BEFORE THE STATE BOARD OF EQUALIZATION

 

FOR THE STATE OF WYOMING



 

IN THE MATTER OF THE APPEAL OF )

FLYING J INC., FROM A FINAL PENALTY ) Docket No. 99-189

ASSESSMENT BY DECISION BY THE )

DEPARTMENT OF REVENUE )

 

FINDINGS OF FACT

CONCLUSIONS OF LAW

DECISION AND ORDER
 

APPEARANCES

 

Flying J. Inc. (Petitioner), Kathy Wood, Tax Representative

 

Department of Revenue (DOR), Karl D. Anderson, Assistant Attorney General.



 

DIGEST

 

This matter was considered by Edmund J. Schmidt, Roberta A. Coates and Ron Arnold, the State Board of Equalization (SBOE), on written information and argument pursuant to a Briefing Order (Expedited Docket) dated May 8, 2000. The appeal arises from the assessment of a penalty by DOR for late filing of gross products returns (ATD-4 forms) on certain oil and gas properties of Petitioner's for 1998 production.

 

The issue before the SBOE is:

 

Did Petitioner make a sufficient showing by a preponderance of credible evidence to refute the DOR's assessment of penalties?



 

JURISDICTION

 

Upon application of any person adversely affected, the SBOE is mandated to review final DOR actions, including actions to certify taxable mineral production and demand taxes, interest and penalties on such mineral production. Wyo. Stat. 39-11-102.1(c). The SBOE shall "[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act (Wyo. Stat. 16-3-101 through 16-3-115) and its own rules and regulations of practice and procedures." Wyo. Stat. 39-11-102.1(c).

 

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. 39-11-102.1(a)(iv). The rules of practice and procedure for appeals before the SBOE involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Chapter 2, 3, Wyoming State Board of Equalization. The rules require appeals be filed with the SBOE within thirty days of any final administrative decision. Rules, Chapter 2, 5, Wyoming State Board of Equalization.



 

DISCUSSION

 

By letter dated December 15, 1999, the DOR initially assessed Petitioner penalty in the sum of $24,368 for a three and four month delinquent late filing of annual Gross Products tax reports (4000 Series), ATD-4 forms, for 1998 oil and gas production on certain properties. This penalty was reduced to $12,184. The Petitioner filed this appeal challenging the reduced assessment of this administrative penalty. Petitioner argues that the employee who was assigned the task of filing the gross products returns left her employment at the time the returns were due. In addition, Petitioner argues that it was employing a new accounting system that did not discover the unfiled returns. Because the new system is now working properly and because Petitioner had no problems filing returns in the past, it should not have to pay a penalty.



 

FINDINGS OF FACT

 

1. The DOR's penalty assessment letter was dated December 15, 1999. The attachment to DOR's penalty assessment letter contained an itemized breakdown of the penalty by property as follows:

 

Date Due: April 26, 1999

Postmark Date: July 13, 1999 & August 26, 1999

 

2. The Petitioner filed its appeal letter on December 21, 1999. [SBOE Record, Department of Revenue brief, Exhibit G ].

 

3. Petitioner requested the SBOE vacate the penalty assessment because Petitioner's employee responsible for filing gross product returns left employment without filing the returns and Petitioner had never previously failed to properly file its returns when due. [SBOE Record, Department of Revenue brief, Exhibit G].

 

4. The Board entered a Briefing Order (Expedited Docket) dated May 8, 2000, which provided the following deadlines: Petitioner's opening brief to be filed by June 9, 2000; Petitioner's request to rely upon letter of appeal to be filed by June 9, 2000; Department's brief to be filed by July 11, 2000; and any Petitioner reply brief to be filed by July 25, 2000. [SBOE Record].

 

5. Petitioner filed a letter on June 6, 2000, indicating it would rely upon its original appeal letter of December 21, 1999, as its opening brief in the matter.[SBOE Record]

6. The DOR filed its response brief in a timely fashion on July 11, 2000. [SBOE Record].

 

7. The DOR reduced the penalty assessment to $12,184.00. [SBOE Record, Department of Revenue brief, Exhibit A]

 

8. Petitioner did not file a reply brief.





 

9. Because of Petitioner's late filed returns, the DOR incurred additional administrative expenses because the initial certified values to the counties had to be amended by issuing notice of valuation changes. [SBOE Record, Department of Revenue brief, Exhibits E & F]

10. Petitioner had requested an extension of time to file its return which extension was granted by the DOR until April 26, 1999. [SBOE Record, Department of Revenue brief, Exhibits B & C]

11. Although Petitioner ultimately filed the majority of its returns on July 13, 1999, they were 78 days late. [Hopson Affidavit Para 6]

 

12. Any discussion above or Conclusion of Law below which includes a finding of fact may also be considered a Finding of Fact and, therefore, is incorporated herein by this reference.



 

13. The letter of appeal by Petitioner was timely filed and the SBOE has jurisdiction to determine this matter.

 

14. The applicable statutes which are determinative in this matter, provide in relevant part:

 

Wyo. Stat. 39-14-207(a)

 

Returns and reports. The following shall apply:

 

(i) Annually, on or before February 25 of the year following the year of production any person whose crude oil, lease condensate or natural gas production is subject to W.S. 39-14-202(a) shall sign under oath and submit a statement listing the information relative to the production and affairs of the company as the department may require to assess the production;

 

Wyo. Stat. 39-14-208(d)(ii)

 

If any person fails to file the ad valorem report required by W.S. 39-14-207(a)(i) by the due date or any extension thereof, the department may impose a penalty equal to a total of one percent (1%) of the taxable value of the production from the well or property but not to exceed five thousand dollars ($5,000.00) for each calendar month or portion thereof that the report or information is late. If any person fails to file reports and other information required by rule of the department of revenue other than those required by W.S. 39-14-207(a)(v) or 39-14-207(a)(i), the department may impose a penalty of up to one thousand dollars ($1,000.00). The department may waive penalties under this subsection for good cause. Penalties imposed under this subsection may be appealed to the state board of equalization.

 

15. Under the facts presented in this appeal, we conclude noncompliance could have been avoided through the exercise of reasonable care.

 

16. Wyo. Stat. 39-14-208(d)(ii) provides that, if "any person" fails to file its annual report, then DOR may impose a penalty. Petitioner was a "person" whose natural gas production was subject to taxation. The penalty statute was created as a negative incentive to encourage natural gas producers to file their annual gross products returns in a timely fashion.

 

17. The only excuse given by Petitioner for its late filing was that an employee responsible for filing the returns left employment without filing the returns.

 

18. The SBOE has previously addressed the common principles and objectives for penalty assessment and waiver that should be followed by the DOR. In the Matter of the Appeal of Lario Oil & Gas Company, Docket No. A-89-215, (April 12, 1991), p.4. The Board recognizes the following as its penalty objective:

 

Administrative tax penalties exist for the purpose of encouraging voluntary compliance and not for other purposes, such as the raising of revenues. For penalties to be effective, similarly situated taxpayers should be treated similarly. Penalties should be sufficient to deter noncompliance before it happens and to encourage noncompliant taxpayers to correct noncompliance.

 

19. This penalty objective is not achieved without consideration of whether:

 

(a) noncompliance could have been avoided through the exercise of reasonable care; and

 

(b) the penalty amount exceeds the bounds of reason under the circumstances. In the Matter of the Appeal of Lario Oil & Gas Company, Docket No.

A-89-215, (April 12, 1991), p.4.

 

20. The Supreme Court has previously upheld this Board's interpretation of Wyo. Stat. 39-14-208(d)(ii), formerly W.S. 39-5-101(g), in Petroleum, Inc. v. State of Wyoming ex rel. State Board of Equalization, 983 P.2d 1237, 1241 (1999). The statute clearly provides for "a penalty equal to one percent (1%) of the taxable value of the production from the well or property but not to exceed five thousand dollars ($5000.00) for each calendar month or portion thereof that the report or information is late."

 

21. Because Petitioner reported three to four months late, the DOR initially imposed a three to four month penalty amounting to $24,368.00 which was correctly assessed in conformance with Wyo. Stat. 39-14-208(d)(ii). This amount was later reduced to $12,184.00 which was within the prerogative of the DOR and certainly reasonable.

 

22. The SBOE concludes the penalty assessed by the DOR is reasonable given the lateness in filing the returns and the dollar amount of unreported oil and gas production in this matter.

 

23. Petitioner has failed to carry its burden to show by a preponderance of credible evidence that the DOR's penalty assessments were arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law.







 

IT IS THEREFORE HEREBY ORDERED: the DOR penalty assessment of $12,184.00, shall be, and is AFFIRMED.

 

Dated this 11^th day of August, 2000.

 

STATE BOARD OF EQUALIZATION

 

Edmund J. Schmidt, Chairman

 

Roberta A. Coates, Vice-Chairman

 

Ron Arnold, Member

 

ATTEST:

Wendy J. Soto, Executive Secretary