BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEALS OF )
UMC PETROLEUM CORPORATION ) Docket No. 97-281
OCEAN ENERGY, INC. FROM DECISIONS ) Docket No. 98-155
BY THE DEPARTMENT OF REVENUE )
FINDINGS OF FACT
CONCLUSIONS OF LAW
DECISION AND ORDER
UMC Petroleum Corporation and Ocean Energy, Inc., Petitioners, by Jerry Rothrock,
Attorney at Law, Washington, D.C. and Thomas A. Nicholas, Attorney at Law, Cheyenne,
The Wyoming Department of Revenue, Respondent, by Rowena L. Heckert, Deputy Attorney
General, Cheyenne, Wyoming.
This matter was considered by the State Board of Equalization (SBOE) Members, Edmund
Schmidt, Roberta A. Coates and Ron Arnold, after holding a hearing on May 30 and 31st,
2000. The appeal arises from an audit by the Wyoming Department of Audit (DOA) and
assessed by the Wyoming Department of Revenue (DOR) regarding Petitioners' 1992 through
1995 oil and gas production from certain fields located in Campbell County, Laramie
County, Crook County, Sweetwater County and Natrona County. The parties settled the
severance tax issues. Petitioner and the DOR agree all the issues in 98-155 have been
resolved and the Petitioner orally agreed in the Hearing the appeal should be dismissed.
The remaining issue is:
Was the DOR's decision on audit to increase the valuation of Petitioners' 1992 through 1995 oil and gas production 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
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).
Petitioner, Ocean Energy, Inc. is a successor in interest to UMC Petroleum Corporation
and to General Atlantic Resources. UMC Petroleum Corporation and Ocean Energy filed
appeals with the SBOE challenging the 1993 -1994 audit by the DOA for their 1992 through
1993 oil and gas production and challenging the 1995-1996 audit of production for 1994 and
1995 in five Wyoming Counties.
The DOA issued audit findings which were accepted by the DOR which issued assessment
letters to the Petitioners. The Petitioners met with the DOR and settled their severance
tax obligations. Petitioners attempted to settle their ad valorem tax obligations with
five counties but were only able to settle with Sweetwater County.
Petitioner, UMC Petroleum Corporation, argues the settlement agreement actually
resolved all issues, including ad valorem, and the DOR was arbitrary and capricious in not
informing the five counties of the settlement agreement and settling the ad valorem issues
on behalf of the counties.
The DOR argues that it lacks authority to settle the ad valorem taxes and that the
settlement agreement specifically resolved only the severance taxes.
Petitioner also alleges that the DOR's assessment letter failed to provide adequate
information as to Petitioner's liability and therefore denied Petitioner due process to
defend the audit.
Because Ocean Energy, Inc. has resolved all issues in Docket Number 98-155, the
findings of fact and conclusions of law will only refer to Petitioner, UMC Petroleum
Corporation. In addition, because UMC Petroleum Corporation has resolved all severance tax
issues, the findings of fact and conclusions of law concern themselves with only ad
FINDINGS OF FACT
1. The DOR assessment letter to Petitioner, UMC Petroleum Corporation is dated
September 24, 1997.
2. The assessment letter assessed additional ad valorem taxable value in the amount of
$316,588 for Campbell County, $174,835 for Crook County, $98,507 for Laramie County, and
$13,852 for Natrona County for a total of $603,782 in additional taxable value.
3. The additional certified taxable value for Sweetwater County has been settled in
full in Docket Number 98-155 by settlement agreement dated January 4, 2000.
4. The parties have settled the severance tax issues and they were dismissed by the
SBOE's order dated October 20, 1999.
5. The responsible taxpayers are UMC Petroleum Corporation and Ocean Energy, Inc. as
successor to UMC's interests in the oil and gas producing wells. General Atlantic merged
with UMC Petroleum Corporation in 1994. [Exhibit 506, pg. 179]
6. The only testimony concerning the scope of the settlement agreement was presented by
the DOR. That evidence clearly established the DOR only settled the severance tax issues
and the DOR specifically informed the taxpayer that it lacked authority to settle any ad
valorem taxes and indeed was not settling ad valorem taxes by entering into the settlement
7. The DOR informed the taxpayer that it had statutory authority to value the minerals
and authority to certify the ad valorem value to the counties. It never informed the
taxpayer that it had statutory authority to settle the taxes imposed by the counties upon
the certified taxable value.
8. The testimony is clear that the DOR differentiated between severance and ad valorem
taxes and told the taxpayer it only had authority to settle the severance tax obligation.
The testimony about the settlement agreement supports the DOR's position and the taxpayer
failed to present any evidence to the contrary. As a matter of fact the taxpayer failed to
present its own witnesses but called some of the witnesses listed by the DOR in an attempt
to support its position.
9. The Petitioner failed to produce any evidence to rebut the ad valorem taxable value
assessed by the DOR. Furthermore, the Petitioner never presented testimony nor any other
evidence establishing what value the Petitioner believed to be correct.
10. The DOR, although not having the burden of persuasion, presented testimony through
several witnesses on how the audit was conducted and the number of times the taxpayer was
provided information and thorough explanations on what the audit findings meant. The DOA
met with the taxpayer on numerous occasions and answered all of the taxpayer's inquiries.
11. The DOA followed generally accepted accounting and auditing procedures and also
strictly adhered to internal auditing guidelines. [Exhibit 506, pgs. 101,102]
12. The DOA discovered upon audit that the filed reports by Petitioner for severance
and for ad valorem taxes did not match. The Petitioner failed to present evidence
rebutting its inaccurate filings.
13. The DOA in its audit treated Petitioner equally and uniformly with all other
similar taxpayers in its procedure. The DOA contacted UMC by phone to initiate the audit.
[Exhibit 506, pg.106] The DOA sent an engagement letter to UMC informing it of
the upcoming audit. [Exhibit 506, pg. 88] The DOA used an entrance
conference to explain the audit. [Exhibit 506, pg. 94] The DOA issued a preliminary audit
finding letter informing Petitioner of the initial findings. [Exhibit 500, pgs.
1-13] The DOA issued a final audit issue letter after affording the Petitioner
every opportunity to rebut the preliminary audit findings. [Exhibit 501, pgs.
14. After the DOA completed the audit, the DOR then reviewed all audit findings. The
DOR concurred with the finding and issued an assessment notice to Petitioner.
[Exhibit 502, pgs. 19-22]
15. It was from the DOR's assessment notice that Petitioner filed its notice of appeal
to the SBOE.
16. Although the DOA's and DOR's informative letters contained both oil and gas
findings, the Petitioner never responded to either the DOA or the DOR as to the oil part
of the audit.
17. In addition to the narrative audit issue letters and the assessment notice, the DOA
also transmitted to Petitioner all supporting documentation contained in exhibits 506, and
507. The DOA testified that these documents were all part of the audit findings and indeed
were sent to Petitioner. [Exhibit 506, pg. 0039]
18. The DOA testified at length concerning the interpretation of the documents
contained in exhibits 506 and 507 and how the findings on these documents correlated with
the findings in exhibits 500, 501 and 502. We find that the audit issue letters and
assessment letter are supported by the documents contained in exhibits 506 and 507.
19. The Petitioner corresponded with the DOA on numerous occasions and stated that it understood the DOA' s position as to gathering charges. [Exhibit 506, pg 154]
20. The Petitioner also corresponded with the DOA and stated that it understood which
costs could be classified as transportation costs. [Exhibit 506, pg.167]
21. The Petitioner was given several extensions of time to find documentation in its files to rebut the findings of the State. However, at no time did Petitioner find or present documentation to rebut the final audit findings including the hearing before the SBOE.
22. 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
23. The letter of appeal by Petitioner was timely filed and the SBOE has jurisdiction
to determine this matter.
24. The Petitioner has the burden of going forward and the ultimate burden of
persuasion. See: Rules, Wyoming State Board of Equalization, Chapter 2, 19.
25. The statutes at issue provide in relevant part:
Wyo. Stat. 39-2-201. STATE ASSESSMENTS.
(a) The department shall annually value and assess the following property at its fair market value for taxation:
. . .
Wyo. Stat. 39-2-208. Valuation of oil and gas.
(a) Crude oil, lease condensate and natural gas shall be valued for taxation as provided in this section....
. . .
Wyo. Stat. 39-1-103. Taxpayer rights.
(a) The department shall publish and make available a list of taxpayer rights in the area of state tax administration and collection, written in plain language, which includes the following rights:
(vi) A right to assessment notices that describe in plain terms the basis for
assessments and describe the procedures for appeal.
Wyo. Stat. 39-1-305. Provisions for assessing tax.
The board and department shall not compromise or reduce the tax liability of any person
owing a tax to the state of Wyoming, except that the department for good cause, may, but
is not required to, compromise and settle with the taxpayer for payment of any taxes owed
to the state of Wyoming which tax liability is disputed in good faith by the taxpayer and
which liability has not been settled in law....
26. Our inquiry is limited to whether the DOR assigned a fair market value for
Petitioner's 1992-1995 oil and gas production within the meaning of Wyo. Stat.
39-2-208; whether the DOR has statutory authority to settle the ad valorem tax
obligation owed to the counties and whether the assessment letter provided adequate notice
as to Petitioner's tax liability.
27. In advancing its position that the DOR has authority to also settle the ad valorem
tax liability owed to the counties, Petitioner fails to cite to any legal authority.
28. The SBOE specifically finds that the DOR is the only agency that has authority to
value mineral properties. As such, the DOR may, if it chooses, settle mineral severance
tax disputes by reassessing values. Once a value is reassessed, it must be recertified to
the respective county which then has the opportunity to appeal to the SBOE.
29. The SBOE further finds that the DOR lacks authority to settle the tax obligation
owed by the taxpayer to the county after the value is set by the DOR. If authorized by the
legislature, only the county would have standing to settle the tax obligations owed to it.
This decision need not determine at this time if the legislature has authorized counties
to settle taxes due after the value and the tax rates and mill levies are set.
30. During the course of a motion hearing that preceded this hearing, Petitioner's
Attorney stated that in the course of preparing for this hearing, Ocean Energy had
unsuccessfully attempted to locate the records of its predecessor company, UMC Petroleum
Corporation, nor could it find any of its former employees to testify, thus making it
extremely difficult to disprove the audit assessments. Petitioner's dilemma was
underscored when, in the hearing, it was unable to introduce any evidence independent from
the DOR's witnesses and exhibits.
31. The SBOE finds Petitioner has failed to meet its burden that the value assessed by
the DOR was not a fair market value.
32. The SBOE further finds Petitioner has failed to meet its burden showing that the
DOR was arbitrary and capricious by settling the severance taxes and not settling all ad
valorem tax issues. The DOR presented clear and convincing evidence that it never informed
the Petitioner that the ad valorem taxes were being resolved with the settlement
agreement. As a matter of fact, the DOR continually maintained that it lacked authority to
settle ad valorem taxes on behalf of the counties. The Petitioner failed to present any
evidence which rebuts the DOR's contention on this issue.
33. We further find the Petitioner was given more than adequate information as to its
tax liability. Although Petitioner maintains it was denied due process because the DOR's
assessment letter failed to give adequate information as to what Petitioner's tax
obligation was, we find that this argument lacks merit. The assessment letter was merely a
narrative culmination of all information provided to Petitioner. The assessment letter was
by no means the audit findings which constituted all supporting documentation received by
34. The assessment letter clearly informed Petitioner of the basis for the
assessment and informed Petitioner of its right to an appeal. This notice met the intent
and requirement of Wyo. Stat. 39-1-103 (a)(vi).
35. What seemed to be most troublesome to Petitioner is DOR's refusal to settle all of
the remaining issues (approximately 7% of the audit findings) dealing with certain oil
properties in Campbell, Crook, Natrona and Laramie Counties that were the subject of this
appeal. However, it became evident from the testimony of the DOA Auditor, Mr. Weekly, that
most of the remaining findings concerning these oil properties arose from discrepancies
between the volumes reported by Petitioner on its annual ad valorem tax return and it
monthly severance tax returns. When Petitioner was unable to offer any evidence or
explanation for those discrepancies, the DOR clearly could find no reason to adjust those
oil value assessments and thus they were unwilling to reduce those findings in a
36. Accordingly, we hold the DOR's decision to settle the severance tax issues for
Petitioner's 1992 through 1995 oil and gas production and not to settle the ad valorem
taxes is supported by substantial evidence, according to procedures required by law and is
neither arbitrary, capricious, nor inconsistent with law.
37. We want Petitioner and all taxpayers to fully understand the roles of the
respective governmental units. First, the DOR is the only governmental unit with statutory
authority to value mineral properties. Neither the SBOE nor the counties have authority to
value mineral properties. Second, there is a difference between reassessing values and
settling tax obligations. A reassessed value which remains un-appealed becomes final and
can amount to a settlement. The DOR can always reassess value as long as it gives notice
of such reassessment to both the taxpayer and the respective county. Third, the severance
tax obligation can be settled in accordance with Wyo. Stat. 39-1-305. There may be many
reasons why the DOR would want to settle the severance tax obligation including but not
limited to risk of litigation, solvency of the taxpayer and the correctness of the value.
Fourth, while the DOR is the only entity with standing to settle the severance tax
liability, it is not the entity that could settle ad valorem liability. We decline to
determine if there is an entity that can settle ad valorem liability. Finally, only the
DOR is the real party in interest to defend the values assessed.
38. In this case the DOR certified the value to the respective counties and then
settled the severance tax issues. The DOR then sought to exit the proceeding because it
had resolved the tax issues for which it had standing. The SBOE ruled that the DOR had to
defend the value certified to the counties because only the DOR had statutory authority to
value mineral properties-not the counties. This action apparently confused the Petitioner
because Petitioner asserted that the DOR, being the real party in interest in this
proceeding, must by definition also be able to settle the ad valorem taxes.
39. Because of the confusion professed by the Petitioner, we have set forth the various
roles of the governmental units. Again, the DOR is the real party in interest in defending
value but is not the real party in interest to settle the ad valorem tax liability owed to
the counties. Once value is certified to the county, the value is assessed by applying the
applicable county mill levy. Once the assessment is made, the taxpayer has a tax
liability. The certified value merges into this tax liability. We decline to determine the
scope of the county's ability to settle taxpayer's ad valorem tax liability as determined
by statutory authority.
40. Finally, we want to note that Petitioner failed to abide by the SBOE's required
time schedule in submitting various documents. Notwithstanding Petitioner's breach of the
SBOE's rules, we extended additional time for Petitioner to comply and submit required
exhibit and witness lists. Unfortunately, Petitioner decided not to present its own
exhibits nor bring its own expert witnesses or company employees to explain its side of
THIS SPACE INTENTIONALLY LEFT BLANK
IT IS THEREFORE HEREBY ORDERED:
A. The decision of the DOR is affirmed in all respects.
Pursuant to Wyo. Stat. 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 19th day of June, 2000.
STATE BOARD OF EQUALIZATION
Edmund Schmidt, Chairman
Roberta A. Coates, Vice Chairman
Ron Arnold, Member
Kathleen A. Lewis, Executive Secretary