honest effort to determine the real issues on their merits, and to try and do substantial justice to the litigants before them.’” Watford v. West, 2003 OK 84 ¶ 10, 78 P.3d 946, 948 (2003) (quoting from Weeks v. Cessna Aircraft Co., 895 P.2d 731 (Okla Civ. App. 1994)).
62. In addition Rule 15 of the Wyoming Rules of Civil Procedure provides for the liberal amendment of pleadings when the adverse party is not prejudiced. Rose v. Rose, 576 P.2d 458 (Wyo. 1978); Elder v. Jones, 608 P.2d 654 (Wyo. 1980); Hernandez v. Gilveli, 626 P.2d 74 (Wyo. 1981); Beaudoin v. Taylor, 492 P.2d 966 (Wyo. 1972). In this case Amoco failed to show any prejudice, bad faith, or dilatory motive on the part of intervenor.
63. Therefore, consistent with Rule 17(a) and the liberal right to amend provided in Rule 15 of the Wyoming Rules of Civil Procedure, we confirm the order of the Board issued on April 17, 2002, that the proper remedy in this matter is the substitution of “Fremont County, a body corporate and politic, by and through the Board of County Commissioners of Fremont County” for “Fremont County.” Amoco’s Motion to Dismiss is denied.
64. As a further and separate ground, we conclude that Amoco’s failure to raise the issue until the prehearing, and failure make any motion until the day of the hearing constitutes a waiver by it of the technical defect. Gifford-Hill-Western, Inc. v. Anderson, 496 P.2d 501, 502 (Wyo. 1972). This conclusion is particularly appropriate because of the representations of Amoco’s counsel during the hearing on its motion that the only prejudice to Amoco was that “it is the wrong name” and that Amoco required no additional discovery as a result of the failure of the caption to state that Fremont County was acting through its Board of County Commissioners. Findings of Fact ¶ 39, supra. We note that the oral motion was made on the day of the hearing in contravention of our rule prohibiting the filing of motions within 20 days of a hearing. Rules, Wyoming State Board of Equalization, Chap. 2, § 12.
65. Finally, we conclude the substitution of “Fremont County, a body corporate and politic, by and through the Board of County Commissioners of Fremont County” for “Fremont County” relates back to the filing of the original Motion to Intervene while its appeal was pending. 6A C. Wright & M. Kane, Federal Practice and Procedure, § 1555. pp. 412-414 (2d ed. 1990). Amoco had actual notice of Fremont County’s claim from the time Fremont County filed its Preliminary Statement shortly after its intervention was allowed. Additional notice of Fremont County’s concern about the correctness of the Department’s determination was provided to Amoco when Fremont County appealed the Notice of Valuation Change. As the taxpayer in Amoco 96-216 it certainly was aware of the ultimate issue we decide today. Therefore, we conclude that Amoco was not prejudiced by the substitution and that we have jurisdiction to determine the issue raised by Fremont County in this case.
Fetterolf Testimony
66. Amoco argues that the Board erred in allowing Mr. Fetterolf offer his opinions as an expert witness in this matter for two reasons. First, Amoco argues that Mr. Fetterolf was not an expert. Second, Amoco objects that the opinions were not helpful in determining an issue of fact but rather in determining a legal issue.
67. Rule 702 of the Wyoming Rules of Evidence provides that a witness qualified by knowledge, skill, experience, training or education may testify concerning scientific, technical or other specialized knowledge to assist the trier of fact to understand the evidence or to determine a fact in issue.
68. A witness may testify as an expert if it is shown he has special knowledge gained through actual experience. McDaniel v. State, 632 P.2d 534, 536-537 (Wyo. 1981); Reed v. Hunter, 663 P.2d 513, 517 (Wyo. 1983). This is true even if there may be deficiencies in the qualifications of a witness. Seivewright v. State, 7 P.3d 24, 31-32 (Wyo. 2000). Where a witness’ qualifications to testify as an expert are challenged, the issue is one of weight to weight to given any opinion testimony. See: Seivewright, supra, 7 P.3d at 32 (Statements on qualifications go to weight, not admissibility); 3 P.2d 513, 517 McDaniel v. State, supra, 632 P.2d at 537 (May test expertise on cross-examination). Therefore, we conclude that we did not err in allowing Mr. Fetterolf to testify as an expert based on his wealth of training and experience in the area of oil and gas royalties and taxation. See: Findings of Fact, ¶ 44.
69. Additionally, Rule 704 of the Wyoming Rules of Evidence provides that opinion evidence is not objectionable because it embraces the ultimate issue to be decided by the trier of fact. See: Reed, supra, 663 P.2d at 518.
70. We note that Wyoming Statute Section 16-3-108(a) requires that our decisions be supported by “the type of evidence commonly relied upon by reasonably prudent men in the conduct of their serious affairs.” Expert testimony is not required to support the decision of the Board. Thunder Basin Coal Co. v. State Board of Equalization, 896 P.2d 1336, 1340-1341 (Wyo. 1995).
71. Any legal conclusions made by the Board in this case are based on our independent analysis of the applicable law. Mr. Fetterolf was qualified as an expert and his expert opinions were admissible pursuant to the applicable Wyoming Rules of Evidence. In addition, the opinions provided by Mr. Fetterolf were of the nature that a reasonable person would rely on in the course of their important affairs. Therefore, we conclude we did not err in allowing Mr. Fetterolf to testify as an expert in this case.
Inclusion of Royalties and Production Taxes in the Direct Cost Ratio
72. Oil and gas shall be annually valued at fair cash market value. Wyo. Stat. Ann. § 39-2-208(a) (Michie 1997) (currently Wyo. Stat. Ann. § 39-14-202(a)(i) (LexisNexus 2003)).
73. The proportionate profits method is one of four methods the Department was authorized to use to determine the fair cash market value for oil and gas during the applicable time frame. A fifth method is available if the Department and taxpayer agree that none of the four methods produce a representative fair market value. Wyo. Stat. Ann. § 39-2-208(c) & (d) (Michie 1997) (currently Wyo. Stat. Ann. § 39-14-203(b)(vi) & (vii) (LexisNexus 2003)).
74. Using the proportionate profits method, fair cash market value is calculated method as follows:
(A)The total amount received from the sale of the minerals minus exempt royalties, nonexempt royalties and production taxes times the quotient of the direct cost of producing the minerals divided by the direct cost of producing, processing and transporting the minerals; plus
(B)Nonexempt royalties and production taxes.
Wyo. Stat. Ann. § 39-2-208(d)(iv) (Michie 1997) (currently Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) (LexisNexus 2003)).
75. The “quotient of the direct cost of producing the minerals divided by the direct cost of producing, processing and transporting the minerals” is commonly referred to as the “direct cost ratio.”
76. In Amoco 96-216, supra, we held that production taxes and royalties were direct costs of producing and, therefore, must be included in calculating the direct cost ratio of the proportionate profits method. Fremont County established that neither the audit nor the Department’s final determination included royalties and production taxes as direct costs of producing in the direct cost ratio of the proportionate profits method. The Department conceded that it erred in not including royalties and production taxes in the direct cost ratio used in the calculation of the taxable value of Amoco’s production. Therefore, Amoco was left in the position of advocating for the overturn of Amoco, 96-216, supra. Amoco presented numerous arguments in support of its position that royalties and taxes should not be included as direct costs of producing in the direct cost ratio of the proportionate profits method used to value its production which we address below.
Royalties and Production Taxes Are Direct Costs of Producing
77. In support of its position that royalties and production taxes should not be included in the direct cost ratio as direct costs of producing, Amoco first asserts that the statutes prescribing the proportionate profits formula are vague and ambiguous as to the inclusion of production taxes and royalties and accordingly the Board should rely on the long-standing contemporaneous administrative construction. This argument is contrary to the specific conclusions made by the Board in Amoco, 96-216, supra:
88.The major issue in this matter is whether royalties and production taxes should be included as a direct cost of producing in calculating the direct cost ratio. Support for the conclusion that those components must be included comes from a review of Wyoming Statute § 39-2-208. We find this statute to be unambiguous. In interpreting a statute we follow the same guidelines as a court.
We read the text of the statute and pay attention to its internal structure and the functional relationship between the parts and the whole. We make the determination as to meaning, that is, whether the statute’s meaning is subject to varying interpretations. If we determine that the meaning is not subject to varying interpretations, that may end the exercise, although we may resort to extrinsic aids to interpretation, such as legislative history if available and rules of construction, to confirm the determination. On the other hand, if we determine the meaning is subject to varying interpretations, we must resort to available extrinsic aids.
General Chemical v. Unemployment Ins. Comm’n, 902 P.2d 716, 718 (Wyo. 1995).
89.In determining whether royalties and production taxes are to be included as direct production costs in calculating the direct cost ratio, we consider the omission of certain words intentional on the part of the legislature, and we may not add omitted words. Parker v. Artery, 889 P.2d 520 (Wyo. 1995); Fullmer v. Wyoming Employment Security Comm’n., 858 P.2d 1122 (Wyo. 1993). Particularly, when the language appears in one section of a statute but not another, we will not read the omitted language into the section where it is absent. Matter of Voss’ Adoption, 550 P.2d 481 (Wyo. 1976). Wyoming Statute §39-2-208(d)(iv) is clear and unambiguous. It does not require statutory interpretation to understand that royalties and production taxes are not specifically excluded as a direct cost. The legislative intent is clear. Considering that inclusion of royalties and production costs in the direct cost formula reaches the closest calculation to what are actual costs, the clear reading of the statute is the most realistic result and there is no need to resort to legislative intent.
90.The legislature specifically excluded royalties and production taxes from the definition of direct costs to be used for purposes of the direct cost ratio used in valuing coal under the proportionate profits methodology. Wyo. Stat. § 39-2-209(d)(iv). Likewise, the legislature specifically excluded royalties and production taxes as direct costs to be used in the formula calculation for valuation of bentonite. Wyo. Stat. § 39-2-211(d)(i)(c). By excluding these costs in the other mineral valuation statutes, the legislature clearly evidenced its understanding that royalties and production taxes are direct costs of production. Because the legislature did not exclude royalties and production taxes from the direct cost of production of oil and gas, we conclude they must be included.
91. In its Reply to Intervenor’s Response to Motion for Reconsideration at pages 30 through 32, Petitioner argues Wyoming Statute §39-2-208 is ambiguous and the statements of the DOR and representatives of the oil and gas industry must be considered by the SBOE as evidence of the legislature’s intent. We do not agree. Because we have found the statute unambiguous, there is no reason to resort to extrinsic aids, including the search for legislative history, is unnecessary. Even if our conclusion were otherwise, we would be hesitant to accept the proffered statements from sources other than the legislature as an indication of the legislature’s intent. As the Wyoming Supreme Court has noted:
With respect to legislative history as an extrinsic aid to statutory interpretation, such history “is nearly totally unavailable for understanding the actions of the Wyoming State Legislature.” Moncrief v. Harvey, 816 P.2d 97, 111 (Wyo.1991) (Urbigkit dissenting). See also Pisano v. Shillinger, 835 P.2d 1136, 1139 (Wyo.1992); State v. Denhardt, 760 P.2d 988, 990 (Wyo.1988); and State v. Stovall, 648 P.2d 543, 546 (Wyo.1982) (Brown, J., “Because of the sparse legislative history kept in this state, peering into the past, even the very recent past, becomes as difficult as predicting the future.”.)
Parker Land & Cattle Co. v. Wyo. Game & Fish Comm’n, 845 P.2d 1040, 1044 (Wyo. 1993).
As Justice Brown said:
It may be more honest if we are straightforward about what the legislature intended and simply say we do not know. There is no useful legislative history in Wyoming.
Board of County Comm’rs v. Laramie School District No. 1, 884 P.2d 946, 956 (Wyo. 1994).
78. While an administrative body may be entitled to deference, that deference may not be afforded if contrary to the clear statutory language. The Department may not rewrite a statute through rule making. U.S. West v. Wyo. Public Service Commission, 992 P.2d 1092, 1096 (Wyo. 1999).
79. In addition, we believe that subsequent legislative action is a sounder basis than the Department’s prior interpretation for determining the intent of the legislature. As we concluded in In the Matter of the Appeal of RME Petroleum Company, supra:
32.Additional support for the inclusion of royalties and production taxes as direct costs of producing comes from the Wyoming State Legislature’s actions following the issuance of our decision in Amoco 96-216, supra. Senate File 69, introduced during the 2002 Legislative session, provided in pertinent part for the following amendment to Wyo. Stat. Ann. § 39-14-203(b)(iv)(D)(II) (Wyo.Stat.Ann § 39-2-208(d)(iv) as recodified):
(II) Nonexempt royalties and production taxes. Exempt and nonexempt royalties, ad valorem production taxes, severance taxes, conservation taxes and indirect costs shall not be included in the computation of the quotient set forth in subdivision (I) of this subparagraph. Indirect costs include, but are not limited to, allocations of corporate overhead, data processing costs, accounting, legal and clerical costs and other general and administrative costs which cannot be specifically attributed to an operation function without allocation. . . .
For the first time, Senate File 69 evidenced an intent by the Legislature to exclude production taxes and royalties from the direct cost ratio used in the proportionate profits valuation method for oil and gas. The bill did not pass during the 2002 Legislative session.
33.Legislative inaction following a contemporaneous and practical interpretation is evidence that the legislature intends to adopt such an interpretation. “Where action upon a statute or practical and contemporaneous interpretation has been called to the legislature’s attention, there is more reason to regard the failure of the legislature to change the interpretation as presumptive evidence of its correctness.” 2B Singer, Sutherland Statutory Construction, § 49:10, pp. 117-118, fn. 6 (6th ed.). We conclude the Legislature’s failure to enact Senate File 69 is presumptive evidence of the correctness of our interpretation reflected in Amoco 96-216, supra. We note that the amendment itself is consistent with our decision that the statutory definition of indirect costs did not include royalties and production taxes.
Powder River Coal Decision Not Applicable
80. Amoco next argues that the Wyoming Supreme Court’s analysis in Powder River Coal v. Wyo. State Board of Equalization, 2002 WY 5, 38 P.3d 423 (Wyo.2002), leads to the conclusion that production taxes royalties are indirect costs. In that case, the Wyoming Supreme Court held that federal lease bonus payments were not to be included as direct costs of mining in the in the proportionate profits calculation for coal. Applying the doctrine of ejusdem generis, the Court concluded the federal lease bonus payments were indirect mining costs. Id. at ¶ 19.
81. Petitioner’s analysis of the applicability of Powder River Coal, id., to royalties is flawed. Before addressing whether or not lease bonus payments were indirect costs, the Wyoming Supreme Court first addressed the question of whether or not lease bonus payments could be characterized as royalties. The court clearly concluded that the lease bonus payment was not a royalty. Powder River Coal, id. at ¶¶ 11-17.
82. In determining what meaning the legislature intended by the use of the term “royalty”, the Court concluded:
We assume the legislature was well aware of the accepted legal definition and usage of the term royalty and cannot conclude it intended anything other than the well accepted meaning of the term royalty when it provided for federal royalties to be deducted as exempt royalties for the sales value of coal mined within this state.
Powder River Coal Co., id. at ¶ 17.
83. Unlike the situation in Powder River Coal Co., id., where there was no statutory reference to federal lease bonus payments, the legislature has recognized production taxes and royalties as direct costs of production. Wyo. Stat. Ann. §§ 39-2-209(d)(iv); 39-2-211(d)(i)(c) (Michie 1997); See: Amoco 96-216, supra at ¶¶ 89, 90. Therefore, it is not necessary to resort to an intrinsic aid such as ejusdem generis to resolve an issue of statutory construction. 2A Norman J. Singer, Statutes and Statutory Construction § 47.22 (6th ed., 2000 Revision). As the Wyoming Supreme court recognized in BP America Production Co. v. Madsen, 2002 WY 135 ¶ 4, 53 P.3d 1088 (2002):
When a statute is sufficiently clear and unambiguous, we give effect to the plain and ordinary meaning of the words and do not resort to the rules of statutory construction. Tietema v. State, 926 P.2d 952, 954 (Wyo.1996); Butts v. State Board of Architects, 911 P.2d 1062, 1065 (Wyo.1996). Instead, our inquiry revolves around the ordinary and obvious meaning of the words employed according to their arrangement and connection. In doing so, we view the statute as a whole in order to ascertain its intent and general purpose and also the meaning of each part. “We give effect to every word, clause and sentence and construe all components of a statute in pari materia.’ Parker, 845 P.2d at 1042.” Murphy v. State Canvassing Bd., 12 P.3d 677, 679 (Wyo. 2000) (quoting Campbell County School Dist. v. Catchpole, 6 P.3d 1275, 1284 (Wyo. 2000)).
Production taxes are a direct cost of producing
84. Next Amoco cites Hillard v. Big Horn Coal, 549 P.2d 293, 302 (Wyo. 1976) for the proposition that production taxes are not direct costs. We find this argument misconstrues the Supreme Court’s decision.
85. On the issue of the treatment of taxes as indirect costs the Wyoming Supreme Court said: “It well may be that the Board was overly generous in allocating these taxes as a part of the indirect costs. This, however, is not an issue before us . . . .” The Supreme Court did not reach the issue. Therefore, we conclude Amoco’s argument is not supported by the only case cited by it in support thereof and without merit.
Wyodak Decision Not Exclusive
86. Amoco next argues that the Supreme Court’s decisions in Powder River Coal, supra, and Wyodak Resources Development Corp. v. State Board of Equalization, 9 P.3d 897 (Wyo. 2000), require a cost to be a physical, hard cost to be included as a direct cost of producing in the in the direct cost ratio. The argument attempts to introduce language not present in the applicable statutes. Neither the adjective physical nor the adjective hard was used by the legislature in describing the direct costs of producing.
87. We conclude that Amoco’s reliance on Powder River Coal, supra, to be misplaced for the reasons cited above. Findings of Fact, supra at ¶¶ 75-78.
88. In Wyodak the Supreme Court concluded that the agreement between Wyodak and the State Highway Commission requiring Wyodak to move a road at its own expense was “for the purpose of allowing Wyodak to maximize the removal of the coal and it necessarily follows that the associated expenses were properly classified as direct costs.” Wyodak, Id. at 992. However, it does not follow from the Court’s opinion that other costs, including royalties and production taxes, are not direct costs of producing.
89. Royalty is defined for the purpose of property appraisal and assessment as a “payment made periodically or at irregular intervals to the owner of an interest in mineral land for the privilege of exploring for, and/or mining and disposing of, mineral deposits.” Glossary of Property Appraisal and Assessment, International Association of Assessing Officers (1997). Petitioner’s senior property tax representative identified a royalty interest as a production cost. Findings of Fact ¶ 3, supra.
90. A royalty has been recognized by the Wyoming Supreme Court as a direct cost of mineral production.
It is thus apparent that royalty must be paid for the privilege of mining, not processing, and as has been indicated above, the value of the coal at the mine must be sufficient to pay both the costs of mining and royalty. We affirm the ruling of the district court upholding the decision of the Board that royalty is a full component of the value of the coal at the mine, and is not to be apportioned between mining and processing as indirect costs may be. (Emphasis added.)
Hillard v. Big Horn Coal Co., 549 P.2d 293, 301-302 (Wyo.1976).
91. Additionally, both production taxes and royalties are treated as direct costs of production within the field of oil and gas accounting. Council of Petroleum Accountants Societies, Inc., Bulletins 4 and 16. We conclude that “factually” production taxes and royalties are direct costs of producing and, therefore, reject Petitioner’s first argument.
92. Production taxes include severance tax, “an excise tax [on] . . . the value of the gross product extracted upon the privilege of severing or extracting.” Wyo. Stat. Ann § 39-6-302 (a) (Michie 1997), and ad valorem tax, a tax based on the fair market value of the product, after the mining or production process is complete. Wyo. Stat. Ann. § 39-2-208(a) (Michie 1997). Both taxes are imposed on the value of the extracted mineral with no deduction for expenses incurred by the producer prior to the point of valuation. Wyo. Stat. Ann. §§ 39-2-208(a) and 39-6-302(a) (Michie 1997). (Currently Wyo. Stat. Ann. § 39-14-203(a)(i) and (b)(ii) (LexisNexus 2003)). The privilege of extracting the mineral is taxed on the basis of the value of the extracted mineral by the severance tax. The mineral extracted is taxed based on its value by the ad valorem tax. Both production taxes are imposed on and are directly related to the producing of the mineral.
Inclusion of Exempt Royalties Does Not Result in Taxation of Federal Interests
93. Amoco contends that by including exempt federal royalties in the direct cost ratio, Article 15 § 12 of the Wyoming Constitution is violated. That constitutional provision exempts the property of the United States from taxation.
94. However, the direct cost ratio is a mathematical formula which is applied to revenues of the producer, net of taxes and royalties. Therefore, exempt royalties are not taxed.
Application of this Decision
95. Finally Amoco argues that our decision should be applied prospectively only, the identical issue raised by Amoco in its reply to the responses for reconsideration in Amoco, 96-216, supra.
96. In this appeal the Board is acting in its adjudicative capacity. Amoco Production Company v. Wyoming State Board of Equalization, supra, 12 P.2d at 674; See: Antelope Valley Improvement and Service District v. State Bd. of Equalization for the State of Wyoming, 4 P.3d 876 (Wyo. 2000).
97. In Wyoming State Tax Commission v. BHP Petroleum, 856 P.2d 428 at 439 (Wyo. 1993), the Wyoming Supreme Court eloquently observed: “In general, ‘statutes operate prospectively while judicial decisions are applied retroactively.’”
98. The Wyoming Supreme Court has articulated the standards to be applied in determining whether a decision should be applied prospectively only. First, it must be determined if the decision established a new principle of law, explicitly overruling a prior precedent or overturning a long-standing practice. Second, it must be determined if the purposes of the decision would be furthered by retroactive application. Finally, it must be determined if hardship or injustice would be generated by the retroactive application of the decision. Hanesworth v. Johnke, 783 P. 2d 173, 176-177 (Wyo. 1989) citing Chevron Oil Company v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971).
99. Those purposes are not met in this case and the ruling should be retroactive. The purpose of taxing minerals close to fair market value would be defeated by prospective application of our decision. There is no evidence Petitioner would experience a hardship by retroactive application. The constitutional mandate of valuing minerals at their fair market value would be defeated by prospective application.
100. While there is evidence in the record that the Department may be foreclosed from applying our decision on the inclusion of royalties and production taxes to other taxpayers’ 1993 through 1995 production because of the applicable statute of limitations, it does not follow that the Department is foreclosed from applying our decision to this taxpayer. The failure of the Department to collect tax from other taxpayers does not excuse this taxpayer from liability for the tax where the applicable statute of limitations has not run. Fisher Controls Co., Inc. v. Commonwealth of Pa., 476 Pa. 119, 381 A.2d 1253, 1257 (1977).
101. We conclude that it was proper to allow Fremont County to amend its pleadings to reflect Fremont County, a body corporate and politic, acting by and through the Board of County Commissioners of Fremont County.
102. Further, we conclude that Fremont County, through its intervention was a proper party to this action and entitled to question the Department’s valuation decision.
103. Finally, as conceded by the Department, we conclude that the Department erred in not including royalties and production taxes as direct costs of producing in the direct cost ratio used to calculate the taxable value of Amoco’s 1993 through 1995 production from the Beaver Creek Field in Fremont County, Wyoming.
ORDER
IT IS THEREFORE HEREBY ORDERED Amoco Production Company’s Motion to Dismiss Fremont County as a party to this appeal is denied; and
IT IS FURTHER ORDERED the Department’s decision not to include royalties and production taxes as direct costs of producing in the direct cost ratio of the proportionate profits method used to determine the value of Amoco Production Company’s 1993 through 1995 oil and gas production from the Beaver Creek Field in Fremont County, Wyoming, is reversed.
IT IS FURTHER ORDERED this matter is remanded to the Department for collection of additional severance taxes and certification of additional gross products taxable value to Fremont County, Wyoming, consistent with the Joint Stipulation of the Parties and this decision.
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 30th day of December, 2003.
STATE BOARD OF EQUALIZATION
________________________________________
Roberta A. Coates, Chairman
________________________________________
Alan B. Minier, Vice Chairman
Attest:
__________________________________
Wendy J. Soto, Executive Secretary