Robert A. Swiech, Nicole Crighton, John L. Bordes, Jr., Oreck, Bradley, Crighton, Adams & Chase, for BP America Production Company, Petitioner.

Cathleen Parker, Assistant Attorney General, for the Wyoming Department of Revenue, Respondent.

The Board shall review final decisions of the Department of Revenue 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. Wyo. Stat. Ann. §39-14-209(b). 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); Rules, Wyoming State Board of Equalization, Chapter 2, §5(a). BP America Production Company timely appealed the final decision of the Department by Notice of Appeal effective September 29, 2003.

This appeal concerns natural gas production from the Whitney Canyon Field in Uinta County, Wyoming, between January 1, 1996, and December 31, 1998 [Production Years 1996, 1997, 1998]. The Department of Revenue (Department), following completion of an audit of the properties by the Department of Audit (DOA), issued a Final Determination Letter on August 23, 2003. The letter assessed additional severance tax of $4,517,136.37, with interest through September 27, 2003, of $3,243,394.00, and increased the ad valorem taxable value by $79,271,876.00 on the audited properties. BP America Production Company (BP) appealed the additional assessments to the State Board of Equalization (Board). The Board, Alan B. Minier, Chairman, and Thomas R. Satterfield, Vice Chairman, held a hearing September 23 and 24, 2004. Thomas D. Roberts was appointed to the Board effective October 4, 2004, and considered this matter on the record including the written briefs and hearing transcript.

BP initially challenged the Department audit assessment in two general areas - (a) denial of certain processing expenses; and (b) inclusion of production taxes and royalties as direct costs of producing in the proportionate profits valuation calculation. The Department and BP subsequently notified the Board all processing expense issues had been resolved, resulting in revised additional severance tax of $4,418,377.15, and a revised increase in ad valorem valuation of $77,525,563.00. [Board Record]. A revised interest calculation has not been submitted. The only remaining issue on appeal is thus the question of inclusion of royalties and production taxes as direct costs of producing in the direct cost ratio of the proportionate profits methodology.

1. The controversy in this case turns in part on a formula. To provide context for our findings, we first address how the formula works. We will then place the parties’ dispute in the context of the formula.

2. The Wyoming Legislature, in 1990, adopted proportionate profits as one method to establish the taxable value of natural gas which must be processed before it can be sold. Such processing typically removes impurities such as carbon dioxide or hydrogen sulfide.

3. The proportionate profits method sets the fair market value using this formula:

(I) 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

Wyo. Stat. Ann. §39-24-203(b)(vi)(D). We can express these words graphically:

Direct Costs of Producing

divided by

Direct Costs of Producing, Processing, & Transportation

equals

[=]

Direct

Cost

Ratio

4. The calculation begins with the total revenue from sale of the processed natural gas in question.

5. From the total revenue, one subtracts two different kinds of royalties – exempt and non-exempt. Generally speaking, exempt royalties are paid to the United States, the State of Wyoming, or an Indian tribe. Rules, Wyoming Department of Revenue, Chapter 6, §4(o). Non-exempt royalties are paid to private individuals. Rules, Wyoming Department of Revenue, Chapter 6, §4(p). The difference is important because exempt royalties, once subtracted from total revenue at this stage, are not added back in the last step to determine taxable value. Exempt royalties, therefore, never become part of the taxable value of the mineral.

6. Production taxes are generally state severance and county ad valorem taxes on mineral production. Rules, Wyoming Department of Revenue, Chapter 6, §4(n). These taxes can only be calculated once the taxable value of the natural gas production is known. The proportionate profits method is therefore somewhat circular. To determine production taxes, we need to know taxable value. To determine taxable value, we need to know production taxes. While this is not an insurmountable problem, it is an inescapable feature of the proportionate profits method as enacted by the Legislature.

7. The revenue left after subtracting production taxes and royalties is further reduced when it is multiplied by a fraction. The numerator, or upper portion of the fraction, is equal to the direct costs of producing the mineral. There are two terms of art in the phrase, “direct costs of producing.” One is direct costs, as distinguished from indirect costs. The other is producing, which must be distinguished from processing and transportation.

8. The denominator, or lower portion of the fraction, is equal to the direct costs of producing plus the direct costs of processing and transporting the mineral. The statutory definition maintains the distinction between direct and indirect costs for the elements of the denominator.

9. We can see how this works with a simplified example. We will, for this example, ignore what is included in direct costs of producing. Revenue, in the example, can be greater than production taxes, royalties and direct costs, because what is left over can be indirect cost and profit. Here is the example:

Revenue from sale of gas	$13
Production taxes	$1
Exempt royalty	$1
Non-exempt royalty	$1
Direct costs of producing	$3
Direct costs of processing and transportation	$5

10. The first step in determining taxable value is to subtract production taxes and royalties from revenue; that is, $13 minus $3 equals adjusted revenue of $10.

$13.00

minus

[-]

$1.00

equals

[=]

$10.00

11. The second step is to calculate a direct cost ratio. In this case, that means $3 divided by the sum of $3 plus $5, or $3 divided by $8, which equals .375, or 37.5%.

$3.00

divided by

$3.00 + $5.00

($8.00)

equals

[=]

37.5%

12. The third step is to multiply the adjusted revenue of $10 by the direct cost ratio, 37.5%, for a result of $3.75.

$10

times

[x]

37.5%

equals

[=]

$3.75

13. The last step is to add back production taxes of $1.00 and non-exempt royalties of $1.00, to reach a taxable value of $5.75.

$3.75

plus

[+]

$1.00

equals

[=]

$5.75

$3.00

divided by

$3.00 + $5.00

($8.00)

equals

[=]

37.5%

15. The final taxable value may require further recalculation to account for changes to production taxes.

16. We can now illustrate the issue at stake. BP reads “direct costs of producing” to include only those operational expenses which occur between the wellhead and the commencement of processing, such as the operating cost, including depreciation, of a gathering system. The Departments of Audit and Revenue read “direct costs of producing” to also include production taxes and royalties as direct costs of producing.

17. Let us assume that BP reported its gas production based on its reading of the statute, and that report listed the same figures shown in our example. On audit, the Department would insist that direct costs of producing had been understated by the $3.00 of production taxes and royalties. If we temporarily ignore problems of calculation, the Department’s revised calculation would look something like this:

Revenue from sale of gas	$13
Production taxes	$1
Exempt royalty	$1
Non-exempt royalty	$1
Direct costs of producing	$3+$1+$1+$1
Direct costs of processing and transportation	$5

18. The first step in determining taxable value is once again to subtract production taxes and royalties from revenue; that is, $13 minus $3 equals adjusted revenue of $10.

$13.00

minus

[-]

$1.00

equals

[=]

$10.00

19. The second step is to calculate a direct cost ratio. In this case, that now means $6 divided by the sum of $6 plus $5, or $6 divided by $11, which equals .545, or 54.5%.

$3.00 + $1.00 + $1.00 + $1.00

($6.00)

divided by

$3.00 + $1.00 + $1.00 + $1.00+ $5.00 ($11.00)

equals

[=]

54.5%

20. The third step is to multiply the adjusted revenue of $10 by the direct cost ratio (54.5%), the result of which equals $5.45.

$10

times

[x]

54.5%

equals

[=]

$5.45

21. The last step is to add back production taxes of $1.00 and non-exempt royalties of $1.00, to reach a taxable value of $7.45, as compared to the $5.75 originally calculated in our example. Supra, ¶13.

$5.45

plus

[+]

$1.00

equals

[=]

$7.45

$3.00 + $1.00 + $1.00 + $1.00

($6.00)

divided by

$3.00 + $1.00 + $1.00 + $1.00+ $5.00 ($11.00)

equals

[=]

54.5%

23. This higher value would have the effect of increasing production taxes, which in turn would both reduce the adjusted gross revenue (because more tax is subtracted against the original $13) and increase the direct cost ratio (because production tax is a component of direct costs of producing, and direct costs of producing are in both the numerator and denominator of the fraction). This effect reaches a mathematical limit at which no further adjustments are necessary.

24. BP’s production at issue in this case was reported and valued under the proportionate profits methodology. Wyo. Stat. §39-14-203(b)(vi)(D).

25. In reporting its production, BP did not include production taxes and royalties as direct costs of producing in determining its direct cost ratio under the proportionate profits methodology. [Exhibit 506].

26. The auditors reclassified BP’s production taxes and royalty expenses as direct costs of producing in the direct cost ratio. [Exhibit 500].

27. BP was obligated to pay both exempt and non-exempt royalties to mineral interest owners and production taxes to the State and County in order to produce the mineral in question. [Trans. Vol. III, pp. 220-221]; also see Wyo. Stat. Ann. §§39-14-201 through 211.

28. BP, in challenging the inclusion of production taxes and royalties as direct costs of producing, presented evidence which reached back to the original passage of the proportionate profits statute in 1990. BP called as a witness Dan Sullivan, who in 1990 was a member of the Wyoming State Senate, as well as chairman of the Senate Revenue Committee and co-chairman of the Joint Interim Revenue Committee. [Trans. Vol. II, p. 29]. In late 1990, Sullivan left public office to become a lobbyist for oil and gas and tobacco companies. [Trans. Vol. II, pp. 48, 68]. At the time of the hearing in 2004, he had represented BP for at least four years. [Trans. Vol. II, p. 48]. We find these longstanding business affiliations unavoidably introduce an element of bias in Sullivan’s testimony.

29. Sullivan testified that when the Joint Interim Revenue Committee defined the proportionate profits method in the coal statutes, it was defining the proportionate profits method for other minerals as well. [Trans. Vol. II, p. 43]. In support of this view, Sullivan referred to a Memorandum of February 1, 1990, entitled “Mineral Taxation Report,” which the Committee prepared and circulated to the members of the Legislature. [Trans. Vol. II, pp. 29-30; Trans. Vol. II - Exhibit 109]. Sullivan was directly involved in choosing the words contained in the memorandum, but stated that the entire Committee supported that “verbiage.” [Trans. Vol. II, p. 71]. He stated the Mineral Tax Report was not intended to explain any legislative action. It was meant to explain and persuade with regard to the Report recommendations. [Trans. Vol. I, pp. 51-52].

30. Sullivan directed the Board’s attention to the Memorandum’s description of the proportionate profits method for oil and gas, which says, “basically the same method as used by coal producers (see the explanation for coal).” [Trans. Vol. II - Exhibit 109, p. 6]. The simplified example of the proportionate profits method for coal states, that, “[u]nder this concept, the sales price of the coal is multiplied by the ratio determined by dividing the mining cost by the total cost (mining plus processing cost)....” [Trans. Vol. II - Exhibit 109, p. 5]. This was followed by a brief example, which showed how to use a sales price, mining cost, and total cost to reach a taxable value. [Trans. Vol. II - Exhibit 109, p. 5].

31. Sullivan’s Memorandum supports the conclusion that the Legislature adopted a proportionate profits method for coal and for oil and gas. It does not, however, support the conclusion that the proportionate profits calculations for the two types of minerals were to be the same. The Memorandum says nothing at all about the characterization of production taxes and royalties as direct costs of producing. [Trans. Vol. II - Exhibit 109]. Instead, the details of the method were left to the language of specified mineral valuation bills, including “HB 148" for solid mineral valuation and “HB 149" for oil and gas valuation. Although the two bills were attached to the original Memorandum, they were not attached to the copy of the Memorandum provided to the Board. [Trans. Vol. II - Exhibit 109]. We nonetheless take notice of HB 148 and HB 149, both of which are a matter of public record. House Bill 148, 1990 Legislature, 50^th Session (Wyo. 1990); House Bill 149, 1990 Legislature, 50^th Session (Wyo. 1990).

32. The different and very specific statements of the proportionate profits method, as that method applies to coal and to oil and gas, are the same in HB 148 and HB 149 as in the current statutes. Wyo. Stat. Ann. §39-14-103(b)(vii); Wyo. Stat. Ann. §39-14-203(b)(vi)(D). Since these different formulations already existed by the time the Memorandum was prepared, it makes no sense to claim that the general, simplified example found in the Memorandum expresses an intention which should control the very specific language of HB 148 and HB149. In fact, the Memorandum suggests the differences were intentional: “[t]o the extent possible, each mineral should be reviewed separately because each has its own uniqueness and the Committee needed to concentrate on the specific problems and challenges that reality presented.” [Trans. Vol. II - Exhibit 109, p. 1]. Sullivan stated that the affected industrial citizens helped the Committee understand their respective businesses. [Trans. Vol. I, p. 38].

33. Sullivan concedes that the Board, the Department, and the taxpayer are bound by what actually appears in the statute, rather than by the summary which appears in the Memorandum. [Trans. Vol. II, pp. 71-72].

34. The Department believes that costs in the coal industry tend to be more production intensive than in the processed natural gas industry. The Department’s concerns with the results of the proportionate profits method have focused on the processed natural gas industry. [Trans. Vol. IV, pp. 359-360].

35. Randy Bolles was Administrator of the Mineral Tax Division of the Department at the time of the hearing in 2004. [Trans. Vol. IV, p. 250]. Bolles began state employment with the DOA in May of 1990, eventually rose to become supervisor of sixteen auditors in 1995, and was briefly acting administrator of the Mineral Audit Division. [Trans. Vol. IV, p. 251-252].

36. In October, 1995, the Department promulgated its Rules on Ad Valorem and Severance Taxes on Mineral Production. The same rules have been in effect since that time. [Trans. Vol. IV, p. 294]. Rules, Wyoming Department of Revenue, Chapter 6.

37. Bolles was a supervisor at the DOA when his staff, in late 1995 or early 1996, raised the issue of whether direct costs of producing included production taxes and royalties. [Trans. Vol. IV, pp. 260-261]. The issue arose in the context of an audit for production years beginning in 1990, when the proportionate profits method was first used for oil and gas. [Trans. Vol. IV, p. 295]. In other words, the DOA raised the issue the first time an audit presented a reason to do so.

38. Derek Weekly was the auditor who conducted the 1990 production year audit. Weekly conducted research on direct costs of producing, and found authority for treating production taxes and royalties as a direct cost of production in petroleum accounting. [Trans. Vol. IV, pp. 261-262]. Bolles identified two textbooks for the record, and BP did not contest their authority. [Trans. Vol. IV, pp. 350-351]. Bolles also identified pertinent accounting standards. [Trans. Vol. IV, pp. 362-363].

39. Bolles discussed the issue of whether direct costs of producing included production taxes and royalties with his manager at the DOA. [Trans. Vol. IV, p. 261].

40. As a result of the discussions between Bolles and his manager in 1996, the Department sought an opinion on the issue from the Wyoming Attorney General. [Trans. Vol. IV, pp. 270-271, 297-298]. Vicci Colgan of that office wrote an opinion concluding that taxes and royalties should be treated as direct costs of producing. [Trans. Vol. IV, pp. 270-271].

41. The DOA decided to take the textbook position when it released its preliminary issue letter for the 1990 production audit. The letter was dated on or about September 17, 1996. [Trans. Vol. IV, p. 261].

42. The taxpayer, represented by John Bordes on behalf of Amoco (now BP), reacted sharply. [Trans. Vol. IV, pp. 261-262]. The taxpayer’s reaction precipitated consultation between the Departments of Revenue and Audit. [Trans. Vol. IV, pp. 261-262]. The final decision was up to Mrs. Burton, then Director of the Department of Revenue. [Trans. Vol. IV, p. 263].

43. Before making a decision, Mrs. Burton contacted Dan Sullivan and Cynthia Lummis, the two chairmen of the Joint Interim Revenue Committee, to discuss why the Legislature had excluded production taxes and royalties in the direct cost ratio for coal, but was silent about that issue for oil and gas. [Trans. Vol. II, p. 44, Vol. IV, pp. 263, 304]. Sullivan, by that time a lobbyist for oil and gas interests, told Mrs. Burton that he felt the proportionate profits method should be applied the same way for the two different types of minerals. [Trans. Vol. II, p. 44].

44. At the hearing, Dan Sullivan stated his view that if direct costs of producing include production taxes and royalties, the result is a taxable value greater than one hundred percent. [Trans. Vol. I, pp. 64-66]. As we have already seen from our examples of how the proportionate profits method is calculated, this cannot be so, because the direct cost ratio is applied against revenue excluding production taxes and royalties. Supra, ¶¶3, 10, 17. Since the purpose of the ratio is to reduce taxable value, a calculation which includes production taxes and royalties as direct costs of producing reduces taxable value less than a calculation which does not. Supra, ¶¶10, 17. With either calculation, the direct cost ratio still produces a smaller taxable value than using one hundred percent of adjusted revenue. The Department’s current view is that the ratio is simply part of a formula. [Trans. Vol. II, p. 378]. The Department’s view makes sense to us. The view of Dan Sullivan is not well-grounded in fact or law. [Trans. Vol. I, pp. 64-66].

45. In late September or early October, 1996, Mrs. Burton decided that production taxes and royalties should not be included as direct costs of producing in the direct cost ratio. [Trans. Vol. IV, pp. 303-304]. Bolles disagreed with Mrs. Burton’s decision. [Trans. Vol. IV, p. 263].

46. The Department sent its final issue letter for Amoco’s (now BP) production years 1989-1992 on October 25, 1996. [Exhibit 112]. The proportionate profits calculation in that final issue letter did not include production taxes and royalties as direct costs of producing. [Trans. Vol. IV, pp. 300-301].

47. Uinta County, in 1996, appealed Mrs. Burton’s decision to exclude production taxes and royalties as direct costs of producing in a case which became this Board’s Docket No. 96-216. Appeal of Amoco Production Company, June 29, 2001, 2001 WL 770800 (Wyo. St. Bd. Eq.), on reconsideration, September 24, 2001, 2001 WL 1150220; reversed on other grounds, Amoco Production Company v. Department of Revenue et. al., 2004 WY 89, 94 P.3d 430 (2004). While the case was pending, the Department maintained the position taken by Mrs. Burton. [Trans. Vol. IV, pp. 267-268].

49. When the Board finally resolved Docket No. 96-216 in September, 2001, by deciding that production taxes and royalties were direct costs of producing, the Department did not appeal. [Trans. Vol. IV, pp. 268-272]. Bolles remembers Mrs. Burton stating that the Board’s decision and rationale made a lot of sense. [Trans. Vol. IV, pp. 268-272, 309-310]. She agreed and changed her mind. [Trans. Vol. IV, pp. 314-315]. Bolles testified that he likewise believed the Board’s decision was correct. [Trans. Vol. IV, pp. 268-272].

50. After the decision, the Department included production taxes and royalties as direct costs of producing in its own proportionate profits calculations, including the calculation at issue in this case. [Trans. Vol. IV, pp. 277-278, 314-315].

51. All of BP’s annual reports to the Department for the case at issue were filed before September, 2001. [Trans. Vol. IV, pp. 316-317].

52. In a Memorandum dated February 8, 2002, the Department notified all gas producers using the proportionate profits method that they were required to include production taxes and royalties as direct costs of producing in the direct cost ratio calculation. [Exhibit 114; Trans. Vol. IV, pp. 273-274, 331]. (By statute, annual gross products reports are due February 25 of each year thus the Memorandum preceded the preparation of annual reports for production year 2001.) This February 8 Memorandum closed with the following sentence:

The Department will continue to require the inclusion of production taxes and royalties in the direct cost ratio for any approved proportionate profits filer unless the Findings of Fact, Conclusions of Law, Decision and Order on Reconsideration issued by the Wyoming State Board of Equalization in the matter of Docket No. 96-216 dated September 24, 2001, is overturned by a state court.

53. Bolles testified that, by the time the Memorandum was issued, the Department had itself embraced the inclusion of production taxes and royalties as direct costs of producing, and was no longer simply responding to the Board’s ruling. [Trans. Vol. IV, pp. 275-276]. Bolles also testified that when the Wyoming Supreme Court vacated the Board’s ruling in Docket No. 96-216 because Uinta County had not properly intervened in the case, the Department did not consider the Board’s ruling to be overturned. Further, the Directors of the Department who followed Mrs. Burton continued to require the inclusion of production taxes and royalties as direct costs of producing. [Trans. Vol. IV, pp. 276-277].

54. The 2002 Legislature considered the issue of inclusion of production taxes and royalties as direct costs of producing for oil and gas taxpayers, but ultimately made no change to the statute.

55. At the time of the hearing in this matter, the Department had several reasons for believing that production taxes and royalties must be classified as direct costs of producing. [Trans. Vol. IV, pp. 279-280]. The Legislature chose to expressly exclude production taxes and royalties from direct costs of producing for coal and bentonite, but not natural gas. [Trans. Vol. IV, pp. 279-281]. The Department believes this distinction is grounded in a difference in processing costs between these different minerals. [Trans. Vol. IV, pp. 282-283]. Textbooks and accounting standards for oil and gas require such classification. [Trans. Vol. IV, pp. 279-281]. Exclusion of production taxes and royalties tends to undervalue the gas. [Trans. Vol. IV, pp. 279-281, 284-285]. Specifically, the exclusion of production taxes and royalties as direct costs of producing often yields a result at odds with the processing costs actually incurred. [Trans. Vol. IV, pp. 285-286].

56. The auditors used an iterative method of calculating BP’s production taxes in the direct cost ratio. Such a method (or a similar algebraic method) is required in order to solve for the amount of production taxes which BP will incur for the production years in question. [Trans. Vol. V, pp. 374-378, 381-383; Exhibits 530, 552; Trans. Vol. IV - Exhibits 549, 550].

57. Randy Bolles testified there is no inherent administrative or practical problem, and no mathematical barrier, which prevents the Department from including production taxes and royalties in the direct cost ratio through use of the simultaneous or iterative calculation. [Trans. Vol. IV, pp. 287-288].

58. BP presented the testimony of Ralph Eguren regarding quadratic equations and the mathematical requirements of calculating production taxes in the direct cost ratio. [Trans. Vol. II, pp. 96-119].

59. BP’s witnesses, however, failed to demonstrate how the Department’s mathematical application of the proportionate profits method (through the use of the iterative method) was incorrect or improper. [Trans. Vol. II, pp. 120-122, 130-131, 134-135, Vol. IV, p. 205; Exhibits 530, 552; Trans. Vol. IV - Exhibits 549, 550].

60. The iterative method provides a mathematically accepted method which is both accurate and impartial. [Trans. Vol. V, pp. 378-379; Exhibits 530, 552; Trans. Vol. IV - Exhibits 549, 550].

61. The iterative method, within the scope of determining valuations for tax purposes, provides results which are mathematically functional and correct. Such answers are extremely close approximations (within mere cents) of a quadratic equation answer (an alternative algebraic method). [Trans. Vol. V, pp. 374-381; Exhibits 530, 552; Trans. Vol. IV- Exhibits 549, 550].

62. The Department used the iterative method to determine taxable value and production tax using a given set of other known values. Use of this method also takes into account various different ways a company can report production taxes to the Department for valuation purposes - accrual for the current year, general ledger balance, or actual payments made. The iterative method gives both the Department and the taxpayer mathematical certainty no matter which reporting basis is used, and eliminates any problems with taxpayers reporting production taxes in any one of the three different manners. [Trans. Vol. V, pp. 375, 384-385].

63. Use of the simultaneous or iterative method also has the advantage of treating all taxpayers equally notwithstanding how they may treat the additional production tax assessed as the result of an audit. A company could book the additional tax as a contingent liability, not as production tax. The additional tax would then not be reflected as a production tax on the company accounting records. Production taxes, under the proportionate profits method, are taxed at 100% by adding them back to taxable value at the last step of the calculation. The additional production tax would escape taxation if it appeared only as a contingent liability, not as production tax, on the company accounting records. [Trans. Vol. V, pp. 389-391].

64. BP contends by including taxes and royalties in the proportionate profits method the result is a quadratic equation which provides two mathematically correct answers, thus such inclusion creates an unacceptable equation. Such assertion is incorrect. [Trans. Vol II, pp. 96-119; Exhibit 123]. There are many real-world, successful applications of both the quadratic and the iterative methods. [Trans. Vol. II, pp. 122-124; Trans. Vol. IV - Exhibits 549, 550].

65. The testimony at hearing indicated two mathematically correct answers will be derived using a quadratic equation, but one of them, in the context of mineral valuation using the proportionate profits method and real-world numbers and data, will always be a negative. A negative answer is not a valid answer in the context of determining value for purposes of taxation. [Trans. Vol. II, p. 132, Vol. V, pp. 379, 391-393].

66. BP’s concern that the direct cost ratio (under either a quadratic or an iterative method) approaches the value of “one” is a mere theoretical concern which is not reflected in real-world applications such as this tax assessment. [Trans. Vol. II, pp. 124-129, 132; Trans. Vol. IV - Exhibit 549].

67. Craig Grenvik, on behalf of the Department, demonstrated both the quadratic and the iterative method arrive at practically the same result. He also demonstrated there were no math inaccuracies in determining the correct answer using the data presented. [Trans. Vol. V, pp. 374-381; Exhibit 123; Trans. Vol. IV - Exhibit 549].

68. The Department believes Wyo. Stat. Ann. §39-14-203(b)(vi)(D) is not ambiguous. [Trans. Vol. III, p. 287].

69. Paul Syring, a senior property tax representative for BP, testified Wyo. Stat. Ann. §39-14-203(b)(vi)(D) is not ambiguous, and he had no need to rely on any extrinsic material to apply the statute. [Trans. Vol. III, pp. 186-188].

70. Paul Syring testified very few entities take their gas production in kind and market themselves due to the costs of marketing and other hassles. [Trans. Vol. III, pp. 171-172]. The lease under which BP produces the gas at issue in fact does not allow the lessor, Champlin (now Anadarko), to take gas production in kind. [Exhibit 105, p. 776, ¶4].

71. BP requests, should the inclusion of production taxes and royalties as direct costs of producing be affirmed, interest on the increase in value associated therewith be calculated from the date of the Department’s February 8, 2002, Memo to all producers indicating production taxes and royalties must be considered direct costs.

72. The Department agreed interest on the increase in taxable value resulting from inclusion of production taxes and royalties as direct costs of producing should commence as of its notification to producers dated February 8, 2002. [Exhibit 114; Trans. Vol. IV, p. 321].

73. Any portion of the Statement of the Case or Contentions and Issues set forth above, or any portion of the Conclusions of Law - Principles of Law or the Conclusions of Law - Application of Principles 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.

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 taxpayer and the Department.

75. 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).

76. “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:

[T]he 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....

77. The Board, in interpreting a statute, follows 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).

78. The Board considers 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). The language which appears in one section of a statute but not another, will not be read into the section where it is absent. Matter of Adoption of Voss, 550 P.2d 481 (Wyo. 1976).

79. "Affidavits by legislators or other persons involved in the enactment of a statute are not a proper source of legislative history." Independent Producers Marketing Corp. v. Cobb, 721 P.2d 1106, 1108 (Wyo. 1986).

80. Agency rules and regulations adopted pursuant to statutory authority have the force and effect of law, and courts will defer to an agency’s construction of its own rules unless such construction is clearly erroneous or inconsistent with the plain meaning of the rules. Doidge v. State Board of Charities and Reform, 789 P.2d 880, 883-884 (Wyo. 1990); Swift v. Sublette County Board of County Commissioners, 2002 WY 32, ¶ 10, 40 P.3d 1235, 1238 (2002).

81. Legislative inaction following a contemporaneous and practical interpretation is evidence the legislature does not differ with 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 Norman J. Singer, Statutes and Statutory Construction §49:10, pp. 117-118, fn. 6 (6th ed., 2000 Revision).

82. “Equal protection in Wyoming requires a law to operate alike upon all persons or property under the same circumstances and conditions.” W. W. Enterprises, Inc., v. City of Cheyenne, 956 P.2d 353, 356 (emphasis in original text).

83. The Wyoming Constitution requires the gross product of mines to be taxed “in proportion to the value thereof” and “uniformly valued for tax purposes at full value as defined by the legislature.” Wyo. Const. art. 15, §§3, 11. For oil and gas, the “[v]alue of the gross product ‘means fair market value as prescribed by W. S. 39-14-203(b) less any deductions and exemption allowed by Wyoming law or rules.’” Wyo. Stat. Ann. §39-14-201(a)(xxix).

84. The Department is required to annually value oil and gas at fair market value. Wyo. Stat. Ann. §39-14-202(a)(i). The Department may also rely on final audit findings, taxpayer amended returns, or department reviews of value in valuing oil and gas production. Wyo. Stat. Ann. §39-14-208(b)(iii).

85. The Wyoming Supreme Court recently set out the process used to value mineral production:

The process of “valuing” mineral production for tax purposes is lengthy, involving these steps:

1. The taxpayer files monthly severance tax returns. Wyo. Stat. Ann. §39-14-207(a)(v)(LexisNexis 2001).

2. The taxpayer files an ad valorem tax return by February 25 in the year following production, and certifies its accuracy under oath. Wyo. Stat. Ann. §39-14-207(a)(i)(LexisNexis 2001).

3. The Department of Revenue values the production at its fair market value based on the taxpayer’s ad valorem return. Wyo. Stat. Ann. §39-14-202(a)(ii)(LexisNexis 2001).

4. The Department of Revenue then certifies the valuation to the county assessor of the county the minerals were produced in to be entered on the assessment rolls of the county. Wyo. Stat. Ann. §39-14-202(a)(ii)(LexisNexis 2001).

5. The taxpayer then has one year to file an amended ad valorem return requesting a refund. Wyo. Stat. Ann. §39-14-209(c)(i)(LexisNexis 2001).

6. The Department of Audit has five years from the date the return is filed to begin an audit, and must complete the audit within two years. Wyo. Stat. Ann. §39-14-208(b)(iii), (v)(D), (vii)(LexisNexis 2001).

7. Any assessment resulting from the audit must be issued within one year after the audit is complete. Wyo. Stat. Ann. §39-14-208(b)(v)(E)(LexisNexis 2001).

Board of County Commissioners of Sublette County v. Exxon Mobil Corporation, 2002 WY 151, ¶11, 55 P.3d 714 (Wyo. 2002). (Commencing January 1, 2003, the time frame for audits was reduced. See Wyo. Stat. Ann. §39-14-208(b)(vii)).

86. The Supreme Court recently summarized the procedure the Board must follow when an oil and gas taxpayer challenges the fair market value determined by the Department:

The Department’s valuations for state-assessed property are presumed valid, accurate, and correct. Chicago, Burlington & Quincy R.R. Co. v. Bruch, 400 P.2d 494, 498-99 (Wyo. 1965). This presumption can only be overcome by credible evidence to the contrary. Id. In the absence of evidence to the contrary, we presume that the officials charged with establishing value exercised honest judgment in accordance with the applicable rules, regulations, and other directives that have passed public scrutiny, either through legislative enactment or agency rule-making, or both. Id.

The petitioner has the initial burden to present sufficient credible evidence to overcome the presumption, and a mere difference of opinion as to value is not sufficient. Teton Valley Ranch v. State Board of Equalization, 735 P.2d 107, 113 (Wyo. 1987); Chicago, Burlington & Quincy R.R. Co., 400 P.2d 499. If the petitioner successfully overcomes the presumption, then the Board is required to equally weigh the evidence of all parties and measure it against the appropriate burden of proof. Basin [Electric Power Coop. Inc. v. Dep’t of Revenue, 970 P.2d 841,] at 851 [(Wyo. 1998)]. Once the presumption is successfully overcome, the burden of going forward shifts to the Department to defend its valuation. Id. The petitioner however, by challenging the valuation, bears the ultimate burden of persuasion to prove by a preponderance of the evidence that the valuation was not derived in accordance with the required constitutional and statutory requirements for valuing state-assessed property. Id.

Amoco Production Company v. Department of Revenue et al, 2004 WY 89, ¶¶7-8, 94 P.3d 430, 435-436 (2004); accord, Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶12, 76 P.3d 342, 348 (2003); Colorado Interstate Gas Company v. Wyoming Department of Revenue, 2001 WY 34, ¶¶9-11, 20 P.3d 528, 531 (2001). The presumption the Department correctly performed the assessment rests in part on the complex nature of taxation. Airtouch Communications, Inc., 2003 WY 114, ¶13, 76 P.3d 342, 348 (2003).

87. The fair market value for natural gas must be determined “after the production process is completed.” Expenses “incurred by the producer prior to the point of valuation are not deductible in determining the fair market value of the mineral.” Wyo. Stat. Ann. §39-14-203(b)(ii).

88. “The production process for natural gas is completed after extracting from the well, gathering, separating, injecting, and any other activity which occurs before the outlet of the initial dehydrator.” Wyo. Stat. Ann. §39-14-203(b)(iv). “When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet of the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first.” Wyo. Stat. Ann. §39-14-203(b)(iv).

89. If the producer does not sell its natural gas prior to the point of valuation “by a bona fide arms-length sale,” the Department must identify the method it intends to apply to determine fair market value, and “notify the taxpayer of that method on or before September 1 of the year preceding the year for which the method shall be employed.” Wyo. Stat. Ann. §39-14-203(b)(vi). If the Department determines fair market value in this way, it must use the same method “for three years including the year in which it is first applied or until changed by mutual agreement between the department and the taxpayer.” Wyo. Stat. Ann. §39-14-203(b)(viii).

90. The Department may employ only one of four methods to determine fair market value of natural gas not sold prior to the point of valuation. Wyo. Stat. Ann. §39-14-203(b)(vi). The relevant method in this matter is proportionate profits:

Wyo. Stat. Ann. §39-14-203(b)(vi)(D). The Legislature prescribed this method in 1990. 1990 Wyo. Sess. Laws, Ch. 54.

91. A valuation method may yield a deduction so low that the method is constitutionally impermissible. If “an artificially low price were utilized for purposes of taxation, the result would be a lower tax for operators (with the excessive deduction) than that paid by other operators. That lack of uniformity would be unacceptable because ‘the Wyoming Constitution mandates that all [minerals] shall be uniformly taxed on the value of their gross product.’ Amax Coal West, Inc., 896 P.2d at 1332.” Wyodak Resources Development Corporation v. Wyoming Department of Revenue, 2002 WY 181, ¶34, 60 P.3d 129, 142 (Wyo. 2002).

92. The Department Rules, Chapter 6, Ad Valorem and Severance Taxes On Mineral Production contains the following definitions:

Section 4. Definitions-General. The definitions set forth in Title 39 of the 1977 Wyoming Statutes, as amended, are incorporated by reference in this chapter. In addition, the following definitions shall apply:

(n) “Production taxes” means the severance tax authorized by W. S. 39-6-302 and the Ad Valorem (Gross Products) Tax authorized by W. S. 39-2-201, the Oil and Gas Conservation tax authorized by W. S. 30-5-116, black lung excise tax authorized by 26 USC Section 4121 and the abandoned mine lands fee authorized by 30 USC Section 1232, as determined on the accrual basis of accounting in accordance with generally accepted accounting principles.

(o) “Exempt royalty” means royalty expense, as determined on the accrual basis accounting in accordance with generally accepted accounting principles, for interests owned by the United States, the State of Wyoming, or an Indian tribe.

(p) “Nonexempt royalty” means royalty expense, as determined on the accrual basis accounting in accordance with generally accepted accounting principles, for all royalty expense other than exempt royalty.

(w) “Direct costs of producing” includes labor for field and production personnel whose primary responsibility is extraction of crude oil, lease condensate, natural gas and other mineral products removed from the production stream before processing; materials and supplies used for and during the production process; depreciation expense for field equipment used to take the production stream from the wellhead to the point of valuation; fuel, power and other utilities used for production and maintenance; gathering and transportation expenses from the wellhead to the point of valuation; ad valorem taxes on production and transportation equipment; intangible drilling costs, including dry hole expense; and other direct costs incurred prior to the point of valuation that are specifically attributable to producing mineral products.

(x) “Direct costs of producing, processing and transporting” includes the direct cost of producing determined under paragraph (w) of this section plus transportation and processing plant or facility labor whose primary purpose is transporting or processing crude oil, plant condensate, natural gas and other mineral products removed from the production stream; materials and supplies used for transporting and processing; depreciation expense for equipment used for transportation and processing; fuel, power and other utilities used for transportation and processing and maintenance of the transporting and processing plant or facilities; transportation from the point of valuation to the processing plant or facility to the extent included in the price and provided by the producer; ad valorem taxes on the transporting equipment and processing plant or facility; and any other direct costs incurred that are specifically attributable to the transporting or processing of mineral products contained in the production stream.

(vii) For coal sold away from the mouth of the mine pursuant to a bona fide arms-length sale, the department shall calculate the fair market value of coal by multiplying the sales value of extracted coal, less transportation to market provided by a third party to the extent included in sales value, all royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees, by the ratio of direct mining costs to total direct costs. Nonexempt royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees shall then be added to determine fair market value. For purposes of this paragraph:

(B) Direct mining costs include mining labor including mine foremen and supervisory personnel whose primary responsibility is extraction of coal, supplies used for mining, mining equipment depreciation, fuel, power and other utilities used for mining, maintenance of mining equipment, coal transportation from the point of severance to the mouth of the mine, and any other direct costs incurred prior to the mouth of the mine that are specifically attributable to the mining operation;

94. The Wyoming statute for valuation of bentonite is Wyo. Stat. Ann. §39-14-403.

(iii) In the event the bentonite is not sold at the mouth of the mine by bona fide arms-length sale, or, except as hereafter provided, if the product of the mine is used without sale, the department shall determine the fair market value of bentonite in accordance with paragraph (iv) of this section;

(iv) The department shall determine the value of bentonite for severance and ad valorem tax purposes as follows:

(A) For bentonite sold away from the mouth of the mine, the taxable value shall be calculated by adding to each producer's actual direct cost of mining per unit, an allocation of indirect costs, overhead and profit, per unit, as determined by the method prescribed in subdivision (I) of this subparagraph plus nonexempt royalty and production taxes per unit:

(III) Subsequent adjustments to the add-on amount as initially determined under the provisions of subdivision (II) of this subparagraph and as subsequently determined under the provisions of this subdivision shall be recalculated each year with the base year being the initial year of this act. The recalculated add-on amount per unit for each producer shall be determined by multiplying the previous, or initial, add-on percentage amount by the difference between each individual bentonite producer's percentage increase or decrease in mining costs per unit from the percentage increase or decrease in sales price per unit and then adding this amount to the initial industry wide or previous percentage add-on factor. Sales price per unit for purposes of this formula shall be the weighted average sales price per unit for each producer based on the actual arms-length sales of milled bentonite used for taconite, foundry and drilling mud applications (including crushed and dried shipments), where user destinations are known to be in the United States and Canada. Packaged sales of bentonite in these three (3) categories shall be included after deducting the packaging premium. The packaging premium shall be calculated by subtracting the weighted average sales price per ton of bulk sales in these three (3) categories from the weighted average sales price per ton of package sales in these three (3) categories. If substantial arms-length transactions, which are at least five percent (5%) of total transactions in a particular category, do not exist for a producer in a specific targeted sales category, average pricing determined from arms-length transactions in that specific category by all producers shall be imposed. In no event shall the value of the bentonite product include any processing functions or operations regardless of where the processing is performed. As used in this subsection, direct mining costs include but are not limited to mining labor including mine foremen and supervisory personnel whose primary responsibility is extraction of bentonite, supplies used for mining, mining equipment, fuel, power and other utilities used for mining, maintenance of mining equipment, depreciation of mining equipment, reclamation, ad valorem property taxes on mining equipment, transportation of bentonite from the point of severance to the point of valuation and any other costs incurred prior to the point of valuation that are directly and specifically attributable to the mining operation. Royalty and production taxes shall be excluded from mine mouth cost for purposes of computation. In no event and under no circumstances shall the value of bentonite be less than the direct mining costs plus nonexempt royalty and production taxes; [Emphasis added].

95. The Wyoming Supreme Court, in Hillard v. Big Horn Coal, considered the definition of royalty as set out in Picard v. Richards, 366 P.2d 119 (Wyo. 1961), and stated:

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].

96. The Wyoming Supreme Court, in Hillard, clearly stated reasonable classifications for tax purposes are allowed, which would include separate classifications by mineral.

The law of the State of Wyoming, however, justifies reasonable classification for purposes of taxation (State v. Willingham, 9 Wyo. 290, 62 P. 797 (1900)), and we therefore limit our treatment of the issues presented in this case to the application of the valuation method to the mining of coal which, as the trial court found, is a reasonable classification for these purposes.

97. Procedural due process is satisfied “if a person is afforded adequate notice and an opportunity to be heard at a meaningful time and in a meaningful manner.” Robbins v. South Cheyenne Water and Sewage Dist., 792 P.2d 1380, 1385 (Wyo. 1990)(citing Higgins v. State ex. rel. Workers’s Compensation Div., 739 P.2d 129 (Wyo. 1987), cert. den. 484 U. S. 988 (1987).

98. The uniformity of assessment requirement mandates only that the method of appraisal be consistently applied, recognizing there will be differences in valuation resulting from application of the same appraisal method.

The Board contends that reliance upon hypothetical costs is required because of the mandates for uniform assessment (Art. 15, § 11) and equal uniform taxation (Art. 1, § 28) found in the Constitution of the State of Wyoming. These provisions do not require, however, that all minerals of the like kind be assigned the same value. Uniformity of assessment requires only that the method of appraisal be consistently applied. Hillard v. Big Horn Coal Company, supra. It is an intrinsic fact in mineral valuation that differences in values result from the application of an appraisal method.

99. The Wyoming Supreme Court has consistently held article 15, §11 of the Wyoming Constitution requires "only a rational method [of appraisal], equally applied to all property which results in essential fairness." Basin Electric Power Corp. v. Department of Revenue, 970 P.2d 841, 852 (Wyo. 1988) citing Holly Sugar Corp. v. State Bd. Of Equalization, 839 P.2d 959, 964 (Wyo. 1982).

100. The Legislature may, and does in fact have, a different formula to value oil and gas than the formulae to value coal, bentonite, uranium, trona, and sand and gravel, as it is a rational conclusion the costs associated with production vary with the different minerals. The equal protection provisions of the Wyoming Constitution require only that taxpayers similarly situated be treated equally. Thunder Basin Coal Co. v. Bd. of Equalization, 896 P.2d 1336, 1340 (Wyo. 1995).

101. The Wyoming Constitution, article 3, §27, Special and local laws prohibited states:

The legislature shall not pass local or special laws in any of the following enumerated cases, that is to say: For granting divorces; laying out, opening, altering or working roads or highways; vacating roads, town plats, streets, alleys or public grounds; locating or changing county seats; regulating county or township affairs; incorporation of cities, towns or villages; or changing or amending the charters of any cities, towns or villages; regulating the practice in courts of justice; regulating the jurisdiction and duties of justices of the peace, police magistrates or constables; changing the rules of evidence in any trial or inquiry; providing for changes of venue in civil or criminal cases; declaring any person of age; for limitation of civil actions; giving effect to any informal or invalid deeds; summoning or impaneling grand or petit juries; providing for the management of common schools; regulating the rate of interest on money; the opening or conducting of any election or designating the place of voting; the sale or mortgage of real estate belonging to minors or others under disability; chartering or licensing ferries or bridges or toll roads; chartering banks, insurance companies and loan and trust companies; remitting fines, penalties or forfeitures; creating[,] increasing, or decreasing fees, percentages or allowances of public officers; changing the law of descent; granting to any corporation, association or individual, the right to lay down railroad tracks, or any special or exclusive privilege, immunity or franchise whatever, or amending existing charter for such purpose; for punishment of crimes; changing the names of persons or places; for the assessment or collection of taxes; affecting estates of deceased persons, minors or others under legal disabilities; extending the time for the collection of taxes; refunding money paid into the state treasury, relinquishing or extinguishing, in whole or part, the indebtedness, liabilities or obligation of any corporation or person to this state or to any municipal corporation therein; exempting property from taxation; restoring to citizenship persons convicted of infamous crimes; authorizing the creation, extension or impairing of liens; creating offices or prescribing the powers or duties of officers in counties, cities, townships or school districts; or authorizing the adoption or legitimation of children. In all other cases where a general law can be made applicable no special law shall be enacted.

102. The Wyoming Constitution article 3, §27 only requires a statute operate equally on all persons in the same circumstances, that is, in this case, oil and gas producers, but the fact application of the statute may not affect all persons in exactly the same manner is not fatal.

We have held that this constitutional provision means only that the statute must operate alike upon all persons in the same circumstances.

"The prohibition against special legislation does not mean that a statute must affect everyone in the same way. It only means that the classification contained in the statute must be reasonable, and that the statute must operate alike upon all persons or property in like or the same circumstances and conditions. * * * " Mountain Fuel Supply Company v. Emerson, Wyo., 578 P.2d 1351, 1356 (1978).

103. The proportionate profits method for valuing coal "is a modification of the proportionate profit method of valuation used by the Internal Revenue Service (IRS) in determining the value of the product mined for purposes of calculating depletion allowances under the Internal Revenue Code and corresponding Regulations. . . . [t]he federal formula multiplies the gross sales by the ratio of mining costs to total costs. Wyoming’s formula differs slightly by using a ratio of direct mining costs to total direct costs. Section 39-14-103(b)(vii)." Powder River Coal v. State Bd. of Equalization, 38 P.3d 423, 427, 2002 WY 5, 8 (Wyo. 2002).

104. General appraisal principles must be applied sparingly, if at all, in the context of Wyo. Stat. Ann. §39-14-203(b)(vi) and the four methods the statute defines. In the Matter of the Appeal of Union Pacific Resources Company, et al, Docket No. 2000-147 et al., June 9, 2003, 2003 WL 21774603, ¶¶173-182.

105. A taxpayer “aggrieved by any final administrative decision of the Department may appeal to the state board of equalization.” Wyo. Stat. Ann. §39-14-209(b)(i),(vi). Oil and gas taxpayers are entitled to this remedy:

Following [the Department’s] determination of the fair market value of... natural gas production the department shall notify the taxpayer by mail of the assessed value. The person assessed may file written objections to the assessment with the state board of equalization within thirty (30) days of the date of postmark and appear before the board at a time specified by the board...

106. Neither this taxpayer remedy nor the general taxpayer remedies state any specific standard to guide the Board in its resolution of the taxpayer’s dispute with the Department. Wyo. Stat. Ann. §39-14-209(b).

107. The Board in this matter 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).

108. The Wyoming Supreme Court, in Wyoming State Tax Commission v. BHP Petroleum, 856 P.2d 428 at 439 (Wyo. 1993), observed: “In general, ‘statutes operate prospectively while judicial decisions are applied retroactively.’”

109. The Wyoming Supreme Court has articulated the standards to be applied in determining whether a decision should be applied prospectively. 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).

110. Interest shall be added to all delinquent severance taxes. Wyo. Stat. Ann. §39-14-208(c). Taxes are deemed delinquent when the “taxpayer or his agent knew or reasonably should have known that the total tax liability was not paid when due.” Wyo. Stat. Ann. §39-14-208(c)(ii).

111. BP asserts the Department is wrong when it includes production taxes and royalties as direct costs of producing, and in doing so raises four distinct arguments:

b. the Department determination here was not cogently explained and is contrary to its written pronouncements and instructions to the taxpayer;

c. BP’s rights to equal and uniform taxation and freedom from special laws for the assessment and collection of taxes have been violated by the Department’s actions; and

d. if the Department’s determination is upheld, it should be applied prospectively, and/or no interest should be charged to the BP.

112. The question of inclusion of production taxes and royalties as direct costs of producing is not new. The Board has concluded, on a number of prior occasions, royalties and production taxes must be included as direct costs of producing in order to properly reach fair market value for the mineral in question, primarily processed natural gas. E.g. 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 Board of County Commissioners, 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); In the Matter of the Appeal of Amoco Production Company, Docket No. 2001-56, 2003 WL 23164222 (December 30, 2003); In the Matter of the Appeal of Burlington Resources Oil and Gas Co., Docket Nos. 2002-49 et. al., 2004 WL 1174649 (May10, 2004); In the Matter of the Appeal of BP America Production Company, Docket No. 2003-102, 2005 WL 558991 (March 5, 2005).

113. BP argues the Department did not follow its own Rules in issuing the audit assessment under consideration. BP specifically asserts the operative language of the Department’s oil and gas valuation Rule, Chapter 6, §4b(w), was taken almost directly from the coal valuation statute. Wyo. Stat. § 39-14-103(b)(vii)(B).

114. The argument, which by implication BP appears to be driving toward, seems to state that if the oil and gas valuation methodology is nearly identical to the coal valuation methodology, then any legal authority which interprets the coal methodology must also be applicable to the oil and gas methodology.

115. BP, building on this premise, alleges the Department interprets the oil and gas proportionate profits methodology in the same manner as the coal proportionate profits methodology. Such an argument is not persuasive. The only authority which BP cites to support its assertion is a mere four lines of testimony by Randy Bolles, former Director of the Department of Revenue Mineral Division. Bolles, in his very brief testimony, simply identifies a possible inference which could be drawn from alleged statements by the former Director of the Department of Revenue, Johnnie Burton.

A. . . . I think when you -- I guess you can imply, I guess, that because the Department of Revenue prior to the -- or in '96 interpreted or at least determined that -- Johnnie Burton determined that taxes and royalties didn't belong in the direct cost ratio, that you could make that inference that that's the same as coal.

116. This meager testimony is at best confusing, and can not, even under the best of interpretations, be said to support an assertion the Department interprets oil and gas and coal proportionate profits methodology in the same manner.

117. BP also calls attention to the Department’s Rule defining “direct costs of producing,” and points out the Rule does not include specific reference to royalties and production taxes. The Department of Revenue Rules, Chapter 6, § 4(b), mirror the legislative definition of “direct mining costs” in the coal valuation statute. Compare: Rules, Wyoming Department of Revenue Chapter 6, § 4(b) with Wyo. Stat. Ann. §39-14-103(b)(vii)(B). Since these are the same sort of costs listed by the Legislature for coal, we cannot conclude there was a specific intent to exclude other recognized direct costs of production. Our analysis of the significance of the Legislature’s failure to specifically exclude production taxes and royalties for oil and gas while doing so for coal applies here.

118. BP then focuses its argument on the “catch-all” phrase found in the Department oil and gas valuation Rules, “and other direct costs incurred prior to the point of valuation that are specifically attributable to producing mineral products.” Rules, Wyoming Department of Revenue, Chapter 6, §4b(w). The ultimate argument alleges this phrase, as used for oil and gas valuation, can not be interpreted to include production tax and royalties as direct costs of production. BP attempts to buttress this argument by reference to the Wyoming Supreme Court decision in Powder River Coal Company v. Wyoming State Board of Equalization, 2002 WY 5, ¶¶ 146-151, 38 P.3d 423 (Wyo. 2002).

119. BP’s assertion is not persuasive under an appropriate interpretation of the oil and gas valuation statute, Wyo. Stat. Ann. §39-14-203(b)(vi)(D), as well as distinctions herein with regard to the applicability of Powder River Coal, supra.

120. The Board has consistently held royalties and production taxes are direct costs of producing. Support for this conclusion comes, in part, from a review of Wyo. Stat. Ann. §39-14-203(b)(vi)(D). This statute is not ambiguous.

121. The Legislature specifically excluded royalties and production taxes from the definition of direct costs in the direct cost ratio used in valuing coal under the proportionate profits methodology. Wyo. Stat. §39-14-103(b)(vii). Supra, ¶93. 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. § 39-14-403(b)(iv)(A)(III). Supra, ¶94.

122. By excluding taxes and royalties as costs in the other mineral valuation statutes, the Legislature clearly evidenced its understanding that royalties and production taxes are direct costs of production. The failure of the Legislature to exclude royalties and production taxes from the direct cost of production of oil and gas is an unambiguous indication said royalties and taxes were to be included. Parker v. Artery, 889 P.2d 520 (Wyo. 1995); Matter of Voss Adoption, 550 P.2d 481 (Wyo. 1976).

123. 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 apparent.

124. Additional support for inclusion of royalties and production taxes as direct costs of producing comes from the Wyoming Legislature’s actions (or possibly more accurate, inaction) following the issuance of the 2001 Board decision in Amoco 96-216, supra. 2B Norman J. Singer, Statutes and Statutory Construction § 49:10, pp. 117-118, fn. 6 (6th ed., 2000 Revision). Senate File 69, introduced during the 2002 Legislative session, offered in pertinent part an amendment to Wyo. Stat. Ann. §39-14-203(b)(iv)(D)(II):

(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. . . .

125. Senate File 69 provided an opportunity for the Legislature to specifically exclude production taxes and royalties as direct costs of producing from the direct cost ratio used in the proportionate profits valuation method for oil and gas. The bill failed passage.

126. The Legislature’s failure to enact Senate File 69 is evidence of the accuracy of the Board interpretation reflected in Amoco 96-216, supra.

127. BP argues the failure of an amendment to Senate File 69 proposed by then Representative Chris Boswell to specifically include production taxes and royalties as direct costs of producing somehow indicates legislative intent such items should not be direct costs. [Exhibit 117]. An equally possible and probably more plausible explanation for failure of the amendment is the fact it was considered redundant and unnecessary based upon the in-place statutory language. This legislative action occurred after the State Board decision in Amoco, 96-216 in September, 2001, and the Department memo in February, 2002, informing producers that production taxes and royalties should be considered direct costs. [Exhibit 114].

128. There have, in addition, been three intervening legislative sessions, 2003, 2004, and 2005, since the 2001 Board decision and the failure of Senate File 69 in 2002. There has been no further legislative action to exclude production taxes and royalties as direct costs of producing from the direct cost ratio for oil and gas.

129. The Wyoming Supreme Court, in Powder River Coal Co. v. Wyo. State Board of Equalization, 2002 WY 5, 38 P.3d 423 (Wyo.2002), reasoned federal lease bonus payments were not to be included as direct costs of mining in the proportionate profits calculation for coal. The Court, applying the doctrine of ejusdem generis, concluded the federal lease bonus payments were not direct mining costs. Id. at ¶ 19.

130. Unlike the situation in Powder River Coal Co., supra, where there was no statutory reference to federal lease bonus payments, the Legislature has recognized and excluded production taxes and royalties as direct costs of production in both the coal and bentonite valuation statutes. Wyo. Stat. Ann. §§39-14-103; 39-14-403. It is therefore not necessary to resort to such concepts as ejusdem generis to resolve an issue of statutory construction. 2A Norman J. Singer, Statutes and Statutory Construction §47.22 (6th ed., 2000 Revision). The Court’s reasoning in Powder River Coal Co., supra, is not applicable to the issues in this matter.

131. BP asserts royalty is sui generis; that it is not the same kind or class of costs as specifically listed by the Department Rules; that it thus cannot be included the “catch all” phrase of the Rules; and therefore it can not be a cost of production. BP once again relies on Powder River Coal, supra, and a Wyoming Supreme Court statement therein noting the Wyoming proportionate profits formula for coal appears to be a modification of the IRS proportionate profits formula used to calculate depletion allowances.

132. BP, for the first time in its closing argument and post-hearing brief, alleges under the IRS formula royalty is not considered a direct cost, citing Treasury Regulations and Technical Advice Memos. BP does not, however, explain how such regulations applicable to federal depletion allowances have any relevance to mineral valuation in Wyoming for purposes of severance and ad valorem taxes. BP presented no testimony at the hearing with regard to the Treasury Regulations and Technical Advice Memos, thus neither the Department nor the Board was able to make inquiry with regard thereto.

133. The federal proportionate profits method which inspired the Wyoming variants is found in 26 C.F.R. §1-613.4 of the IRS Regulations. The section is entitled “Gross income from property in the case of minerals other than oil and gas.” The proportionate profits method may apply in cases where a representative market or field price cannot be ascertained. 26 C.F.R. §1-613.4(d). It is applied as follows:

The proportionate profits method of computation is applied by multiplying the taxpayer’s gross sales (actual or constructive) of his first marketable product or group of products (after making the adjustments required by paragraph (e) of this subsection) by a fraction whose numerator is the sum of all the costs allocable to those mining processes which are applied to produce, sell, and transport the first marketable product or group of products, and whose denominator is the total of all the mining and nonmining costs paid or incurred to produce, sell, and transport the first marketable product or group of products (after making the adjustments required by paragraph (e) of this subsection). The method as described herein is merely a restatement of the method formerly set forth in the second sentence of Regulations 118, section 39.23(m)-1 (e)(3) (1939 Code). The proportionate profits method may be illustrated by the following equation:

134. The federal proportionate profits method cannot provide any insight into the questions presented in this case as Wyoming’s treatment of production taxes and royalties are one of the ways in which the Wyoming statute varies from the federal regulation. Under the Wyoming statute, the first step is to subtract production taxes and all royalties from gross revenue, and the last step is to add back in production taxes and nonexempt royalties. Wyo. Stat. Ann. §39-14-203(b)(vi)(D). There is nothing analogous in the federal proportionate profits method. This is not surprising, because in the federal income tax context, the calculation is directed to different objectives. For example, royalty holders are viewed as receiving a share of gross income: “Since the royalty payment is considered to be C’s share of the gross income from mining under section 613(a), it is not considered to be either a mining costs or a nonmining cost.” 26 C.F.R. §1-613.4(d)(4)(vi), Example 2. Wyoming is concerned with taxable value, not gross income.

135. BP would have us start from the assumption that the Wyoming statutes must be read as if governed by the structure of the federal income tax regulations. This assumption cannot be justified by reference to the statute which makes no reference to the federal regulations. From its assumption, BP would have us ignore inconsistencies between the Wyoming statute and the federal regulations in favor of the federal scheme. We start instead from the plain language of the Wyoming statute, General Chemical, 902 P.2d at 718, and consider what insight the federal regulations might provide as we apply the statute. We conclude the federal regulations offer no insight into the problem at hand.

136. BP also insists that the IRS proportionate profits method applies to oil and gas, despite the plain language of the title of the pertinent section of federal regulations. Since we have already concluded that the federal proportionate profits method offers no insight into the problem presented by this case, we conclude there is no reason to consider the applicability of the federal proportionate profits method to oil and gas.

137. BP, in further support of its royalty argument, cites Hillard v. Big Horn Coal Co., 549 P.2d 293 (Wyo. 1976) and quotes a small portion thereof. The quotation, however, does not convey the complete thought expressed by the Wyoming Supreme Court with regard to royalty as a direct cost.

138. The two coal companies appealing in Hillard, asserted, inter alia, “royalty paid with respect to coal mined should be prorated between mining costs and processing costs in applying the formula.” Hillard, supra at 296. Their claim was, as also asserted by BP herein, that mineral royalties were an indirect cost, subject to allocation between the mining and processing functions.

139. The Court, in rejecting the argument, considered the definition of royalty as set out in Picard v. Richards, 366 P.2d 119 (Wyo. 1961), and stated:

Hillard, 549 P.2d at 301-302. The quoted language makes clear the Court determined royalty to be a direct cost, not an indirect cost.

140. BP also asserts production taxes are sui generis; they are not the same kind or class of costs as specifically listed by the Department Rules; they thus cannot be included in the “catch all” phrase of the Rules; and therefore they can not be a cost of production.

141. BP again cites Hillard and quotes therefrom in support of its argument production taxes are not a direct cost. The quotation is apparently intended to assert the Wyoming Supreme Court concluded production taxes are indirect costs. The passage provided by BP once again does not reveal the complete thought expressed by the Court.

142. The coal companies in Hillard asserted it was improper for any portion of production and severance tax from the prior year be attributed to mining costs. The Court, as noted below, clearly indicated a philosophy that such taxes are mining costs, and questioned why the State Board at that time would allocate the same.

The coal companies argue in their brief that it is improper under the law for any portion of the production and severance taxes from the prior year to be attributed to mining costs. They insist this results in the imposition of tax upon a tax. These expenses, however, are part of the overall costs or expenses of the company. They are a part of the costs that necessarily must be covered by the value of the coal at the mouth of the mine, or otherwise the mining incentive might be lost. The value of the product at the mine must be enough to cover those expenses which must be paid to mine it and also the taxes imposed upon the product in addition to the royalty. 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 . . . [emphasis added].

143. The Wyoming Supreme Court decision in Hillard clearly supports the conclusion that production taxes are direct costs of producing.

The Department’s determination was not cogently explained, and is contrary to its written pronouncements and instructions to taxpayer

144. BP asserts the valuation statute at issue, Wyo. Stat. Ann. §39-14-203(b)(vi)(D), is ambiguous because the Department has now changed its position on inclusion of production taxes and royalties as direct costs of producing. The statute, as noted previously, is clearly not ambiguous, and the Department changing its position on inclusion does not create ambiguity.

. . . [W]e deem it important to consider Allied-Signal's contention that the statute under which the tax was assessed is ambiguous when incorporation transfers are involved and stock is the consideration for the purchase because the Department failed to enforce it in that way for the first forty-five years of its existence and then chose to so enforce it only for approximately the last five years. Allied-Signal relies upon Tenneco and argues that such a diametrical interpretation by the Board demonstrates that the statute is ambiguous and must be construed by the courts as a matter of law. As we have noted, this argument is presented in an effort to refute the clear and unambiguous language that we perceived in the statute.

. . . Tenneco, whatever its perceived similarities may be, does not control to the point of establishing a mechanism to override clear statutory language. Its teachings go no further than identifying and describing a tool that a court may use to resolve an ambiguity once one has been found to be present. That evidentiary tool, in and of itself, should not establish the ambiguity, and we do not understand that the holding in Tenneco is any different.

Our rationale for this observation is found essentially in the realization that inconsistent statutory interpretations often are the product of circumstances that do not really involve an ambiguity. An inconsistent interpretation could be the product of simple error, a change in circumstances, a change in philosophy by the decision makers, or even a change in their identity. Because of the varying possibilities that may lead to inconsistent statutory applications, we do not choose to establish a precedent in which those differing interpretations establish an ambiguity that will justify invoking rules of construction based on extrinsic considerations.

Allied-Signal, Inc. v. Wyoming State Board of Equalization, 813 P.2d 214, 221-222 (Wyo.1991).

145. BP asserts the Department should take required guidance from the 1990 Mineral Tax Report by the Joint Revenue Interim Committee. As has been previously noted, the valuation statute at issue is not ambiguous, thus it is not necessary to consider extrinsic evidence to determine legislative intent. And in fact, the BP witness who addressed the Mineral Tax Report, Dan Sullivan, then co-chair of the Joint Interim Committee which issued the Report, stated the Report was not intended to explain any legislative action. The Report was intended to explain and persuade with regard to the Report recommendations. Supra, ¶29. Mr. Sullivan further agreed the Board and the Department are bound by what actually appears in the statute, not by what summary may have appeared in the Report. Supra, ¶33. In any event, Sullivan’s own testimony cannot be legislative history. Independent Producers Marketing Corp., 721 P.2d at 1108.

146. There are two specific arguments made by BP with regard to the Mineral Tax Report which merit a response.

147. BP asserts the State Board, in reaching its decision in In the Matter of the Appeal of Amoco Prod. Co., SBOE Doc. No. 91-174, 1992 WL 126533 (Wyo. St. Bd. Eq.), “relied heavily” on the Mineral Tax Report. A review of what the Board actually stated from the Report indicates the inaccuracy this argument.

148. Amoco Production Company [now BP], in Docket No. 91-174, challenged use by the Department of the comparable value method for 1991, 1992, and 1993 oil and gas production. The Board, in discussing the then relevant statute, Wyo. Stat. Ann. §39-2-208, and the legislative purpose behind its enactment, simply quotes a very limited portion of the opening Overview of the Report:

We conclude the legislature, through this statute, was attempting to move toward “a fair, predicable, understandable and sound tax policy for both the State of Wyoming and the industrial citizens of our State who are vital to the future growth and development . . .” See, Mineral Tax Report, Joint Interim Revenue Committee (Feb. 1, 1990).

In the Matter of the Appeal of Amoco Prod. Co., SBOE Doc. No. 91-174, 1995 WL 121778, ¶12 (Wyo. St. Bd. Eq.)

149. The language quoted by the Board is actually not part of the Report itself, but rather part of the Overview at the beginning of the Report which describes the process the Committee felt necessary to follow to fulfill its statutorily-charged duty:

Although any recommendations would most certainly be evaluated as to their revenue implications, the process should attempt to reach what would be a fair, predicable, understandable and sound tax policy for both the State of Wyoming and the industrial citizens of our State who are vital to the future growth and development within our state (sic).

Mineral Tax Report, Joint Interim Revenue Committee, page 1, ¶2 (Feb. 1, 1990). [Trans. Vol. II - Exhibit 109].

150. BP, in an attempt to bolster its argument the Mineral Tax Report should somehow be persuasive, also cites the Wyoming Supreme Court decision, Amoco Prod. Co. v. State Bd. of Equalization, 882 P.2d 866 (Wyo. 1994), issued after an appeal by Amoco of the State Board decision in Docket No. 91-174. BP states the Court “noted” the Board reference to the Report, the implication being the Court somehow affirmed the Board’s reference. What the Court actually did was simply recite verbatim the Board’s Findings and Conclusions in SBOE Doc. No. 91-174 as a context for its opinion. Amoco, 882 P.2d at 870. The Court indicated no affirmation of the Board’s quotation from the Report.

151. BP makes three arguments why production taxes and royalties are not direct costs. BP first alleges the Department misapplied the “omitted words logic” since the Department application is not based on any cogent reasoning. It next asserts the Department determination to include taxes and royalties as direct costs includes more than 100% of those costs in value. And finally, BP asserts the prior exclusion of taxes and royalties by the Department (prior to February, 2002) is correct and entitled to deference.

152. The only authority cited by BP for each of the three assertions is the Department closing argument in SBOE Doc. No. 96-216. Such “authority” is in no way persuasive. It is clearly only argument. It is in fact argument which the Board rejected in deciding 96-216, and BP provides no justification for doing otherwise in this appeal.

153. BP also asserts inclusion of production taxes and royalties as direct costs of producing in the proportionate profits method results in a quadratic equation which will yield two mathematically correct answers. This mathematical fact, according to BP, indicates production taxes and royalties should not be included as direct costs in the proportionate profits formula. BP cites no legal authority for this argument, and the testimony at hearing by Ralph Eguren, a chemical engineer employed by BP, while detailed, is ultimately not relevant in a practical sense to this appeal. Eguren did not perform any calculations using the actual numbers - actual data - at issue in this matter. He thus could not state, based on his own calculations using actual numbers, the Department calculation under the proportionate profits formula was erroneous. Supra, ¶59.

154. The testimony at hearing does indeed indicate two mathematically correct answers will be derived using a quadratic equation. One of them, however, in the context of mineral valuation using the proportionate profits method and real-world numbers and data, will always be a negative. A negative answer is not a valid answer in the context of determining value for purposes of taxation. Supra, ¶65.

155. BP’s closing argument and post-hearing brief raise for the first time in this appeal the assertion that inclusion of royalty as a direct cost improperly results in different tax values being derived depending on whether the royalty is “paid in value” or “taken in kind.” The little testimony presented to explore or support this assertion indicates the issue is not a problem in this matter nor in general with processed gas, and thus not one which must be considered in the context of this appeal. The lease under which BP produces the gas at issue in fact does not allow the lessor, Champlin and now Anadarko, to take gas production in kind. Supra, ¶70. [Exhibit 105, p. 776, ¶4].

156. In addition, the take-in-kind/paid-in-kind example which BP provides in its brief is not accompanied by any adequate explanation. BP cites no authority, legal or otherwise, for its assertion the Legislature did not intend for “paid in value” calculation to have a higher taxable value than “take in kind” calculations.

157. BP argues the Department has acted contrary to its own instruction to taxpayers, citing the February 8, 2002, Department memo informing producers to include taxes and royalties as direct costs, and its reference to the Wyoming Supreme Court decision, Amoco Prod. Co. v. Wyoming Department of Revenue and Wyoming State Bd. of Equalization, 94 P.3d 430, 450 (Wyo. 2004).

158. BP argues the closing language of the February 8, 2002, memo “... unless the Findings of Fact and Conclusions of Law Decision and Order on Reconsideration issued by the Wyoming State Board of Equalization in matter of Docket No. 96-216 dated September 24, 2001, is overturned by a state court” somehow indicates the only basis for the Department now including production taxes and royalties as direct costs of producing is the Board decision in Amoco, 96-216. BP asserts the Wyoming Supreme Court decision in Amoco Prod. Co. v. Wyoming Department of Revenue and Wyoming State Bd. of Equalization “overturned” the Board on the issue of production taxes and royalties, thus the Department, pursuant to the 2002 memo, under BP’s interpretation, should no longer include production taxes and royalties as a direct cost of producing.

159. This argument chooses to overlook the fact the Wyoming Supreme Court did not address the issue of production taxes and royalties as direct costs of producing. The Court ruled that Uinta County did not have standing to intervene in 96-216, and had to be dismissed from the action. Amoco Production Company, 2004 WY 89, ¶¶9-27. Uinta County had originally raised the issue of whether production taxes and royalties are direct costs of producing. Because Uinta County was dismissed, the Court refused to consider the merits of the Board’s ruling on that issue. Amoco Production Company, 2004 WY 89, ¶26.

We have already held that Uinta County had no authority to intervene. We have also held that Uinta County cannot legally challenge the initial decision by the Department on this issue. Thus, this issue has no place in this particular proceeding at this stage. Judicial economy cannot be invoked as a pretext for this Court to issue an advisory opinion. We decline to review the issue on the merits. [emphasis added].

Amoco Production Company v. Department of Revenue et al, 2004 WY 89, ¶26, 94 P.3d 430, 442 (2004).

160. This argument also overlooks the independent policy basis which the Department has articulated for including production taxes and royalties as direct costs of producing. Supra, ¶55.

161. The requirement to include production taxes and royalties as direct costs of producing is still good law from the perspective of the Department and the Board.

162. BP, based upon its interpretation the February, 2002, memo is now nullified, also presented testimony at the hearing to the effect that with nullification of this memo, the only guideline for taxpayers on the issue of the proportionate profits method is a 1995 memo by Ed Schmidt. [Exhibit 118]. Paul Syring, on behalf of BP, testified to the effect that since the 2002 memo was nullified, the 1995 memo was the only guidance for subsequent years to taxpayers on the proportionate profits method, and under the memo, production taxes and royalties were not included as direct costs of producing. [Trans. Vol. III, pp. 148-149, 189-190]. Such an assertion is not even remotely supported by the language of the memo itself.

163. The subject of the 1995 memo clearly states it applies to valuation of gas for the 1995 production year. It reaffirms in paragraph one the Department will continue to determine a valuation method as allowed by statute, and in paragraph two that “comparable value” will continue to be the selected method through 1996 production. The remainder of the memo discusses how reporting for 1995 gas production will be handled if a taxpayer “attests” there are no comparable values. The memo makes absolutely no mention of how the Department will treat production taxes and royalties, a point Syring finally admitted during the hearing. [Trans. Vol. III, pp. 232-233]. Any “policy” memo would most assuredly unambiguously state what policy was being proscribed. The 1995 memo makes no such statement as to any issue other than the fact the Department will continue to select valuation methods as authorized by statute. The 1995 memo in no way supports the argument that production taxes and royalties should have been excluded as direct costs of producing during the production years 1996, 1997, and 1998. The memo could, at most, be consider to reflect a contemporaneous interpretation by the Department to exclude production taxes and royalties as direct costs of producing which is of secondary importance since such interpretation is contrary to the statute. Amoco, 96-216, supra.

Whether BP’s rights to equal and uniform taxation and freedom from special laws for the assessment and collection of taxes have been violated by the Department’s actions

164. BP recognizes the proportionate profits valuation methodology is a rational formula authorized by the Wyoming Legislature. BP asserts, however, the inclusion of production taxes and royalties as direct costs of producing in the methodology creates an unconstitutional inequity as compared to other similarly situated taxpayers which, according to BP, are all other mineral producers in Wyoming. Wyo. Const. art. 15, §11.

165. BP also asserts the inclusion of production taxes and royalties as direct costs of producing violates the Wyoming Constitution article 3, § 27 prohibition against special laws for assessment and collection of taxes. Neither constitutional argument is persuasive.

166. The plain language of Wyoming Constitution article 15, §11 requires property be valued at "full value" and the Legislature is given the power to prescribe regulations to determine a "just valuation." BP has alleged, in effect, this provision demands the same formula be used for all mineral valuation, and therefore because royalties and production taxes are excluded for other minerals (coal and bentonite), they should be excluded for oil and gas. The opposite is in fact true. The purposeful inclusion of royalties and production taxes as direct costs in the valuation for oil and gas actually leads to closer uniformity of valuation of various minerals.

167. The uniformity of assessment requirement mandates only that the method of appraisal be consistently applied, recognizing there will be differences in valuation resulting from application of the same appraisal method. Appeal of Monolith Portland Midwest Co., Inc., 574 P.2d at 761.

168. The Wyoming Constitution article 3, §27 only requires a statute operate equally on all persons in the same circumstances, that is, in this case, all oil and gas producers. The fact that application of the statute may not affect all similarly situated persons in exactly the same manner is not fatal. Meyer v. Kendig, 641 P.2d at1240.

169. The overall goal is always the constitutional mandate to achieve full and just valuation of the property to be taxed. Wyo. Const. art. 15, §11.

170. The inclusion of production taxes and royalties as direct costs of producing in the proportionate profits valuation methodology violates neither article 15, §11, nor article 3, §27 of the Wyoming Constitution.

If the Department determination is upheld, it should be applied prospectively, and/or no interest should be charged to the BP

171. BP requests, should the inclusion of production taxes and royalties as direct costs of producing be affirmed, interest on the increase in value associated therewith be calculated from the date of the Department February 8, 2002, Memo to all producers indicating taxes and royalties must be considered direct costs. The Department has agreed interest accrual should begin on February 8, 2002. Supra, ¶72.

172. BP also argues any decision to include production taxes and royalties as direct costs of producing should be applied prospectively only. This is the same assertion it raised in its reply to the responses for reconsideration in Amoco, 96-216, supra.

173. The general rule holds judicial decisions are to be applied retroactively. Wyoming State Tax Commission v. BHP Petroleum, 856 P.2d at 439. The Wyoming Supreme Court has articulated the standards to be applied in determining whether a decision should be applied prospectively. Hanesworth v. Johnke, 783 P. 2d at 176-177 citing Chevron Oil Company v. Huson, 404 U.S. 97. 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.

174. The requirement to include production taxes and royalties as direct costs of producing is not a new principle nor does it overrule prior precedent. The purposes of inclusion, to arrive at fair market value, is furthered by retroactive application. And such application does not create the kind of injustice or hardship anticipated by the United States Supreme Court decision in Chevron, id. The constitutional mandate of valuing minerals at their fair market value would be defeated by a prospective application of the conclusions herein.

a. The inclusion of 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 processed natural gas production from the Whitney Canyon Fields in Uinta County, Wyoming, between January 1, 1996, and December 31, 1998 [Production Years 1996, 1997, 1998], is affirmed; and

b. This matter is remanded to the Department with respect only to the issue of including production taxes and royalties as direct costs of producing, for calculation of interest from February 8, 2002, on the increase in taxable value resulting from such inclusion.

Pursuant to Wyoming Statute §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.