CONCLUSIONS OF LAW: APPLICATION OF PRINCIPLES

68.      The Board has jurisdiction to hear and decide this matter.

69.      Resolution of this appeal requires a sequential consideration of the facts presented and relevant Wyoming statutes, including to some extent their legislative history, in order to answer two primary questions. The first question is whether the property at issue, the compressor units, are tangible personal property, or real property as defined by the Wyoming sales and use tax statutes. If the answer is tangible personal property, the second question is whether the services provided by Hanover are primarily operational, or do they alter, repair or improve the property. If the compressor units are determined to be tangible personal property, and the services performed by Hanover alter, repair or improve, then the assessment of sales tax was appropriate.

70.      The Wyoming Legislature, in 1998, recodified Title 39 of the Wyoming Statutes. In so doing, the Legislature continued, without change, the previous (1997) definition of real property which was applicable to the entire Title 39, including both the ad valorem and the sales and use tax statutes.

71.      The 1997 definition stated:

           Definitions

(a) As used in this act unless otherwise specifically provided:

* * *

(xiv) "Real property" means land and appurtenances, including structures, affixed thereto;

* * *

(xviii) "This act" means W.S. 39-1-101 through 39-6-808;

Wyo. Stat. Ann. §§ 39-1-101(a)(xiv) & (a)(xviii)(1997) (Repealed, Chapter 5, § 4, Session Laws, Wyoming, 1998). (Emphasis added).

72.      The 1998 recodification made no change in the definition, and also still applied to both the ad valorem and sales and use tax statutes .

Definitions

(a) As used in this act unless otherwise specifically provided:

* * *

(xv) "Real property" means land and appurtenances, including structures, affixed thereto;

* * *

(xviii) "This act" means W.S. 39-11-101 through 39-19-111.

Wyo. Stat. Ann. §§ 39-11-101(a)(xv) & (a)(xviii) (Chapter 5, § 1, Session Laws of Wyoming, 1998). (Emphasis added).

73.      In its very next session in 1999, the Wyoming Legislature adopted a separate, and clearly expanded definition of real property to be applicable only for sales and use tax purposes. This new definition retained the language of Wyo. Stat. Ann. § 39-11-101(a)(xv), but also added a provision addressing an “article,” as opposed to an appurtenance or structure:

Definitions

(a) As used in this article:

* * *

(v) "Real property" means land and appurtenances, including structures affixed thereto. An article shall be considered real property if:

(A) It is buried or embedded; or

(B) It is physically or constructively annexed to the real property; and

(C) It is adapted to the use of the real property; and

(D) Considering the purpose for which the annexation was made, one can reasonably infer that it was the intent of the annexing party to make the article a permanent part of the real property.

* * *

(xii) "This article" means W.S. 39-15-101 through 39-15-111;

Wyo. Stat. Ann. §§ 39-15-101(a)(v) & (a)(xii) (Chapter 59, § 1, Session Law of Wyoming, 1999). (Emphasis added).

74.      The Legislature’s only stated intent in adopting this separate definition of real property solely for sale and use tax purposes was “clarification of existing law.” Chapter 59, § 2, Session Law of Wyoming, 1999. We are thus provided no particular insight as to why the Legislature concluded a separate “clarified” definition of real property was necessary for sales and use tax purposes. The only recent known controversy prior to the 1999 Legislative Session which even indirectly addressed the distinction between real property and tangible personal property was a July 30, 1998, Carbon County Board of Equalization decision appealed to this Board. The Carbon County Board decision affirmed a conclusion by the Carbon County Assessor that buried oil flow lines were personal property for ad valorem tax purposes. See, Amoco Production Company, Docket No. 98-170, June 18, 1999, 1999 WL 418051, p. 2 (Wyo. St. Bd. Eq.).

75.      The Department’s application of Wyo. Stat. Ann. § 39-15-101(a)(v) concentrates on the second sentence thereof which is the language added by the Legislature in 1999. This concentration by the Department on the second sentence effectively ignores the first sentence of the expanded definition, such sentence being the complete definition of real property found in the prior applicable statute, Wyo. Stat. Ann. § 39-11-101. This first sentence of the statute, however, still has meaning as a definition as indicated by the fact it was retained in the new statute, and not repealed.

76.      It is an elemental rule of statutory interpretation that a statute must be read so that no portion is rendered inoperative or superfluous. The primary consideration is to determine the intent of the legislature by construing the statutory language according to its ordinary and obvious meaning in light of the words’ arrangement and connection. Amoco Production Company v. Department of Revenue, 2004 WY 89, ¶ 34, 94 P.3d 430, 444 (Wyo. 2004). Such consideration is particularly required when construing a tax or revenue statute:

In construing a taxing or revenue statute, courts should attempt to ascertain and give effect to the intention of the legislature, and that intention is to be gathered from a consideration of every word in the statute so as to make it harmonious and reasonable in its operation.

Eastern Laramie County Solid Waste Disposal District v. State Board of Equalization, 9 P.3d 268, 271 (Wyo. 2000). See also, State v. Union Pacific Railroad Co., 823 P.2d 539, 541 (Wyo. 1992); Walgreen Co. v. State Board of Equalization, 62 Wyo. 288, 166 P.2d 960, reh’g denied 62 Wyo. 288, 169 P.2d 76 (1942); Conclusions, ¶ 63.

77.      There is an important difference between the first sentence incorporating the original real property definition, and the added language of the second sentence. The first sentence refers to land and appurtenances, and structures affixed thereto, which over time have unquestionably been viewed as real property. They are neither portable nor easily moved.

78.      In contrast, the second sentence of the statute added in 1999, refers to an “article.” Such term is not statutorily defined, thus a determination of legislative intent allows consideration of the undefined term according to its common meaning. Fraternal Order of Eagles Sheridan Aerie No. 186, Inc. v. State of Wyoming, 2006 WY 4, ¶ 53, Fn. 17, 126 P.3d 847, 865 (Wyo. 2006). An “article” by common definition and understanding indicates something quite different from an appurtenance or a structure. An article is, in common understanding, an item which is portable, which is easily movable such as an article of clothing or an article of luggage. Black’s Law Dictionary, p. 106 (7^th Ed. 1999); Webster’s New World College Dictionary, p. 80 (4^th Ed. 2002).

79.      The Legislature, by adding the “article” sentence to the definition of real property, in effect included within the definition of real property for sales and use tax purposes two distinct types of property. The definition now includes first, traditional land, appurtenances, and structures, and secondly “articles” which, while generally portable and moveable, are to be considered real property if certain requirements are fulfilled. An article is considered real property for sales and use tax purposes if it is buried or embedded; or if annexed to real property, adapted to use of the real property, and the objective intent of the annexing party is for the article to be a permanent part of the real property. Conclusions, ¶¶ 65, 73.

80.      It is also important to note the second sentence of the statute dealing with an article as real property is somewhat circular. To be considered “real property,” an article must be annexed to real property and adapted to the use of the real property. Real property, however, is in fact the word being defined. Such circularity, coupled with the fact that an “article” is to be “considered” real property but is not actually “defined” as real property, strongly reinforces this conclusion. The Legislature intended that real property for sales and use tax purposes would include the traditionally defined land, appurtenances, and structures as well as, under certain circumstances, a portable or movable “article.” The first sentence of the statute defines what is real property by use of the term “means.” The second sentence defines what will be “considered” real property for sales and use tax purposes only if certain statutory requirements are met. If the Legislature did not intend such a distinction, the adoption of a unique real property definition for sales and use tax purposes would not be necessary. The first sentence of Wyo. Stat. Ann. § 39-15-101(a)(v), which was the entire definition of real property applicable to all of Title 39 prior to the 1999 amendment, would have been sufficient.

81.      The Department, in its Post-Hearing Brief, asserts the Legislature’s statement in 1999, that the extensive changes to Wyo. Stat. Ann. Chapter 39 were intended solely as a “clarification of existing law,” Chapter 59, § 2, Session Laws of Wyoming, 1999, requires the conclusion that if an article was defined or classified by statute as personal property before 1999, it must still be so classified or defined under the amended statute after 1999. The Department also asserts this Board has previously recognized such an intent, citing Lance Oil & Gas Co., Docket No. 2001-117, ¶ 55, September 25, 2002, 2002 WL 31256340 (Wyo. St. Bd. Eq.).

82.      The Department’s argument on this point is not persuasive for a number of reasons. First, this Board’s decision in Lance did not depend on an interpretation of the effect of a change in the real property definition language. Any discussion on this point by the Board is simply dicta, and thus not precedential. The Board decision in Lance simply approved assessment of sales tax under Wyo. Stat. Ann. § 39-15-103(a)(i)(K) which deals specifically with taxation of services related to equipping an oil or gas well for production.

83.      Second, such an assertion by the Department relies on a presumption the compressor units would have been considered personal property under the pre-1999 real property definition. As discussed hereafter, we do not agree.

84.      The third problem with the Department’s position stems from its implicit but mistaken assumption the Board must follow a Legislature’s statement on the effect of the amendment:

A clarified law is simply a statement of what the law has always been. … However, while the court may give due consideration to the Legislature's views, a legislative declaration of an existing statute's meaning is neither binding nor conclusive on the courts in construing the statute. …A court cannot accept the Legislature's statement that an unmistakable change in the statute is nothing more than a clarification and restatement of the statute's original terms. …Legislative history may be used to assist the court's inquiry, but ultimately the court must determine whether an amendment changed or merely clarified existing law.

In re Marriage of Walker, 138 Cal. App. 4^th 1408, 1426, 42 Cal. Rptr. 3d 325, 338 (2006). See also, Carter v. California Department of Veterans Affairs, 135 P.3d 637, 642-643 (Calif. 2006); City of Colorado Springs v. Powell, 156 P.3d 461, 467, Fn. 1 (Colo. 2007).

85.      The 1999 legislative changes defining an article as real property under specified conditions were more than a clarification. The changes created a unique statutory definition for real property to be used solely for sales and use tax purposes. Such definition obviously expanded the previous real property definition which had been applicable to all of Wyo. Stat. Ann. Chapter 39. Any conclusion to the contrary would ignore the explicit language of the statute.

86.      The compressor buildings at both Frewen Lake and Saddle Ridge, along with the compressor units as housed and attached are structures affixed to land, and thus real property as defined by the first sentence of Wyo. Stat. Ann. § 39-15-101(a)(v). Each compressor building is affixed to a concrete foundation or pad. Each compressor unit, composed of an engine, compressor, associated piping, and in some instances a cooler, as aligned on a skid, is also bolted to the concrete foundation. The compressor unit is attached by jack-bolts with concrete grout added around the unit to prevent its high vibration levels from causing it to creep out of alignment on the foundation. The unit is then hard-wired and plumbed into the compressor building. Facts, ¶ 3, 4, 7, 8, 18, 19, 20, 23, 30, 46. See, Southwestern Public Service Company v. Chaves County, 85 N.M. 313, 512 P.2d 73 (1973); Southern California Tel. Co. v. State Board of Equalization, et al., 12 Cal.2d 127, 82 P.2d 422, 427- 428 (1938).

87.      The same conclusions arguably apply to almost any structure affixed to land in a similar manner, thus such structures would fit the definition of real property under the first sentence of Wyo. Stat. Ann. § 39-15-101(a)(v). The fact that ownership of the land and structure may not be the same has no impact on the characteristics of the structure or the manner by which it is affixed to the land, and therefore no relevance in determining whether it is real or personal property.

88.      The structural nature of the compressor units as affixed within and attached to the compressor buildings is reinforced by the extensive procedures required to remove a compressor unit. The compressor building must be removed. The compressor unit must be broken free from the foundation with jack hammers. The piping and cooler must be removed. The unit must then be removed with a crane. Facts, ¶ 6, 21, 23.

89.      The Department, by relying on only the second sentence of Wyo. Stat. Ann. § 39-15-101(a)(v), implicitly argues the compressor units are in fact “articles.” Presuming for purposes of discussion this is correct, their status as real property must therefore be determined by whether they are buried or embedded, or fulfill the remaining second-sentence statutory requirements. A conclusion the compressor units are, in fact, movable, portable “articles” is not, however, supported by the evidence.

90.      The compressor units at Frewen Lake consist of an engine, which has a displacement of 5794 cubic inches and generates 1250 horsepower, the compressor, and the cooler. The total unit weight is approximately 100,000 pounds. The units at Saddle Ridge have an engine with a displacement of 11,000 cubic inches which generates 2500 horsepower, and a compressor. The total unit weight is approximately 200,000 pounds. The coolers at Saddle Ridge are attached on the exterior of the compressor building. This evidence clearly does not describe movable, portable articles. Facts, ¶ 18, 43, 44.

91.      The Department also asserts the fact the compressor units are mounted on a “skid” somehow reflects that they have portability. Even mounted on a skid, these compressor units are not something which can be hauled away behind a pick-up truck or even loaded as a single unit on one large truck. In addition, the design purpose of the skid was not portability. Mounting the engine, compressor, and a cooler along with the required piping on a skid was to ensure all of the pieces of equipment stay properly aligned to facilitate the correct functioning of the unit. Without attachment to the skid, each piece of equipment would be affixed only to the concrete foundation. The vibration of the unit would cause the pieces to creep out of alignment, and thus require reorientation and realignment. Mounting each of the pieces of equipment on a skid avoids this problem by keeping all of the equipment properly aligned. Facts, ¶ 31, 32.

92.      The engine, compressor, and in some instances a cooling unit, all as attached to a skid and affixed to a concrete foundation form what is, in reality, a single integrated unit. The compressor and engine can not properly function without being affixed to a skid which is itself affixed to a concrete foundation. The concrete foundation is clearly “embedded” as that term is used in Wyo. Stat. Ann. § 39-15-101(a)(v)(A). The embedded concrete foundation being a portion of the integrated compressor unit, the entire unit, presuming one can legitimately consider it to be an “article,” is embedded along with the concrete foundation. It is not necessary for the entire compressor unit to be embedded in order to meet the “embeddedness” requirement. Chance v. Certain Artifacts Found and Salvaged from the Nashville, 606 F. Supp. 801, 806 (S.D. Georgia, 1984). The entire unit should thus be considered to be real property as defined by Wyo. Stat. Ann. § 39-15-101(a)(v). Southern California Tel. Co. v. State Board of Equalization, 82 P.2d at 428.

93.      The same reasoning supports a finding that almost any structure which is similarly secured to an embedded foundation fulfills the “buried or embedded” requirement. The fact the ownership of the building and the land may be different is not relevant.

94.      The focus of the Department’s assertion that the compressor units are personal property, as set forth in its Post-Hearing Brief, relies on the law of fixtures, including trade fixtures. The Department argues that under the traditional three-part test used to classify an item as a fixture and thus real property, the evidence in this matter fails to support a conclusion that two of the required elements, adaptation and intention, have been fulfilled. The Department concedes a third requirement, annexation, has been met. [Department’s Post Hearing Brief, p. 9, ¶ 15].

95.      The three-part test relied upon by the Department was noted by the Wyoming Supreme Court in a decision considering the real versus personal property question under the pre-1999 statute which defined real property for both ad valorem and sales and use tax purposes in Wyo. Stat. Ann. Chapter 39 as “land and appurtenances including structures affixed thereto.” Wyo. Stat. Ann. § 39-11-101(a)(xv); Conclusions, ¶ 72. The test derives from an 1853 Ohio decision:

In our decision in Wyoming State Farm Loan Board v. FCSCC, 759 P.2d 1230 (Wyo.1988), we set forth a test for determining whether an article is a fixture to real property:

This court has not had occasion to discuss this aspect of the law of fixtures for nearly forty-eight years. See School District No. II, Laramie County v. Donahue, 55 Wyo. 220, 97 P.2d 663, 664 (1940). When presented with this issue, however, we still rely on the three-part test first set forth in the landmark case of Teaff v. Hewitt, 1 Ohio St. 511, 525 (1853):

“It has been said upon abundant authority that, generally speaking, the proper criterion of an irremovable fixture consists in the united application of three tests, viz:

“ ‘1st. Real or constructive annexation of the article in question to the realty.

“ ‘2d. Appropriation or adaptation to the use or purpose of that part of the realty with which it is connected.

“ ‘3d. The intention of the party making the annexation to make the article a permanent accession to the freehold, this intention being inferred from the nature of the article affixed, the relation and situation of the party making the annexation and policy of the law in relation thereto, the structure and mode of the annexation and the purpose or use of which the annexation has been made.’ [Citations.] * * *.” Holland Furnace Co. v. Bird, 45 Wyo. 471, 21 P.2d 825, 827-828 (1933).

Amoco Production Company v. Wyoming State Board of Equalization, 15 P.3d 728, 732 - 733 (Wyo. 2001).

96.      These three judicially created requirements were, to some extent, statutorily codified by the Wyoming Legislature when it adopted a real property definition to be used exclusively for sale and use tax purposes. See Wyo. Stat. Ann. § 39-15-101(a)(v)(B-D). Conclusions, ¶¶ 65, 73.

97.      The Wyoming Supreme Court, following what it characterized as a majority of jurisdictions, places the most emphasis on the objective intent of the person making the annexation:

This intention does not refer to the annexor's subjective state of mind; rather, it is the objective intention the law can infer an ordinary reasonable person to have based on the facts and circumstances in the record. …Circumstances bearing on a determination of objective intent include the nature of the article affixed, the way it was affixed, the purpose it serves on the land and the annexor's relationship to the article and to the land.

Id. at p. 733 (citations omitted).

98.      As previously noted, the Department has conceded the requirement of annexation, Wyo. Stat. Ann. § 39-15-101(a)(v)(B), has been fulfilled. Conclusions, ¶ 94. The Department, however, urges that the remaining two requirements, adaptation - Wyo. Stat. Ann. § 39-15-101(a)(v)(C), and intention - Wyo. Stat. Ann. § 39-15-101(a)(v)(D), have not been fulfilled.

99.      The Department’s authorities on adaptation and intention derive primarily from landlord-tenant litigation which is not necessarily appropriate or applicable in tax litigation. In addition, the Department has impliedly conceded that at least the adaptation requirement has been fulfilled for both Frewen Lake and Saddle Ridge.

100.    The Department acknowledged during the hearing that the compressor units at Monument Lake, which were originally included in the same audit assessment for the same reasons as those at Frewen Lake and Saddle Ridge, satisfied all three statutory requirements, and thus should be considered real property. The Department reached this conclusion after it received satisfactory evidence Williams owned the property upon which the Monument Lake units are located. The Department did not present any evidence that the configuration, and thus the adaptation of the compressor units at Monument Lake, which it apparently deemed sufficient to fulfill the statutory requirements, differed in any significant degree from the units at Frewen Lake and Saddle Ridge. Such an omission is significant in light of the fact that the units at all three compressor facilities were included in the same assessment alleging them to be personal property. It appears the units at Frewen Lake and Saddle Ridge differ from those at Monument Lake only in the fact the units at Monument Lake are located on property owned by Williams. The Department now concedes such ownership fulfills, for Monument Lake, the intention requirement which it asserts is not fulfilled for Frewen Lake and Saddle Ridge. If the intention requirement was all that needed to be fulfilled at Monument Lake, than arguably it is the only requirement which must be fulfilled for Frewen Lake and Saddle Ridge. [Hearing Record].

101.    Our research indicates that courts tend to consider the requirements of adaptation and intention somewhat differently when classifying property for tax purposes than in other types of disputes.

102.    The Department, in urging the adaptation requirement has not been fulfilled, argues there is no evidence showing that Williams, the owner of the compressor units, intended to enhance the value, beauty or utility of the real property on which they are located, or benefit the land in anyway whatsoever. It is thus the Department’s assertion the adaptation requirement has not been met. [Department’s Post Hearing Brief, p. 16].

103.    In support of this assertion, the Department cites the Wyoming Supreme Court decision in Amoco Production Company v. Wyoming State Board of Equalization, supra, and a decision by this Board in 1999, Todd Wilkinson Welding, Docket No. 98-208, December 17, 1999, 1999 WL 1253607 (Wyo. St. Bd. Eq.). Both of these authorities, however, involved an interpretation of the pre-1999 statute defining real property which did not include a specific reference to the adaptation requirement now found in Wyo. Stat. Ann. § 39-15-101(a)(v)(C). Neither the Wyoming Supreme Court nor this Board, until this appeal, has been asked to interpret the specific statutory adaptation requirement. We believe it is important to concentrate on an interpretation of the unambiguous statutory language.

104.    The statutory adaptation language clearly seeks an answer to the question of whether an article (assuming the compressor units at issue can, in fact, be considered “articles”) is adapted to the use of the real property in which it is located, not whether the article increases the property value, makes it more beautiful, or benefits the property in some other manner. Conclusions, ¶ 73.

105.    The more pertinent inquiry is whether the article adds value in use to the property. The use and utility of the real property upon which the compressor units are located is for the production of minerals of which the compressor units are an integral, integrated part. The compressor units, if to be considered articles, are the main part of the use of the real property on which they are located. They are a necessary adjunct to the real property for the purposes for which the property is being used:

The question most frequently asked is whether the real property is peculiarly valuable in use because of the continued presence of the annexed property thereon (Specialty Restaurants Corp. v. County of Los Angeles, supra, at p. 935, 136 Cal.Rptr. 904; 5 Powell on Real Property (1977), s 660, pp. 96.3-96.4). Thus, it has been said that an object placed on the realty may become a fixture if it is a necessary or at least a useful adjunct to the realty, considering the purposes to which the latter is devoted. This principle, variously referred to as the “adaptability test” or the “integrated industrial plant doctrine” or “institution doctrine,” is often given great weight in determining whether a particular object has assumed the status of a fixture (35 Am.Jur.2d, Fixtures, s 12, p. 708; see also M. P. Moller, Inc. v. Wilson, supra, 8 Cal.2d at p. 38, 63 P.2d 818; Bank of America v. County of Los Angeles (1964) 224 Cal.App.2d 108, 114, 36 Cal.Rptr. 413).

SeaTrain Terminals of California, Inc. v. County of Alemeda, 83 Cal. App. 69, 76, 147 Cal. Rptr 578, 582 (1978).

106.    The evidence presented in this matter clearly supports the conclusion that if the compressor units are to be considered “articles,” the adaptation requirement of Wyo. Stat. Ann. § 39-15-101(a)(v)(C) has been fulfilled.

107.    The final statutory requirement under Wyo. Stat. Ann. § 39-15-101(a)(v) for an article to be considered real property looks to the intent, as determined by reasonable inference, of the party annexing the article to the real property, keeping in mind the purpose for which the annexation was made. Wyo. Stat. Ann. § 39-15-101(a)(v)(D). It is important to note this statutory requirement does not include consideration of the annexor’s relationship to the article and to the land, unlike the traditional three-part judicial classification test. See, Amoco Production Company, 15 P.3d at pp. 732-733; Conclusions, ¶¶ 95, 97.

108.    The Department, in focusing its argument on the intent requirement, urges that the elements of divided ownership and permanence require the presumption the article must be personal property. Such an assertion overlooks the noted difference that the Wyoming statutory intent requirements do not include consideration of the issue of ownership which is a departure from the traditional three-part judicial test. Conclusions, ¶ 107.

109.    The Department, in addition, cites a number of decisions, as discussed hereafter, which involve classification for purposes other than taxation, and are not authoritative on the issue in this matter.

110.    The focus of the dispute in Seibel v. Bath, 5 Wyo. 409, 40 P. 756 (Wyo. 1895) was a request to enjoin the foreclosure of mechanics’ liens and mortgages. In Lee-Moore Oil Co. v. Cleary, 245 S.E. 2d 720 (N.C. 1978), an oil company brought an action to recover for the alleged conversion of its equipment which included gas pumps, storage tanks, and an air compressor. The litigants in Jim Walter Corporation & Mid-State Homes, Inc. v. Gates, 370 So.2d 928 (Miss. 1979) disagreed over whether a builder had an equitable lien on a home built with permission on real property owned by a third-party. And the issue raised by In re Concrete Structures, 9 B.R. 72 (Bkrtcy. Va. 1981), was whether the sale by the Court of the debtor’s land included a building on the land owned by someone other than the debtor. The classification of property for purposes of taxation was not an issue in any of these decisions.

111.    The Department also cites two State Board decisions, neither of which are authoritative on the classification issue herein. The issue in Todd Wilkinson Welding, Docket No. 98-208, December 17, 1999, 1999 WL 1253607 (Wyo. St. Bd. Eq.) concerned the taxability of welding services performed on oil and gas equipment. The Petitioner, Wilkinson, asserted a portion of his services constituted services to real property and thus were not taxable. The Board concluded the invoices provided by the Petitioner describing the services performed were vague at best, and thus did not supply the necessary evidentiary basis from which the Board could conclude the services at issue were in fact performed on real property. The Board simply concluded the Petitioner had failed to carry his burden of proof. Its decision did not contain any further enlightenment on what might constitute real as opposed to tangible personal property. Todd Wilkinson Welding, Docket No. 98-208, ¶¶ 3, 26, 28. In Thunder Basin Coal Company, Docket No. 2002-160, January 2, 2004, 2004 WL 66621 (Wyo. St. Bd. Eq.), the question of classification of property as real or personal is not even mentioned. Thunder Basin had simply appealed a Campbell County Board of Equalization decision affirming the value of its personal property, which included a building, at the mine site. Thunder Basin did not challenge the assessor’s classification of the building as personal property.

112.    The question of ownership and intention to make permanent are considered in a different light when classifying property for tax purposes than when classifying property in other types of litigation.

113.    As previously noted, the reasonably inferred intent of the annexor of an article to real property is of paramount importance in determining whether an article is to be a permanent part of the land, and thus a fixture which is considered real property. When classifying property for tax purposes, the intention to make permanent must be judged from the physical facts and reasonably manifested outward appearances of the property without regard to the annexor’s status as a landlord or a tenant. The fact there may be divided ownership between the owner of the article and the owner of the real property on which it is located or to which it is affixed is thus not relevant. SeaTrain Terminals of California, Inc. v. County of Alemeda, 83 Cal. App. at 74-75, 147 Cal. Rptr at 581 (1978); Specialty Restaurants Corporation v. County of Los Angeles, 67 Cal. App. 3d 924, 933-934, 136 Cal. Rptr. 904, 909-910 (1977).

114.    A valid objective indication of an intent to make an article permanent may be derived from the very nature of the article itself. Large, heavy, “ponderous” machinery and equipment which requires great expense and difficulty to remove lends support to a reasonable conclusion of an intent by the annexor of permanence:

The courts and the taxing authorities may reasonably assume that ponderous machinery, which by objective evidence is necessary to the continuing operation of the particular business for which the building is used, and which has been installed for use in the building for its remaining useful life and is not to be removed absent some unforeseen change in the building's use, has been installed with the intent to make a nontemporary accession to the freehold.

Abex Corporation v. Commissioner of Taxation, 295 Minn. 445, 458, 207 N.W. 2d 37, 45 (1973).

Great expense involved in removal of heavy equipment and the difficulty attending its removal are indicative of intended permanence.

Specialty Restaurants Corporation v. County of Los Angeles, 67 Cal. App. 3d at 934, 136 Cal. Rptr. at 910.

115.    The compressor units at issue, weighing between 100,000 and 200,000 pounds with engine displacement of 5794 and 11,000 cubic inches, are at a minimum large and heavy if not “ponderous.” They are also integrally necessary for the on-going use of the property where located - the movement of natural gas. The units require extensive destruction and therefore expense to remove. Such characteristics add credence to a reasonable inference the units are intended to be permanent as that term is viewed, as noted hereafter, when classifying property for tax purposes. Facts, ¶¶ 43, 44.

116.    Permanence, when classifying property for tax purposes, does not equate to perpetuity:

The permanence required is not equated with perpetuity. Just because they have been and can be moved does not mean the intention was not to make them permanent. It is sufficient if the item is intended to remain where affixed until worn out, until the purpose to which the realty is devoted is accomplished or until the item is superseded by another item more suitable for the purpose. Id. at 1014.

We went on to observe that "[m]odern construction methods and types of structures allow material that stays for years on a piece of property to be moved with little damage to the property. Acoustic ceiling panels 'affixed' by gravity and removable with no damage to the property are nonetheless taxable as real estate as are door handles and kitchen faucets when attached to a structure." Id. at 1013-1014.

           [Emphasis added].

Custer v. Bedford County Board of Assessment and Revision of Taxes, 910 A.2d 113, 117 (Penn. 2006) quoting In re Sheetz, 657 A.2d 1011, 1013-1014 (Penn. 1995).

117.    Such a philosophy is not a new concept, having been expressed in 1899 by the Court of Appeals of Colorado in language which is still very pertinent today:

In using the word “permanently” we do not mean “perpetually.” That chattels may be permanently an accession to the land, a purpose that they should remain there forever, or even until they are worn out by use, is not necessary. It is sufficient that their situation is to be as permanent as the business in which they are to be used, and the intention with which they are placed is to be sought in the surrounding facts and circumstances, and not in the secret mental operations of the parties.

Fisk v. People’s National Bank et al., 14 Colo. App. 21, 27, 59 P. 63, 65 (1899). See also, Troncillito v. Farm Family Mutual Insurance Company, 89 Misc.2d 844, 846, 393 N.Y.S.2d 159, 160 (1977), and Specialty Restaurants Corporation v. County of Los Angeles, 67 Cal. App. 3d at 934, 136 Cal. Rptr. at 910 quoting Trabue Pittman Corp. v. County of Los Angeles, 29 Cal. 2d 385, 393, 175 P.2d 512, 518 (1946).

118.    The Department further asserts the compressor units qualify as “trade fixtures” and thus can not be considered real property for tax purposes. The trade fixtures doctrine, however, arose out of commercial necessity for the limited purpose of protecting the property of tenants, and thus is not applicable outside the realm of landlord-tenant litigation:

According to Burby a trade fixture is merely a particular type of fixture, one for which the law makes a special provision permitting its removal under certain circumstances by a lessee from the lessor's real property to which it has been annexed. (See Burby, Hornbook of the Law of Real Property (1943) s 24, p. 28.)

* * *

The rule in reference to trade fixtures arose out of commercial necessity for the limited purpose of protecting the tenant in ownership of certain kinds of property. It generally has no application between other parties in other relationships. Bronson on Fixtures, s 8, p. 21; Tiffany, Real Property (3d ed.) s 617, p. 599. The question as to whether an improvement is a trade fixture most often arises in regard to an asserted right of removal. It may be conceded that many courts and writers have treated trade fixtures as personal property insofar as the tenant's right of removal was concerned. …Regardless of whether such characterization was strictly accurate or necessary in view of the right of removal which existed in any event, it is obvious that it can have no bearing upon what the characterization should be for other purposes.

* * *

The view that trade fixtures, removable by a tenant, are a part of the realty until removed represents the weight of authority elsewhere and is regarded by Tiffany as the ‘much sounder view.’ (See Tiffany, Real Property (3d ed.) s 620, p. 605; …Taylor in his work on Landlord and Tenant states that ‘as a general proposition, it is correct to say that fixtures are completely personalty as to the lessee's right of removal; but otherwise realty. (2 Taylor, Landlord and Tenant (9th ed.) s 549, p. 174.) Jones, in discussing this subject, states that ‘The doctrine of the law of landlord and tenant is not that the articles attached to the freehold remain chattels for the purposes of removal, but that, under certain circumstances, parts of the freehold may be removed by the tenant.’ (Jones on Landlord and Tenant, s 710, p. 831.) Burby states that ‘It might be contended that a tenant who affixes a chattel to leased premises does not thereby intend permanently to improve the freehold, and, accordingly, a chattel so attached should not be considered a fixture. But the courts have not adopted this reasoning. If the chattel attached would be considered a fixture, were it attached by the owner of the realty, it is a fixture if attached by a tenant. Thereafter, the thing is considered as a part of the realty, the tenant retaining the privilege of removal under the trade fixture doctrine.’ (Burby on Real Property (Hornbook Series, 1943) s 24, p. 28.)

* * *

Further support for the classification of trade fixtures as real property for taxation purposes is found in the fact that, in the last analysis, the law with respect to tenant's trade fixtures has its foundation in an implied contract resulting from the landlord-tenant relationship. …The contract between the landlord and tenant may be express as well as implied; and if express, it may no doubt cover fixtures other than those generally deemed to be trade fixtures. It is well settled, however, that such contract, whether express or implied, is not effective against those not bound by the agreement; for example, innocent third persons. In such cases the intent that is material is that reasonably manifested by outward appearances. (citations omitted).

           (Emphasis added).

Trabue Pittman Corp. v. County of Los Angeles, 29 Cal. 2d at 393 - 397, 175 P.2d at 518-520 (1946). See also, Abex Corporation v. Commissioner of Tax, 295 Minn. 445, 207 N.W. 2d 37 (1973) and Rosenblum v. Terry Carpenter, Inc., 62 Wyo. 417, 424, 174 P.2d 142, 144 (1946).

119.    It is also inappropriate to apply the doctrine of trades fixtures merely because there is divided ownership:

But to hold the doctrine of trade fixtures operative in a tax matter merely because property is claimed under two ownerships instead of one would be to discriminate in favor of one owner and against another owner of similar property, not only because of the possibility of a differential between the real and personal property tax rates for a given year but because many special assessment districts impose burdens upon real property but not personal property.

Trabue Pittman Corp. v. County of Los Angeles, 29 Cal. 2d at 398, 175 P.2d at 521 (1946).

120.    The Department, in support of its trade fixtures argument, cites only a State Board decision, L&L Production Service, Docket No. 92-85, March 26, 1993, 1993 WL 98441 (Wyo. St. Bd. Eq.), and a Federal Court of Claims decision, Lemmons v. U.S., 496 F.2d 864 (Ct. Cl. 1974).

121.    The State Board, in L&L Production, concluded certain services performed on specified equipment were “repair, alteration or improvement of tangible personal property.” The equipment at issue was, as admitted by the Petitioner, portable oil field equipment, being skid-mounted and resting in the field on a gravel base. Such equipment, although characterized by the Board without elaboration as a “trade fixture,” is significantly different from the compressor units at issue herein, and would clearly be considered an “article” under Wyo. Stat. Ann. § 39-15-101(a)(v), although in 1993 such statutory language did not exist. This Board, using as a guideline the traditional judicial three-part test for determining property classification, properly concluded, under the then current definition of real property applicable to all of Title 39, and due to a lack of objective intent to transform the equipment into an appurtenance, the equipment upon which L&L had performed services was not real property. L&L Production Service, Docket No. 92-85, ¶¶ 1, 12, 15.

122.    The fact the property at issue in L&L Production was conceded to be portable is a significant factual distinction. The Board in that matter was not required to even consider the issue of whether the equipment might be considered affixed to the land. The decision is thus factually distinguishable to such an extent as not to be relevant authority. The decision in L&L Production does not support the Department’s assertion the compressor units herein are tangible personal property.

123.    The Lemmons decision also does not support the Department’s position. The controversy in Lemmons concerned the condemnation by the United States Army Corp of Engineers of an area adjacent to the Ohio River used by Lemmons to extract sand and gravel from the river pursuant to a permit issued by the Corp. The decision by the United States Court of Claims did not involve any issue of classification of property for tax purposes.

124.    The compressor units at Frewen Lake and Saddle Ridge qualify as real property under any of the criteria set forth in Wyo. Stat. Ann. § 39-15-101(a)(v). The services provided by Hanover to both facilities are thus not subject to assessment of sales tax. It is therefore not necessary for the Board to address the issue of how the services provided by Hanover should be characterized for sales tax purposes.

ORDER

           IT IS THEREFORE ORDERED the sales tax assessment by the Department of Revenue is reversed.

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.

           DATED this day of August, 2007.

                                                                  STATE BOARD OF EQUALIZATION

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                                                                  Alan B. Minier, Chairman

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                                                                  Thomas R. Satterfield, Vice-Chairman

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                                                                  Thomas D. Roberts, Board Member

ATTEST:

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Wendy J. Soto, Executive Secretary