Case Title: Amoco Production Co. v. Wyoming State Bd. of Equalization

Citation: 

Docket Number: 94-171

State: wyoming

Court: Wyoming Supreme Court

Date: 1995-07-14T00:00:00Z

Document:
Amoco Production Co. v. Wyoming State Bd. of Equalization1994 WY 98882 P.2d 866Case Number: 93-104Decided: 10/06/1994Supreme Court of Wyoming
AMOCO 
PRODUCTION COMPANY and Amoco Rocmount Company,

Appellants 
(Petitioners),

v.

WYOMING 
STATE BOARD OF EQUALIZATION, and its members Nancy Freudenthal, Marvin 
Applequist and Terry Rubald, in their official capacities; and the Department of 
Revenue, State of Wyoming,

Appellees 
(Respondents).

Appeal 
from District Court, Laramie County, Edward L. Grant, 
J.

 

Representing 
Appellants:

John 
L. Bordes, Jr., Chicago, IL.

Representing 
Appellees:

Joseph 
B. Meyer, Atty. Gen., Michael L. Hubbard, Vicci M. Colgan, Sr. Asst. Attys. 
Gen.

 

Before 
GOLDEN, C.J., THOMAS, MACY* and TAYLOR, JJ., and CARDINE, 
J.** 
Retired.

* 
Chief Justice at time of oral argument.

** 
Retired July 6, 1994.

THOMAS, 
Justice.

[¶1]      The dispositive 
issue in this case is whether Amoco Production Company and Amoco Rocmount 
Company (Amoco) were afforded procedural due process in an administrative 
proceeding. Amoco sought review by the State Board of Equalization (Board) of 
the selection by the Department of Revenue (Department) of the comparable value 
method for gas treated in its processing plants prior to marketing. After a 
hearing, the Board remanded the proceeding to Department "for adoption of a more 
determinative formula for computation of comparable value based upon reasonable 
inferences from third-party natural gas processing fees." The Board order 
provided the selection of the method would be final, and Amoco was not permitted 
to participate in the adoption of the more determinative formula. We hold that, 
in a contested case proceeding, the Board acted "without observance of procedure 
required by law" (WYO. STAT. § 16-3-114 (1990)) when it remanded the case to the 
Department to adopt a more determinative formula. It is clear the formula 
depends upon factual ascertainment in order to compute those taxes, and Amoco 
was deprived of participation in the factual development. The Order Affirming 
the State Board of Equalization is reversed with instructions to remand the case 
to the Board to determine whether Amoco can be permitted to participate in the 
development of the more determinative formula and, if it concludes that Amoco 
cannot participate, then to utilize the proportionate profits methodology 
proposed by Amoco for valuation of its gas.

[¶2]      In the Brief of 
Appellants Amoco Production Company and Amoco Rocmount Company, the issues are 
articulated as follows:

A. 
Is the District Court's decision affirming the use of the "comparable value" 
methodology unsupported by substantial evidence and contrary to 
law?

B. 
Does W.S. § 39-2-208(d)(ii) permit the use of artificial formulas in determining 
fair cash market value?

C. 
Did the District Court commit reversible error when it affirmed the Board's 
Order granting the Department of Revenue the option of selecting another 
methodology for production years 1992-1994?

D. 
Did the District Court commit reversible error when it affirmed the Board's 
Order permitting the Department of Revenue to develop a new "comparable value" 
after the hearing was completed and the time for appeal had 
expired?

[¶3]      In the Brief of 
Appellees, the Board and the Department set forth the issues in this 
way:

1. 
Whether the State Board of Equalization's decision to allow the use of the 
"comparable value" method to determine fair cash market value comports with law 
and is supported by substantial evidence.

2. 
Whether the Board of Equalization acted according to law when it remanded the 
case to the Department of Revenue.

[¶4]      The genesis of 
this matter is found in a shift in the method for valuing natural gas production 
adopted by the Department for the tax year 1991. Pursuant to WYO. STAT. § 
39-2-208(d), which was adopted in the legislative session of 1990, the 
Department selected the "comparable value" method. The significant portion of 
the statute relating to natural gas provides as follows:

(d) 
In the event the product as defined in subsection (b) [this subsection includes 
natural gas] of this section is not sold at or prior to the point of valuation 
by bona fide arms-length sale, or, except as otherwise provided, if the product 
of the mine is used without sale, the department shall identify the method it 
intends to apply under this subsection to determine the fair cash market value 
and notify the taxpayer of that method on or before September 1 of the year 
preceding the year for which the method shall be employed. The department shall 
determine the fair cash market value by application of one (1) of the following 
methods:

(i) 
Comparable sales - The fair cash market value is the representative arms-length 
market price for minerals of like quality and quantity used or sold at the point 
of valuation provided in subsection (b) of this section taking into 
consideration the location, terms and conditions under which the minerals are 
being used or sold;

(ii) 
Comparable value - The fair cash market value is the arms-length sales price 
less processing and transportation fees charged to other parties for minerals of 
like quantity, taking into consideration the quality, terms and conditions under 
which the minerals are being processed or transported;

(iii) 
Netback - The fair cash market value is the sales price minus expenses incurred 
by the producer for transporting produced minerals to the point of sale and 
third party processing fees. The netback method shall not be utilized in 
determining the taxable value of natural gas which is processed by the producer 
of the natural gas;

(iv) 
Proportionate profits - The fair cash market value is:

(A) 
The total amount received from the sale of the minerals minus exempt royalties, 
nonexempt royalties and production taxes times the quotient of the direct cost 
of producing the minerals divided by the direct cost of producing, processing 
and transporting the minerals; plus 

(B) 
Nonexempt royalties and production taxes.

WYO. 
STAT. § 39-2-208(d) (1990).

[¶5]      It appears the 
Department assumed producers of natural gas, who also were processing their own 
gas, could establish the "processing and transportation fees charged to other 
parties for minerals of like quantity * * *" without difficulty. Amoco 
accommodated to this method of valuation with respect to those gas processing 
plants at which it actually did process gas for other producers. Amoco's 
difficulty with the valuation method selected by the Department was that it 
processed gas for other producers at only two of its plants. Consequently, at 
some of its other plants, it had no processing and transportation fees charged 
to other parties to rely upon. Amoco, therefore, proposed that the proportionate 
profits method be used for those plants, rather than the comparable value 
method.

[¶6]      Amoco was not 
able to persuade the Department to adopt its position. Urging the valuation 
method selected by the Department would not accurately reflect the market value 
of its natural gas, Amoco, pursuant to WYO. STAT. § 39-2-208(g) (1990),1 appealed to the Board for a change 
of method. The Board did hold a hearing in the matter.

[¶7]      In the course of 
the hearing before the Board, the director of the mineral tax division of the 
Department testified in part as follows:

Q. 
Does the Department of Revenue have comparable values for the properties which 
are the subject of this appeal?

A. 
I don't have anything in my possession now that documents comparables for any of 
these plants.

Q. 
So the answer is "no?"

A. 
Yes, the answer is no.

Q. 
If comparable value existed, would the Department of Revenue inform the oil and 
gas producer-processor of that value?

A. 
If I had such information would I share it with the 
producer?

Q. 
Yes.

A. 
Yes.

. 
. . . . .

Q. 
Did you ever propose any rules or regulations regarding the use and application 
of comparable value?

A. 
No.

Q. 
Did you ever advise a producer-processor of oil and gas of the comparable values 
that he would be required to use?

A. 
I did not identify specific comparables. The discussions were in 
general.

Q. 
Did petitioner ever request an interpretation from the Department of Revenue 
regarding the application of comparable value?

A. 
Yes, I received a letter last week requesting a ruling.

. 
. . . . .

Q. 
You never issued any advisories regarding the comparable value methodology as to 
how it should be applied?

A. 
The statute, I think, is specific in that regard specifying that - what 
comparables are, like quantity and like quality of the 
product.

After 
the hearing, the Board made the following finding of fact which is critical to 
the resolution of this case:

While 
there is testimony in the record as to example calculations which might be made 
for natural gas processing fees charged by unrelated parties, there is no 
evidence as to the actual processing fees or fee arrangements charged to such 
parties in circumstances similar to those for the natural gas production and 
processing at issue.

[¶8]      In its 
conclusions of law, the Board ruled the methodology found in the standard of 
valuation, the comparable value method, applied by the Department was 
appropriate. Obviously, this method is justified by the statute. We quote 
further, however, from the conclusions of law in the Board order (emphasis in 
original order):

10. 
Consistent with this philosophy, we conclude the reasonableness of using 
comparable value does not involve "finding" a fee which indeed may not exist as 
an objective fact. Rather, the reasonableness of the comparable value 
methodology is tested by whether there exists reliable, available information 
within the "market" of natural gas processing fees paid by others (i.e., the 
"known"), which can be used to reasonably infer or estimate a just and 
fair processing fee (the "unknown") that would have been paid by Petitioner had 
it been in a "third party" producer position vis-a-vis the processing plant. We 
agree with the Department response that Petitioner is attempting to restrict the 
statute more severely than what its terms require. For utilization of the 
comparable value methodology, the only requirement is reliable information from 
which a reasonable processing fee may be inferred and imputed for Petitioner's 
production. Such a process does not result in a hypothetical fee inasmuch as the 
estimated processing fee would be based on an analysis of actual 
fees.

11. 
Upon reflection, we conclude the record herein contains insufficient evidence to 
allow any finding or conclusion as to whether reliable, available information 
exists from which a reasonable processing fee may be inferred. This 
insufficiency results from the confusion and disagreement between the Department 
and producers as to who is responsible for collecting, reviewing and analyzing 
data from which a reasonable inference may be made as to a processing fee. It is 
our conclusion this responsibility falls on the Department. If the methodology 
prescribed by the Department requires inferences for its practical utilization, 
then the Department must assure the methodology is sufficiently defined and 
determinative to preclude an assortment of different possible answers to the 
question of value.

12. 
In our view, the required definitional and determinative standard has not been 
met. Instead, the Department seems to have retained all options to disagree at 
some later date following audit with taxpayer inferences and calculations. Such 
a scenario was not intended by legislative enactment of W.S. 39-2-208. We 
conclude the legislature, through this statute, was attempting to move toward "a 
fair, predictable, understandable and sound tax policy for both the State of 
Wyoming and the industrial citizens of our State who are vital to the future 
growth and development. . . ." See, Mineral Taxation Report, Joint Revenue 
Interim Committee (Feb. 1, 1990). There is no stability, no predictability, in 
the prescription of a methodology so ill-defined that it cannot be utilized to 
arrive at a determinative value.

13. 
We thus conclude the Department is required to establish sufficient parameters 
or definition for the comparable value methodology so as to allow its 
utilization by taxpayers reporting production, price, cost and value information 
pursuant to W.S. 39-2-201. If the Department fails in this obligation, it must 
be prepared to accept, as the only other authorized statutory valuation method 
for the production at issue, valuation calculations under the proportionate 
profits method.

This 
in substance is the legal rationale which led the Board to its 
order.

Following 
its findings of fact and conclusions of law, the Board provided in its order, 
dated May 26, 1992, as follows:

IT 
IS THEREFORE HEREBY ORDERED selection of the valuation methodology shall be, and 
the same is hereby remanded to the Department for adoption of a more 
determinative formula for computation of comparable value based upon reasonable 
inferences from third-party natural gas processing fees. Such methodology 
selection by the Department shall be final, subject only to Board review by 
individual appeals of specific 1991 production values. If the Department does 
not adopt a more determinative methodology within forty-five (45) calendar days 
from the date of this order, the proportionate profit methodology described in 
W.S. 39-2-208(d)(iv) shall be used to compute value for the 1991 natural gas 
production of Petitioner at issue herein, with the Department having the option 
to select another method for 1992, 1993 and 1994 production pursuant to W.S. 
39-2-208(d).

Amoco 
sought review before the district court of the order of the Board. The district 
court affirmed the Board's order on March 29, 1993, and Amoco then took its 
appeal to this court.

[¶9]      The difficulty we 
have with the approach of the Board is that it assigned to the Department the 
development of facts requisite to arriving at the fair cash market value of the 
Amoco gas without any opportunity for Amoco to participate in the fact-finding 
process. We quote from the Determinative Formula for Computation of Comparable 
Value filed with the Board by the Department:

The 
guidelines presented below are in addition to and not a replacement for those 
provided by Wyoming Statute 39-2-208 and the Department's memorandum dated 
August 30, 1990. These guidelines are applicable for the same time period as set 
out in the 1990 memorandum - 1991-1993 production. The valuation formula is 
based in part on the best information available to the Department which consists 
primarily of processing agreements between unrelated 
parties.

These 
agreements have been obtained through requests made to various taxpayers and 
from the Department of Audit. These documents are maintained by the Department 
as confidential information in accordance with the provisions of W.S. 39-6-309. 
Some of the data used in the valuation formula has been extracted from these 
agreements and aggregated to protect the confidentiality of the individual 
taxpayers.

Ultimately, 
the issue of valuation must rest upon the facts that were developed as described 
by the Department's response.

[¶10]   We understand the inherent barrier 
to participation by Amoco in the development of the formula is that the 
Department has to rely upon information collected under a pledge of 
confidentiality to those supplying it. Amoco argued it could not assume the 
burden of producing this information because it was held to be confidential by 
those supplying it. Amoco contended further that, if it were privy to such 
information, there could develop a concern of price-fixing among the producers. 
These inherent difficulties, however, do not justify a denial of constitutional 
due process.

[¶11]   We note in passing that some of the 
statutory factors are amorphous to a degree. The comparable value method is to 
be used for minerals of "like quantity," and it is to take into consideration 
"the quality" and "terms and conditions" under which the minerals are being 
processed or transported. We recall a similar difficulty with respect to 
statutory definitions which caused us to require rule making in connection with 
environmental quality regulations. Matter of Bessemer Mt., 856 P.2d 450 
(Wyo. 1993).

[¶12]   In this case, the charge to the 
Department fits within the language of WYO. STAT. § 39-1-304(c) 
(1990):

(c) 
The following shall be adopted in accordance with the requirements and 
procedures of the Wyoming Administrative Procedure Act:

(i) 
Adoption of any manual, formula, method or system to be used to determine the 
fair market value of property for tax purposes * * *.

That 
provision, however, is found in the powers and purpose of the Board of 
Equalization, and it does not appear the Department would have that authority. 
Our mention of this statute probably is in the nature of an aside, because it is 
obvious the process followed here occurred in the context of a contested case, 
and there was no effort to pursue the rulemaking requirements of the Wyoming 
Administrative Procedure Act. We simply suggest, given the language of the 
statute, there might be some wisdom in pursuing that 
effort.

[¶13]   We do take cognizance, however, of 
the procedural statute relating to contested cases, WYO. STAT. § 16-3-107 
(1990), specifically sub-paragraphs (j) and (k), which provide in pertinent 
part:

(j) 
Opportunity shall be afforded all parties to respond and present evidence and 
argument on all issues involved. Any person compelled to appear in person before 
any agency or representative thereof shall be accorded the right to be 
accompanied, represented and advised by counsel or, if permitted by the agency, 
by other qualified representative.

(k) 
Every party shall be accorded the right to appear in person or by or with 
counsel or other duly qualified representative in any agency proceeding in 
accordance with such rules as the agency prescribes and the pertinent rules of 
the supreme court of Wyoming. So far as the orderly conduct of public business 
permits, any interested person may appear before any agency or its responsible 
officers or employees for the presentation, adjustment or determination of any 
issue, request or controversy in any proceeding (interlocutory, summary or 
otherwise) or in connection with any agency function. Every agency shall proceed 
with reasonable dispatch to conclude any matter presented to it except that due 
regard shall be had for the convenience and necessity of the parties or their 
representatives. Any person representing an agency at a hearing in a contested 
case in which the agency is a party shall not in the same case serve as 
presiding officer or provide ex parte advice regarding the case to the presiding 
officer or to the body or any member of the body comprising the decision 
makers.

Given 
the tenor of the "Determinative Formula for Computation of Comparable Value," 
quoted in part above, we must pose the rhetorical question, "What happened to 
Amoco's procedural rights in this instance?"

[¶14]   The factual determinations to 
establish the formula were arrived at by the Board without any participation by 
Amoco or any opportunity to "respond and present evidence and argument" on all 
issues involved. We are satisfied the product of the Board's order was to 
deprive Amoco of due process of law. While it is a principle so obvious that it 
has received little attention in our jurisprudence, there can be no question 
that due process considerations are invoked in administrative proceedings. 
ANR Production Co. v. Wyoming Oil and Gas Conservation Comm'n, 800 P.2d 492 (Wyo. 1990); Jackson v. State ex rel. Wyoming Workers' Compensation 
Div., 786 P.2d 874 (Wyo. 1990). Certainly, a failure to follow the statutory 
procedures must be considered in determining whether a party has been afforded 
that process which is due. Furthermore, we have said:

Our 
cases hold that procedural due process is satisfied if a person is afforded 
adequate notice and an opportunity to be heard at a meaningful time and in a 
meaningful manner. Higgins v. State ex rel. Workers' Compensation 
Division, 739 P.2d 129 (Wyo. 1987), cert. denied 484 U.S. 988, 108 S. Ct. 508, 98 L. Ed. 2d 507 (1987). In White v. Board of Trustees of Western 
Wyoming Community College, 648 P.2d 528 (Wyo. 1982), cert. denied 459 U.S. 1107, 103 S. Ct. 732, 74 L. Ed. 2d 956 (1983), we summarize the constitutional 
principles that are demanded by the Constitution of the United States and 
prescribe that, where a state seeks to terminate a life, liberty, or property 
interest, the state must afford notice and an opportunity for hearing, 
appropriate to the case, before termination. See Lentsch v. Marshall, 741 F.2d 301 (10th Cir. 1984).

Robbins 
v. South Cheyenne Water and Sewage Dist., 
792 P.2d 1380, 1385 (Wyo. 1990).

[¶15]   We fully recognize a difficult 
conundrum is posed for the Department and the Board by our resolution of this 
case. It may not be possible for the Department to permit Amoco to participate 
in the fact-finding process without violating its commitment which, perhaps, is 
even a legal obligation, to other processors of natural gas with respect to the 
confidentiality of the information furnished to the Department. If those 
inhibitions make the hearing we require an impossibility, then it seems clear, 
and consistent with the order of the Board, that in this instance the 
proportionate profits method for valuation described in WYO. STAT. § 
39-2-208(d)(iv) must be invoked. A possible alternative is for the Board to 
pursue a rulemaking proceeding to adopt the method or the formula for the 
comparable value method of valuation.

[¶16]   We reverse the order of the 
district court affirming the order of the Board of Equalization, with 
instructions that the case be remanded to the Board of Equalization for further 
proceedings in accordance with this opinion.

Footnotes

1 WYO. STAT. § 39-2-208(g) (1990) provides:

(g) If the fair cash market value of the product defined in subsection 
(b) of this section is determined pursuant to subsection (d) of this section, 
the method employed shall be used in computing taxes for three (3) years 
including the year in which it is first applied or until changed by mutual 
agreement between the department and taxpayer. If the taxpayer believes the 
valuation method selected by the department does not accurately reflect the fair 
cash market value of the mineral, the taxpayer may appeal to the board of 
equalization for a change of methods within one (1) year from the date the 
department notified the taxpayer of the method 
selected.