BEFORE THE STATE BOARD OF EQUALI

BEFORE THE STATE BOARD OF EQUALIZATION

FOR THE STATE OF WYOMING

IN THE MATTER OF THE APPEAL OF )

TRITON COAL COMPANY, FROM AN )

AUDIT ASSESSMENT (1993-1995) ) Docket No. 99-64

DECISION OF THE DEPARTMENT OF )

REVENUE )

___________________________________________________________________________________________________________________________

FINDINGS OF FACT

CONCLUSIONS OF LAW

DECISION AND ORDER

___________________________________________________________________________________________________________________________

APPEARANCES

Lawrence J. Wolfe, Holland & Hart, Attorneys at Law, Cheyenne, Wyoming for Triton Coal Company, Petitioner.

Karl D. Anderson, Assistant Attorney General and Monique DuPont Armijo, Assistant Attorney General, State of Wyoming, for Department of Revenue (DOR), Respondent.

DIGEST

This matter was considered by the State Board of Equalization (SBOE) consisting of Edmund J. Schmidt and Ron Arnold in a contested case hearing conducted on May 16^th and 17^th, 2000, pursuant to a Hearing Order dated October 14, 1999. Board member Roberta A. Coates took no part in the SBOE's deliberations or decision in this appeal. Kathleen A. "Cindy" Lewis, Executive Secretary, acted as hearing officer. This matter arises from a revised final Audit Assessment issued by the DOR, dated May 11, 1999, to Triton Coal Company (Petitioner) based on an audit conducted by the Wyoming Department of Audit (DOA) of Triton's coal production from its Buckskin Mine located north of Gillette, Wyoming for production years 1993 - 1995.

JURISDICTION

Upon application of any person adversely affected, the SBOE is mandated to review final decisions of DOR including valuations for assessment purposes of taxable mineral production, and "[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 procedure." Wyo. Stat. 39-1-304(a)(ix).

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 rules of practice and procedure for appeals before the SBOE involving tax matters contemplate appeals from final administrative decisions of DOR. Rules, Wyoming State Board of Equalization, Chapter 2, Section 3. The rules require appeals to be filed with the SBOE within thirty (30) days of any administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, Section 5.

The Notice of Appeal was timely filed and the SBOE has jurisdiction to hear the case. 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 before the SBOE. Rules, Wyoming State Board of Equalization, Chapter 2, Section 32.

DISCUSSION

This case arises from an audit of Triton's Buckskin and North Rochelle Mines conducted by the DOA for production years 1993, 1994, and 1995. The North Rochelle Mine was not in commercial operation during this time period and the assessment relates entirely to the Buckskin Mine. A final audit report was issued April 23, 1999. Triton accepted certain changes in the audit that resulted in some additional tax and interest. However, Triton objected to other findings and challenged the assessment issued as a result of the audit on the following grounds: (1) the DOR used an incorrect location for the mouth of the mine for each of the production years; (2) certain costs that were reported by Triton as direct mining costs and accepted by the DOR as direct mining costs in the audit should be reclassified as indirect costs; (3) federal lease bonus payments that were amortized on a per ton basis during the production years should have been treated as exempt federal royalties or as indirect costs, rather than direct mining costs, although Triton recognized that the SBOE had already decided the Powder River Coal case; (4) interest on the mouth of the mine issue for 1995 was improperly assessed in the audit.

DOR contends the audit correctly determined that Triton owed additional tax and interest for the production years. The DOR contended the mouth of the mine was set at the point where Triton reported it for production years 1993 and 1994 and that location is correct under the statute and case law. The DOR also contended its decision for production year 1995 to move the mouth of the mine from the location at the truck dump as reported by Triton to the location on the conveyor system was correct and consistent with its treatment of the mouth of the mine for 1993 and 1994. The DOR contended it properly treated certain costs as direct mining costs since that was how Triton reported them and no additional information was provided to substantiate any change. The DOR urged the SBOE to reject Triton's arguments regarding the amortization of lease bonus payments, consistent with the SBOE's Powder River Coal decision. Finally, the DOR argues that assessment of interest is proper.

FINDINGS OF FACT

1. Triton Coal Company ("Triton") operates a surface coal mine in Campbell County Wyoming, commonly referred to as the "Buckskin Mine." [DOR Exhibit 507].

2. Triton's Buckskin Mine was the subject of a coal tax audit for production years 1993 through 1995 conducted by the Wyoming DOA. [DOR Exhibits 500, 501].

3. As a result of the audit findings, the DOR assessed Triton additional severance tax of $64,141.21 and $41,269.00 in interest (current as of June 10, 1999) for a total assessment of $105,410.21. [DOR Exhibit 502].

4. Triton appealed the DOR assessment to the SBOE on June 9, 1999. [DOR Exhibit 112].

A. Location of the Mouth of the Mine or Point of Valuation

5. The Buckskin Mine which began operation in 1981 is a surface coal mine located north of Gillette, Wyoming. It is a traditional truck and shovel operation, no draglines are used. The original pit was developed in the southwest section of the Buckskin lease. From 1981 through approximately 1990 the mine progressed straight north of that location sequentially by year depending on the production during those years. In early 1990 the pit started to rotate, and during 1993, 1994 and 1995, the pit was actually turning to a northeasterly direction. [Wilkerson, Tr. Vol. I, p. 51- 52; Triton Exhibit 133].

6. At the Buckskin Mine, coal is mined from two coal seams which are called the Anderson or the A seam and the Canyon or C seam. The Anderson seam is approximately the upper 45 foot coal seam followed by an interburden or parting averaging 2 to 4 feet thick, and the Canyon coal seam is below and is 60 to 70 feet thick. There is a tremendous variance in the two coal seams, both as to heat value (BTU) and sulfur value. In order to meet customer requirements, the coal from both seams must be blended at about a 40-60 ratio between the two seams. [Wilkerson, Tr. Vol. I, p. 55-56; Triton Exhibit 122].

7. In the mid 1980's Triton installed a conveyor to move coal from the active pit to the storage silos. The conveyor was the F-2 conveyor and Petitioner refers to it as the "near pit conveyor" because, according to Petitioner, it is not physically located in the coal pit. [Wilkerson, Tr. Vol. I, p. 70]. The F-2 and E-1 conveyors were located on the top of the Canyon coal seam, on a bench that had the overburden and Anderson coal seam removed. [Wilkerson, Tr. Vol. I, p. 70]. The F-2 conveyor was in operation from the mid 1980's until it was dismantled and placed in storage in the first quarter of 1993. Triton replaced the F-2 conveyor with the E-1 conveyor which began operation during the first quarter of 1993. The E-1 conveyor was constructed because the pit was moving north and then swinging east. [Wilkerson, Tr. , Vol. I, p. 60-70].

8. Plans to develop the east pit and for a new near pit conveyor system to replace the F-2 conveyor began in 1990, which was to be called the E-1 conveyor. In order to facilitate the placement of the near-pit truck dump and the associated conveying equipment aligned for that system, Triton had to excavate the coal seam out in the east pit and build a foundation to support the conveyor structure. The F-2 conveyor system and truck dump were taken out of service during the second quarter of 1993 after the expansion silo was in full operation. [Wilkerson, Tr. Vol. I, p. 65-67; Triton Exhibit 134]. The two conveyor systems were similar except for the E-1 conveyor system's 500-ton capacity versus the 350-ton capacity for the old F-2 conveyor system. The E-1 system also allowed a quicker crushing capacity, i.e., 3000 tons per hour versus the old F-2 conveyor system which only had a crushing rate of 2,000 tons per hour. Another difference is that the F-2 conveyor system had a transfer point (as depicted on Triton Exhibit 122), but the E-1 system does not. The E-1 conveyor goes to the top of the secondary crusher building, which is also called the transfer tower. [Wilkerson, Tr. Vol. I, p. 67-68; Triton Exhibit 122]. The F-2 conveyor system truck dump was located at the top of the Canyon seam and the truck dump for the E-1 conveyor was similarly located on the top of the Canyon seam, very close to the same elevation. [Wilkerson, Tr. Vol. I, p. 70]. The silos, processing plant, conveyor systems and rail spur were purposely built off the coal seam because these facilities are permanent structures and too costly to move. [Wilkerson, Tr. Vol. I, p. 70-71].

9. Triton submitted to the DOR for 1993, 1994, and 1995, Gross Products Returns in which the taxpayer reported a point of valuation commonly referred to as the "mouth of the mine" for the Buckskin Mine. [DOR Exhibits 519, 520, 521].

10. The DOR accepted the mouth of the mine location reported by Triton Coal for production years 1993 and 1994. [Tr. Vol. II, p. 444, lines 20-25; Tr. Vol. II, p. 445, lines 1-3].

11. Triton self-reported the position of the mouth of the mine for production years 1993 and 1994 as points on the conveyor between the truck dump and the silos. The DOA and DOR accepted these locations as reported by Triton. [Tr. Vol. II, p. 338, lines 7-24; Tr. Vol. II, p. 339, lines 18-25; Tr. Vol. II, p. 340, lines 1-25; Tr. Vol. II, p. 341, line 1; DOR Exhibits 519, 520].

12. The DOA and DOR did not accept Triton's reported mouth of the mine location for the 1995 production year. [Tr. Vol. II, p. 338, line 25; Tr. Vol. II, p. 339, lines 1-18; Tr. Vol. II, p. 341, lines 13-25; Tr. Vol. II, p. 342, lines 1-12; DOR Exhibit 521].

13. The configuration of the Buckskin Mine for production year 1995 was substantially the same as it had been in 1994. [Tr. Vol. I, p. 193, lines 16-20; Tr. Vol. II, p. 338, lines 25; Tr. Vol. II, p. 339, lines 1-21; Triton Exhibits 136, 137].

14. The mine has rotated around the truck dump during the 1993, 1994 and 1995 production years. [Tr. Vol. I, p. 93, lines 4-12; Tr. Vol. I, p. 94, lines 2-8; Tr. Vol. I, p. 127, lines 12-25; Tr. Vol. I, p. 128, lines 1-20; Tr. Vol. II, p. 3; Triton Exhibits 132, 134, 135, 136].

15. The DOA and DOR determined that the proper location of the mouth of the mine location for production year 1995 should be the same location reported by Triton for production year 1994. [Tr. Vol. II, p. 338, lines 25; Tr. Vol. II, p. 339, lines 1-21].

16. The truck dump is located on the top of the "C" or Canyon coal seam, which is located below the natural land surface of the pit. [Tr. Vol. I, p. 70, lines 4-12; Tr. Vol. I, p. 95, lines 14-25; Tr. Vol. I, p. 96, lines 1-3; Tr. Vol. I, p. 109, line 14-18; Tr. Vol. II, p. 320, lines 1-11; Tr. Vol. II, p. 327, lines 8-11; Tr. Vol. II, p. 334, 335; Triton Exhibits 122, 134, 135, 136, 503].

17. The truck dump has not moved during the 1993, 1994 and 1995 production years. [Tr. Vol. I, p. 82, lines 7-14; Triton Exhibits 134, 135, 136].

18. The silos and/or secondary crusher building are located above the truck dump, out of the pit, on the natural land surface. [Tr. Vol. I, p. 68, line 16-23; Tr. Vol. I, p. 70, lines 18-25; Tr. Vol. I, p. 71, lines 1-18; Tr. Vol. I, p. 109, lines 1-25, Tr. Vol. I, p. 110, lines 1-5; Tr. Vol. 1, p. 120, lines 20-25, Tr. Vol. I, p. 121, lines 1-4; Tr. Vol. II, p. 320, lines 1-11; Tr. Vol. II, p. 334, 335; Triton Exhibits 122, 134, 135, 136, 503].

19. The E-1 conveyor goes into the coal seam and the coal seam is part of the pit. [Tr. Vol. I, p. 92, lines 6-25; Tr. Vol. I, p. 93, lines 1-3, 20-25; Tr. Vol. I, p. 94, line 1].

20. The E-1 conveyor moves between the truck dump, which is located in the pit at the base of the conveyor, and the silos, located out of the pit, on the natural land surface. [Tr. Vol. I, p. 68, line 16-23; Tr. Vol. I, p. 70, lines 18-25; Tr. Vol. I, p. 74, line 6-10; Tr. Vol. I, p. 99, lines 11-25; Tr. Vol. I, p. 120, lines 20-25, Tr. Vol. I, p. 121, lines 1-4; Tr. Vol. II, p. 320, lines 1-11; Tr. Vol. II, p. 334, 335; Triton Exhibits 122, 134, 135, 136, 503].

21. The E-1 conveyor leaves the pit at the elevation at which the conveyor intersects the rim of the pit and/or horizon of the pit. [Tr. Vol. I, p. 99, lines 11-25; Tr. Vol. II, p. 320, lines 1-11; Tr. Vol. II, p. 326, lines 13-25; Tr. Vol. II, p. 327, lines 1-7; Tr. Vol. II, p. 334, 335; Tr. Vol. II, p. 376; Tr. Vol. II, p. 377; Tr. Vol. II, p. 378; Tr. Vol. II, p. 376; Tr. Vol. II, p. 377; Tr. Vol. II, p. 381, lines 16-25; Tr. Vol. II, p. 382; Tr. Vol. II, p. 383; Tr. Vol. II, p. 385, lines 1-14; DOR Exhibit 503].

22. Triton reported the mouth of the mine for 1993 and 1994 at a point part way up the E-1 conveyor. At that time the severance tax reporting was handled by Triton's accountant, Mr. Charlie Butz. The reporting of the mouth of the mine for 1993 and 1994 was consistent with Mr. Butz's practice for prior years. The tax reporting forms required Triton to report two distances, the "Mine Face to Mine Mouth" [Line 16, Triton Exhibit 114, p. 199] and the "Mine Mouth To Point of Sale [Line 17, Triton Exhibit 114, p. 199]. Mr. Butz constructed a calculation for the mouth of the mine in order to meet what he apparently perceived was required by the tax reporting forms. [Ireland, Tr. Vol. I, p. 131-145; Triton Exhibit 123].

23. Mr. Butz's calculation of the mouth of the mine was an apparent effort to allocate costs of the entire conveyor system, from the truck dump through the storage silos to the loadout. Triton Exhibit 123, which is Mr. Butz's notes, show his effort to calculate the location of the mouth of the mine. For 1993, he selected a point 1204 feet up the conveyor and calculated a distance for reporting on the tax forms based on the composite of the percentage of coal that was transported by the E-1 conveyor. [Triton Exhibit 123, p. 247]. In 1993, 85% of the coal went up the E-1 conveyor, 7.5% went up the F-2 conveyor (still in service the first three months of the year) and 7.5% was delivered directly to the upper hopper (secondary crusher) by truck. Mr. Butz used the percentages for the two conveyors and applied them to the distances on the E-1 and F-2 conveyor, and determined the mileage for reporting on line 16, Triton Exhibit 114. This distance was 1116 feet or .21 miles. Mr. Butz then calculated a distance for the "Mine Mouth to Point of Sale" for use on line 17, Triton Exhibit 114 (p. 199) by taking these same percentages of coal loaded (85%, 7.5% and 7.5%) and applying them to the total conveyor distances from the truck dump at the E-1 conveyor through the storage silos to the loadout. This distance was .30 miles. [Triton Exhibit 123, p. 247]. Mr. Butz used these two distances, .21 and .30, to create the ratios shown on lines 15 and 16, Triton Exhibit 114, p. 199. This ratio was then used to allocate the costs reported on line 20, Triton Exhibit 114, p. 199, entitled: "Direct Trans Costs Subject to Mileage Allocation." In 1993 this number is $1,076,028. [Ireland, Vol. I, Tr. p. 136-142].

24. Mr. Wilkerson explained, using Triton Exhibit 131, the Buckskin Mine's truck dump, the E-1 conveyor, the transfer tower and the associated conveyor belts to the load-out silos. Mr. Wilkerson marked the various facilities with a red pen and described the conveyor system as follows: "The E-1 conveyor that comes from the truck dump to the secondary crusher. E-2 goes to the first silo, E-3 to the second silo, E-3B to the third silo, E-4 is the crossover belt that goes to the other two silos. E-5 comes out of the bottom of these and over to the batch loadout system." [Wilkerson, Tr. Vol. I, p. 87-89].

25. Ms. Ireland confirmed that Mr. Butz was depicting the distances on the conveyor systems in his handwritten notes (Triton Exhibit 131), as explained by Mr. Wilkerson during his testimony. [Ireland, Tr. p. 135; Wilkerson, Tr. p. 87-89; Triton Exhibit 131].

26. The costs shown on Line 20 are entirely conveyor costs. This is also apparent from the reporting forms, Line 12.C, where these costs, $1,076,028 are deleted from "Standard Processing" and listed as "Hauling and Transportation." [Ireland, Tr. Vol. I, p. 141-143, 146, 149; Triton Exhibit 114, p. 199]. The DOR agreed that these are conveyor costs. [Sachse, Tr. p. 398].

27. Mr. Butz made similar calculations for 1994. He assumed that 98% of the coal was transported up the E-1 conveyor and 2% was delivered directly to the upper hopper (secondary crusher). He reduced the distance on the E-1 conveyer that he had used in 1993 (1204 feet) by 2% to get a distance of 1180 feet, which he converted to .22 miles. He again used all of the conveyor distances to calculate the distance from the mouth of the mine to the point of sale and determined a distance of 1435 feet, or .27 miles. He then used the ratio of these distances to allocate the transportation costs on line 20 of the tax reporting form. [Triton Exhibit 114, line 20, p. 199]. This ratio was then applied against all of the conveyor costs. [Ireland, Tr. p. 143-146].

28. Mr. Butz's calculation resulted in the mouth of the mine for 1993 being located 1116 feet up the E-1 conveyor above the truck dump.[ Triton Exhibit 123; Ireland, Tr. p. 139]. For 1994 the mouth of the mine was located 1180 up the E-1 conveyor above the truck dump. [Triton Exhibit 123; Ireland, Tr. p. 145].

29. For production year 1995 Mr. Butz had terminated his employment with Triton and Ms. Ireland prepared the tax return. Don Coovert, Triton's tax consultant, helped interpret the forms. [Ireland, Tr. Vol. I, p. 146]. Mr. Coovert concluded that Mr. Butz's determination of the mouth of the mine was erroneous. Mr. Coovert believed that the statute defining the mouth of the mine located the mouth at the truck dump at the base of the E-1 conveyor. For 1995, Triton reported the mouth of the mine at the truck dump and reported costs just for the E-1 conveyor system of $75,340 on line 16 of the tax reporting form which required reporting of "Out-of-Mine Trans Costs Not Subject to Allocation." [Coovert, Tr. Vol. I, p. 190-197; Triton Exhibit 133].

30. The Triton audit of 1993-1995 was commenced on November 17, 1997. [Triton Exhibit 113, p. 196]. During the course of the audit Mr. Coovert met numerous times with the DOR and (DOA) personnel and exchanged extensive correspondence. [Coovert, Vol. I, Tr. p. 174-175; Triton Exhibits 101, 102, 104, 105, 106, 109, and 110]. Triton took the position that the reporting by Mr. Butz for 1993 and 1994 was wrong and that the correct location of the mouth of the mine was at the truck dump at the base of the E-1 conveyor. As Mr. Wilkerson explained, the truck dump is located at the point where the coal has been removed from the mine face, transported by haul truck up the haul road at no more than an 8% grade out of the pit and the haul road comes to level ground. [Wilkerson, Tr. Vol. I, p. 114-117]. Mr. Wilkerson explained that this point of valuation at the truck dump is also consistent with the similar point agreed to for 1990 and 1991 at the truck dump for the F-2 conveyor and consistent with the agreed upon point for 1992 at 700 feet in front of the truck dump when the mine had moved away from the truck dump. [Wilkerson, Tr. p. 127-128].

31. The result of the audit and assessment was that the DOA and DOR accepted the location of the mouth of the mine for 1993 at 1116 feet up the E-1 conveyor and at 1180 feet up the E-1 conveyor for 1994. For 1995 the DOR revised the point of valuation as reported by Triton from the E-1 truck dump to the point used in 1994 at 1180 feet up the E-1 conveyor. [Sachse, Tr. Vol. II, p. 377-378]. Mr. Sachse's testimony was that these points were the locations where the conveyor system left the pit of the Buckskin Mine. Under questioning by Petitioner's Counsel he stated that this was the point where the conveyor leaves the pit and crossed the horizon. [Sachse, Tr. Vol. II, p. 338-339, 379-382]. Mr. Grenvick testified that the mouth of the mine is the point where the mineral was brought to the surface as it leaves the pit. [Grenvick, Tr. p. 445-446].

32. The DOA witness acknowledged that the location of the mouth of the mine as determined by Mr. Butz was calculated by composite conveyor distances for the E-1 and F-2 conveyor as adjusted by the amount of coal shipped on those conveyors. [Sachse, Tr. Vol. II, p. 379-381]. He also acknowledged that the distance on the reporting form for the "Mine Face to Point of Sale" was calculated using conveyor distances from the E-1 conveyor through the entire storage silo to the load out. [Sachse, Tr. Vol. II, p. 398-399]. Further the DOA and DOR agreed that the costs reported on line 20 of the tax reporting form after the heading "Direct Trans Costs Subject to Mileage Allocation" were in fact just conveyor costs. [Sachse, Tr. Vol. II, p. 398-399]. The DOA and DOR, however, defended the use of the distances reported on Line 15 and Line 16 of the reporting form as a proper method to allocate these conveyor costs. [Sachse, Tr. Vol II, p. 398-399].

33. Mr. Coovert demonstrated from a photograph introduced by the DOR that the points of valuation adopted by the DOR on the E-1 conveyor system were in fact not on any "horizon" of the mine but in the air above the land surface. [Coovert, Tr. Vol. II, p. 509-517; Triton Exhibit 139].

34. The DOA and the DOR did not make a separate determination of the costs associated just with operation of the E-1 conveyor in 1993 and 1994, which costs were reported by Triton for 1995 as $75,340. The costs ($75,340) for 1995 were audited and remained unchanged. [Grenvick, Tr. Vol. II, p. 504-506]

B. Contested Cost Classification (Allocation)

35. Triton submitted to the DOR Gross Product Returns for Triton's 1993, 1994 and 1995 coal production years. The taxpayer self-reported and classified on its returns certain expenses under the proportionate profit methodology as direct mining costs in accordance with Wyo. Stat. 39-14-103(b)(vii), previously Wyo. Stat. 39-2-209(d)(ii). [DOR Exhibits 520, 521].

36. The Wyoming mineral taxation system is based in part upon self-reported data and classifications received from taxpayers. This information is then subject to confirmation by an audit conducted by the DOA. [Tr. Vol. II, p.307, lines 10-25; Tr. Vol. II, p.437, lines 24-25; Tr. Vol. II, p.438, lines 1-25; Tr. Vol. II, p.439, lines 1-10].

37. Triton is assumed to have sufficient data and accounting records to support the figures and classifications it reports on its Gross Product Returns. The DOA relies upon Triton's accounting books and records to confirm the validity of its Gross Product Returns. [Tr. Vol. II, p.277, line 25; Tr. Vol. II, p.278, lines 1-5; Tr. Vol. II, p.350, lines 119-23].

38. To verify Triton's reported figures and classifications, the DOA attempted to trace the reported costs to its cost and function centers, by means of the taxpayer's books and records, to determine if those expenses were in fact direct or indirect costs of its mining operations. [Tr. Vol. II, p.313, lines 16-25; Tr. Vol. II, p.314, lines 1-25; Tr. Vol. II, p.315, lines 1-8; Tr. Vol. II, p.361, lines 17-25].

39. Each of Triton's Gross Products Returns for the audit period was signed by Mr. Butz, Triton's Administrative Manager, stating in full that: "I declare under penalty of perjury that I have examined this return and, to the best of my knowledge and belief, it is correct and complete." [DOR Exhibits 519, 520, 521].

40. The self-reported 1993 through 1995 direct cost classifications, which are the subject of this appeal ("contested costs'), were accepted by both the DOA and DOR and were not specific audit findings. [Tr. Vol. II, p.355, lines 4-10; Tr. Vol. II, p.468, lines 14-20; DOR Exhibits 500, 501, 519, 520, 521].

41. Triton claims that a number of its self-reported direct costs were not direct mining costs and should be reclassified, in whole or in part, as indirect costs. Specifically, Triton claims that Mr. Butz placed all of the contested costs into the "other mining" category without identifying and removing indirect costs. [Tr. Vol. I, p.154, lines 19-25; Tr. Vol. I, p.155, line 1; Tr. Vol. II, p.209, lines 6-25; Tr. Vol. II, p.210, lines 1-14; Tr. Vol. II, p.269, lines 7-25; Tr. Vol. II, p.270, line 1].

42. Upon completion of the Triton audit, the taxpayer was given nearly one (1) year to provide the DOA and DOR additional information to support its cost reclassification contentions. [Tr. Vol. II, p.355, lines 11-25; Tr. Vol. II, p.356, lines 1-25; Tr. Vol. II, p.357, lines 1-25; Tr. Vol. II, p.358, lines 1-2; DOR Exhibits 500, 508].

43. During this time frame, Triton was able to provide the DOA and DOR with sufficient information in regard to some cost classifications, namely Mine Supervisor labor. Certain adjustments were made by the DOA prior to the final issue letter. [Tr. Vol. I, p.180, lines 20-25; Tr. Vol. I, p.180, lines 1-4; Tr. Vol. II, p.351, lines 6-25; Tr. Vol. II, p.352, lines 1-25; Tr. Vol. II, p.353, lines 1-25; Tr. Vol. II, p.354, lines 1 -16; DOR Exhibits 501, 502].

44. Triton however was unable to provide the DOA and DOR with sufficient information that the contested costs were misreported by Triton as direct costs. [Tr. Vol. II, p.370, lines 1-18; Tr. Vol. II, p.403, lines 6-25; Tr. Vol. II, p.404, lines 1-12; Tr. Vol. II, p.470, lines 4-11; Triton Exhibits 121 p. 237-241].

45. Triton's accounting system during the audited production period was not capable of identifying the specific cost functions and centers to which the contested costs were associated. In other words, Triton and the DOA and DOR were unable to verify through Triton's own books and records that the contested costs, or a portion thereof, were misreported as direct costs by Triton. [Tr. Vol. I, p.150, lines 1-16; Tr. Vol. I, p.151, lines 20-25; Tr. Vol. I, p.152, lines 1-15; Tr. Vol. II, p.268, lines 19-20].

46. Triton is not capable of identifying and confirming the cost functions and centers for such expenses as "general shop," "training and safety" and "general expenses." Therefore it is also impossible for either the DOA or the DOR to do the same. [Tr. Vol. I, p.85, lines 13-20; Tr. Vol. I, p.151, lines 10-19; Tr. Vol. I, p.153, lines 7-25; Tr. Vol. I, p.154, lines 1-13].

47. Triton contends that "when you have an accounting system that does not capture functional costs, you, in my [Mr. Don Coovert's] view, up to that point, you had to treat them as indirect." [Tr. Vol. I, p.214, lines 5-7 (direct examination of Mr. Coovert)].

48. The only information provided to the DOA and DOR to support Triton's theory in regard to cost classification was a computer print-out of all contested costs. This print-out fails to show which costs functions and centers each expense was associated with and fails to give any indication as to whether those expenses were indirect costs of mining. [Tr. Vol. II, p.358, lines 3-25; Tr. Vol. II, p.359, lines 1-19; DOR Exhibit 504].

49. Triton was required by the DOA and DOR to keep accurate books and records of all coal production for five (5) years. Without such records, the DOA and DOR had to rely upon the best available information they had, namely the figures reported by Mr. Butz in Triton's Gross the Product Returns. [Tr. Vol. II, p.315, lines 12-25; Tr. Vol. II, p.316, lines 1-4; Tr. Vol. II, p.361, lines 17-25; Tr. Vol. II, p.362, lines 1-12; DOR Exhibits 519, 520, 521].

50. In light of Triton's substandard accounting records, Mr. Butz was in the best position during the time of the audited production period to determine which expenses were direct costs of Triton's mining operations and which were not. [Tr. Vol. II, p.420, lines 1-25; Tr. Vol. II, p.421, lines 1-25; Tr. Vol. II, p.422, lines 1-14].

51. The evidence indicates that Mr. Butz made a series of conscious decisions concerning which of Triton's expenses were direct costs of mining and which were indirect costs. [Tr. Vol. II, p.436, lines 14-25; Tr. Vol. II, p.437, lines 1-23]. Such evidence consists of the following:

a. Triton's overall costs incurred during the 1993 coal production year were more than the direct costs reported to the Department of Revenue, indicating that certain costs were deemed indirect by Mr. Butz and not reported on the 1993 Gross Product Return. [Tr. Vol. II, p.362, lines 13-25; Tr. Vol. II, p.363, lines 1-25; Tr. Vol. II, p.364, lines 1-23; DOR Exhibits 519, 554A].

b. Mr. Butz specifically identified "indirect supplies" in his worksheets, indicating that Mr. Butz distinguished certain supplies as indirect costs of the Buckskin mine. [Tr. Vol. II, p.365, lines 2-25; Tr. Vol. II, p.366, lines 1-5; DOR Exhibit 534].

c. Mr. Butz moved a certain portion of Triton's labor costs from direct costs to processing, indicating once again that Mr. Butz did not simply throw all of the contested costs into "other mining" without first determining which costs were indirect and should not be included. [Tr. Vol. I, p.161, lines 8-25; Tr. Vol. I, p.162, lines 1-11; Tr. Vol. I, p.163, lines 6-25; Tr. Vol. I, p.164, lines 1-25; Tr. Vol. II, p.368, lines 20-25; Tr. Vol. II, p.369, lines 1-22; Tr. Vol. II, p.433, lines 2-25; Tr. Vol. II, p.434, lines 1-25; Tr. Vol. II, p.435, lines 1-5; Tr. Vol. II, p.436, lines 1-13; DOR Exhibits 533 p.0675, 541 p.0717].

C. Federal Coal Lease Bonus Payments

52. Triton has two federal coal leases with the United States government at the Buckskin Mine. These leases are commonly referred to as the "Spring Draw Lease" and the "Buckskin Lease." [Tr. Vol. I, p.49, lines 7-19; Tr. Vol. I, p.156, lines 3-25, Tr. Vol. I, p.157, lines 1-25, Tr. Vol. I, p.158, lines 1-15; Triton Exhibits 117, 119].

53. Federal coal lease bonus payments must be paid before the United States government will agree to lease federal property for coal extraction. The coal lease bonus payments are similar to a "signing bonus" payment made by the lessee to the federal lessor as consideration for executing the negotiated lease. [Tr. Vol. II, p.473 lines 6-12; In the Matter of the Appeal of Powder River Coal Company From a Decision of the Department of Revenue, SBOE Doc. No. 97-206 (July 9, 1999), 25].

54. It is impossible to obtain a federal coal lease without paying a federal coal lease bonus payment, therefore it is also impossible to even mine that property unless a federal coal lease bonus payment is made. [Tr. Vol. I, p.159, lines 2-7; Tr. Vol. II, p.241, lines 5-7; Tr. Vol. II, p.473, lines 13-16]; In the Matter of the Appeal of Powder River Coal Company From a Decision of the Department of Revenue, SBOE Doc. No. 97-206 (July 9, 1999), 25].

55. Triton paid the United States government $25,901,175.00 as a lease bonus payment on the "Spring Draw Lease." [Tr. Vol. I, p.156, lines 14-25, Tr. Vol. I, p.157, lines 1-6; Triton Exhibit 118, p.222].

56. Triton paid the United States government $30,433.57 as a lease bonus payment on the "Buckskin Lease" [Tr. Vol. I, p.158, lines 6-12; Triton Exhibit 120, p.230].

57. Triton's federal coal lease bonus payments were one-time payments made to the United States government. [Tr. Vol. II, p.236, lines 4-16].

58. Triton internally accounts for these lease bonus payments by amortizing the one-time expense over time and estimated coal reserves. [Tr. Vol. I, p.157, lines 7-18].

59. These lease bonus payments must be paid regardless of the amount of coal, if any, mined. [Tr. Vol. II, p.241, lines 8-12].

60. The DOR treats federal coal lease bonus payments as a direct cost of mining in valuation of a taxpayer's coal production. [Tr. Vol. II, p.474, lines 12-15].

61. Triton treated its two federal coal lease bonus payments as exempt federal royalty payments on its 1995 Gross Product Return. This treatment was disallowed by the DOR and such payments were reclassified as non-exempt direct mining costs on Triton's 1995 Notice of Value (NOV). [Tr. Vol. II, p.158, lines 6-12; DOR Exhibits 521, 524].

62. Treatment of federal lease bonus payments as a direct cost of mining was not an audit finding since those changes were made on the NOV. [Tr. Vol. II, p.475, lines 5-9].

D. Interest

63. The DOR's final revised assessment, dated May 11, 1999, imposes interest in the amount of $41,269.00 (current as of June 10, 1999). [DOR Exhibit 502].

64. Interest was calculated at the rate of 18% for the 1993 audit year and at 12% for the 1994 and 1995 audit years. [DOR Exhibit 502, page 0013].

65. Interest is calculated from the date of the DOR's issuance of the related NOV. [Tr. Vol. II, p.47, lines 14-23].

66. The NOV for 1993 was issued on May 20, 1994. The 1994 NOV was issued on June 2, 1995 and the NOV for 1995 was issued on June 12, 1996. [DOR Exhibits 522, 523, 524].

67. Triton submitted to the DOR Gross Product Returns for 1993, 1994 and 1995 on which the taxpayer reported a point of valuation (mouth of the mine) and certain mining costs ("cost classifications") which are at appeal here. [DOR Exhibits 519, 520, 521].

68. Triton's own reported numbers to the DOR were not changed in the audit and assessment in regard to "cost classification" for 1993 through 1995, [Tr. Vol. II, p.355, lines 4-10], and "mouth of the mine" for 1993 through 1994, [Tr. Vol. II, p.444, lines 20-25; Tr. Vol. II, p.445, lines 1-3].

69. Each of Triton's Gross Products Returns for the audit period were signed by Mr. Butz, under "penalty of perjury." Triton knew or reasonably should have known that taxes were due under their own self-reported numbers as indicated on its annual 1993 through 1995 Gross Product Returns. [DOR Exhibits 519, 520, 521].

70. The 1993 and 1994 location of the "mouth of the mine" caused no interest to accrue due to the DOR's acceptance of Triton's reported point of valuation. [Tr. Vol. II, p.265, lines 4-19].

71. Interest, in regard to the "mouth of the mine" was only assessed by the DOR based on the DOR's change of location for the 1995 production year. [Tr. Vol. II, p.239, lines 12-25; Tr. Vol. II, p.240, lines 1-3; Tr. Vol. II, p.293, lines 10-14].

72. Triton failed to request the DOR's assistance with any problems it perceived with the DOR's tax reporting forms and was satisfied with the forms as they appeared in 1995. [Tr. Vol. II, p.249, lines 9-22; Tr. Vol. II, p.253, lines 3-8].

73. Triton did not pay any portion of the assessment (including interest) under protest, which would have stopped the continual accruing of interest. [Tr. Vol. II, p.476, lines 2-16].

E. Waiver of Triton's Ability to Appeal

74. Triton submitted to the DOR Gross Product Returns for 1993, 1994 and 1995 on which the taxpayer reported a point of valuation ("mouth of the mine") and certain mining costs ("contested costs") which are on appeal here. [DOR Exhibits 519, 520, 521].

75. The positions of the 1993 and 1994 mouth of the mine was self-reported by Triton as points on its conveyer system between the truck dump and the silos. These positions were accepted by both the DOA and DOR. [Tr. Vol. II, p.338, lines 7-24; Tr. Vol. II, p.339, lines 18-25; Tr. Vol. II, p.340, lines 1-25; Tr. Vol. II, p.341, line 1; Tr. Vol. II, p.450, lines 23-25; Tr. Vol. II, p.451, lines 1-12; DOR Exhibits 519, 520].

76. The 1993 through 1995 contested costs on appeal were self-reported by Triton as direct costs on its Gross Product Returns. These contested costs were accepted by both the DOA and DOR. [Tr. Vol. II, p.355, lines 4-10; Tr. Vol. II, p.468, lines 14-20; DOR Exhibits 519, 520, 521].

77. The DOR used these self-reported figures from Triton's Gross Product Returns for inclusion in the DOR's NOVs for each of the audit years. [Tr. Vol. II, p.439, lines 11-23; Exhibits 522, 523, 524].

78. The 1993 and 1994 mouth of the mine location and the 1993 through 1995 cost classifications of the contested costs were not audit findings. [Tr. Vol. II, p.341, lines 2-6].

79. Triton never appealed the NOVs challenging the 1993 and 1994 "mouth of the mine" or the 1993 through 1995 classifications of the contested costs. [Tr. Vol. II, p.469, lines 3-5; Exhibits 522, 523, 524].

80. Triton failed to file amended Gross Product Returns for any of the production years on audit. [Tr. Vol. II, p.243, lines 10-13; Tr. Vol. II, p.285, lines 11-19; Tr. Vol. II, p.468, lines 24-25; Tr. Vol. II, p.468, lines 24-25; Tr. Vol. II, p.469, lines 1-2].

81. Triton challenged its own self-reported figures for 1993 and 1994 mine mouth and 1993 through 1995 contested cost classification despite the fact that these were not audit findings nor a DOR finding upon assessment. [Triton Exhibit 112].

82. Triton had numerous exchanges of information with DOA during the course of the audit, believing that any issues raised by them would be addressed in the final audit findings. [Coovert, Tr. Vol. I, p. 176, lines 13-25, p. 177, lines 1-25, p. 178, lines 1-9; Triton Exhibits 101, 103, 104, 106]. Triton believed that it was not necessary to file amended returns for 1993, 1994 and 1995 with the DOR because of the dialogue and exchange of information with DOA relative to the issues Triton had raised on audit. Ultimately Triton did file an amended return for 1993 because the five year statute of limitations was about to expire for that year. [Coovert, Tr. Vol. 1, p. 182, lines 11-25, p. 183, lines 1-17].

CONCLUSIONS OF LAW

83. Petitioner's Notice of Appeal was timely filed and the SBOE has jurisdiction to determine this matter.

84. The applicable constitutional, statutory and regulatory provisions which are determinative in this matter, are cited in the appropriate sections of this opinion.

Wyo. Stat. 39-2-214

(f) Taxes are delinquent pursuant to W.S. 39-3-101(b) and 39-6-307(c) when a taxpayer or his agent knew or reasonably should have known that the total tax liability was not paid when due.

85. The Petitioner has the burden of going forward and the ultimate burden of persuasion. See: Rules, Wyoming State Board of Equalization, Chapter 2, 19. Petitioner has failed to meet its burden of proof in establishing its positions regarding all four issues on appeal.

86. The applicable rules provide in relevant part as follows:

Rules, Wyoming State Board of Equalization, Chapter 2 19.

Burden of Going Forward; Burden of Persuasion.

Except as specifically provided by law or in this section, the petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action. . . .

Rules, Wyoming Department of Revenue, Chapter 6, 4.

Definitions - General.

The definitions set forth in Title 39 of the 1977 Wyoming Statutes, as amended, are incorporated by reference in this chapter. In addition, the following definitions shall apply:

* * * * *

Section 4c. Definitions - Coal (In addition to the definitions in Section 4a, the definitions in this section are specific to coal.)

(a) Direct mining costs include mining labor including mine foremen and supervisory personnel whose primary responsibility is extraction of coal, supplies used for mining, mining equipment depreciation, fuel, power and other utilities used for mining, maintenance of mining equipment, coal transportation from the point of severance to the point of valuation, and any other direct costs incurred prior to the point of valuation that are specifically attributable to the mining operation. (W.S. 39-2-209(d)(ii)).

(b) "Total direct costs" include direct mining costs determined under paragraph (a) of this section plus mineral processing labor including plant foreman and supervisory personnel whose primary responsibility is processing coal, supplies used for processing, processing plant and equipment depreciation, fuel, power and other utilities used for processing, maintenance of processing equipment, coal transportation from the point of valuation to point of shipment, coal transportation to market to the extent included in the price and provided by the producer, and any other direct costs incurred that are specifically attributable to the mining, processing or transportation of coal up to the point of loading for shipment to market. (W.S. 39-2-209(d)(iii)).

(c) Indirect costs, royalties, ad valorem production taxes, severance taxes, black lung excise taxes and abandoned mine lands fees shall not be included in the computation of the ratio set forth in this chapter. Indirect costs include but are not limited to allocations of corporate overhead, data processing costs, accounting, legal and clerical costs, and other general and administrative costs which cannot be specifically attributed to an operational function without allocation. (W.S. 39-2-209(d)(iv)).

A. Mouth of the Mine

87. Determining the location of the mouth of the mine is essential to properly allocating costs between direct mining costs and total direct costs. The valuation of coal for severance and ad valorem tax purposes requires the segregation of direct mining costs from the total direct costs of mining. Wyo. Stat. 39-2-209(d). Transportation costs from the point of severance to the mouth of the mine are direct mining costs. Wyo. Stat. 39-2-209(d)(ii). Transportation costs from the mouth of the mine to the point of sale and processing costs are total direct costs. Wyo. Stat. 39-2-209(d)(ii). In the Matter of the Appeal of Caballo Coal Company, Docket No. 96-101 (decided July 23, 1999).

88. Wyo. Stat. 39-2-202(a), currently Wyo. Stat. 39-14-102(b) and 39-14-103(b)(ii), states in relevant part that:

The department shall annually value the gross product...of all mines and mining claims from which valuable deposits are produced, at the fair cash value of the product at the mouth of the mine where produced, after the mining or production process is completed. [emphasis added]

89. Wyo. Stat. 39-14-101(a), previously Wyo. Stat. 39-2-202(b)(ii), defines the mouth of the mine as:

the point at which a mineral is brought to the surface of the ground and is taken out of the pit, shaft or portal. For a surface mine, this point shall be the top of the ramp where the road or conveying system leaves the pit. [emphasis added]

90. Department of Revenue Rules and Regulations, Ch. VI, Section 4a, defines the "mouth of the mine" as:

(b) "Mouth of the mine" means the point as which a mineral is brought to the surface of the ground and is taken out of the pit, shaft or portal For a surface mine, this point shall be the top of the ramp where the road or conveying system leaves the pit. For an in situ mine, the point of valuation shall be the wellhead. (W.S. 39-2-202(b)(i)). For solid minerals, the "mouth of the mine" is the "point of valuation".

91. Department of Revenue Rules and Regulations, Ch. VI, Section 4, defines the point of valuation as:

(i) "Point of valuation" means the point where the value for severance and ad valorem tax is established. This point is generally after all mining functions have been performed and before the mineral is further processed (pursuant to W.S. 39-2-202(b) for solid minerals and W.S. 39-2-208(b) for oil and gas).

92. The SBOE has previously stated that "we find the costs of transporting the coal vertically to the undisturbed elevation of the natural land surface are costs associated with mining process. As a result, such costs are not deductible as post-mine-mouth transportation." [emphasis added] In the Matter of the Appeal of Kerr McGee Coal Company, SBOE Doc. No. 92-283 (March 9, 1994) 19.

93. The SBOE has additionally held that "all transportation from the face of the coal seam to the elevation of the natural land surface constitutes pre-mine-mouth transportation, and is not deductible." [emphasis added] In the Matter of the Appeal of Amax Coal Company From a Decision of the Department of Revenue, SBOE Doc. No. 92-198 (March 9, 1994), 35.

94. Triton originally filed its gross products return for 1993 placing the mouth of the mine at a point 1116 feet up the E-1 conveyor and for 1994 at 1180 feet up the E-1 conveyor. The DOR/DOA accepted these reported mine mouth locations, believing them to be "where the conveyor comes to the surface." For 1995, the DOR/DOA relocated the mine mouth location from the truck dump as reported by Trition to the point Triton had reported in 1994, that is, at 1180 feet up the E-1 conveyor.

95. Craig Grenvik, DOR Audit Coordinator, responding to questions by Triton's counsel, explained the position of the DOR regarding the placement of the mine mouth for this audit and testified as to the difficulty and complexity of establishing a mine mouth for the wide variety of surface mines DOR values:

Q. What is the Department's interpretation of the statute specifically in regards to the information received concerning the Buckskin Mine that we've been talking about for the last two days?

A. That the point was placed throughout the audit period on the conveyor E-1 -- I guess E-1 for the '93 to '95 period, as if you were riding up that conveyor and when you no longer saw the pit wall and then you come out over the top. I won't use the horizon word.

Q. Is the mouth of the mine similar for each coal mine in each production year at the same mine?

A. It's not similar. It's not a similar point always for the same mine, and it certainly requires some appraisal judgment and statutory interpretation on the part of the Department in order to try to find the mouth of the mine, point of valuation for all of the mines in the State of Wyoming.

Q. Now, did you hear Mr. Coovert's testimony earlier about different mines, some mines that have pits that are elevated, and I think Mr. Arnold spoke to that?

A. Right.

Q. Have you come across those situations?

A. We have numerous configurations, numerous operations in the state of Wyoming that all have an impact on where this point of valuation is. Here at the Triton mine we have a conveying system and a pit operating area or a mining area that's relatively close to the processing facilities. We also have numerous mines that are, I won't say several miles, but a mile or more, maybe two miles that are very far away from the processing facilities. We have mines that operate multiple pits, therefore we have to rely on engineering reports to do a calculation where they have two points of valuation and come up with an average, and appropriately so, based upon the costs associated with the coal coming out of each pit. We also have pits that have multiple ramps, multiple exit points, so we have the same problem where we have to have the taxpayer tell us how much coal came off of each ramp, how long each ramp was, and determine three separate points of valuation.

We have coal mines that have ramps that spiral on up that don't come straight up. We have coal mines that have multiple loading facilities, multiple truck dumps and we have to do a weighted average calculation for that as well. Gee, what else? We have underground mines. [Tr. Vol. II, Pages 446-448]

96. About the time Petitioner received the preliminary audit findings from DOA, Petitioner hired Don Coovert, a Tax Consultant, to assist it in reviewing the audit findings for 1993 - 1995. Subsequent to Mr. Coovert's hiring, Petitioner took the position that its Accountant, Mr. Charlie Butz, had for several years incorrectly reported the mine mouth to DOR and he conveyed this to DOA auditors. Petitioner took the position that the actual mine mouth was at the truck dump site at the top of the ramp coming out of the lower Canyon coal seam on a level ramp where the E-1 conveyor sat.

97. What becomes abundantly clear from the testimony and various exhibits [Triton Exhibit 122] is that the truck dump site at the top of the ramp coming out of the lower Canyon seam sits on top of the lower coal seam, the Canyon seam, and below the base of the upper coal seam, the Anderson seam. Thus, it is logical to conclude that the truck dump is approximately 292 feet below the natural land surface [2 ft of topsoil plus 250 ft of overburden plus 40 feet (thickness of the Anderson Coal seam].

98. The configuration of the Buckskin Mine is such that Petitioner utilizes haul trucks to bring the coal from the lower coal seam (the Canyon seam) up an 8% grade haul road to a level bench. Then Petitioner utilizes another form of in-pit transportation, ie, the E-1 conveyor, to continue hauling the coal up to the secondary crusher which sits approximately at the "elevation of the natural land surface." Wyo. Stat. 39-2-202(b). The SBOE believes that DOR/DOA have utilized their appraisal judgment and correctly relocated the mouth of the mine for the audit years in question to the point where the conveyor system reached the elevation of the natural land surface. To treat the E-1 conveyor system as out-of-pit transportation as Petitioner would have it, gives Petitioner a significant tax advantage simply because they chose to use a combination of trucks and conveyor system rather than simply haul trucks to bring coal out of the pit to the crusher.

99. The SBOE does not find the statute defining mine mouth to be ambiguous. However, we do acknowledge that because each surface coal mine has significant topographical differences and unique characteristics in their physical layout, the actual application of the definition to each individual mine presents DOR/DOA with extremely difficult problems in exercising their appraisal judgment.

100. Petitioner argues that DOR's mine mouth location is inconsistent with the location they agreed to use for a previous audit of 1990 - 1992. They may well be right that the 90 - 92 locations are inconsistent with 93-95 since the testimony was that the F-2 truck dump was located near the E-1 truck dump on the same bench. However, the 1990 - 1992 mine mouth locations were determined by settlement between the parties during the course of the hearing of that audit appeal in 1998. The SBOE was not privy to the terms of that settlement and we must conclude that the settlement reached by the parties was most likely a compromise and thus we cannot place any relevance to the settlement of the audit years in question before us.

101. The point at which the E-1 conveyor leaves the pit is the location of the mouth of the mine as defined by Wyo. Stat. 39-14-101(a), previously Wyo. Stat. 39-2-202(b), Department of Revenue Rules and Regulations, Ch. VI, 4a, and In the Matter of the Appeal of Kerr McGee Coal Company, SBOE Doc. No. 92-283 (March 9, 1994). [Tr. Vol. II, p. 319, 1-18; Tr. Vol. II, p. 325, 13-17; Tr. Vol. II, p. 328; Tr. Vol. II, p. 329; Tr. Vol. II, p. 345, line 23-25; Tr. Vol. II, p. 346; Tr. Vol. II, p. 347, lines 1-3; Tr. Vol. II, p. 376; Tr. Vol. II, p. 377; Tr. Vol. II, p. 378; Triton Exhibits 134, 135, 136, DOR Exhibit 503].

102. The SBOE holds that the DOR followed the relevant language of Wyo. Stat. 39-2-202(b), to wit, that the mouth of a surface mine is the point at the top of the ramp where the road or conveying system leaves the pit. In addition, DOR utilized the additional guidance provided by In the Matter of the Appeal of Kerr McGee Coal Company, SBOE Doc. No. 92-283 (March 9, 1994) and In the Matter of the Appeal of Amax Coal company from a Decision of the Department of Revenue, SBOE Doc. No. 92-198 (March 9, 1994).

103. There is, however, an issue that Petitioner raised which we believe must be addressed. According to the testimony of Petitioner's witness, Mr. Don Coovert, Petitioner's Accountant, Mr. Butz utilized some incorrect distances when he calculated the mine mouth during preparation of the annual gross products returns. Mr. Butz's calculations of the mouth of the mine (Triton Exhibit 123) which were accepted by DOR/DOA in the audit, show that Mr. Butz was attempting to determine distances along the entire conveyor system, which included conveyors that clearly were utilized in the storage silos and loadout facilities. While the SBOE agrees with DOR that a significant portion of the E-1 conveyor system was "in the pit", the remaining conveyor systems (E-2 through E-5) were clearly post mining transportation costs. We agree with Petitioner that the reporting forms may well have caused confusion on Mr. Butz's part which caused him to add additional conveyor belt distances and post mining transportation costs into the proportionate profits calculation thus increasing the ratio and the taxable value. The SBOE must therefore remand the audit assessment to the DOR with instructions to recalculate the tax return, removing those post mining transportation costs represented by the conveyor distances that were out-of-pit and recalculate the conveyor belt distances. Those distances can be determined from Mr. Butz's work notes found in Triton Exhibit 123 The SBOE has already recognized that the tax reporting forms for 1994 (which are the same for 1993) are "vague, unclear, and not in conformance with the statutes because the forms failed to clearly instruct Petitioner concerning the classification of costs and the proper allocation of transportation expenses." In the Matter of the Appeal of Caballo Company, SBOE Docket No. 96-101, (July 23, 1999).

B. Contested Cost Classification (Allocation)

104. Triton claims that a number of its reported direct costs were not direct mining costs and should be reclassified as indirect costs and allocated by using the direct cost ratio. [Tr. Vol. I, p.154, lines 19-25; Tr. Vol. I, p.155, line 1; Tr. Vol. II, p.269, lines 7-25; Tr. Vol. II, p.270, line 1].

105. Such an allocation is inappropriate and not in accordance with the proportionate profits methodology of Wyo. Stat. 39-14-103(b)(vii), previously Wyo. Stat. 39-2-209(d). Even under the assumption that these contested expenses are indirect costs, such allocation lowers the direct cost ratio overall and results in Triton receiving an unjustified and unwarranted tax break on all costs. [Tr. Vol. II, p.366, lines 6-25; Tr. Vol. II, p.367, lines 1-25; Tr. Vol. II, p.368, lines 1-19; Tr. Vol. II, p.467, lines 19-25; Tr. Vol. II, p.468, lines 1-6; Wyo. Stat. 39-14-103(b)(vii), previously Wyo. Stat. 39-2-209(d)].

106. Wyo. Stat. 39-14-108(b)(vii), previously Wyo. Stat. 39-6-304(o) provides that:

Audits provided by this article shall commence within five (5) years of the reporting period and taxpayers shall keep accurate books and records of all production subject to taxes imposed by this article and determinations of taxable value as prescribed by W.S. 39-14-103(b) for a period of five (5) years and make them available to department examiners for audit purposes. If the examination discloses evidence of gross negligence by the taxpayer in reporting and paying the tax, the department may examine all pertinent records for any reporting period without regard to the limitations set forth in paragraphs (vii) and (viii) of this subsection; [emphasis added]

107. Wyo. Stat. 39-14-108(b)(vii), previously Wyo. Stat. 39-6-304(o) clearly required Triton to maintain sufficient accounting records and documentation to support its figures and cost classifications related to its coal production valuation as set forth in Wyo. Stat. 39-14-103(b)(vii), previously Wyo. Stat. 39-2-209(d). Triton failed keep such accurate books and records to substantiate its claims that it misreported its direct costs to the DOR on its Gross Product Returns. Without sufficient information the DOR is justified in relying upon the determinations of cost classification made by Triton and Mr Butz at the time the taxpayer filed its Gross Product Returns. Wyo. Stat. 39-14-108(b)(vii), previously Wyo. Stat. 39-6-304(o).

108. Petitioner claims that since its accounting system and records are incapable of identifying which costs are associated with direct mining expenses and which are associated with indirect mining costs (as required by Wyo. Stat. 39-14-108(b)(vii), previously Wyo. Stat. 39-6-304(o)) under In the Matter of the Appeal of Exxon Coal U.S.A., Inc., SBOE Doc. No. 93-107 (Oct 6, 1994) those costs must be treated as indirect costs. Such a contention is a misapplication of the Exxon ruling. The Exxon case is not applicable in this matter since Exxon dealt with final reclamation cost accruals and not expenses which could be readily identified and allocated to the various costs function if the taxpayer maintained an accurate accounting system. [Tr. Vol. I, p.212 lines 2-13; Tr. Vol. I, p.213 lines 19-25; Tr. Vol. I, p.214 lines 1-21; Tr. Vol. II, p.432 lines 8-16; In the Matter of the Appeal of Exxon Coal U.S.A., Inc., SBOE Doc. No. 93-107 (Oct 6, 1994)].

109. A taxpayer, such as Triton, which maintains an inaccurate accounting system in violation of Wyoming's mineral taxation code, cannot be permitted to benefit from such action by being allowed to treat all, or a portion, of its costs as indirect mining costs. If this were permitted it would allow any Wyoming mineral taxpayer to simply set up an accounting system with a single cost center and then later claim that it is incapable of allocating any of its costs to mining, processing or transportation. Such a system would punish taxpayers who abide by the law and maintain efficient and accurate accounting books and records in accordance with Wyo. Stat. 39-14-108(b)(vii), previously Wyo. Stat. 39-6-304(o). [Tr. Vol. II, p.470, lines 12-24; Wyo. Stat. 39-14-103; Wyo. Stat. 39-14-108(b)(vii)].

110. Results of the audit indicate that the contested costs were in fact determined by Mr. Butz to be direct costs of Triton's mining operations and those costs fall within the scope of the direct cost definition found at Wyo. Stat. 39-14-103(b)(vii), previously Wyo. Stat. 39-2-209(d).

111. The DOR properly treated the contested costs as direct mining costs. Wyo. Stat. 39-14-103(b)(vii), previously Wyo. Stat. 39-2-209(d).

112. Petitioner has failed to meet its burden of proof with respect to this issue. In particular, it failed to show the DOR's decision to rely upon the cost classifications which Triton itself reported was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law especially in light of Petitioner's inability to provide the DOR with sufficient information to reclassify those costs. Rules, Wyoming State Board of Equalization,, Ch. 2, Section 19; Wyo. Stat. 16-3-114(c).

C. Amortization of Federal Coal Lease Bonus Payments

113. In our recent decision involving Powder River Coal Company, Docket No. 97-206 (decided 7-9-99) the SBOE held that the amortization of lease bonus payments was to be considered a direct mining cost, rejecting the argument that the amortization should be treated as an exempt royalty. Triton disagrees with that holding but Triton recognized in this appeal that it would not be fruitful to reargue those issues. Triton has therefore asked the SBOE to find the appropriate facts regarding Triton's payment of lease bonuses for the Spring Draw and Buckskin leases, which we have done. We reaffirm our holding in the Powder River Coal Company and find it applicable to the facts of Triton's appeal, to the extent that Triton contends that the amortization of lease bonus payments should be treated as an exempt royalty.

114. Triton makes an alternative argument, that the amortization of lease bonus payments should be treated as an indirect cost, which would result in allocating the amortization on the basis of the direct cost ratio. Triton finds support for its position in the SBOE decision In the Matter of the Exxon Coal U.S.A., Inc., Docket No. 93-107 (decided October 6, 1994). In the Exxon case the SBOE held that accruals for final reclamation costs should be treated as indirect costs. The SBOE found that these accruals were non cash estimates of the final reclamation liability for the mine site and as such they were not specifically attributable to mining, processing or transportation of coal. We do not believe that the amortization of lease bonus payments should be treated in a similar fashion and reaffirm our position in Powder River Coal Company that lease bonus payments are a direct cost of mining.

D. Interest

115. The assessment of interest in this matter is statutorily authorized. [Tr. Vol. II, p.475, lines 10-13]. Wyo. Stat. 39-14-108(c) provides that:

(i) In calculating interest, the department or board of county commissioners shall first compute a net deficiency amount after subtracting any offsetting credit and then calculate any interest due;

(ii) Taxes are delinquent pursuant to paragraphs (iii) and (iv) of this subsection when a taxpayer or his agent knew or reasonably should have known that the total tax liability was not paid when due;

(iii) The balance of any ad valorem tax not paid as provided by W.S. 39-14-107(b)(ii) is delinquent after the day on which it is payable and shall bear interest at eighteen percent (18%) per annum until paid or collected;

(iv) Effective January 1, 1994, interest at an annual rate equal to the average prime interest rate as determined by the state treasurer during the preceding fiscal year plus four percent (4%) shall be added to all delinquent severance taxes on any mineral produced on or after January 1, 1994. To determine the average prime interest rate, the state treasurer shall average the prime interest rate for at least seventy-five percent (75%) of the thirty (30) largest banks in the United States. The interest rate on delinquent severance taxes shall be adjusted on January 1 of each year following the year in which the taxes first became delinquent. In no instance shall the delinquent tax rate be less than twelve percent (12%) nor greater than eighteen percent (18%) from any mineral produced on or after January 1, 1994. The interest rate on any delinquent mineral tax from any mineral produced before January 1, 1994, shall be eighteen percent (18%) per annum.

[emphasis added]

116. Petitioner "knew or reasonably should have known" that taxes were due on the "cost classification" issue for audit years 1993 through 1995 and the "mouth of the mine" issue for 1993 and 1994 since Petitioner itself reported these figures to the DOR on their Gross Product Returns. [DOR Exhibits. 519, 520, 521].

117. Petitioner "knew or reasonably should have known" that taxes were due on the "mouth of the mine" issue for the 1995 production year since Petitioner moved the 1995 mine mouth from its 1994 reported location without any substantial changes in the configuration of the mine between those years. The SBOE instructs the DOR to, upon remand, not assess interest on the mine mouth issue for 1993 and 1994 because Triton did attempt to report the mine mouth in conformance with DOR's interpretation of the statutes and with less than concise reporting forms. [Tr. Vol. I, p.128, lines 8-20; Tr. Vol. I, p.193, lines 16-20; Tr. Vol. II, p.327, lines 1-25; Tr. Vol. II, p.328, lines 1-25; Tr. Vol. II, p.329, lines 1-25; Tr. Vol. II, p.330, lines 1-25; Tr. Vol. II, p.331, line 1; Triton Exhibits. 136 (1994 Aerial Map); 137 (1995 Aerial Map)].

118. Wyo. Stat. 39-14-109(f)(ii) provides that:

If severance taxes are paid under protest to the extent of and due to an appeal pending before the state board of equalization or any court of competent jurisdiction, the state treasurer shall deposit that protested amount under appeal in a separate interest bearing escrow account and withhold distribution until a final decision on the appeal has been rendered by the state board of equalization or the court. To the extent the taxpayer prevails in the appeal, the state treasurer shall refund that amount under appeal, plus interest earned thereon, to the taxpayer within thirty (30) days from the day the final decision is rendered. If the taxpayer pays to the state an amount in excess of the protested amount under appeal, the excess shall be distributed as provided by law;

119. Petitioner failed to take advantage of the above cited statute by failing to pay the assessment under protest. Interest has continued to properly accrue. [Tr. Vol. II, p.476, lines 2-16].

120. Wyo. Stat. 39-14-109(a)(ii), previously Wyo. Stat. 39-6-304(j) provides that:

A taxpayer may request and the department shall provide written interpretations of these statutes and rules. When requesting an interpretation, a taxpayer must set forth the facts and circumstances pertinent to the issue. If the department deems the facts and circumstances provided to be insufficient, it may request additional information. A taxpayer may act in reliance upon a written interpretation through the end of the calendar year in which the interpretation was issued, or until revoked by the department, whichever occurs last if the pertinent facts and circumstances were substantially correct and fully disclosed.

121. Petitioner failed to take advantage of the above cited statute by not seeking the DOR's assistance with any problems it may have perceived with the tax reporting forms. [Tr. Vol. I, p.249, lines 9-22].

122. The DOR properly assessed interest against Petitioner for the audited production years, however, a remand to recalculate the in-pit and out-of-pit transportation distances and expenses will, of necessity, require the DOR to recalculate interest as set forth in paragraphs 116 and 117 herein . Wyo. Stat. 39-14-108(c).

123. Petitioner has failed to meet its burden of proof with respect to this issue. In particular it has failed to show that the DOR imposition of interest was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. [Rules, Wyoming State Board of Equalization, Ch. 2, Section 19; Wyo. Stat. 16-3-114(c)].

E. Waiver of Triton's Ability to Appeal

124. DOR contends that Petitioner failed to file amended returns within five years to correct any errors it perceived in the mouth of the mine or allocation of costs issues. DOR argues that Wyo. Stat. 39-2-201(b) requires that annual return summaries and monthly severance tax returns be submitted on "forms prescribed by the Department." They cite the Wyoming Supreme Court arguments on waiver in Thunder Basin Coal Company v. Wyoming State Board of Equalization, 896 P.2d 1081, 1086 (Wyo. 1992) and Amax Coal West Inc. v. Wyoming State Board of Equalization, 896 P.2d 1329 (Wyo. 1995). The Supreme Court stated that a failure to challenge or appeal a coal production NOV precludes a taxpayer, such as Petitioner, from challenging reported issues which were not adjusted by the DOA or DOR during the audit reassessment.

125. DOR argues that since DOR made no changes whatsoever to the point of valuation as reported by Triton to the DOR for 1993 and 1994, Triton cannot use the audit appeal process to circumvent its failure to timely amend its returns. Therefore, under the theory of waiver, the SBOE lacks subject matter jurisdiction to decide the 1993 and 1994 "mouth of mine" issues and the 1993 - 1995 "cost classification" issues.

126. The SBOE disagrees with the DOR. The stipulated Exhibits demonstrate that Petitioner submitted to DOA all of the information necessary to amend their returns for each of the three production years. While the information was not submitted on forms designated by the DOR, the SBOE believes Wyo. Stat. 39-2-214(a) contemplates an exchange of information between DOA and the taxpayer within the context of an audit.

Commencing March 1, 1994, the department is authorized to rely on final audit findings, taxpayer amended returns or department review, and to certify mine product valuation amendments to the county assessor of the county in which the property is located, to be entered upon the assessment rolls of the county and taxes computed and collected thereon subject to appeal under subsection (g) of this section, provided that the audit or review commences or return is filed within five (5) years from the date the production should have been or was reported pursuant to W.S. 39-2-201(b)(i), whichever is later.

Petitioner's witness, Mr. Don Coovert, testified that on August 28, 1998, well within the five year statutory deadline in which to file an amended return for 1993 production year, he met with DOR and DOA officials and submitted a letter and worksheets which contained detailed corrections to the original returns [Triton Exhibit 101, DOR Exhibit 515]. We believe this information was sufficient to provide the DOR/DOA with all the information necessary to amend the returns for production years 1993-1995 and it was clearly evident that it was Petitioner's intention to do so.

127. The SBOE also agrees with Petitioner that the Thunder Basin and Amax decisions are not applicable to this case because Petitioner is not challenging the basic components of the proportionate profits formula utilized by DOR, as Thunder Basin and Amax attempted to do. Instead, Petitioner is only contesting how certain costs for transportation and mining are to be allocated within the formula.

128. Finally, the SBOE believes that audits are conducted for the purpose of making a complete and thorough examination of the tax reported by the producer. In this instance, DOA and DOR indicated a willingness to accept and consider all of the information provided by Petitioner in arriving at their final audit findings. This reflects a fundamental fairness that we believe the legislature intended when it created the audit statute and provided for offsetting credits within the scope of the audit period without regards to limitation periods for refunds.

ORDER

IT IS THEREFORE HEREBY ORDERED:

A. The interpretation by DOR of "mouth of the mine" as contained in Wyo. Stat. 39-2-202(b) is affirmed, however, the audit assessment is remanded to the DOR with instructions to recalculate Petitioner's 1993, 1994 and 1995 annual gross products return utilizing corrected in-pit and out-of-pit transportation distance allocations as directed in this opinion, paragraph No. 103.

B. The DOR properly treated the contested costs as direct mining costs and its decision is affirmed;

C. The federal coal lease bonus payments involved herein paid by Petitioner to BLM were properly reclassified by DOR as direct costs under existing Wyoming law and their decision is affirmed.

D. The case is remanded to DOR to recalculate interest consistent with the findings of this opinion.

E. The waiver argument of DOR is denied and the SBOE finds that it has subject matter jurisdiction in this matter.

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 of review within thirty (30) days of the date of this decision.

DATED this 30^th day of August, 2000.

STATE BOARD OF EQUALIZATION

Edmund J. Schmidt, Chairman

Ron Arnold, Member

ATTEST:

Wendy Soto, Executive Secretary