AND USE TAX AUDIT ASSESSMENT              )         Docket No. 2003-41


(Audit Period 6/1/99 through 5/31/02)                )





Lawrence J. Wolfe, of Holland & Hart, LLP, for RAG Coal West, Inc. (Petitioner).

William F. Russell, Assistant Attorney General, for the Department of Revenue (Department).


The matter came before the State Board of Equalization (Board) on a Case Notice filed April 17, 2003. Petitioner appealed a sales and use tax audit assessment which imposed sales tax on the “leaking underground storage tank” taxes paid on purchased diesel fuel. This assessment was in direct conflict with the Board’s November 8, 2002, decision in Powder River Coal Company, Docket No. 2001-165, and in direct conflict with a subsequent decision of the Wyoming Supreme Court, Wyoming Department of Revenue v. Powder River Coal Company, 2004 WY 54 (2004). The Department insists on revisiting those decisions. An order setting the matter for hearing was entered on September 10, 2003. The matter was heard on April 19, 2004, by the Board consisting of Roberta A. Coates, Chairman, Alan B. Minier, Vice-Chairman, and Thomas R. Satterfield, Board Member.


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). The rules of practice and procedure for appeals before the Board involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Wyoming State Board of Equalization, Chapter 2, §2. The rules require appeals to be filed with the Board within thirty (30) days of any administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, §5.

Petitioner timely filed its appeal. The Board is required to decide all issues relating to this appeal and give a written decision, citing findings of fact and conclusions of law following a hearing. Rules, Wyoming State Board of Equalization, Chapter 2, §34. Upon application of any person adversely affected, the Board is mandated to review final Department actions concerning state excise taxes, and "[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act and its own rules and regulations of practice and procedure." Wyo. Stat. Ann. §39-11-102.1(c)(viii), Wyo. Stat. Ann. §§16-3-101 through 16-3-115.



Despite an adverse ruling by this Board in Powder River Coal Company, Docket No. 2001-165, subsequently affirmed in Wyoming Department of Revenue v. Powder River Coal Company, 2004 WY 54 (2004), the Department has imposed sales tax on “leaking underground storage tank” taxes paid on purchased diesel fuel.

We conclude that there is no merit in the Department’s challenge to a settled interpretation of the tax statutes, and find for the Petitioner.



1.       Petitioner operates the Belle Ayr and Eagle Butte coal mines in Campbell County, Wyoming. [Transcript, p. 65]. At all pertinent times hereto, Petitioner purchased dyed diesel fuel from Conoco, Inc., for off-road use in its mining operations. [Transcript, pp. 20, 66-67]. Dyed diesel fuel is not taxable for fuel tax purposes, but is subject to the Leaking Underground Storage Tank (LUST) tax imposed by Wyo. Stat. Ann. §39-17-204(b) and (c).

2.       Invoices from Conoco to Petitioner showed (1) the number of gallons of diesel fuel sold by Conoco, (2) a price per gallon, and (3) a total purchase price. [Exhibit 1; Transcript, pp. 68-69]. Each invoice calculated the LUST tax, the State sales tax, and the County sales tax. [Exhibit 1; Transcript, p. 69]. The LUST tax was calculated by multiplying the number of gallons of fuel by the tax rate of $.03 then in effect. [Exhibit 1; Transcript, pp. 71-73]. The sales tax was calculated by applying the tax rate against a purchase price equal to the number of gallons multiplied by the price per gallon. [Exhibit 1; Transcript, pp. 73-74].

3.       On March 24, 2003, following an audit, the Department imposed an assessment that reflected the Department’s position that sales tax must be levied against a purchase price which includes the LUST tax, rather than a purchase price equal to the number of gallons multiplied by the price per gallon. [Exhibit 300]. The Department believes the Board’s decision in Powder River Coal Company, Docket No. 2001-165, was erroneous. [Transcript, p. 54].


4.       The Department asserts that an excise tax attaches when there is a taxable event. [Transcript, pp. 21-22]. It reasons that the LUST tax attaches when fuel is first sold, used or distributed. [Transcript, p. 22]. The Department views the timing of the attachment as significant, and specifically argues that the tax attaches when the diesel fuel leaves the distribution rack of the refiner, or crosses the border when imported into Wyoming. [Transcript, pp. 22]. The Department views the LUST tax as one that attaches before the sale of fuel, and hence becomes subject to the sales tax. [Transcript, p. 58]. The Department analogizes the situation to taxes on cigarettes and liquor that are included in the consumer’s purchase price, and subject to sales tax. [Transcript, pp. 45-46].

5.       By extension, the Department reasons that the tax becomes an obligation of a refiner or supplier before the statute that shifts the incidence of the LUST tax to the consumer can affect the structure of the transaction. Wyo. Stat. Ann. §39-17-207(c)(i), previously codified as Wyo. Stat. Ann. §39-6-904(n). [Transcript, pp. 22-25].

6.       The Department further argues that there is legislative history to support the conclusion that Wyo. Stat. Ann. §39-17-207(c)(i) was merely a response to Oklahoma Tax Commission v. Chickasaw Nation, 515 U. S. 450, 115 S. Ct. 2214, 132 L.Ed. 2d 400 (1995). [Transcript, pp. 26-28]. In that case, the Supreme Court held, inter alia, that a State is free to amend its law to shift the incidence of a tax and thereby collect fuel taxes from consumers of fuel sold by a Tribe. As we understand this argument, the Department contends that our decision in Powder River Coal Company misconstrued the significance of Wyo. Stat. Ann. §39-17-207(c)(i). At most, the Department views Wyo. Stat. Ann. §39-17-207(c)(i) as authorizing the refiner or supplier to recoup the LUST tax from consumers. [Transcript, p. 40].

7.       More generally, the Department argues that the LUST tax does not fall under one of the specific exclusions provided in the sales tax statute. [Transcript, pp. 30, 44].

8.       The Department concedes that the legal issues in this case are the same as those in Powder River Coal Company, Docket 2001-165. [Transcript, pp. 41-42].

9.       Petitioner filed a Notice of Appeal of the Department’s assessment April 17, 2003. [Board Record].

10.     Any Discussion above or Conclusion of Law below which includes a finding of fact may also be considered a Finding of Fact and, therefore, is incorporated herein by this reference.


11.     The letter of appeal by Petitioner was timely filed and the Board has jurisdiction to determine this matter.

12.     The Rules of the Board state in relevant part that:


Except as specifically provided by law or in this section, the Petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action. For all cases involving a claim for exemption, the Petitioner shall clearly establish the facts supporting an exemption.

Rules, Wyoming State Board of Equalization, Chap. 2, §20.

13.     After the Board heard this matter, the Wyoming Supreme Court affirmed the Board’s Powder River Coal Company decision. Wyoming Department of Revenue v. Powder River Coal Company, 2004 WY 54, (May 14, 2004). The Court specifically considered and rejected the Department’s argument that “because the LUST tax was not specifically exempted, the legislature intended that the LUST tax become part of the sales price...” Powder River Coal Company, 2004 WY 54, ¶¶8-11. The Court went on to conclude that “....the LUST tax is not ‘included’ as part of the price but is meant to be supplementary, meaning that the tax is separately but simultaneously imposed and then added to the base price of the fuel to arrive at the total amount that the ultimate consumer pays.” Id., at ¶9. The Court also noted that the 1998 recodification of the fuel and sales tax statutes specifically exempted the LUST tax from sales taxation. Id., at ¶¶10-11.

14.     We conclude that the Court’s decision disposes of any fine distinction the Department would make regarding the time of attachment.

15.     We are likewise unpersuaded that Wyo. Stat. Ann. §39-17-207(c)(i) was a response to Oklahoma Tax Commission v. Chickasaw Nation. The only legislative history that we have been provided is that the referenced Supreme Court decision preceded the enactment of Wyo. Stat. Ann. §39-17-207(c)(i), previously codified as Wyo. Stat. Ann. §39-6-904(n). We conclude there is no merit in this argument for the purposes of restricting the application of Wyo. Stat. Ann. §39-17-207(c)(i).

16.     Finally, in closing argument, the Department directed our attention to another Supreme Court case concerning the incidence of a tax, Gurley v. Rhoden, 421 U. S. 200, 95 S. Ct. 1605, 44 L.Ed. 2d 110 (1975). The facts of that case involved a taxing scheme where the statute did not expressly require the petitioner to pass the tax on to the purchaser-consumer. Gurley, 410 U.S. at 204, 95 S. Ct. at 1609. In this case, the Wyoming Legislature has made a specific and contrary requirement that, “[t]he taxes imposed on motor fuel shall be conclusively presumed to be a direct tax on the ultimate or retail consumer.” Wyo. Stat. Ann. §39-17-207(c)(i). We conclude that the Department’s reliance on Gurley is misplaced.

17.     Petitioner has provided sufficient evidence that the Department’s determination is incorrect, and carried its burden of persuasion. The Department has failed to defend its action.



          IT IS THEREFORE HEREBY ORDERED: The decision of the Department of Revenue to impose sales tax on the Petitioner’s payment of Leaking Underground Storage Tank tax is reversed. This matter is remanded to the Department of Revenue for action consistent with this decision.


Pursuant to Wyoming Statute Section 16-3-114, and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.

          Dated this 2nd day of June, 2004.

                                                                STATE BOARD OF EQUALIZATION




                                                                Roberta A. Coates, Chairman



                                                                Alan B. Minier, Vice Chairman




                                                                Thomas J. Satterfield, Board Member



Wendy Soto, Executive Secretary