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

Karl D. Anderson, of the Wyoming Attorney General’s Office, for the Wyoming Department of Revenue (Department).

The Board shall review final decisions of the Department on application of any interested person adversely affected, including boards of county commissioners. Wyo. Stat. Ann. § 39-11-102.1(c). Taxpayers are specifically authorized to appeal final decisions of the Department. 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 timely appealed the final decision of the Department.

This appeal concerns processed natural gas produced from the Beaver Creek Field in Fremont County, Wyoming, between January 1, 1996, and December 31, 1998 [Production Years 1996, 1997, 1998]. The Department of Revenue, following completion of an audit of the properties by the Department of Audit (DOA), issued a Final Determination Letter on August 31, 2004, assessing additional severance tax in the sum of $785,870.03; interest through September 30, 2004, in the sum of $682,956.00; and increasing the ad valorem taxable value of the properties by $15,162,322.00. BP appealed the additional assessments to the State Board of Equalization (Board) effective September 29, 2004. The Board, Alan B. Minier, Chairman, Thomas R. Satterfield, Vice Chairman, and Thomas D. Roberts, Board Member, held a hearing August 8, 2005.

We affirm the Department’s inclusion of production taxes and royalties as direct costs in the direct cost ratio of the proportionate profits valuation methodology, and remand for a revised assessment.

The notice of appeal by BP challenged a number of audit findings which formed the basis of the Department’s assessment. The Department and BP have resolved each disputed issue within the audit assessment, except whether production taxes and royalties were properly included as direct costs of producing in the direct cost ratio of the proportionate profits method. The only remaining issue for Board consideration, as stated by BP in its Issues of Fact and Law and Exhibit Index, is thus “[w]hether production taxes and royalties are included as ‘direct costs’ in the ‘direct cost ratio’ of the proportionate profits formula set forth in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D).”

BP, in its post-hearing brief, presents a four segment argument as recited hereafter, with the noted subarguments:

(B) The proportionate profits statute can not be reasonably construed to treat production taxes and royalties as direct costs of producing;

(C) Construing production taxes and royalties as direct costs of producing would render the oil and gas proportionate profits statute unconstitutional;

(2) Inclusion of production taxes and royalties will violate Uniform and Equal treatment;

(3) Inclusion of production taxes and royalties will violate the prohibition of special laws for the assessment and collection of taxes;

(I) BP’s production taxes and royalties are direct costs pursuant to W.S. § 39-14-203(b)(vi)(D).

A) Introduction - The Legislature’s enactment of mineral valuation methods for tax purposes.

D) The Legislature’s intent to include production taxes and royalties in the direct costs ratio is unambiguously reflected in the statutes.

E) Other rules of statutory interpretation support the Department’s interpretation of the proportionate profits valuation method.

F) The Department’s Rule supports the interpretation that inclusion of production taxes and royalties in the direct costs ratio of the proportionate profits valuation method is required.

G) Inclusion of production taxes and royalties in the direct cost ratio does not result in mathematical error, nor does it lead to an absurd result.

(II) The Department acted within its authority when it classified production taxes and royalties as direct costs of production in the direct cost ratio.

A) The Department’s Rule defining “direct costs of producing” is silent regarding the inclusion of production taxes and royalties as direct production costs.

B) The October, 1996, directive to the Department of Audit regarding the exclusion of production taxes and royalties.

C) The Department of Revenue was not required to change its interpretation of Wyoming statute through rulemaking.

(D) The State Board’s decision does not violate constitutional provisions requiring equal and uniform taxation.

The Department and BP have agreed to adopt into the hearing record, and the Board has agreed to consider, the prior testimony of Ralph Eguren in Board Docket No. 2003-102 [Transcript Vol. II]; Paul Syring in Board Docket No. 2003-102 [Transcript Vol. III]; Craig Grenvik in Board Docket No. 2003-102 [Transcript Vol. IV]; Ms. Johnnie Burton in Board Docket No. 2003-153 [Transcript Vol. V]; and Craig Grenvik in Board Docket No. 2003-153 [Transcript Vol. VI]; as the factual testimony in this matter. [Transcript Vol. I, pp. 4-7]. The Department and BP have also agreed to submission of an affidavit by Craig Grenvik and Exhibit 600 amending his calculations in Board Docket No. 2003-102 to provide calculations specific to BP in this case. [Transcript Vol. I, pp. 5-6].

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 of four methods 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. § 39-14-203(b)(vi)(D). We can express these words graphically:

Total Sales Revenue

minus

[-]

Exempt Royalties &

Nonexempt Royalties &

Production Taxes

times

[x]

Direct

Cost

Ratio

plus[+]

Nonexempt Royalties & Production Taxes

equals [=]

Taxable value

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:

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.

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 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:

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.

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. Facts, ¶ 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 eventually reaches a mathematical limit at which no further adjustments are necessary.

24. The Department allowed BP to use the proportionate profits method set forth in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) to report the value of its production from the Beaver Creek Field for the 1996, 1997, and 1998 production years (Tax Period). [Stipulated Updated Summary of Uncontroverted Facts (Stipulation)].

25. BP’s severance tax returns for each year of the Tax Period calculated the value of BP’s production from the Beaver Creek Field using the proportionate profits method set forth in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D). [Stipulation].

26. In reporting the value of its production from the Beaver Creek Field for the Tax Period, BP did not include production taxes and royalties as direct costs of producing for purposes of calculating the direct cost ratio of the proportionate profits method. [Stipulation].

27. In its calculation of the value of BP’s production from the Beaver Creek Field for the Tax Period, the DOA included BP’s production taxes and royalties as direct costs of producing for purposes of calculating BP’s direct cost ratio of the proportionate profits method. [Stipulation].

28. The Department’s Final Determination calculated the value of BP’s production from the Beaver Creek Field for the Tax Period using the proportionate profits method. [Stipulation].

29. On audit, the DOA excluded part of the expenses in sub-account 9272-017 entitled “Lubricants” from the direct costs of processing. The parties have stipulated the expenses in sub-account 9272-017 are direct costs of processing which are fully includeable in the direct cost ratio of the proportionate profits method. BP and the Department stipulate the Department will recalculate the taxable value of the production based on this stipulated fact. [Stipulation].

30. Except as to paragraph 29 above, BP agrees to the adjustments made by the DOA to the sub-accounts for the Tax Period. [Stipulation].

31. BP and the Department thus stipulate the only issue remaining for Board consideration is whether production taxes and royalties are included as direct costs of producing in the direct cost ratio of the proportionate profits method outline in Wyo. Stat. Ann. § 39-14-203(b)(vi)(D). [Stipulation].

32. BP, in support of its assertion the proportionate profits oil and gas valuation statute does not require inclusion of production taxes and royalties as direct costs of producing in the direct cost ratio, presented the testimony of Ms. Johnnie Burton. Ms. Burton was Director of the Wyoming Department of Revenue from January, 1995, through early March, 2002. [Transcript Vol. V, p. 21]

. Her duties as Director of the Department included ensuring the Department established a fair market value for minerals. [Transcript Vol. V, p. 23]. Ms. Burton testified the Department was charged with making policy decisions on how to implement the mineral valuation statutes. [Transcript Vol. V, p. 25].

33. The DOA, in the process of auditing gas processing plants in southwest Wyoming in 1996, raised the issue of production taxes and royalties as direct costs of producing. The auditors believed production taxes and royalties should be included as direct costs. These were the first audits of production reported after the statutory change in 1990. [Transcript Vol. V, pp. 71-72, 76, 100; Vol. VI, pp. 313-315].

34. Ms. Burton initially agreed production taxes and royalties should be included as direct costs of producing within the direct cost ratio. This decision was based, at least in part, on legal advice from a senior assistant attorney general stating that since the oil and gas valuation statue was silent on the issue of exclusion, production taxes and royalties could not be excluded. [Transcript Vol. V, pp. 32-33, 35-36, 38, 54, 88; Vol. VI, pp. 313-315; Exhibit 103].

35. Ms. Burton, after her initial determination production taxes and royalties should be included as direct costs, reconsidered her decision, and subsequently issued a memo in October, 1996, instructing the DOA to exclude production taxes and royalties from the direct cost ratio of the proportionate profits method. [Transcript Vol. V, pp. 32-33, 35-37, 52; Vol. VI, pp. 313-315; Exhibit 103].

36. Ms. Burton, prior to issuing her October, 1996, memo, discussed the exclusion of production taxes and royalties from the direct cost ratio with the Wyoming Attorney General. She informed the Attorney General she contemplated making a policy decision which conflicted with the legal advice given her by a senior assistant attorney general. The Attorney General informed her she was not breaking the law by disagreeing with the senior assistant attorney general, saying “No, you have an honest disagreement.” [Transcript Vol. V, pp. 38-39; Exhibit 103].

37. Ms. Burton also discussed the issue of production taxes and royalties as direct costs with Governor Geringer at least three times in the summer of 1996, and pointed out the auditors did not agree with her position production taxes and royalties should be excluded from the direct cost ratio. The Governor told her, “Do what you think is right.” [Transcript Vol. V, pp. 40-41]

38. Ms. Burton also contacted Dan Sullivan and Cynthia Lummis, the co-chair 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. Sullivan told Ms. Burton that he felt the proportionate profits method should be applied the same way for the two different types of minerals. [Transcript Vol. V, pp. 33-35].

39. The proportionate profits statute for coal does not require inclusion of production taxes and royalties as direct costs of mining in the direct cost ratio. Wyo. Stat. Ann. § 39-14-103(b)(vii)(D).

40. Ms. Burton felt the proportionate profits methodology had to be applied the same for oil and gas as it was applied to coal. She believed the proportionate profits method should be applied the same to all minerals. [Transcript Vol. V, pp. 28, 61].

41. The DOA disagreed with Ms. Burton on exclusion of production taxes and royalties from the direct cost ratio. The interpretation by DOA was production taxes and royalties should be included in the ratio as direct costs of production. [Transcript Vol. V, pp. 43-44].

42. Ms. Burton recognized in her October 6, 1996, memo production taxes are direct costs of production:

I would certainly agree with including production taxes in the ratio if they weren’t present elsewhere in the formula. But you can’t have it both ways in the same formula. This is not denying that production taxes are a direct cost of production. The formula (applied without taxes in the ratio) recognizes that fact since 100% of the taxes are included in the taxable value. (Emphasis added.)

43. Her main concern was what she perceived to be “double taxation” if production taxes and royalties were included in the direct cost ratio as direct costs of producing. The memo stated: “[i]f 100% of the production taxes are set aside (subtracted) in the first step of the formula, and 100% of those taxes are brought back in (added) in the third and last step, they cannot in any way be included in the second step or else you end up with a taxable value that includes somewhat more than 100% of taxes.” [Exhibit 103].

44. Ms. Burton, as director of the Department at the time of the October, 1996, memo, did not deem it necessary to draft Rules to incorporate the decision to exclude production taxes and royalties as direct costs. [Transcript Vol. V, pp. 68-69].

45. The DOA followed the policy of exclusion as set forth in the October, 1996, memo based on the agreement between the DOA and the Department that the Department would set policy, and the DOA would audit to the policy. [Transcript Vol. V, p. 44].

46. Uinta County, in 1996, intervened in an appeal filed by Amoco, and challenged Ms. 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. Amoco Production Company, Docket No. 96-216 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). This was the first mineral tax appeal in which the issue of classification of production taxes and royalties was raised, and addressed the first years in which the proportionate profits method was applied. (Transcript Vol. VI, pp. 312-315).

47. When the Board finally resolved Amoco 96-216, supra, in September, 2001, deciding that production taxes and royalties were direct costs of producing, the Department did not appeal. Ms. Burton felt an appeal would not be appropriate, would not be a politically “good thing to do.” The Attorney General’s office weighed heavily in making the decision not to appeal. Ms. Burton also discussed an appeal with the Governor and his staff. The consensus was the Department had done what it needed to do, had interpreted the statute; the Board disagreed; the Department was incorrect; let’s move forward. Ms. Burton changed the Department policy to include production taxes and royalties as direct costs of production after the Board decision in Amoco 96-216 supra, as she believed it was the duty of the Department to apply what the Board had decided. [Transcript Vol. V, pp. 45-46, 67-68, 92-94; Vol. VI, pp. 315-316].

48. Following Amoco Production Company’s appeal of the Amoco 96-216, supra, decision, the Wyoming Supreme Court did not address nor resolve the issue of production taxes and royalties as direct costs of producing in the direct cost ratio. Amoco Prod. Co. v. Dep’t of Revenue, et al., 2004 WY 89, 94 P.3d 430 (Wyo. 2004). Holding that Uinta County was improperly permitted to intervene, the Supreme Court affirmed the Department’s assessment in all respects. Thus, while Uinta County’s right to intervene in that appeal was determined and all other factual and legal issues were finally adjudicated, the issue of whether production taxes and royalties are properly classified as direct costs of production remained unresolved. The Board’s determination and analysis in Amoco 96-216, supra, as well as the Department’s application of the proportionate profits methodology which is consistent with the Board’s ruling, remain intact as the prevailing application of law. [Transcript Vol. VI, pp. 300-305, 316-317; Exhibit 106].

49. Notwithstanding its prior position in Amoco 96-216, supra, the Department accepted the Board’s resolution on the merits, and applied the decision in valuing BP’s production at issue herein. [Transcript Vol. V, pp. 46, 67-68; Vol. VI, pp. 299-307, 316-318, 320-321, 334-335; Exhibit 106].

50. The Department’s current position, as expressed by Craig Grenvik, asserts production taxes and royalties should be included as direct costs of producing in the proportionate profits valuation calculation based upon: (1) the Board’s decision in Amoco 96-216; (2) the statutes and rules, as well as other indicators such as Council of Petroleum Accountants Societies, Inc. (COPAS) Bulletins, in particular numbers 4 and 16; (3) certain petroleum accounting manuals; and (4) the fact that production taxes and royalties were included in the proportionate profits valuation calculation for coal in 1988 and 1989 when the method was first used in Wyoming. Production taxes and royalties were excluded as direct costs for coal valuation only because of the 1990 legislation. [Transcript Vol. VI, pp. 299-307, 316-318, 334-335, 345; Exhibit 106].

51. The Department does not believe the proportionate profits valuation statute for oil and gas is ambiguous. [Transcript Vol. VI, p. 301].

52. Different minerals are extracted in different manners. This is one reason valuation statutes, as well as the severance tax statutes, are different for different minerals. Coal production, for example, has more significant production costs than processing costs. Sour natural gas on the other hand has more significant processing costs than production costs. This is a possible reason for the difference in the way the proportionate profits methodology applied to coal as opposed to natural gas. [Transcript Vol. VI, pp. 294-296].

53. The Department asserts there is nothing in the oil and gas valuation statute which directs oil and gas be valued using the proportionate profits formula set forth in the coal valuation statute. The Department asserts the valuation statute for each mineral stands on its own, and should be interpreted as such. [Transcript Vol. VI, pp. 290, 292].

54. The exclusion of production taxes and royalties as direct costs of producing in the proportionate profits valuation calculation can lead to what the Department has characterized as “an absurd result.” It can allow a producer-processor of natural gas a processing deduction three to four times the actual costs incurred to process the gas, whereas a producer whose gas is processed in a plant in which it does not own an interest is allowed to deduct only the actual expense of processing. This situation can occur with gas production from the same well bore which is owned both by producers who own an interest in the processing plant, and those who do not. [Transcript Vol. VI, pp. 296-297, 346].

55. Tax exempt royalties are deducted from gross sales value, thus such royalties are not taxed under the proportionate profits valuation methodology. Inclusion of exempt royalties as direct costs of producing in the direct costs ratio does not subject such royalties to any tax. [Transcript Vol. VI, pp. 319-320].

56. Additionally, as noted by Craig Grenvik, royalties are specifically treated as direct costs of production within the field of oil and gas accounting as indicated by COPAS Bulletins 4 and 16. [Transcript Vol. VI, pp. 300-301, 345; Exhibits 109, 110]. COPAS is an organization which establishes accounting guidelines, model form interpretations, best practices, training, and reference publications for mineral industry participants. See, http://www.copas.org/About.aspx.

57. 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. [Transcript Vol. III, pp. 280-282].

58. 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. [Transcript Vol. III, pp. 314-315]; also see Wyo. Stat. Ann. §§ 39-14-201 through 211.

59. BP presented the testimony of Ralph Eguren regarding quadratic equations and the mathematical requirements of calculating production taxes in the direct cost ratio. [Transcript Vol. II, pp. 95-117].

60. 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. [Transcript Vol. II, pp. 120-122, 129-131, 134-135, Exhibits 102, 104].

61. 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. [Transcript Vol. IV, pp. 612-614; Exhibit 102].

62. The iterative method provides a mathematically accepted method which is both accurate and impartial. [Transcript Vol. IV, pp. 614-615; Exhibits 102, 600].

63. 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). [Transcript Vol. IV, pp. 619-620, 635-639; Exhibits 102, 600].

64. 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 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. [Transcript Vol. IV, pp. 611-615].

65. 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. Craig Grenvik testified that in early 2000, during an audit of Anadarko for 1995, 1996, and 1997 production, an issue arose as to how the additional production tax assessed, based on an audit, was accounted for by the various oil and gas producers. A company, in complete compliance with general accepted accounting principles, 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. [Transcript Vol. IV, pp. 612-615].

66. The first calculation in the iterative method derives an initial production tax in the same manner for all taxpayers. Use of the iterative calculation thus treats all taxpayers in the same manner without regard to how they may account for additional production tax assessed through an audit. There have in fact been audits in which use of the method results in a tax credit in favor of the taxpayer if the taxpayer has over-accrued taxes in its initial reporting to the Department. The Department has used the iterative calculation for all audits since 2000. [Transcript Vol. IV, pp. 646-648].

67. 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. [Transcript Vol. II, pp. 96-117; Exhibit 104]. There are many real-world, successful applications of both the quadratic and the iterative methods. [Transcript Vol. II, pp. 122-124, Vol. IV, p. 623; Exhibits 102, 600].

68. 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. [Transcript Vol. II, p. 132, Vol. VI, pp. 309-310, Vol. IV, pp. 622-623, 633-639; Exhibit 600].

69. BP’s concern that the direct cost ratio (under either a quadratic equation 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. [Transcript Vol. II, pp. 124-129, 132; Exhibit 102].

70. 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. [Transcript Vol. IV, pp. 632-639; Exhibits 102, 600].

71. The Department can not discern from the information supplied on severance and ad valorem tax reports as filed with the Department whether a taxpayer reporting under proportionate profits has included or excluded production taxes and royalties as direct costs in the direct cost ratio. [Transcript Vol. VI, pp. 312-313, 318-319, 371].

72. The Department agreed, interest on any increase in value resulting solely from the inclusion of production taxes and royalties as direct costs of producing in the proportionate profits valuation calculation should be calculated from February 8, 2002, the date of the memo from then Mineral Division Director, Randy Bolles, notifying all producers that production taxes and royalties should be included as direct costs. [Transcript Vol. VI, pp. 306-307, 327-328; Exhibit 106].

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 for review can be resolved successfully without invading the statutory prerogatives of the Department.

Amoco Production Company v. Wyoming State Board of Equalization, 12 P.3d 668, 674 (Wyo. 2000). The Board’s duty is to adjudicate the dispute between taxpayers and the Department.

74. 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).

75. “The burden of proof is on the party asserting an improper valuation.” Williams Production RMT Co. v. State Dept. of Revenue, 2005 WY 28, ¶ 7, 107 P.3d 179, 183 (2005); 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 . . ..

76. 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).

77. The Board considers the omission of certain words intentional on the part of the Legislature, and we may not add omitted words. "[O]mission of words from a statute is considered to be an intentional act by the legislature, and this court will not read words into a statute when the legislature has chosen not to include them." BP America Production Co. v. Department of Revenue, 2005 WY 60 ¶ 22, 112 P.3d 596, 607 (Wyo. 2005), quoting Merrill v. Jansma, 2004 WY 26, ¶ 29, 86 P.3d 270, 285 (Wyo. 2004). See also, 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, 485 (Wyo. 1976).

78. It is an elementary rule of statutory interpretation that all portions of an act must be read in pari materia, and every word, clause and sentence of it must be considered so that no part will be inoperative or superfluous. Also applicable is the oft-repeated rule that it must be presumed the Legislature did not intend futile things. Hamlin v. Transcon Lines, 701 P.2d 1139, 1142 (Wyo. 1985).

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); Greenwalt v. RAM Restaurant Corporation of Wyoming, 2003 WY 77 ¶ 52, 71 P.3d 717, 735 (Wyo. 2003).

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 (Wyo. 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 (Wyo. 1998). (Emphasis in original).

83. Wyoming’s severance tax is an excise tax imposed upon the privilege of severing the mineral. Belco Petroleum Corp. v. State Bd. of Equalization, 587 P.2d 204, 210 (Wyo. 1978).

84. The county ad valorem tax upon minerals is a property tax upon the value of the mineral imposed in lieu of the tax which would otherwise be imposed upon the surface estate. Wyo. Const., art. 15, § 3. “An ad valorem tax is a property tax imposed upon the value of the mineral produced.” Wyoming State Tax Comm’n v. BHP Petroleum Co. Inc., 856 P.2d 428, 434 (Wyo. 1993).

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)(iii) (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, 719 (Wyo. 2002). (Commencing January 1, 2003, the time frame for audits was reduced. See Wyo. Stat. Ann. § 39-14-208(b)(vii).)

86. The Wyoming 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., supra, 2003 WY 114 at ¶ 13, 76 P.3d at 348.

87. 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).

88. 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).

89. The fair market value for natural gas must be determined “after the production process is completed.” Wyo. Stat. Ann. § 39-14-203(b)(ii). “[E]xpenses 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).

90. “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. 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).

91. 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.

92. 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).

93. The Department Rules, Chapter 6, Ad Valorem and Severance Taxes On Mineral Production contain 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;

95. 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).

96. 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).

97. 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.

98. 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).

99. 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.

100. 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).

For example, it has long been recognized that, even though mineral products are one class of property, different valuation methods should be applied to different types of minerals. Oil is not valued by using the same method as is used in valuing coal or uranium. See, e.g., Pathfinder Mines Corporation v. State Board of Equalization, 766 P.2d 531 (Wyo.1988) (recognizing that uranium is valued by using a different method than is used in valuing other mineral products).

Amoco Production Co. v. Wyoming State Board of Equalization, 899 P.2d 855, 860 (Wyo. 1995).

102. 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).

103. 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.

104. Wyoming Constitution article 3, section 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).

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. This appeal is brought under statutes which do not establish any specific standard to guide the Board’s review. Wyo. Stat. Ann. § 39-14-209(b). In the absence of specific standards set by statute or rule, we judge the Department’s valuation by the general standard that the valuation must be in accordance with constitutional and statutory requirements for valuing state-assessed property. Amoco Production Company v. Department of Revenue et al, 2004 WY 89, ¶¶ 7-8, 94 P.3d 430, 435-436; Wyo. Stat. Ann. § 39-14-209(b)(vi). In doing so, we must take into account “the rules, regulations, orders and instructions prescribed by the department.” Wyo. Stat. Ann. § 39-11-102.1(c)(iv). We also consider the case in the context of the Board Rule governing the burdens of going forward and of persuasion. Rules, Wyoming State Board of Equalization, Chapter 2, § 20. Chevron U.S.A., Inc., et al, (Production Year 2001, Whitney Canyon), Docket No. 2002-54, January 25, 2005, 2005 WL 221595.

107. 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).

108. BP asserts a February 1, 1990, Mineral Tax Report by a Joint Revenue Interim Committee provides specific legislative guidance for interpreting the oil and gas proportionate profits statute and Department Rules. BP argues the Report indicates the Committee intended the proportionate profits methodology for oil and gas is to be “basically the same as the method used by coal (see explanation for coal).” [Exhibit 105, p. 051]. While such may have been the intent of the Interim Committee, the statement in the Report does not explain why the specific references excluding production taxes and royalties found in the coal valuation statutes are absent in the oil and gas valuation statutes. Rather, the use of the adjective “basically” suggests there are differences, including the specific reference to the treatment of production taxes and royalties in the coal valuation statutes which is absent in the oil and gas valuation statutes. Compare: Wyo. Stat. Ann. § 39-14-103(b)(vii) with Wyo. Stat. Ann. § 39-14-203(b)(vi)(D). Conclusions, ¶¶ 91, 94.

109. We also cannot accept the proffered statements describing an interim committee’s work on proposed legislation as an indication of the Legislature’s intent. Even testimony of those involved in the enactment of a statute is not a proper source of legislative history. Independent Producers Marketing Corp. v. Cobb, 721 P.2d 1106, 1108 (Wyo. 1986). As the Wyoming Supreme Court has noted:

With respect to legislative history as an extrinsic aid to statutory interpretation, such history “is nearly totally unavailable for understanding the actions of the Wyoming State Legislature.” Moncrief v. Harvey, 816 P.2d 97, 111 (Wyo.1991) (Urbigkit dissenting). See also Pisano v. Shillinger, 835 P.2d 1136, 1139 (Wyo.1992); State v. Denhardt, 760 P.2d 988, 990 (Wyo.1988); and State v. Stovall, 648 P.2d 543, 546 (Wyo.1982) (Brown, J., “Because of the sparse legislative history kept in this state, peering into the past, even the very recent past, becomes as difficult as predicting the future.”)

Parker Land & Cattle Co. v. Wyo. Game & Fish Comm’n, 845 P.2d 1040, 1044 (Wyo. 1993).

110. “It may be more honest if we are straightforward about what the legislature intended and simply say we do not know. There is no useful legislative history in Wyoming.” Board of County Comm’rs v. Laramie School District No. 1, 884 P.2d 946, 956 (Wyo. 1994).

111. BP asserts the Department position on production taxes and royalties is directly contrary to advice given to Ms. Burton by the Wyoming Attorney General. BP alleges the Attorney General advised Ms. Burton “that excluding production taxes and royalties from the direct costs ratio would not be contrary to any law.” [Petitioner’s Original Brief, p. 16, citing Transcript Vol. V, p. 39, lines 12-22]. Such an assertion is neither an accurate representation of the testimony by Ms. Burton, nor more importantly of what the Attorney General actually told her. Ms. Burton stated in her testimony the Attorney General did not give her advice or his opinion on the issue of production taxes and royalties as direct costs. The statements by the Attorney General were responding to a concern expressed by Ms. Burton that she would be “breaking the law” if she disagreed with legal advice given to her by a senior assistant attorney general. Facts, ¶ 36.

112. The discussion between the Wyoming Attorney General and Ms. Burton in no way supports BP’s characterization of Ms. Burton’s testimony.

113. BP next alleges the Department’s position that production taxes and royalties are direct costs is incorrect as a matter of law, citing a Laramie County District Court decision in a declaratory judgement action filed by ExxonMobil against the Department. ExxonMobil Corp. v Wyoming Department of Revenue, Civil Action No. 165-46, Laramie County District Court. Retired District Judge Spangler, sitting by designation, in a brief order which cites no authority, did state his opinion production taxes and royalties were not direct costs of producing under Wyo. Stat. Ann. § 39-14-203(b)(vi)(D). An appeal of the district court decision by the Department is pending with the Wyoming Supreme Court under docket number 05-90, thus there is not a final judgement or decision which is binding on either this Board or the Department. The principles of collateral estoppel and res judicata are also not applicable. V-1 Oil Company v. People, 799 P. 2d 1199, 1203-1204 (Wyo. 1999).

114. BP continues its argument that production taxes and royalties are not direct costs by asserting, under the analysis set forth in Powder River Coal Company v. Wyoming State Board of Equalization, 2002 WY 5, 38 P.3d 423 (Wyo. 2002), the catch-all language in the Department Rules can not be interpreted to include production taxes and royalties as direct costs. We do not agree.

115. 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. Amoco Production Company, Docket No. 96-216 June 29, 2001, 2001 WL 770800 (Wyo. St. Bd. Eq.), on reconsideration, September 24, 2001, 2001 WL 1150220; Fremont County Board of County Commissioners, Docket No. 2000-203, April 30, 2003, 2003 WL 21774604; RME Petroleum Company, Docket No. 2002-52, November 20, 2003, 2003 WL 22814612; Amoco Production Company, Docket No. 2001-56, December 30, 2003, 2003 WL 23164222; Burlington Resources Oil and Gas Co., Docket Nos. 2002-49 et. al., May 10, 2004, 2004 WL 1174649; BP America Production Company, Docket No. 2003-102, March 5, 2005, 2005 WL 558991; BP America Production Company, Docket No. 2003-114, March 17, 2005, 2005 WL 676580; Marathon Oil Company, Docket No. 2004-08, March 29, 2005, 2005 WL 794788; Chevron U.S.A. Inc., Docket No. 2003-153, May 12, 2005, 2005 WL 1177542; Burlington Resources/LL&E, Docket No. 2004-24, August 25, 2005, 2005 WL 2100264.

116. BP focuses its argument on the “catch-all” phrase found in the Department Rules on oil and gas valuation - “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). BP argues this phrase, as used for oil and gas valuation, can not be interpreted to include production taxes and royalties as direct costs of production. BP seeks to buttress this argument by reference to the Wyoming Supreme Court decision in Powder River Coal, supra, ¶¶ 146-151, asserting this decision provides guidance for consideration of the catchall language. BP’s assertion is not persuasive under an appropriate interpretation of the Department Rules and the oil and gas valuation statute, Wyo. Stat. Ann. § 39-14-203(b)(vi)(D), as well as other distinctions with regard to the applicability of Powder River Coal.

117. The Department, following enactment of the 1990 mineral valuation statutes, adopted a rule defining direct production costs for the oil and gas. The rule states:

“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 expenses; and other direct costs incurred prior to the point of valuation that are specifically attributable to producing mineral products.

118. This definition, except for changes related to the differences between coal and oil and gas production, is taken directly from the legislative definition of “direct mining costs” in the coal valuation statute. Compare Rules, Wyoming Department of Revenue, Chapter 6, § 4b(w) with Wyo. Stat. Ann. § 39-14-103(b)(vii)(B). Conclusions, ¶¶ 93, 94. Both the Department Rules and the statute list the same types of production costs, and conclude with an equivalent catch-all phrase, “and other direct costs incurred prior to the point of valuation that are specifically attributable to producing the mineral products.”

119. The Legislature did not include production taxes and royalties in the definition of indirect costs for coal, and specifically excluded those two items from the direct cost ratio in the proportionate profits valuation methodology for coal:

Indirect costs, royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees shall not be included in the computation of the ratio set forth in this paragraph. 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 operational function without allocation. (Emphasis added).

120. If production taxes and royalties are not direct costs of producing within the meaning of the catch-all phrase “and other direct costs . . . ” in the coal valuation statutes and Department’s Rule, then it would be superfluous for the Legislature to specifically exclude such items from the direct cost ratio in the proportionate profits calculation, particularly since those items are not defined as indirect costs. We must presume the specific exclusion of production taxes and royalties by the Legislature was not a futile or superfluous act. Conclusions, ¶¶ 77, 78.

121. It is thus reasonable for the Department to interpret the catch-all phrase in its Rule to include production taxes and royalties as direct costs of producing in the proportionate profits valuation methodology.

122. The Department’s interpretation is particularly appropriate as to royalties. 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:

123. Even a conclusion the Department’s Rule is silent on the issue of production taxes and royalties as direct costs does not bar the Department from including those items in the direct cost ratio. “It is fundamental in administrative law that a silent rule is not a bar to agency action which is authorized by statute.” Powder River Basin Resource Council v. Wyoming Environmental Quality Council, 869 P.2d 435, 437 (Wyo. 1994). A reasonable interpretation of Wyo Stat. Ann. § 39-14-203(b)(vi)(D) as compared to other proportionate profits methodology statutes supports such inclusion. Conclusions, ¶ 77.

124. The Wyoming Supreme Court, in Powder River Coal, supra, as relied upon by BP, 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.

125. In Powder River Coal, the Court addressed whether a federal lease bonus payment was to be treated as an exempt federal royalty pursuant the coal valuation statute and, if not, whether it was an indirect cost of mining. The Court held, first, that the lease bonus payment was not a royalty and, second, that it was to be treated as an indirect, rather than direct cost of mining. Id. at ¶ 23. Only the second holding is relevant to the present appeal.

126. Applying the doctrine of ejusdem generis and its prior decision in Wyodak Res. Dev. Corp. v. State Bd. of Equalization, 9 P.3d 987 (Wyo. 2000), the Court held that lease bonus payments can be attributed to the mining function only by allocation. Id. at ¶¶ 19-20.

127. Unlike the situation in Powder River Coal 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. Conclusions, ¶¶ 94, 95. 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, supra, is simply not applicable to the issues in this matter.

128. Severance taxes are levied on the privilege of extracting (or severing) the mineral from the earth. Wyo. Stat. Ann. § 39-14-203(a)(i). Even though the taxable value is calculated at a statutorily defined point where the mining or production process is complete, that physical location only determines which expenses are deductible and which are not. The point of valuation for oil and gas is the statutorily defined point where the production process ends. Wyo. Stat. Ann. § 39-14-203(b). It does not identify the point at which the tax liability arises. The point of valuation is merely the location where the Department must establish the fair market value of the mineral, not the place where the tax liability arises. Tax liability actually arises at the time and place when the mineral is extracted from the ground. The Legislature has directed “[i]n the case of severance taxes, any person extracting crude oil, lease condensate or natural gas . . . [is] liable for the payment of severance taxes . . .” Wyo. Stat. Ann § 39-14-203(c)(ii). Ad valorem taxes are likewise due upon production, the amount of such liability determined upon sale and applying point of valuation concepts. See Wyo. Stat. Ann § 39-14-203(c)(i). Conclusions, ¶¶ 83, 84.

129. Production taxes thus become due and owing at the moment the mineral is physically extracted by BP. See Belco Petroleum Corp. v. State Bd. of Equalization, 587 P.2d 204, 210 (Wyo. 1978). Such an incident surely falls within the confines of the catch-all phrase in Chapter 6 § 4(b) of the Department’s Rules. This Board previously concluded: “[t]he privilege of extracting the mineral is taxed on the basis of the value of the extracted mineral by the severance tax. The mineral extracted is taxed based on the value by the ad valorem tax. Both production taxes are imposed on and are directly related to the producing of the mineral.” RME Petroleum Co., Docket No. 2002-52,¶ 30 supra .

130. BP asserts royalty is sui generis; that it is not the same kind or class of costs as specifically listed by the Department Rules; and therefore it can not be a cost of production. BP cites in support 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.

131. BP alleges under the IRS formula royalty is not considered a direct cost, citing Treasury Regulations, a Technical Advice Memo, and a Field Directive. 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, Technical Advice Memo, and Field Directive, thus neither the Department nor the Board was able to make inquiry with regard thereto.

132. 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).

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:

133. The federal proportionate profits method does not 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.

134. 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 a 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.

135. 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, citing in support the Technical Advice Memorandum and the Field Directive. We have already concluded the federal proportionate profits method offers no insight into the problem presented in this matter.

136. BP, in further support of its royalty argument, cites Hillard v. Big Horn Coal, 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.

137. 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.

138. 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.

139. 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; and therefore they can not be a cost of production.

140. 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.

141. Hillard was decided in 1976, some fourteen years prior to the 1990 Wyoming Legislative Session which adopted the oil and gas proportionate profits valuation method at issue. The two coal companies appealing in Hillard asserted it was improper for any portion of production and severance tax from the prior year be attributed to mining costs. The Hillard Court affirmed the decision of the district court on only the issue before it, to wit, whether attributing any portion of production and severance tax to mining costs was proper. The Court declined to go beyond the issue presented and decide whether production taxes should in fact be considered indirect costs at all, although it clearly indicated a philosophy that such taxes are mining costs, and questioned why the 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].

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

143. BP makes two further arguments. First, production taxes can not be a direct cost of production because the amount of such taxes is based on a value determined after production is complete. Second, the Department’s reliance on two accounting texts and two COPAS bulletins for its assertion both production taxes and royalties are direct costs is incorrect. Discussion of these two arguments would not realistically add any authority to our decision herein. We have already concluded there is appropriate Wyoming legal authority, Hillard, supra, for finding production taxes and royalties are directs costs of production.

BP Argument (B) - The proportionate profits statutes can not be reasonably construed to treat production taxes and royalties as direct costs of producing

144. BP once again asserts the Department, in its application of the oil and gas proportionate profits statute, should have followed the Mineral Tax Report dated February 1, 1990, produced by the Joint Revenue Interim Committee. [Exhibit 105]. BP reiterates its argument the Report is legislative history, and indicates the Committee intended the proportionate profits method for oil and gas to be “basically the same as the method used by coal (see explanation for coal).” [Exhibit 105, p. 051]. We have previously explained why we disagree on this point. Conclusions, ¶¶ 108-110.

145. Legislative intent must be ascertained initially and primarily from the words used in the statute. Allied-Signal, Inc. v. Wyo. State Board of Equalization, 813 P.2d 214, 219 (Wyo. 1991).

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

147. BP asserts the Board, in reaching its decision Amoco Production Co., Docket No. 91-174, May 26, 1992, 1992 WL 126533 (Wyo. St. Bd. Eq.), cited with approval and relied upon the Mineral Tax Report. A review of what the Board actually stated from the Report indicates the inaccuracy of this argument:

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, predictable, 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).

148. 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, predictable, 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).

[Exhibit 105, Mineral Tax Report, Joint Interim Revenue Committee, page 1, ¶2 (Feb. 1, 1990)].

149. 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 Board decision in Amoco 91-174, supra. 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 Amoco 91-174, supra, 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.

150. BP makes three further 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 produces an absurd result. And finally, BP asserts the longstanding prior exclusion of taxes and royalties by the Department (prior to February, 2002) is correct and entitled to deference.

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

152. BP asserts production taxes and royalties are not profit-generating, and therefore can not be production costs. BP cites Powder River Coal as its only legal authority for its argument production taxes and royalties do not generate profit, thus their inclusion as direct costs is improper. BP, however, does not address the fact the oil and gas statutes do not include any reference to “profit,” thus any argument which requires consideration of profit is misplaced.

153. BP challenges the conclusion royalties and production taxes must be included as direct costs of producing in order to properly reach fair market value by asserting the inconsistent interpretations by the Department of Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) since its adoption in 1990 indicate the statute is ambiguous, and thus cannot be interpreted to require inclusion of production taxes and royalties as direct costs of producing. Such an argument is not persuasive.

154. A review of Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) itself in the context of other mineral valuation statutes confirms it is not ambiguous. Both parties agree. Facts, ¶¶ 51, 57.

155. 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. Ann. § 39-14-103(b)(vii). Conclusions, ¶ 94. Prior to this action by the Legislature in 1990, production taxes and royalties had been included as direct costs of coal production. Facts,¶ 50. Hillard v. Big Horn Coal, supra, see also, Amax Coal Co. v. Wyoming State Board of Equalization, 819 P.2d 834 (Wyo. 1991). 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. Ann. § 39-14-403(b)(iv)(A)(III). Conclusions, ¶ 95. It is worth noting these valuation methods for coal and bentonite, which expressly direct production taxes and royalties not be considered direct costs of producing, were enacted simultaneously with Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) for oil and gas which omits any such directive.

156. 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. Conclusions, ¶ 77; Parker v. Artery, 889 P.2d 520 (Wyo. 1995); Matter of Voss Adoption, 550 P.2d 481 (Wyo. 1976).

157. 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.

158. BP asserts Wyo. Stat. Ann. § 39-14-203(b)(vi)(D) is ambiguous based upon the fact the Department has, over time, changed its position on inclusion of production taxes and royalties as direct costs of producing. The statute is 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).

159. BP asserts the Department has misapplied what BP terms the “legislative inaction” rule, asserting such is a rule of statutory construction which no Wyoming court has ever applied. BP cites no authority for its “misapplication” assertion to call into question the support for inclusion of royalties and production taxes as direct costs of producing which comes from the Wyoming Legislature’s actions following 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). Conclusions, ¶ 81.

160. 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. . . .

161. 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.

162. The Legislature’s failure to enact Senate File 69 is evidence of the accuracy of the Board interpretation reflected in Amoco 96-216, supra. The fact the proposed legislation addressed other issues as well does not minimize this evidentiary support. Conclusions, ¶ 81.

163. 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. This legislative inaction is revealing as well. Conclusions, ¶ 81.

164. BP 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 that inclusion of production taxes and royalties as direct costs results in a proportionate profits statute which can not have a practical construction. The testimony by Ralph Eguren, a chemical engineer employed by BP, while detailed, is ultimately not relevant in a practical sense nor supportive of BP’s position in 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. Facts, ¶ 60.

165. The testimony herein 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. Facts, ¶¶ 67-68.

166. BP’s post-hearing brief raises 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 take-in-kind/paid-in-value example which BP provides in its brief is not helpful to flesh out its argument on this point. BP also 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.

167. BP asserts the Wyoming Supreme Court decision in Amoco Production Company v. Department of Revenue et. al., 2004 WY 89, 94 P.3d 430 (2004), vacated the Board decision in Amoco 96-216, supra; it is therefore of no precedential value; thus the Department’s continued reliance on its memorandum of February 8, 2002, requiring inclusion of production taxes and royalties as direct costs ignores a direct court order.

168. 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, nor the underlying factual findings. The Court simply ruled Uinta County did not have standing to intervene in Amoco 96-216, supra, and thus had to be dismissed from the appeal. Amoco Production Company, 2004 WY 89, ¶¶9-27. Since Uinta County had originally raised the issue of whether production taxes and royalties are direct costs of producing, the Court refused to consider the merits of the Board’s ruling on that issue:

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 [whether production taxes and royalties are direct costs of producing]. 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).

169. There is, therefore, no basis to argue the Board decision on inclusion of production taxes and royalties as direct costs of producing is void. The requirement to include production taxes and royalties as direct costs of producing still binds the Department until specifically overturned by the Wyoming Supreme Court. Conclusions, ¶ 115.

170. Based upon its position the February, 2002, memo, was void, BP presented testimony to the effect that the only guideline for taxpayers on the issue of the proportionate profits method was a 1995 memo by Ed Schmidt, then director of the Mineral Tax Division. [Exhibit 111]. 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. [Transcript Vol. III, pp. 242-243, 283-288]. Such an assertion is not even remotely supported by the language of the memo itself.

171. 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. [Transcript Vol. III, p. 326]. 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.

Construing production taxes and royalties as direct costs of producing would render the proportionate profits method statute unconstitutional

(2) Inclusion of production taxes and royalties will violate Uniform and Equal treatment

(3) Inclusion of production taxes and royalties will violate the prohibition of special laws for the assessment and collection of taxes

172. 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.

173. 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.

174. 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.

175. 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. Conclusions, ¶¶ 99-102; Appeal of Monolith Portland Midwest Co., Inc., 574 P.2d at 761.

176. 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. Conclusions, ¶ 104; Meyer v. Kendig, 641 P.2d at 1240.

177. 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.

178. 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.

179. BP, after summarizing its view of Ms. Burton’s testimony, and quoting briefly therefrom, argues the Department incorrectly decided for political reasons not to appeal this Board’s decision in Amoco 96-216, supra, and also to change its position on production taxes and royalties as direct cost of producing. BP asserts such a political decision somehow violates the separation of powers doctrine - the executive branch is determining fair market value by not appealing, which determination is solely within the purview of the legislative branch.

180. The Department’s acceptance of production taxes and royalties as direct costs was in recognition of the fact this Board had concluded exclusion was improper. As Ms. Burton stated, “The Board reversed us. So we lost. And that’s it. We go on.” [Transcript Vol. V, pp. 92-94]. See, Facts, ¶ 47.

181. BP also argues again the Wyoming Supreme Court reversed this Board’s decision to include production taxes and royalties as direct costs, and in so doing, “righted the ship,” and vindicated Ms. Burton’s exclusion position. The Court, as noted previously, did not in fact even address the issue of production taxes and royalties. Conclusions, ¶¶ 167-169.

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 Beaver Creek Field in Fremont County, Wyoming, between January 1, 1996, and December 31, 1998 [Production Years 1996, 1997, 1998], is affirmed; and

(1) for a revised final assessment pursuant to prior resolution of all audit issues other than inclusion of royalties and production taxes as direct costs of producing in the direct cost ratio of the proportionate profits method; and

(2) 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 Wyo. Stat. Ann. § 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.

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