Case Title: Pathfinder Mines Corp. v. State Bd. of Equalization

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1988-12-15T00:00:00Z

Document:
Pathfinder Mines Corp. v. State Bd. of Equalization1988 WY 154766 P.2d 531Case Number: 87-280Decided: 12/15/1988Supreme Court of Wyoming
PATHFINDER MINES 
CORPORATION, PETITIONER,

v.

STATE BOARD OF 
EQUALIZATION, THE WYOMING DEPARTMENT OF REVENUE AND TAXATION, AD VALOREM 
DIVISION, RESPONDENT.

Appeal from the 
Department of Revenue and Taxation.

John A. 
MacPherson and Catherine MacPherson of Johnson, MacPherson & Noecker, 
Rawlins and Thomas W. Pennington of Pathfinder Mines Corp., San Francisco, Cal., 
for 
petitioner.

Joseph B. Meyer, 
Atty. Gen., Michael L. Hubbard, Sr. Asst. Atty. Gen., and Robert J. Walters, 
Asst. Atty. Gen., for 
respondent.

Before CARDINE, C.J., THOMAS, URBIGKIT and MACY, 
JJ., and BROWN, J., Retired.*

* Retired June 30, 
1988.

URBIGKIT, 
Justice.

[¶1.]     This appeal involves a 
contest to an extra $712,329 assessed in 1986 as a severance tax on uranium and 
presents for inquiry a change in the system of valuation by the Wyoming 
Department of Revenue and Taxation as administratively approved in contested 
hearing before the Wyoming State Board of Equalization. To be discussed are 
countervailing factors of a valuation system for prior years which understated 
taxable value in contravention of constitutional and statutory requirements as 
engaged against the present challenge of improper administrative processes used 
to make the 1986 change.

[¶2.]     In deciding this appeal 
which raises basic Wyoming constitutional and statutory criteria 
of fair, equal and uniform taxation as based on value, we affirm the decision of 
the Wyoming State Board of Equalization which upheld the department valuation 
application for the tax year 1986 and denied refund of protested 
payments.

[¶3.]     Pathfinder Mines 
Corporation (Taxpayer), as petitioner and appellant, appealed to the district 
court by petition for review from the action of the Wyoming Department of 
Revenue and Taxation (Department) and confirmed by the Wyoming State Board of 
Equalization (Board). The petition for review was certified to this court 
pursuant to W.R.A.P. 12.09. The contested change in valuation, as a different 
process from prior years, resulted in a tax paid for 1986 of about 230% above 
admitted obligation or a total of 330% of amounts paid under prior valuation 
methodology.1 Historically, for reasons not 
explainable in constitutional terms or valuation principles, the Department had 
used a pricing system called "Circular 5 Modified" (Circular 5) for uranium ore. 
In the late 1960's, as the only purchaser for the uranium ore product, the 
United States developed that payment system based upon a U[3]O[8] (yellowcake) 
value of $8 per pound. With discontinuance of the monopoly purchase system of 
the federal government, yellowcake price floated with world market reaching a 
high of about $42 and to fall in more recent times to a price of less than $18 
per pound. The constancy of the Circular 5 system retained a continued value for 
taxation at the $8 per pound standard, no matter what the market value might 
have been.2 Lacking any reliable argument that 
the continuation of the prior system was justified factually in application, the 
contentions presented by Taxpayer to avoid the increase for the 1986 tax year 
are then analyzed in conjunction with the processes by which the changed method 
was actually put into effect.

[¶4.]     The first issue 
presented was strictly procedural in statutory interpretation. Using W.S. 
39-6-301(a)(iv), Taxpayer contended that the pricing for severance tax in 1986 
was statutorily limited to the same valuation system used for ad valorem taxes 
in 1985.

[¶5.]     Secondly, Taxpayer 
contended that any change in the system, even if permitted first for severance 
taxes to be different from the ad valorem system for the prior year, was put 
into effect in 1986 without timely notice and was consequently invalid. 

[¶6.]     As a third contention, 
it was argued that the valuation system change required Wyoming Administrative 
Procedure Act (WAPA) rules and regulation adaptation, including compliance with 
advance notice and hearing provisions as was not done.

[¶7.]     Fourth, as an issue of 
valuation itself, Taxpayer rejected the basic underlying value since that number 
was premised on a long term contract advantageous sales price as substantially 
higher than the general market spot price for the yellowcake 
product.

[¶8.]     Finally, in the more 
generalized argument, Taxpayer challenged the integrity of the adopted system 
itself as a proper taxation valuation approach.

[¶9.]     Superimposed in our 
consideration of this taxation issue is factual demonstration and required legal 
conclusion that the pre-1986 system was rationally unrelated to market value and 
did not comply with either statute nor constitution, Rocky Mountain Oil and Gas 
Ass'n v. State Bd. of Equalization, 749 P.2d 221 (Wyo. 1987); as then presenting 
the question of whether what the Department did was appropriate to rectify the 
recognized illegality of prior years. The objective in both statutory and 
constitutional perspectives of Wyoming taxation is to ascertain the value of 
the natural ore at mine (or wellhead) prior to other activities which increase 
the value including processing, beneficiation or transportation. Appeal of 
Monolith Portland Midwest Co., Inc., 574 P.2d 757 (Wyo. 1978); Hillard v. Big Horn Coal Co., 549 P.2d 293 
(Wyo. 1976); C F & I Steel Corp. v. State 
Bd. of Equalization, 492 P.2d 529 (Wyo. 1972); 
McDermott & Co. v. Hudson, 370 P.2d 364 
(Wyo. 1962). 
The Circular 5 artificial value is directly comparable to variable ratios, which 
were the subject of exhaustive inquiry by this court in Rocky Mountain Oil and 
Gas Ass'n, 749 P.2d 221. Nor was the actual cost criteria met as dispositively 
required in Appeal of Monolith Portland Midwest Co., Inc., 574 P.2d 757.

[¶10.]  Historically in this tax development, on 
about April 8, 1986, Taxpayer received a letter dated April 7, 1986 (April 7 
letter) from the Department advising of the discontinuance of the Circular 5 
method to be replaced by a valuation computation based on quantities times price 
received and to be reduced for taxation purposes by a deduction of $35 per ton 
processing costs, haulage and other taxes. The change was promptly protested by 
appeal to the Board with the first quarter tax paid of $305,131, of which a 
calculated $194,111 was contended to be the increased amount derived from the 
system change.

[¶11.]  On August 8, 1986 (August 8 letter), a 
second letter was received advising that the system for the second, third and 
fourth quarters would be slightly changed as similar, except that actual 
processing costs would be substituted for the arbitrary $35 figure with proviso 
added for a further credit of 15% as a return on investment. Another appeal was 
taken from the August 8 letter which related to the last three quarters, with 
protested tax for the year then aggregating $712,329.

ISSUES 
PRESENTED.

I. Changed Method for Severance Tax From Prior 
Year - Ad Valorem, W.S. 39-6-301(a)(iv) & Illegality of Change From 
Controlling Ad Valorem Tax Standard.

[¶12.]  W.S. 39-6-301(a)(iv) 
provides:

"Value of the gross 
product" means the valuation of the gross product for the preceding calendar 
quarter of all mines and mining claims as calculated on the same basis as is 
prescribed by W.S. 39-2-202 for determination by the department of the value of 
the gross product for the preceding calendar year.

[¶13.]  W.S. 39-2-202, which is incorporated by 
reference in the prior statute, further provides:

(a) Based upon the 
information received or procured pursuant to W.S. 39-2-201(b) or (c), the board 
shall annually value the gross product for the preceding calendar year, in 
appropriate unit measures of all mines and mining claims from which valuable 
deposits are produced, at the fair cash market value of the product at the mine 
or mining claim where produced, after the mining or production process is 
completed. 

(b) The mining or 
production process is deemed completed when the mineral product is removed from 
the pit, shaft, mine or well, and prior to any benefication [beneficiation] or 
further processing is placed in storage prior to transportation to market, or in 
the case of natural gas, in the pipeline for transportation to 
market.

(c) If the product as 
defined in subsection (b) of this section is sold at the mine or mining claim, 
the fair cash market value shall be deemed to be the price established by bona 
fide arms-length sale.

(d) In the event the 
product as defined in subsection (b) of this section is not sold at the mine or 
mining claim by a bona fide armslength sale, or, except as hereafter provided, 
if the product of the mine is used without sale, the department shall determine 
the fair cash market value by application of recognized appraisal techniques. 
Natural gas which is vented or flared under the authority of the Wyoming oil and 
gas conservation commission and natural gas which is reinjected or consumed 
prior to sale for the purpose of maintaining, stimulating, treating, 
transporting or producing crude oil or natural gas on the same lease or unit 
from which it was produced has no value and is exempt from 
taxation.

[¶14.]  Taxpayer contends by application of these 
statutes that the recognized and utilized technique to determine market value 
for ad valorem in 1985 controlled, and that the system consequently could not be 
changed for severance or production tax for 1986.

[¶15.]  We dispose of the subject by recognition 
that the argument presumes validity of the system used for 1985, which is 
clearly undemonstrable. SeeNatronaCountySchool 
District No. 1 v. Ryan, 764 P.2d 1019 (Wyo. 1988). Consequently, 
the Department was not required to continue an invalid system which afforded no 
reasonable relationship to market value as illegal and contrary to the 
constitutional mandates of equal and uniform; Wyo. Const. art. 15, § 3, "in 
proportion to the value thereof"; Wyo. Const. art. 15, § 11 "shall be uniformly 
assessed for taxation * * * as shall secure a just valuation * * *"; Wyo. Const. 
art. 15, § 19 "on the value of the gross product extracted"; and Wyo. Const. 
art. 1, § 28, "equal and uniform." Rocky Mountain Oil and Gas Ass'n, 749 P.2d 221; State ex rel. Greenwood v. Pearson, 46 
Wyo. 307, 26 P.2d 641 (1933); Bunten v. 
Rock Springs Grazing Ass'n, 29 Wyo. 461, 215 P. 244 
(1923).

[¶16.]  The Board set forth its position on this 
point as a conclusion of law:

* * * Petitioner is not 
entitled to the relief requested due to the computation of gross products taxes 
on "Circular 5 Modified." The gross products tax and the severance taxes are 
separate taxes, which are controlled by separate statutory provisions. Simply 
because gross products taxes may have been valued improperly does not entitle 
the petitioner to claim the same improper treatment for severance taxes. W.S. § 
39-2-202 does not mandate the use of "Circular 5 
Modified."

[¶17.]  Responsively to the argument, Taxpayer 
asserts that the "improper" determination was not demonstrated. We find that 
contention to lack persuasion. A system that has no real relevance to value 
cannot be considered as a proper methodology for taxation valuation and 
assessment determination, and there goes Circular 5. Consequently, we do not 
confine the state and its agencies to the use in 1986 of a system, although used 
in 1985, which was improper for either year. Appeal of Monolith Portland Midwest 
Co., Inc., 574 P.2d 757; Bunten, 215 P. 244.

II. Untimely Notice to Taxpayer of Valuation 
System Change - Delayed Notice.

[¶18.]  W.S. 39-6-304(b) 
provides:

On or before April 1 of 
each year the board shall furnish each known taxpayer under this article a basis 
for computing the value of his product as prescribed in W.S. 39-2-202 and 
39-6-301. The department may revise a basis as necessary and shall furnish the 
revised basis to each known taxpayer. A taxpayer shall not use less than the 
most recent basis furnished under this subsection in computing his quarterly 
payments.

[¶19.]  Without question, compliance with the 
statute did not exist in noticing a change to the method since the first notice 
was provided by the April 7 letter and received on April 8, 1986. We are 
consequently faced with determining whether this defect requires 1986 retention 
of the invalid Circular 5 system within the predominating concerns for overall 
taxation process problems to be seen in recent Wyoming litigation. The Board argues that the 
dates were directory and not mandatory and that considering reconciliation 
criteria in computation and lack of prejudice in delayed notice for the 
Taxpayer, the substantive tax correction should not be rejected on this basis. 
Taxpayer contends with persuasion that the statute is clear on its face and 
should be mandatorily enforced. We will confine our conclusion to the facts in 
this case and will not resolve the issue on the discretionary-mandatory 
differentiation. The issue comprehends a constitutional and statutory obligation 
for public purpose taxation based on value and cannot be defined to a business 
decision type of differentiated system development. Consequently, this court 
will not require continuation of an invalidly low tax for another year when 
litigative prejudice to the Taxpayer is not shown by the one week delay in 
method change announcement.3 Weaver v. State Bd. of 
Equalization, 511 P.2d 97 (Wyo. 1973); Baker v. 
Paxton, 29 Wyo. 500, 215 P. 257 (1923). Cf. Appeal of 
ParadiseValley Country Club, 748 P.2d 298 (Wyo. 
1988).

III. The Letter Announcement Approach Was 
Improper Where a Rules Adoption System Should Have Been Pursued to Redefine the 
Taxation Valuation System - Issue Rule Adaptation 
Required.

[¶20.]  In first analysis, Taxpayer is presented 
with an obvious anomaly considering that Circular 5, although applied for at 
least 20 years, was not adopted by rule itself. Essentially, the system appears 
to have first happened and then continued after initiation without consideration 
of changed circumstances engendered by the passing of time until 1986.4 This court has not previously 
required that a valuation system adaptation and pricing mechanisms within the 
Department require promulgation by the regularized rule processes of the WAPA, 
W.S. 16-3-102(b), as long as statutory and constitutional rights to protest and 
contest are afforded to the taxpayer. Appeal of ParadiseValley Country Club, 748 P.2d 298; Wyoming Min. Ass'n v. State, 748 P.2d 718 (Wyo. 1988). Cf. 
Montana-Dakota Utilities Co. v. Wyoming Public Service Com'n, 746 P.2d 1272 
(Wyo. 1987) 
(rate making process).

[¶21.]  If we determine that every valuation 
decision of the Department or Board requires a rule adaptation, then we 
individually involve the Governor with each taxing incident since the Governor 
must approve all rules and the requirement will cause him to become a direct 
administrative participant in the tax collection process. See W.S. 16-3-103(d). 
The adaptation criteria of W.S. 39-1-304(c) relates to action of the Board and 
not the Department which abandoned Circular 5 to attempt to achieve the 
statutorily required fair market cash value in W.S. 39-2-202(c) criteria as 
adopted in accord with the general rules promulgated as Rules and Regulations of 
the Wyoming Tax Commission, Department of Revenue and Taxation Ad Valorem and 
Severance Taxes on Mineral Production, ch. XXI, § 10. We concur with the Board 
in contention that the basic decision letters as issued by the Department do not 
constitute rules and need not be adopted pursuant to the WAPA. Consequently, 
this was not a rule required adaptation by the Board as addressed by 1985 
Wyo. Sess. 
Laws ch. 103, § 1 as now found in W.S. 39-1-304(c). For these reasons, we also 
reject this argument to require tax payment reversal.

[¶22.]  Furthermore, the "Minute Entry" taxation 
criteria, if ever since 1970 in compliance with the constitutional equality 
mandates, Rocky Mountain Oil and Gas Ass'n, 749 P.2d 221, surely did not 
continue that compliance to 1986 when then also representing a departure from 
W.S. 39-2-202. Appropriately, albeit belated, attempted Department correction 
effort should not be denied because of the slightly delayed notice. Otherwise, 
this court would require the state to continue the unconstitutional application 
resulting in loss of state revenue which would defeat the intrinsic 
responsibility of the Department to the state and its citizens. The action 
consequently taken by the Department only served to delete the uranium industry 
differentiated standard from the general guidelines in order to achieve a 
required equality of taxation method with other comparable mineral products. It 
is perceived that in constitutional fact, the Board did not adopt a new rule nor 
did it change a formula that was not already in existence by removal of an 
exception from the general standard for a result which was not only timely and 
lawful but, in fact, constitutionally and statutorily 
mandated.

IV. General Market Value versus Contract Sales 
Price - Valuation at Price Received.

[¶23.]  Taxpayer contends that in itself, the 
adopted system was faulty since the basic price used for computation was what 
Taxpayer received through an extremely favorable long term sales contract as a 
price measurably higher than the general market spot price for the product. We 
conclude in response that use within a computative system for valuation of what 
the Taxpayer gets is not arbitrary or capricious as now to be rejected on 
litigative attack. Cf. C F & I Steel Corp., 492 P.2d 529.

V. The Development Process and Approval by the 
Board Was Characterized by Conduct Which Was Arbitrary and Capricious and an 
Abuse of Discretion - Validity of Basic Decision as Administrative 
Action.

[¶24.]  Taxpayer finally contends that the 
supervisory decision of the Board was arbitrary, capricious and not in accord 
with law by its generalized attack on the increased tax and its appeal approval 
after the formal Board hearing. In applying our usual standard for examination 
of the record, we find that this attack also fails in persuasion. Burlington Northern R. Co. v. Public Service Com'n of 
Wyoming, 698 P.2d 1135 (Wyo. 1985). Substantial 
evidence is found which sustains the findings and the conclusions of the Board. 
As we said in Cody Gas Co. v. Public Service Com'n of Wyoming, 748 P.2d 1144, 
1147 (Wyo. 1988), statutory designation of an administrative agency function 
encompasses a reasonable delegation of process determination required or adopted 
for performance and particularly so since the Board has a constitutional 
responsibility within the taxation instrumentalities of the state by Wyo. Const. 
art. 15, § 10. 5

Any constraints on 
methods available to the agency to exercise designated responsibilities should 
be emplaced by specific statutory restrictions if constitutional interests are 
otherwise protected.

Cody Gas Co., 
748 P.2d  at 1148.

[¶25.]  The methodology developed by the 
Department for valuation as now applied belatedly to uranium has received prior 
approval of this court in the course of litigative examinations. Hillard, 549 P.2d 293; C F & I Steel Corp., 492 P.2d 529. Hypothetical costs which are 
intrinsic to Circular 5 are not acceptable. Appeal of Monolith Portland Midwest 
Co., Inc., 574 P.2d  at 761. Trial hearing computative analysis demonstrates 
reliability in the actual processing cost of approximately $27.04 as compared to 
the result derived total through Circular 5 of $89.53 per ton or 330% more. That 
previously used approach does not now come unannounced to this court, since 
previously visited in the contract dispute involving Cheyenne Min. and Uranium 
Co. v. Federal Resources Corp., 694 P.2d 65, 73 (Wyo. 1985) where, even for that 
purpose, this court "conclude[d] that the gross-proceeds figures obtained from 
Circular 5, as modified, were not sufficiently reliable to permit the trial 
court to award * * * [a] proper share of profits," as it there ignored the 
effect of technological advance in both milling and mining. Here, it also 
ignores economic changes from price increase.

[¶26.]  Intrinsic to government is not only the 
adequacy but also the fairness of revenue collection for its support. Within the 
context of our prior litigation for pricing purposes to determine tax as 
enumerated in C F & I Steel Corp. and Hillard, we would confirm exercise of 
discretion by this administrative agency as factually justified and not 
arbitrary nor capricious. TetonValley Ranch v. State Bd. of 
Equalization, 735 P.2d 107 (Wyo. 1987); Bunten, 215 P. 244.

[¶27.]  AFFIRMED.

FOOTNOTES

1 As presented, the 
controversy relates only to severance tax. However, the same valuation questions 
apply to the ad valorem tax as a valuation process which is also within the 
jurisdiction of the Department for assessment, although payments received for ad 
valorem tax generally are applied to local levels of government which, in this 
case, would be principally CarbonCounty and its school 
district.

2 It was not represented 
in briefing nor by direct response to question in oral argument, but Circular 5 
did not have any general relevance to 
either present sales prices or market value. It was only a historical assumed 
taxation standard and it did not have any ratio relevance to taxation of oil and 
gas or other mineral production within the severance taxation system. See Rocky 
Mountain Oil and Gas Ass'n v. State Bd. of Equalization, 749 P.2d 221 
(Wyo. 1987). A 
casual computation, which includes the historical higher production and high 
prices once existent in earlier times, demonstrates that the state lost tens of 
millions of dollars in lost tax revenues, including both ad valorem and 
severance, when the uranium industry was in its healthy period in Wyoming. The state is now 
called, with the industry in a catastrophic decline, to reverse the admonition 
of the historical axiom, "make hay while the sun shines." Amoco Production Co. 
v. State, 751 P.2d 379 (Wyo. 1988). Circular 5 is biased in favor of 
reduced tax for higher priced and higher quality ore production. Taxpayer 
contends mathematically that with lower market price, the state system will 
totally eliminate any valuation of the ore for taxation assessment. At $15 
pricing and ore grade of .2% (or $20 per pound and .10%) the two systems produce 
a very similar result. The divergence here resulted from the higher price 
utilized in actual sales price of $53.65 and an approximate .2% product content 
ore.

3 The court could observe 
from exposure to the broad issues encountered in Rocky Mountain Oil and Gas 
Ass'n, 749 P.2d 221, that industry executives and legislators alike recognized 
well before 1986 that the Wyoming taxation system was operationally catastrophic 
in constitutional characteristics. Why the Circular 5 system was continued for 
uranium valuation not one but 20 years past time when it ceased to have a 
validity may be explainable in politics but not in tax law nor constitutional 
analysis.

4 On March 26, 1970, the 
Board adopted a "Minute Entry" which, as including other mineral products, 
provided:

"The Board unanimously 
agreed that the value of minerals other than oil, gas and uranium should be 
determined by the following formula:

Sales price of processed 
product f.o.b. contract or commercial carrier, minus all costs to point of 
determined sales price equals money profit. All costs to point of determined 
sales price less royalty divided into money profit equals percent of profit. 
Mining cost less royalty multiplied by percent of profit equals mine profit. 
Cost of mining plus royalty plus mine profit equals value of mineral as mined. 
If a sales price can only be obtained at a point after commercial transportation 
the price used will be that price less the commercial transportation 
charge.

Uranium shall be valued 
by the Circular 5 price on the average yearly grade of each mine, reduced or 
increased by the percentage of the average yearly sale price of U[3]O[8] per lb. 
The producer's transportation cost shall be deducted on the basis of commercial 
transportation paid or actual cost plus a reasonable 
profit.

Oil, as in the past, will 
be valued at the contract or posted field price less transportation, if any, to 
the nearest pipeline tariff point."

Hillard, 549 P.2d  at 296.

5 The duties of the board 
shall be to equalize the valuation on all property in the several counties and 
such other duties as may be prescribed by law.