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
and )
OCEAN ENERGY, INC. FROM DECISIONS ) Docket No. 98-155
BY THE DEPARTMENT OF REVENUE )
FINDINGS OF FACT
CONCLUSIONS OF LAW
DECISION AND ORDER
APPEARANCES
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, Wyoming.
The Wyoming Department of Revenue, Respondent, by Rowena L. Heckert, Deputy
Attorney General, Cheyenne, Wyoming.
DIGEST
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.
JURISDICTION
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).
DISCUSSION
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 valorem valuation.
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 agreement.
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.
14-18]
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 Petitioner.
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 settlement.
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 the case.
THIS SPACE INTENTIONALLY LEFT BLANK
ORDER
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
ATTEST:
Kathleen A. Lewis, Executive Secretary