BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
AMOCO PRODUCTION COMPANY ) Docket No. 94-67
FROM A DECISION OF THE )
DEPARTMENT OF REVENUE )
FINDINGS OF FACT
CONCLUSIONS OF LAW
DECISION AND ORDER
Jesse R. Adams, III, Nicole Crighton, and John L. Bordes, Jr., Oreck, Bradley,
Crighton, Adams & Chase, Boulder Colorado for Amoco Production Company (Petitioner).
Michael Dinnerstein, Assistant Attorney General, State of Wyoming, for the Department
of Revenue (DOR), Respondent.
Nancy D. Freudenthal and John C. McKinley, Davis & Cannon, for Sweetwater County,
This matter was considered by the State Board of Equalization (SBOE) Members, Edmund J.
Schmidt, Chairman, Roberta Coates, Vice-Chairman, and Sylvia Hackl, Member, in a contested
case hearing conducted from February 12, 2001, through February 14, 2001, pursuant to a
Hearing Order dated October 19, 2000. Roberta Coates, Vice Chairman, acted as hearing
officer. This matter arises from a remand of an earlier SBOE decision dated May 19, 1999,
by the Wyoming Supreme Court in Amoco Production Company v. Wyoming State Board of
Equalization, 7 P. 3d 900 (Wyo. 2000). The remand occurred because counsel for
Petitioner, an experienced counsel appearing before the SBOE, argued he was not accorded
due process because he did not have an opportunity to develop facts. Counsel actively and
willingly participated in an expedited handling of the case and had never objected to the
expedited process until an adverse decision was rendered. The remand directed the SBOE to
conduct a contested case hearing to promote full and fair development of the factual
issues presented in the case.
The factual issues arise from a review conducted by a contract auditor at the request
of the Sweetwater County Board of County Commissioners (Sweetwater County). The review
examined 1980 through 1988 oil production from Petitioner's Wertz Dome Unit. Although the
parties have identified many sub-issues, the issue is:
Was the Wyoming DOR decision to change the allocation of Petitioner's oil production from its Wertz Dome Unit for 1980 through 1988 between Carbon and Sweetwater Counties supported by substantial evidence, according to procedures required by law, and neither arbitrary, capricious, nor inconsistent with law?
ALL STATUTORY CITATIONS USED IN THIS DECISION AND ORDER REFERENCE TITLE 39,
PRIOR TO RECODIFICATION WHICH WAS EFFECTIVE MARCH 6, 1998.
The SBOE is mandated to review decisions of the DOR on assessments of property and tax determinations and to hold hearings after due notice pursuant to the Wyoming Administrative Procedures Act and prescribed rules and regulations. Wyo. Stat. 39-1-304(a) and Wyo. Stat. 39-1-304(a)(ix). An appeal from a DOR decision must be filed with the SBOE within thirty (30) days of the date of the final administrative decision at issue. Rules, Chapter 2, 5(a), Wyoming State Board of Equalization.
The SBOE 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. 39-1-304(a)(iv).
The Notice of Appeal was timely filed, and the SBOE has jurisdiction to hear the case. Sweetwater County filed a proper motion for intervention, and the SBOE entered an Order joining Sweetwater County in the case on September 6, 2000. The SBOE is required to decide all issues relating to this appeal and give a written decision, citing findings of fact and conclusions of law following a hearing. Rules, Chapter 2, 32, Wyoming State Board of Equalization.
Petitioner filed an appeal with the SBOE challenging the DOR's reallocation of its Wertz Dome Unit 1980 through 1986 oil production between Carbon and Sweetwater Counties. For that period, the DOR determined, based upon a contract review performed by Rocky Mountain Auditing Services at the request of Sweetwater County, that Petitioner's oil production had been incorrectly reported as produced from Carbon County instead of Sweetwater County. For the time period at issue, Carbon County had a lower mill levy than Sweetwater.
The review findings were communicated to Petitioner who requested and was granted additional time to analyze the findings. During this period, Wyoming Statute 39-2-201(j) was enacted. Thereafter, Petitioner asserted the newly enacted statute limited the DOR review to two years and filed amended returns for 1987 and 1988 production. Petitioner failed to respond to 1980 through 1986 review findings.
In addition to the alleged limitation in Wyoming Statute 39-2-201(j), Petitioner asserts: (1) for the time period at issue, the DOR permitted use of varying allocation methodologies other than the methodology employed by Sweetwater County; (2) Petitioners allocation methodology for production years 1980 through 1983 was reasonable and was reported to and accepted by the DOR; (3) the exclusive use of wellhead location (in the county where the oil is produced) as an allocation method is unreasonable for the Wertz Dome Unit; (4) there is no authority for the issuance of an assessment, or tax bill, based upon a mill levy difference between two counties; and (5) the tax has been proscribed.
The DOR asserts: (1) Wyoming Statute 39-2-201(j) does not apply to this situation because it is not applied retroactively; (2) additional ad valorem taxes are due and owing to Sweetwater County because of its higher mill levy; and (3) actual well location is the best available indicator of an accurate reporting of production location particularly in the absence of any other reasonable basis for reporting production.
Intervenor Sweetwater County asserts: (1) Wyoming Statute 39-2-201(j) does not apply; (2) neither the DOR nor Petitioner has authority to exempt oil physically produced in Sweetwater County from its taxing authority by improper "allocation" to another county; (3) Petitioner lacks standing to contest Sweetwater County's proposal to afford it a credit for taxes paid to Carbon County; and (4) Petitioner owes statutory interest calculated from the date the taxes should have been paid had the production been properly reported to the correct taxing jurisdiction.
The evidence submitted with the parties' briefs does not indicate Petitioner has ever paid any additional ad valorem taxes to Sweetwater County.
It is important to note in this appeal Sweetwater County is not seeking to recover taxes for mis-allocated volumes. Rather, it is willing to accept the production mis-allocated to Carbon County as being reported to and taxes paid thereon to Sweetwater County. It is only asserting Petitioner owes additional ad valorem taxes on the amount attributable to Sweetwater County's higher mill levy.
FINDINGS OF FACT
General Facts Common to All Issues:
<1. Petitioner was the only working interest owner and operator of the wells at issue in the Wertz Dome Unit during the tax period. The tax period at issue is production years 1980 through 1986; tax years 1981 through 1987. [Stipulation 1].
2. The wells in the Wertz Dome Unit produce oil from the Madison and Tensleep formations, through wells located in Sweetwater County and Carbon County. [Stipulation 4]. The Madison is a limestone formation while the Tensleep is a tightly compacted sandstone formation. [Transcript Vol. 1, pp. 40 - 41].
3. During the period at issue, Petitioner was injecting water into the Wertz Dome Unit
formations to induce pressure back into the reservoir and sweep oil to producing wells. [Transcript Vol. 1, pp. 41-45]. It is possible, through the injection process that, oil could be swept from one county and produced in another depending on the permeability of the rock and the rate of water pressure. [Transcript Vol. 1, pp. 46 - 48].
4. For the tax period, Sweetwater County had a higher mill levy than Carbon County
due to an increase for the community college in Sweetwater County. The actual mill levy difference in Sweetwater County compared to Carbon County's levy for the tax years at issue is the following, according to Exhibit 319:
|1981: 2.640 mills||1985: 7.310 mills|
|1982: 6.570 mills||1986: 4.944 mills|
|1983: 7.400 mills||1987: 6.340 mills|
|1984: 7.760 mills|
5. An audit was performed by the Wyoming Department of Audit (DOA) for this time frame and included production from the Wertz Dome formation. This audit found the Petitioner had reported production to Carbon County which should have been reported to Lincoln County. [Transcript, Vol. 1, p. 85]. The audit did not check to see if production was being reported to the correct county as between Sweetwater County and Carbon County. [Transcript, Vol. 2, p. 231].
Whether Petitioner Reasonably Reported Production:
6. Petitioner did not measure oil volumes at the well head but it did measure the oil at
the LACT (custody transfer meters) unit located at three Wertz Dome Facilities. [Transcript Vol. 1, pp. 48, 58, 62]. Petitioner tested three producing wells at least twice a month. Then, using a representative well test of the actual daily volumes that were coming from each of the wells, and metering done at the LACT units, Petitioner was able to determine how much oil came from a particular well. Petitioner then allocated that volume of production back to the wells. [Transcript Vol. 1, pp. 48 - 49, 62 - 63, 67 - 68, 70 - 71, and 76]. The monthly production volume from each well was reported to the Wyoming Oil and Gas Conservation Commission (WOGCC) and the federal government. [Transcript Vol. 1, pp. 49, 70, 112]. The testing process resulted in "a pretty good number" for individual well production in that it was very close to actual metering results, with errors of maybe 2 or 3 percent. [Transcript Vol. 1, p. 103].
7. For production years 1980 through 1983, Petitioner allocated 34% of all oil produced from the Madison and the Tensleep formations to Sweetwater County, and 66% of the production to Carbon County. [Transcript Vol. 2, p. 143, Exhibit 112]. We will refer to this allocation as the 66/34 split.
8. Petitioner could have generated for tax purposes the same production reports it generated for the WOGCC from the computers that generated the tax reports in Tulsa, Oklahoma. [Transcript Vol. 1, pp. 90, 101, 108, 126, 130].
9. The DOR had no written policy from 1980 through 1986 for allocation of downhole commingled production in two counties. The DOR accepted any reasonable method to allocate production between two counties. [Transcript, Vol. 1, p. 178]. The DOR accepted one method other than wellhead location for allocation of production. [Transcript, Vol. 1, pp. 179 - 180]. The other allocation method was for the Anschutz Ranch Unit which allocated production in Utah to both Utah and Wyoming as determined by pore volumes, a sophisticated measurement of oil within a formation. The allocation of Anschutz Ranch was approved by the United States Bureau of Land Management. [Transcript, Vol. 2, pp. 198 - 199].
10. Randy Bolles, the administrator of the DOR's Mineral Tax Division, correctly observed that Wyoming's tax system is a self-reporting system. Thus, the DOR had no way of knowing how Petitioner allocated production between counties at the time of filing of tax reports. [Transcript Vol. 3, pp. 134-136, 142].
11. For production years 1980 through 1983, Petitioner admits its reporting of production did not relate to the actual production by well or group of wells. [Transcript Vol. 1, p. 92]. Petitioner also admits its reporting of production did not relate to any reservoir pore volume analysis, or to the ratio of the number of producing wells in each county compared to the total number of producing wells in the unit. [Transcript Vol. 1, p. 159, Vol. 2, pp. 139 - 140]. No person could explain the reason Petitioner used a 66/34 split. [Transcript Vol. 1, pp. 93, 122, 166, Vol. 2, pp. 136, 140]. Because the Unit agreement was developed in 1937 Petitioner surmised the 66/34 allocation was devised because it was easy. [Transcript Vol. 2, p. 150].
12. Mr. Bruce Cartwright, the former tax representative for Petitioner, hypothesized the 66/34 split was based on a lease acreage basis of 40 acres per production well. However, this calculation results in 60% of the acreage in Carbon County and 40% in Sweetwater County. [Transcript Vol. 2, p. 99, Vol. 3, p. 168]. Because this calculation does not match the 66/34 split, we reject this explanation.
13. Petitioner opined that the 66/34 split could have been based on the unit agreement and its "recital" of lease-surface acreage, by county. [Transcript Vol. 1, pp. 141 - 143]. This was based on the testimony of Mr. Paul Syring, a current employee of Petitioner, who went through Petitioner's records and attempted to recreate the rationale for the split; however, he did not have any first-hand knowledge of its origins. Mr. Syring did not know of anyone who could explain the split. [Transcript Vol. 1, pp. 165 - 166]. Petitioner's lease-surface acreage calculations were based on the wrong legal description for the unit. [Transcript Vol. 3, p. 169]. The recital of the unit agreement was incorrect and the actual lease surface acreage calculations were 60% to 40%. [Transcript Vol. 1, p. 168]. We therefore reject this explanation.
14. For production years 1980 through 1983, Petitioner produced a copy of a DOR document entitled "Form 1," ATD Form 1. This form purports to allow a taxpayer to group wells for tax reporting purposes, if approved by the DOR. The well groupings are based on the API numbers as assigned to each well by the WOGCC. Petitioner alleges this form was sent to the DOR in 1981. Petitioner also alleges the DOR accepted the form by a return mailing showing its approval. [Transcript Vol. 2, p. 27, Exhibit 137].
15. The well grouping report has an attachment identifying a list of wells, including those in the Wertz Dome Unit, with a hand-written notation suggesting production was to be split on a 66/34 basis. [Exhibit 137]. The instructions on the form indicate the well grouping must be in the same county. [Transcript Vol. 2, p. 80].
16. The well grouping report was introduced and admitted on the testimony of Mr. Cartwright who neither prepared nor filed the document, nor wrote the "alleged notation," nor witnessed its preparation, nor had any personal knowledge concerning when the notes in the document were made, nor had any personal knowledge about the processes that the DOR followed in 1981 concerning the submission and return of the well grouping report [Transcript Vol. 2, pp. 27, 32, 163, Exhibit 137]. Mr. Cartwright was not employed by Petitioner at the time the well grouping report was filed, nor could he explain what the DOR did with the form. [Transcript, Vol. 2, p. 163]. Although Mr. Cartwright testified he saw two copies of the well grouping report, and one was stamped by the DOR, Petitioner failed to introduce the stamped copy at the hearing. [Transcript, Vol. 2, pp. 39 - 40]. Petitioner did not produce the returned document showing the form or content of any DOR "approval" of the allocation. [Transcript Vol. 2, p. 39]. We reject the concept that the DOR accepted or approved the form due to lack of evidence. The only support for the proposition that the DOR approved the form was the testimony of a witness not employed by Petitioner when the form was supposedly submitted.
17. The tax form instructions on the ATD Form 4 directed a producer to record the quantity of gas as measured at the wellhead. [Transcript, Vol. 2, p. 126].
18. The API number assigned to a well by the WOGCC identifies the location of the well by the state and the county. The API number is important to identify the location of a well. [Transcript Vol. 1, pp. 106 - 107]. All wells must be in the same field as assigned by the WOGCC, in the same county and in the same taxing district to be in a group. [Transcript, Vol. 1, p. 191, Vol. 3, p. 58, Exhibit 334, Exhibit 137].
19. Well groupings were allowed by the DOR for the convenience of the taxpayer in reporting. [Transcript, Vol. 1, p. 111, Vol. 2, p. 20]. One reason to file an ATD Form 1 was to identify production to the proper taxing jurisdiction and county. [Transcript, Vol. 2, pp. 88 - 89].
20. Ad valorem taxes are a tax on production, which Petitioner acknowledged. [Transcript, Vol. 1, p. 153]. However, a royalty owner agreement to split production has no relevance to property taxes because oil should be taxed where it is produced. [Transcript, Vol. 2, p. 98].
21. This SBOE declines to accept the well grouping report as proof of the DOR's "approval" of Petitioner's allocation, nor do we find the document binding on the DOR because of the exhibit's lack of foundation, and Petitioner's inability to provide a rational explanation for the 66/34 split.
22. No other taxpayer allocates oil production on a lease acreage basis or allocates production on a flat percentage. [Transcript, Vol. 3, p. 147].
23. Petitioner used four different methods for allocating production from the Wertz Dome field between Sweetwater and Carbon Counties. [Transcript Vol. 3, p. 108]. For the 1984 year Petitioner reported volumes of production according to producing well location for the Madison formation production and used the same percentage for the Madison formation in 1985. Petitioner reported volumes to the DOR in 1984 and 1986 according to producing well location in the Tensleep formation and a completely unexplained percentage for 1985. [Exhibit 300, 501]. No witness for Petitioner could explain why different methods were used. For production years 1984 through 1986, Petitioner asserts its reporting by allocation for these production years was "a mistake" and in error. [Transcript Vol. 1, p. 133, 141 - 142, Vol. 2 p. 43, 147, 150 - 151].
24. In the late 1980's, Sweetwater County contracted with Mr. Richard W. Ryan of Rocky Mountain Auditing Services to conduct an audit of Amoco's production in Sweetwater County. [Transcript Vol. 3, pp. 74 - 75, 77].
25. Mr. Ryan could not ascertain a legal or factual basis for allocating Wertz Dome oil production from both formations on the basis of a 66/34 split for production years 1980 through 1983. [Transcript Vol. 3, pp. 167 - 168].
26. During the course of the audit, Mr. Ryan compared the production Petitioner reported for tax filings on Form ATD-4, with the production reported on Form 2 to the WOGCC. [Transcript Vol. 3, pp. 77, 165]. He determined Petitioner had reported production from wells located in Sweetwater County to Carbon County for tax purposes. [Transcript Vol. 3, p. 80 - 81].
27. Mr. Ryan reallocated Petitioner's production for Wertz Dome on the basis of where the wells actually produced, and how much each of those wells produced, as reported to the WOGCC. [Transcript Vol. 3, pp. 85, 162, 175]. In determining the reallocation Mr. Ryan took into consideration instances on both sides of the county line where a surface location might be different than bottomhole location. [Transcript Vol. 3, p. 103]. Thus, Carbon County was assigned production from a well located in Carbon County despite the fact that the downhole of the well was located in Sweetwater County. [Transcript Vol. 3, p. 174]. Mr. Ryan also checked the status of each well to determine if it was an injection well or a production well according to the information reported by Petitioner to the WOGCC. [Transcript Vol. 3, pp. 174 - 175]. As a result of the reallocation, Ryan estimated Petitioner failed to report to Sweetwater County taxable value of $8,615,796 for production from the Madison formation for production years 1980 through 1988, and $72,188,837 for production from the Tensleep formation for production years 1980 through 1988. [Exhibit 501]. Ryan's calculations contained a minor error because they included some production in the Lakota and Flathead fields. [Transcript, Vol. 1, p. 88].
The Effect of Wyoming Statute 39-2-201(j):
28. Prior to the passage of Wyoming Statute 39-2-201(j) and before the Petitioner responded to the DOR, the tax representative for Petitioner, Mr. Bruce Cartwright, claimed to have consulted with the Chairperson of the SBOE. [Transcript Vol. 2, pp. 55 - 56]. It was Mr. Cartwright's understanding that pending legislation would affect Petitioner's tax liability for the mis-allocated reports. [Transcript Vol. 2, pp. 58 - 59]. No exhibits or writings were introduced to corroborate Mr. Cartwright's memory. Petitioner did not request a ruling from the DOR about the retroactivity of the statute pursuant to Wyoming Statute 39-6-304(j). [Transcript, Vol. 2, pp. 192, 210].
29. Wyoming Statute 39-2-201(j) became effective on March 20, 1990, and reads as follows:
(j) For mines and mining claims, the department may presume that the property is located in the county in which production is reported by the taxpayer pursuant to WS 39-2-208. The department shall not direct any county to provide relief for taxes paid on taxable valuation which was erroneously reported and certified to the wrong county unless the taxpayer files or is directed to file amended returns within two (2) years of the date of the original certification of the production. Unless there is evidence of bad faith or willful disregard of production circumstances, no taxpayer shall be required to pay taxes on production which was erroneously reported and certified to the wrong county if relief for taxes paid is not allowed under this provision.
31. There was no evidence that Carbon County's value was reduced, or that Carbon County was ordered to provide tax relief to the Petitioner. [Transcript Vol. 2, p. 170]. The only amount requested of Petitioner is the difference due to the different mill levies. There is no showing Carbon County would be harmed by Petitioner paying the difference. [Exhibit 508].
Whether Interest Should Accrue:
32. Fifty percent (50%) of ad-valorem tax is due and payable on November 10th of the year following the production year in question, and the remaining fifty percent (50%) of the tax is due and payable on May 10th of the succeeding calendar year. Wyo. Stat. 39-3-101 (a).
33. On December 13, 1989, Mr. Ryan brought his findings to the DOR. The DOR forwarded the findings to Petitioner by way of letter dated December 14, 1989. [Stipulations 10, 11; Exhibits 112 - 114]. The DOR letter directed Petitioner to review its records and explain the apparent discrepancies or amend its reports. [Exhibit 114].
34. On January 9,1990, Petitioner requested an additional sixty days to respond to the auditor's findings. [Exhibits 302, 503]. On January 11, 1990, the DOR granted Amoco's request and gave Petitioner until March 9, 1990, to respond. [Exhibits 503, 504].
35. On May 8, 1990, Petitioner responded and admitted the production had been reported to the wrong county "for the period in question" but refused to amend its filings for years prior to 1988 and 1987 because of the enactment of Wyoming Statute 39-2-201(j). The Petitioner did change its filings in accordance with the auditor's findings and filed amended returns for 1987 and 1988 production using the same allocation the auditor found.[Exhibits 120, 505]. Petitioner did not address the 1980 through 1986 production issue and did not provide an explanation for the earlier years allocation. The Petitioner did not provide the ATD Form 1, well grouping report, in response to the DOR inquiry. [Transcript, Vol. 3, p. 55].
36. On July 2, 1990, the SBOE issued Special Directive 90-355 to Sweetwater and Carbon Counties dealing with 1987 and 1988 production. [Exhibit 506].
37. On February 28, 1994, the DOR sent a final determination letter to Petitioner demanding additional taxes be paid to Sweetwater County as a result of the wrong allocation for tax years 1981 through 1987. [Exhibit 108] . There is no explanation for the four year delay from Petitioner's response to the DOR final determination. [Transcript, Vol. 3, p. 62]. The final determination letter was an appealable communication and Petitioner filed the instant appeal. [Transcript, Vol. 2, p. 207]
38. On February 28, 1994, the DOR advised Sweetwater County there was additional taxable value attributable to Petitioner for tax years 1981-1987 as a result of reallocation. The DOR understood Sweetwater County would only bill for the difference in mill levy between Carbon County and Sweetwater County. [Exhibits 115, 307, 508].
39. On October 21, 1997, Sweetwater County sent a letter to Amoco demanding the additional mill levy monies and interest. [Exhibit 311].
40. On June 7, 1999, Sweetwater County sent another tax bill. [Exhibit 319, Transcript, Vol. 3, pp. 20 - 21].
41. Petitioner has not made any payments to Sweetwater County for the 1980 through 1986 production years. [Transcript, Vol. 3, p. 22].
42. Any Conclusion of Law below which includes a finding of fact may also be considered a Finding of Fact, and is therefore incorporated herein by this reference.
CONCLUSIONS OF LAW
General Conclusions of Law
43. The letter of appeal by Petitioner was timely filed and this SBOE has jurisdiction to determine this matter.
44. The Petitioner has the burden of going forward and the ultimate burden of persuasion. Rules, Chapter 2, 19, Wyoming State Board of Equalization.
The Applicability of Wyoming Statute 39-2-201(j)
46. Our threshold inquiry is whether or not Wyoming Statute Section 39-2-201(j) is applicable as asserted by Petitioner. Wyoming Statute Section 39-2-201(j) was enacted by Chapter 52 of the 1990 Wyoming Session Laws. This law was signed on March 20, 1990, and reads as follows:
For mines and mining claims, the department may presume that the property is located in the county in which production is reported by the taxpayer pursuant to WS 39-2-208. The department shall not direct any county to provide relief for taxes paid on taxable valuation which was erroneously reported and certified to the wrong county unless the taxpayer files or is directed to file amended returns within two (2) years of the date of the original certification of the production. Unless there is evidence of bad faith or willful disregard of production circumstances, no taxpayer shall be required to pay taxes on production which was erroneously reported and certified to the wrong county if relief for taxes paid is not allowed under this provision.
We hold this statute does not affect the tax liability of Petitioner.
47. We conclude Wyoming Statute 39-2-201(j) does not apply to preclude the action taken by the DOR in 1994. In 1989 the DOR demanded that Petitioner respond to allegations of mis-allocation of oil production between Sweetwater and Carbon counties. The production, the discovery of the mis-allocation and the notice of the mis-allocation all occurred prior to the enactment and effective date of Wyoming Statute 39-2-201(j).
48. Retrospective application of statutes to events occurring before their enactment is not favored. Johnson v. Safeway Stores, Inc., 568 P.2d 908 (Wyo. 1977); State ex rel. Lynch v. Board of County Commissioners, 75 Wyo. 435, 296 P.2d 986 (Wyo. 1956); Mustanen v. Diamond Coal & Coke, 50 Wyo. 462, 62 P.2d 287 (Wyo. 1936).
49. Wyoming Statute 8-1-107 provides in relevant part "[i]f a statute is repealed or amended, the repeal or amendment does not affect pending actions, prosecutions or proceedings, civil or criminal. . . " (Emphasis added).
50. The events triggering the reallocation and consequential increased liability for taxes occurred long before the March 20, 1990, effective date of Wyoming Statute 39-2-201(j). The production occurred prior to the effective date, the demand for an explanation occurred prior to the effective date, and therefore Wyoming Statute 39-2-201(j) would have to be retroactively applied for Petitioner's argument to be valid.
51. It is a well established rule in Wyoming law that statutes are not applied retroactively unless retroactivity is expressly provided for in the statute. Edgcomb v. Lower Valley Power & Light, 922 P.2d 850, 859 (Wyo. 1996).
52. In any event, even id Wyoming Statute 39-2-201(j) were retroactive, it would not preclude the actions of the DOR. The production reported from 1980 through 1986 was not reported pursuant to Wyoming Statute 39-2-208, therefore Wyoming Statute Wyoming Statute 39-2-201(j) is not applicable.
53. Wyoming Statute 39-2-201(j) does not create a statute of limitations for the benefit of a taxpayer, nor does it shield a taxpayer from being required to review discrepancies and file amended returns. Wyoming Statute 39-2-201(j) protects counties from valuation adjustments and budget problems caused by late-filed amended returns that shift production from one county to another.
54. There is nothing in the record showing that the DOR directed Carbon County to provide any relief for taxes paid. The only taxes at issue are the higher mill levies in Sweetwater County.
55. Mr. Cartwright testified that a past Chairman of the SBOE thought Wyoming Statute 39-2-201(j) would apply retroactively to the case at hand. [See Finding of Fact No. 21].We find no authority to hold the DOR and Sweetwater County are estopped from collecting taxes or that they are bound by statements not made in writing.
56. Petitioner could have requested an interpretation of Wyoming Statute 39-2-201(j) in accordance with Wyoming Statute 39-6-304(j). Petitioner knew of the procedure but failed to ask for an interpretation. The record is thus void of the required elements of equitable estoppel.
The DOR's Allocation by Well Location Was Reasonable
57. Our next inquiry is whether the DOR's action in reallocating Petitioner's Wertz Dome Unit oil production between Carbon and Sweetwater Counties is reasonable, not arbitrary, capricious or an abuse of discretion, and in accordance with law.
58. The SBOE has held that a taxpayer, by statute, has a duty to fully and accurately report all production volumes. PG&E Resources Company, BOE Docket No. 95-35 (Nov. 10, 1992).
59. Petitioner offers various theories why the original allocation was reasonable. Petitioner reported the allocation for three of the years on a 66/34 split. Petitioner attempts to explain the split as based on lease acreage or due to a grouping request. We reject the Petitioner's explanation and find the DOR reallocation was the only reasonable method of determining tax liability in this case.
<60. The DOR and the SBOE have the responsibility to correct errors which are disclosed in an audit. Amax Coal v. State Board of Equalization, 896 P.2d 1329, 1334-1335 (Wyo. 1995). See also, Thunder Basin Coal Company v. State Board of Equalization, 896 P.2d 1336 (Wyo. 1995).
61. Based on the rule of Amax, supra, we hold the DOR has the authority and corresponding duty to correct Petitioner's erroneous reporting of its Wertz Dome Unit oil production for the period of 1980 through 1988 on the basis of the contract audit performed at the request of Sweetwater County.
62. Accordingly we hold the DOR's decision to correct Petitioner's reporting for the period of 1980 through 1986 to reflect reporting on a well location basis is supported by substantial evidence, is in accordance with procedures required by law, and is neither arbitrary, capricious, nor inconsistent with law.
63. Petitioner has failed to meet its burden of proving it accurately reported its production to the proper county. We base this on the record:
a. Petitioner's production reports of the DOR were different from its own filings with the WOGCC;
b. Petitioner's reports were not based upon actual production;
c. The method Petitioner used to allocate production might not reflect the actual production during the years in question;
d. The actual percentage of producing wells in the counties might be different than that which Petitioner reported for that county; and
e. Petitioner could not identify a rational and consistent basis for how it allocated production between Sweetwater and Carbon Counties.
A. It was not reasonable to allocate the production on a lease acreage basis.
64. Petitioner allocated production during tax years 1980 through 1983 on the 66/34 split. [See Finding of Fact No. 7]. None of Petitioner's witnesses could explain the rationale for the split. Petitioner changed its reported allocation in 1984 forward and this was characterized as a "mistake" and an "error ". [See Finding of Fact No. 24]. Petitioner failed to prove its allocation between Sweetwater and Carbon Counties was accurate.
65. Wyoming statutes provide that all taxable property shall be valued and assessed for taxation in the county in which the property is located. Wyo. Stat. 39-2--101(a)(i) and 39-2-201(e). The DOR's regulation provides taxable value is to be certified to the county in which the mine or mining claim is located and that "mine or mining claim" shall mean any property which produces a mineral. Rules Chapter XXI, Sec. 4(g) and 11(c), Department of Revenue. Wyoming Statute 39-2-202 (a) provides for production to be valued for tax purposes "at the mouth of the mine where produced, after the mining or production process is completed." Wyoming Statute 39-2-202(b)(i) defines "mouth of the mine" as "the point at which a mineral is brought to the surface of the ground." The law applicable to the production years at issue permitted allocation by well location. In fact, Petitioner used well location to allocate some of its production. It was appropriate for the DOR to conclude that allocating production by well location was permitted by law.
66. Petitioner failed to provide the DOR with information as to how it allocated production. It failed to provide information in 1990 and did not produce information during the discovery phase of the instant contested case. Under cross-examination by counsel for Sweetwater County, the Petitioner's tax representative, Mr. Cartwright, admitted the 66/34 allocation used for 1980 through 1983 had nothing to do with the volumes produced from the wells in the specific groups. He likewise admitted the allocation had nothing to do with hydrocarbon pore volume analysis nor with any ratio of producing wells to the total number of wells contained in the Wertz Dome Unit. Moreover, he admitted that the company's reports for 1984 through 1985 were in error. [See Finding of Fact 11].
67. Mr. Cartwright attempted to explain the 66/34 ratio by stating that it was derived from a calculation based on the amount of acreage in the Wertz Dome Unit that lies within a particular county. He testified he personally had not made that calculation and was unable to do so without the notes of someone else who had made the calculation. He also testified that by attributing a 40 acre parcel to each well in the Unit, he had arrived at approximately a 60/40 split, although he admitted this rough calculation was many years after the tax years in question and the unit had changed substantially. Mr. Syring, another of Petitioner's witnesses also attempted to explain the split using the lease acreage recital in the lease agreement, but this description did not accurately describe the lease acreage contained within the Wertz Dome Unit and thus his calculation was flawed. The SBOE concludes that Petitioner was unable to satisfactorily explain how the 66/34 split was derived. Relied on a couple of unauthenticated, handwritten notes by an unidentified source.
B. Grouping Request Form
68. Petitioner argued a well grouping request form that it submitted in January, 1981 to the DOR was the document that set forth the 66/34 split and was the document used by the DOR to approve the allocation. [Exhibit 137]. We do not accept the allegation that this form was actually used by the DOR for the purpose which Petitioner alleges, that is, to approve a hand-written note on the allocation of production between Carbon and Sweetwater Counties. First, there was no evidence such form was in the DOR's records. Second, the form introduced into evidence by Petitioner had no written verification on the form indicating approval by the DOR or even that it had been seen by the DOR. Finally, the well grouping request form was never produced in 1990 when the DOR originally requested Petitioner review its records and provide an explanation as to how the production was reported.
69. Even if the SBOE was to agree with Petitioner's assertion that the DOR approved and accepted the well grouping request form, the handwritten allocation on the form by an unidentified employee of Petitioner would not automatically indicate approval to the allocation method because the form's instructions were to group wells in the same county. The form represented that the wells were in the same county and the legal descriptions seem to indicate that all Wertz Dome Unit wells located in Range 89 West were in Carbon County while wells located in Range 90 West were located in Sweetwater County. Since an ATD-4 form, which is the tax form used to report the volumes and values to the DOR, required volumes to be measured at the wellhead, any other method of reporting production would have been a departure from the forms.
70. Petitioner failed in its burden of proof to demonstrate that the DOR's allocation based on well location was incorrect. In the absence of a statute permitting tax reporting by allocation, Petitioner's duty was to report its production where produced, not where "allocated." There is no evidence Petitioner reported its severed oil where it was located and produced for production years 1980 through 1983. Consequently, Petitioner failed to demonstrate the DOR's allocation of production on the basis of well location was unreasonable or inconsistent with law.
71. The DOR's allocation decision is reasonable and supported by the record. Petitioner acknowledged that it could report its production by well location as it did to the WOGCC [See Finding of Fact No. 6].
72. Petitioner failed in its duty to fully and accurately report its Wertz Dome Unit production for the period of 1980 through 1988.
73. Because Petitioner has filed amended returns for its 1987 and 1988 Wertz Dome Unit production, and because the DOR has not contested those returns we hold Petitioner's production reporting for those years are correct.
Ability to Pay Mill Levy Difference
74. Petitioner argues Sweetwater County may not issue a tax bill which reflects only the mill levy difference between Carbon and Sweetwater Counties. Sweetwater County is in effect granting a credit for taxes paid to another taxing authority, resulting in a tax bill reflecting the difference in mill levies. There is no authority holding that Sweetwater County cannot give such a credit in law or in equity.
75. Petitioner complains about receiving credit for taxes paid to Carbon County. Petitioner benefits from this situation and is not harmed. Therefore, Petitioner lacks standing to assert a claim of error associated with tax dollars it cannot claim, and therefore lacks standing to advance this argument. Board of Com'rs v. Searight Cattle Co., 3 Wyo. 777, 31 P. 268, 273 (1892); Valley Forge Christian College v. Americans United for Separation of Church & State, 454 U.S. 464, 474-475, 102 S.C.752, 40 L.Ed. 2d 700 (1982); State ex rel. Bayou Liquors, Inc. v. City of Casper, 906 P.2d 1046, 1048 (Wyo. 1995).
Audit by Sweetwater County Instead of Department of Revenue
76. Petitioner claims the demand for additional taxes must fail because Sweetwater County performed the audit. The Wyoming Supreme Court has already acknowledged the practice of the DOR accepting the work of a county auditor and assessing accordingly. Union Pacific Resources Co. v. State, 839 P.2d 356, 378-381 (Wyo. 1992).
77. The record reflects the DOR independently reviewed the work of the Sweetwater County auditor and made an independent inquiry. The DOR met independently with the Petitioner, as reflected by the notes of the meeting contained in Exhibit 120.
The Forms Used by the DOR to Notify the Petitioner and Sweetwater County Were Unusual
78. Petitioner claims the forms used to notify Sweetwater County of a change, and the form notifying Petitioner of the additional tax are not the typical forms used, and therefore the claim for additional taxes must fail. Petitioner timely filed an appeal of the letter. The DOR sent a notice of valuation change on the same day. [Exhibit 508]. Therefore, Petitioner experienced no harm or prejudice and fully understood the need to appeal. In fact Petitioner is making the same form-over-substance argument that was rejected by the Wyoming Supreme Court in this controversy. Amoco Production Company v. Wyoming State Board of Equalization, 7 P.3d 900, 904 (Wyo. 2000).
Limitation on Collection of Delinquent Taxes
79. Petitioner argues Wyoming Statute 39-3-102(b) restricts or "proscribes" Sweetwater County's right to collect delinquent taxes. This statute provides:
Annually, the county treasurer shall declare any taxes remaining unpaid on May 11 delinquent, and on or before May 21 shall certify a list of delinquent taxes and taxpayers, indicating the years for which payment is delinquent, which constitutes the delinquent tax roll or list of the county for the years covered thereby. The county treasurer shall stamp upon each line of the delinquent tax roll "Delinquent May 11, 19..." but failure to do so does not invalidate subsequent collection proceedings. All personal property taxes not collected within ten (10) years from the time the taxes were levied shall be canceled and are thereafter uncollectible.
80. The statute limiting collection of delinquent tax does not apply to unreported taxes in a self-reporting system. An important case in understanding that statutes of limitation generally do not apply to tax collection is Union Pacific Resources Co. v. State, 839 P.2d 356 (Wyo. 1992). In that case, the court cited Wyoming constitutional provision Article 3, 40 for the proposition that there is no statute of limitations for mineral tax collections. Id.at 369.
81. The record clearly shows Petitioner was notified about the taxes due by the contract auditor for Sweetwater County. Applying Wyoming Statute 39-3-102(b) would result in rewarding Petitioner for its failure to properly report and pay taxes.
Failure to Send a Tax Bill
82. Petitioner claims Sweetwater County's failure to issue a tax bill is a fatal flaw. The tax statute creates the liability on the taxpayer to pay a tax bill, not the county's issuance of a bill. The statute prescribes the amount to be paid. Moncrief v. Wyoming State Board of Equalization, 856 P.2d 440 (Wyo. 1993). Wyoming statutes are clear that a tax notice or demand for payment is not necessary to create a tax liability. Wyo. Stat. 39-3-101(e).
Interest on Taxes
83. The assessment of interest in this matter is authorized by Wyoming Statute 39-3-101:
(a) Taxes provided by this act are due and payable at the office of the county treasurer of the county in which the taxes are levied. Fifty percent (50%) of the taxes are due on and after September 1 and payable on and after November 10 in each year and the remaining fifty percent (50%) of the taxes are due on and after March 1 and payable on and after May 10 of the succeeding calendar year except as hereafter provided. If the entire tax is paid on or before December 31, no interest or penalty is chargeable.
(B) The balance of any tax not paid as provided by subsection (a) of this section is delinquent after the day on which it is payable and shall bear interest at eighteen percent (18%) per annum until paid or collected.
84. The interest obligation is modified by the requirement that the taxpayer knows or should reasonably know the entire tax liability, or the correct valuation for assessment, when the tax is due. Kunard v. Enron Oil & Gas Co., 869 P.2d 132 (Wyo. 1994); and Moncrief v. Wyoming State Bd. of Equalization, 856 P.2d 440 (Wyo. 1993). Therefore, to determine if interest accrues, the SBOE is compelled to determine if the taxpayer, knew or should have known the production should have been reported to Sweetwater County instead of Carbon County.
85. We feel it is necessary to examine each tax year and intervening periods to determine if interest should accrue.
86. For production years 1980 through 1983, Petitioner reported its production on the 66/34 split. Interest would accrue for tax years if there was a showing the Petitioner knew or should have known tax was due to Sweetwater County. We believe Petitioner did not know of the tax problem until the letter of inquiry from the DOR dated December 14, 1989. However, we believe Petitioner did not take reasonable steps to address its tax problem after notification. Therefore, interest should accrue on the 1980 through 1983 additional tax obligation from the date Petitioner acknowledged the receipt of the DOR's letter, January 9, 1990, until paid. [Exhibits 302, 503].
87. For production years 1984 through 1986 the record indicates that Petitioner paid its tax obligation based on well location, at least for a portion of the time. This action indicates that Petitioner had knowledge of the proper tax reporting method. For those times and fields when taxes were paid on well location, no interest is due. For the tax years and fields when taxes were not paid based on location, interest is due from the date the taxes should have been paid; November 10 and May 10.
88. It appears taxes for 1987 and 1988 were paid appropriately but late. Interest is due from the date the taxes were originally due until the date they were actually paid.
89. Petitioner reported its production to the DOR using an allocation it cannot explain. This resulted in Petitioner paying taxes on a lower mill levy. The taxes and interest based on the mill levy in the proper county must be paid.
IT IS THEREFORE HEREBY ORDERED:
1. The decision of the DOR to reallocate ad valorem taxes to Sweetwater County and charge the mill levy difference between Sweetwater County and Carbon County is affirmed.
2. Sweetwater County shall calculate the amount of tax and interest due in accordance with this order and Petitioner shall pay the amount so calculated.
Pursuant to Wyoming Statute 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.
Dated this 5th day of September, 2001.
STATE BOARD OF EQUALIZATION
Edmund J. Schmidt, Chairman
Roberta A. Coates, Vice-Chairman
Sylvia Lee Hackl, Member
Wendy Soto, Executive Secretary