Case Title: Union Pacific Resources Co. v. State

Citation: 

Docket Number: 92-30

State: wyoming

Court: Wyoming Supreme Court

Date: 1992-09-23T00:00:00Z

Document:
Union Pacific Resources Co. v. State1992 WY 121839 P.2d 356Case Number: 92-30Decided: 09/23/1992Supreme Court of Wyoming
UNION PACIFIC RESOURCES 
COMPANY,

Appellant 
(Plaintiff),

v.

STATE of Wyoming; Wyoming 
Department of Revenue; Earl Kabeiseman, in his official capacity as Director of 
the Wyoming Department of Revenue; Wyoming State Board of Equalization; Wyoming 
Tax Commission; Nancy D. Freudenthal, Marvin Applequist, II, and C.H. Brown, 
III, in their official capacities as members of the Wyoming State Board of 
Equalization and the Wyoming Tax Commission; Wyoming Department of Audit; Roger 
W. Dewey, in his capacity as Director of the Wyoming Department of Audit; Board 
of County Commissioners of the County of Uinta; Board of County Commissioners of 
the County of Sweetwater; Board of County Commissioners of the County of 
Laramie; Board of County Commissioners of the County of Carbon; Board of County 
Commissioners of the County of Crook; Board of County Commissioners of the 
County of Lincoln; and Board of County Commissioners of the County of 
Converse,

Appellees 
(Defendants),

and

Board of County 
Commissioners of the County of Albany; Board of County Commissioners of the 
County of Big Horn; Board of County Commissioners of the County of Campbell; 
Board of County Commissioners of the County of Fremont; Board of County 
Commissioners of the County of Goshen; Board of County Commissioners of the 
County of Hot Springs; Board of County Commissioners of the County of Johnson; 
Board of County Commissioners of the County of Natrona; Board of County 
Commissioners of the County of Niobrara; Board of County Commissioners of the 
County of Park; Board of County Commissioners of the County of Platte; Board of 
County Commissioners of the County of Sheridan; Board of County Commissioners of 
the County of Sublette; Board of County Commissioners of the County of Teton; 
Board of County Commissioners of the County of Washakie; and Board of County 
Commissioners of the County of Weston,

Appellees 
(Defendants/Intervenors).

Appeal from District 
Court, UintaCounty, John D. Troughton, 
J.

Dennis W. 
Lancaster of Phillips, Lancaster & Thomas, P.C., Evanston, and Cynthia M. Lummis of Wiederspahn, Lummis 
& Liepas, Cheyenne, for appellant.

Joseph B. Meyer, 
Atty. Gen., and Michael L. Hubbard, Sr. Asst. Atty. Gen., for appellee 
State of Wyoming.

Bruce A. 
Salzburg and David D. Freudenthal of Herschler, Freudenthal, Salzburg, Bonds 
& Rideout, P.C., Cheyenne, and Peter C. Maxfield, Laramie, for appellee 
Counties.

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

* Chief Justice at time of 
oral argument.

URBIGKIT, Justice.

[¶1]      This mineral tax 
assessment challenge was filed by a very large Wyoming corporate taxpayer in a district court 
declaratory judgment action. Complex issues were presented by this major oil and 
gas producer. The complaint named both county and state officials as defendants. 
As the appellant's brief states, this appeal "involves the proper method and 
manner in which the State, County and other named government officials * * * may 
value, audit, assess, collect and review taxes on Union Pacific Resources 
Company's * * * oil and gas production."

I. ISSUES

[¶2]      District court 
summary judgment dismissal of the complaint provides the final order for this 
appeal. The issues stated by Union Pacific Resources Company are:

     1) The District Court 
has jurisdiction to decide the issues raised in Appellant's Complaint and has 
the authority to grant the relief requested therein.

     2) The District Court 
erred in granting Appellees' motions and dismissing Count I of Appellant's 
Complaint, which requests a judicial declaration that the wellhead is the proper 
point of valuation to determine the taxable value of Appellant's oil and gas 
production for the years 1984 to 1988, inclusive.

     3) The District Court 
erred in granting Appellee's motions and in dismissing Count II of Appellant's 
Complaint which requests a judicial declaration that certain statutes of 
limitation and other time limitations, restrict the audit and tax collection 
authority of Appellees.

     4) The District Court 
erred in granting Appellees' Motions and in dismissing Count III of the 
Appellant's Complaint which requests a judicial declaration that the "county 
contract audits" are unconstitutional, illegal, unauthorized and violative of 
public policy.

[¶3]      The appellee 
counties, which now include all twenty-three Wyoming counties, amplify the issues 
as:

     A. Whether a 
declaratory judgment action filed by a mineral producer concerning the 
appropriate point of valuation for its production in prior years should be 
entertained when the producer has not first presented the issue to the State 
Board of Equalization?

     i. Whether a 
declaratory judgment concerning point of valuation for mineral tax purposes is 
subject to a requirement of exhaustion of administrative remedies, or in the 
alternative, to the doctrine of primary jurisdiction?

     B. Whether any statute 
of limitations prevents Wyoming counties from seeking out mineral 
production which was unreported for taxation in prior years?

     i. Whether a record 
retention requirement established by rule or statute operates as a statutory bar 
to Wyoming's 
counties seeking out mineral production unreported in prior years?

     ii. Whether the 
limitation on county assessors' collection of taxes on "omitted property" 
operates as a five-year[] statute of limitations preventing counties from 
seeking out mineral production unreported for taxation?

     iii. Whether the 
eight-year statute of limitations contained in W.S. 1-3-105 operates to prevent 
counties from seeking out production unreported for taxation?

     C. Whether the 
practice of Wyoming counties of hiring private firms to review production 
reports made by mineral producers to various governmental agencies pursuant to 
contracts which compensate them, in part, based upon a percentage of taxes 
collected is unlawful as without statutory authority, void as against public 
policy, or subject to state preemption?

     i. Whether Wyoming counties have 
statutory authority to enter into contracts for the services provided by the 
so-called "County Contract Auditors?"

     ii. Whether the 
contingent fee provision of such contracts renders them void as contrary  to Wyoming public policy?

     iii. Whether the 
creation of the Wyoming Department of Audit has preempted the counties' 
authority to contract for the services provided?

[¶4]      The State, 
addressing the subjects intrinsic to its function, simplifies by 
stating:

1. Is declaratory 
judgment available where the taxpayer has failed to exhaust administrative 
remedies relating to an administrative request for refund, an incomplete audit 
and an administrative assessment of taxes to which taxpayer did not 
respond?

2. Is there an applicable 
statute of limitations against the Board's authority to review allegations of 
improper assessment and remedy such improper assessment?

[¶5]      We find three 
differentiated subjects litigatively created by the pleadings: (a) taxation 
point of valuation for either or both oil and gas production taxable within 
either the Wyoming ad valorem or severance tax systems and the ancillary 
question of whether this issue should now be judicially addressed before the 
appellant, Union Pacific Resources Company (Taxpayer), exhausts state tax agency 
administrative remedies; (b) what statutes, among possible statutes, provide a 
statute of limitation for collection of unpaid taxes by governmental entities 
for prior years; and (c) legality of the board of county commissioners entering 
into contracts with fee based private companies who check records to establish 
the existence of unpaid ad valorem mineral taxes.

[¶6]      There is a 
preliminary question of the propriety of the district court's decision since the 
first two general issues remain undetermined, and perhaps all three, resulting 
from the summary judgment disposition with a procedural decision that a prior 
requirement for the litigant to first exhaust administrative remedies 
existed.

[¶7]      We concur with 
the district court regarding the first issue, disagree with its procedural 
disposition failing to decide the statute of limitation issue, and agree with 
what the district court recognized but perhaps did not determine for decision 
with reference to the third issue. Consequently, we affirm the district court in 
decision on the first issue. With recognition of the basic and pervasive content 
of the second issue and the third as well, authenticating need for early 
judicial resolution for statewide application, we now elect to resolve the 
issues in this initial appeal. These tax issues involve tens if not hundreds of 
millions of dollars of state and local government revenues.

II. DECISION FROM WHICH 
APPEAL IS TAKEN

[¶8]      Following a 
complete course of cross pleadings, including motions to dismiss and motions for 
summary judgment, the district court issued a detailed and well-reasoned 
decision letter followed by an order of dismissal incorporating the decision 
letter. The order of dismissal dispositively stated: 

     ORDERED that the 
Motions be and the same are hereby generally granted, and that the Complaint be 
and is hereby dismissed, each of the parties to bear its own costs, and it is 
further

     ORDERED that the 
Court's letter ruling of November 25, 1991, as amended, be and is hereby 
incorporated herein.

[¶9]      The decision 
letter, in consideration of the first issue - valuation point - determined that 
exhaustion of administrative remedies was required. Regarding the statute of 
limitation, it was considered to be a mixed issue of law and fact which should 
also wait primary and prior administrative agency review. The district court 
then determined that the county usage of the contingent fee contract with 
independent contracts to audit for tax underpayment was not illegal. Within the 
nature of the dismissal order, there is some question of whether the declaratory 
decision was made on the third issue in final form, although the decisional 
basis for resolution was clearly stated in the text of the decision 
letter.

[¶10]   We will conjunctively consider the 
umbrella issue of exhaustion of administrative remedies with each of the 
substantive issues presented on appeal.

III. POINT DURING 
PRODUCTION AND PROCESSING FOR TAXATION VALUATION

[¶11]   The concept in disagreement about 
the point in place and time for valuation of mineral production identically 
relates to the ad valorem county tax and the state severance tax. Stripped of 
its complexities, the determination of point of valuation directly addresses 
authorized deductible expenses which ordinarily include hauling, piping and fuel 
tank batteries as well as general processing. A very large dollar amount is 
involved in tax valuation which is determinative of the resulting tax revenues. 
Within these present proceedings, large refunds or significant additional 
revenues may be created by any upstream or downstream change during production 
processing for the point of valuation.

[¶12]   Simplified in conceptualization is 
Taxpayer's argument that the valuation point is determinable consistently within 
the state for each source of production as a matter of law and essentially for 
oil that is the wellhead. Citing support from agency rules and case law, 
Taxpayer argues (at least for petroleum products to which this litigation is 
limited):

W.S. § 39-2-202 (1977) 
and Chapter XXI, Rules and Regulations of the Wyoming State Tax Commission and 
Board of Equalization (1986) established the mine mouth and wellhead as the 
points where taxable value is determined (point of valuation) and all 
transportation and processing costs downstream from the mine mouth and wellhead 
were to be deducted from the sales price to determine the taxable value of the 
gross produce. * * * However, even before 1986, the procedures and methods and 
guidelines for valuing minerals for tax purposes at the mine mouth and wellhead 
had been clearly spelled out in the case law developed by this 
Court.

[¶13]   Taxpayer then continues with a 
discussion of a January 6, 1989 Attorney General's opinion, which "attempted" to 
change the point of valuation from the mine mouth or wellhead to different 
points downstream in the production chain. The Taxpayer further advances the 
contention that the inappropriate Attorney General's opinion "was almost 
immediately suspended by Chapter 204, 1989, Session Laws of 
Wyoming."

[¶14]   To the inquiry of whether a fixed 
point as a matter of law could be or should be established statewide in one 
lawsuit without involvement of the responsible administrative agency, the 
district court provided a thoughtful analysis:

Although Plaintiff's tax 
accountants and attorneys have ingeniously attempted to structure a justiciable 
controversy concerning point of valuation of oil and gas, the issues which are 
raised are not new or unique. As Plaintiff points out in its brief, the 
applicable Wyoming statutes concerning taxation of oil and gas have for many 
years provided that the value of the oil and gas shall be fixed "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". Because oil and gas is 
seldom, if ever, sold as it comes out of the ground, both the Wyoming 
Legislature, as well as oil and gas producers and Executive branch tax 
collectors, have struggled over the years to determine when the mining or 
production process is complete. More pertinently, all of these actors have 
struggled to determine what portion of the sales price of oil and gas is 
attributable to costs of producing the product at the mine or mining claim and 
what portion of the sale price is not attributable to production. The former 
costs are not deductible from the purchase price; but the non production costs 
are deductible. When these kinds of disputes concerning the deductibility of 
costs have arisen, the determination of what is deductible and what is not 
deductible has always been entrusted to the Board of Equalization, subject to 
judicial review by the courts.

The present case is no 
different. Although the background for the case has been artfully created, this 
lawsuit has its genesis, in whole or in part, by reason of amended tax returns 
filed by the Plaintiff in which it is claimed that "processing and 
transportation costs" were "erroneously included" in "the fair cash market value 
of the mineral product" for the years 1987 and 1988.

It does not matter 
whether Plaintiff is requesting a refund or is not requesting a refund, the 
question of what is, or was, the fair cash market value of a mineral product is 
a question to be resolved in the first instance by the executive branch of 
government. In the event of dispute between the Department of Revenue and a 
taxpayer concerning such issues, resolution of the dispute is left to the Board 
of [Equalization].

[¶15]   We agree.

[¶16]   In order to understand the context 
and scope of this prior exhaustion of administrative remedies discussion, some 
delineation and discussion of the Wyoming tax structure is required. Significant 
functional changes have occurred in state agency organization since this court's 
comprehensive constitutional review in Rocky Mountain Oil and Gas Ass'n v. State 
Bd. of Equalization, 749 P.2d 221 (Wyo. 1987). To be recognized are the two 
types of taxation which are applied against mineral production. Initially, there 
was the century-old ad valorem tax collected by the county and measured in the 
mineral value at production.1 This tax was directly involved in 
Rocky Mountain Oil and Gas Ass'n, 749 P.2d 221, and this court's opinion in that 
case resulted in passage of a constitutional amendment which authenticated a 
differentiated schedule for assessment within the ad valorem taxation system. 
Wyo. Const. 
art. 15, § 11 (effective November 21, 1988).

[¶17]   The second general tax is the 
excise type severance tax normally constituting a state resource and, in part, 
put into a permanent fund investment for the state of Wyoming. See Wyo. Const. art. 15, § 
19. Although both systems are derived from entirely different taxation concepts 
and generally go to separate governmental entities, there is great similarity 
and one significant difference. The difference is the levy for ad valorem 
property tax is established by the local mill levy equally applied, although 
within differentiated valuation concepts, to all taxable property in each 
county.2 The excise type severance tax rate 
is either set by the constitution, Wyo. Const. art. 15, § 19, or by state 
statute through legislative enactment. The severance tax is a state revenue 
while the ad valorem tax is a local tax where it is established and 
collected.

[¶18]   The similarity is that the same 
production quantity and the same mineral values apply to each tax. Furthermore, 
general revisory, audit and review jurisdiction are vested with a state agency, 
the State Board of Equalization, with the right of appeal to that agency from 
either the Department of Revenue for severance taxes or the countyBoard of Equalization for ad valorem 
taxes. Constitutionally established, it is provided by Wyo. Const. art. 15, § 9: 
"The legislature shall provide by law for a state board of equalization." 
Wyo. Const. 
art. 15, § 10 adds: "The duties of the state board shall be to equalize the 
valuation on all property in the several counties and such other duties as may 
be prescribed by law." Comprehensive and complex duties are statutorily 
provided. See Wyo. Stat. § 39-1-302 (Supp. 1992), appointment of board; 
appointment of division administrators; additional employees; and Wyo. Stat. § 
39-1-304 (Supp. 1992), powers and purpose of board; removal. Wyo. Stat. § 
39-1-304, by initiating statement, provides: "(a) The state board of 
equalization shall perform the duties specified in article 15, section 10 of the 
Wyoming constitution and shall hear appeals from county boards of equalization, 
review final decisions of the department on state excise taxes and review 
department assessments of property and tax determinations." The statute 
enumerates twenty-nine numbered duties, six of which have since been 
repealed.

[¶19]   The statutory process is 
established for an appeal to be taken from the State Board of Equalization to a 
district court pursuant to the provisions of the Wyoming Rules of Appellate 
Procedure relating to administrative agencies. W.R.A.P. 12, Judicial Review of 
Administrative Action, and subparts, Rules 12.01 through 12.12. The scope of 
review is provided by the Wyoming Administrative Procedure Act, Wyo. Stat. § 
16-3-114 (1990). The procedure and test for review has been considered by this 
court in a significant number of recent appeals. Burlington Northern R. Co. v. 
Wyoming State Bd. of Equalization, 820 P.2d 993 (Wyo. 1991); Amax Coal Co. v. 
Wyoming State Bd. of Equalization, 819 P.2d 834 (Wyo. 1991); Amax Coal Co. v. 
Wyoming State Bd. of Equalization, 819 P.2d 825 (Wyo. 1991); General Chemical 
Corp. v. Wyoming State Bd. of Equalization, 819 P.2d 418 (Wyo. 
1991).

[¶20]   Consequently, for the point of 
determination for tax valuation litigatively presented by this appeal, we 
consider whether exhaustion of administrative remedies may be required to 
determine, for example, whether a structured place in the operational process is 
required for all production which would be established either factually or by 
determination of law. If an identical point of valuation for all production is 
not established, then what system of rules can be applied to address the real 
dollar substance of this litigation, which are deductions as a cost before value 
is determined including transportation and processing? It is obvious beyond 
argument that differences in the incurred costs from wellhead to pipeline or 
tank battery exist from field to field and between gas and oil. McDermott & 
Co. v. Hudson, 370 P.2d 364 (Wyo. 1962).

[¶21]   The State, in addressing these 
decisional anxieties, argues:

The operation, 
supervision, and control of the statewide system of taxation is reserved solely 
to the administrative officers of the executive branch of government. Here, UPRC 
[Taxpayer] is attempting to bypass the administrative agencies and have the 
courts act as the Department of Audit, the Department of Revenue and the Board 
of Equalization.

     Whether or not UPRC's 
contentions and claim for refund are anything more than theoretical depends upon 
resolution of basic facts relating to UPRC's production. UPRC would have this 
Court intrude upon the fact-finding and administrative prerogative of the 
administrative agencies. UPRC would have this Court dictate how audits will be 
performed by the Department of Audit; how the Department of Revenue will assess; 
and foreclose all adjudicatory consideration of the issues by the Board of 
Equalization. UPRC's request "that the Department of Revenue shall process the 
amended reports consistent with this judgment of this court; and that the audits 
be conducted consistent with this judgment", should be denied as 
advisory.

* * * * * *

[¶22]   The facts relating to State 
Defendants' motion for summary judgment for failure to exhaust administrative 
remedies are undisputed and uncontested:

1. UPRC filed affirmative 
requests for refund relating to production in 1987 and 1988 in eight different 
Wyoming 
counties, after an audit was commenced by the Department of Audit. However, 
counsel for UPRC has repeatedly asserted that UPRC by its complaint does not 
seek the "consequential relief of tax refunds." * * *

2. The Department of 
Audit is currently auditing UPRC's production in UintaCounty for 1984-1988. The audit is not 
complete[.] The amended returns relating to UintaCounty were incorporated into the 
audit.

3. UPRC is requesting 
additional deductions from value which were not taken by UPRC in the original 
tax returns.

4. The Department of 
Revenue has not taken a final administrative action on the audit, nor on UPRC's 
request for refund.

5. The Board of 
Equalization has not taken any action on the matter.

6. With regard to the 
severance tax assessments relating to the allegations of nonreporting by 
CountyCommissioners, UPRC was 
assessed only after UPRC refused to respond to the allegations. Such assessments 
were appealed to the Board. There is no showing that such assessments involve 
the point of valuation question.

     The "affirmative 
refund requests" filed with the Department of Revenue are very broad in nature. 
Each refund request involves a full calendar year of mineral production in eight 
Wyoming 
counties. For example, the 1987 refund request seeks additional deductions of 
$12,888,034 for processing and transportation costs incurred from the wellhead 
to the leaseline (lease costs) and an additional $14,096,472 for processing and 
transportation costs incurred beyond the leaseline up to the point of sale. * * 
* The 1988 refund request seeks additional deductions of $10,390,030 for lease 
costs and an additional $15,419,600 in costs beyond the leaselines. The 1988 
request for refund also seeks an additional $2,593,443 in subsequent year's 
adjustments.

[¶23]   Prior to legislative changes made 
by 1991 Wyo. Sess. Laws ch. 174, the Wyoming State Board of Equalization had 
administrative functions and duties relating to the Department of Revenue and 
Taxation. The 1991 enactment separated out the Board of Equalization by creating 
two different administrative agencies. The Board of Equalization became an 
independent quasi-judicial organization with constitutional and statutory duties 
to equalize valuation and decide disagreements regarding statutory provisions 
affecting the assessment, levy and collection of taxes. These responsibilities 
include both the ad valorem state taxation system which provides county funding 
and the severance tax system which provides state funding. Specific statutory 
direction is provided for the Board of Equalization to review all contentions of 
improper assessment. Wyo. Stat. § 39-1-304 states in part:

     (a) The state board of 
equalization shall perform the duties specified in article 15, section 10 of the 
Wyoming 
constitution and shall hear appeals from county boards of equalization, review 
final decisions of the department on state excise taxes and review department 
assessments of property and tax determinations. In addition, the board 
shall:

* * * * * *

(iv) Decide 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 board;

* * * * * *

(xiv) Carefully examine 
into all cases wherein it is alleged that property subject to taxation has not 
been assessed or has been fraudulently, improperly, or unequally assessed, or 
the law in any manner evaded or violated, and cause to be instituted proceedings 
which will remedy improper or negligent administration of the tax laws of the 
state[.]

[¶24]   The constitutionally emplaced 
functional responsibilities of the State Board of Equalization in appellate 
review and the Department of Revenue organizationally by statute, as well as the 
countyBoard of Equalization in 
prior decision making, are certainly not subject to the present contest. This 
court is asked to determine whether the district court abused its discretion in 
recognizing and applying well developed rules involving exhaustion of 
administrative remedies. We do not find abuse of discretion to have occurred 
here.

[¶25]   An excellent starting point for 
analysis is provided by what may have been dictum, although well reasoned, by 
Justice Rooney in Rocky Mountain Oil and Gas Ass'n v. State, 645 P.2d 1163 (Wyo. 
1982) and the thoughtfully related recognition of Justice Thomas in dissent. 
Both authors have similarly considered a rule regarding exhaustion of 
administrative remedies, although clearly differing in attribution or 
application in that particular decision. Justice Rooney wrote:

[T]here is a restriction 
on the availability of a declaratory judgment action with reference to its 
applicability to administrative matters. Where the action would result in a 
prejudging of issues that should be decided in the first instance by an 
administrative body, it should not lie. This is because, if it be otherwise, all 
decisions by the several agencies could be bypassed, and the district court 
would be administering the activities of the executive branch of the government. 
Public Service Commission of Utah v. Wycoff 
Co., 344 U.S. 237, 73 S. Ct. 236, 97 L. Ed. 291 
(1952); and City of Cheyenne v. Sims, Wyo., 521 P.2d 1347 (1974). This restriction 
on the scope of declaratory judgments is akin to the requirement that 
administrative remedies must be exhausted before judicial relief is 
available.

     Accordingly, where the 
relief desired is in the nature of a substitution of judicial decision for that 
of the agency on issues pertaining to the administration of the subject matter 
for which the agency was created, the action should not be 
entertained.

Rocky Mountain 
Oil and Gas Ass'n, 645 P.2d  at 1168. Justice Thomas responded:

     The ground for 
disposition of this case which I would espouse is different from that proposed 
in the majority opinion, that proposed in the dissenting opinion of Chief 
Justice Rose, and that espoused by the appellees in their legal position. 
Furthermore, it is different from that relied upon by the district court, 
although the law is well established that we are permitted to affirm the 
district court on any proper ground. Agar v. Kysar, Wyo., 628 P.2d 1350 
(1981); Wightman v. American National Bank of Riverton, Wyo., 610 P.2d 1001 (1980), and cases therein 
cited. I cannot overlook the obvious simply because it is not perceived as 
obvious by others. I would hold that the relief of a declaratory judgment is not 
available in this instance because of the failure of the appellants to exhaust 
an available administrative remedy.

Rocky Mountain 
Oil and Gas Ass'n, 645 P.2d  at 1175, Thomas, J., dissenting, with whom Chief 
Justice Rose joined.

[¶26]   The citation by both authors of 
City of Cheyenne v. Sims, 521 P.2d 1347, 1349-50 
(Wyo. 1974) 
(footnotes omitted) provides the basic understanding we continue for decision in 
this case:

     In absence of the 
original power of the courts to assess property or levy taxes - the original 
responsibility lying with the county assessor and county board of equalization - 
the doctrine of exhaustion of remedies as contrasted to the primary jurisdiction 
doctrine is applicable because when the sole original determination lies with 
another body than the courts it is proper to apply such doctrine.

* * * * * *

     Declaratory judgment 
should not be used to usurp or replace specific administrative relief, 
particularly when the initial decision is committed to an administrative body. 
No reason has been pointed out to this court by the appellants why justice 
requires the exercise of declaratory judgment power in this case.

[¶27]   This court has carefully addressed 
the separate functions provided by the differentiated doctrines of primary 
jurisdiction and exhaustion of administrative remedies in People v. Fremont 
Energy Corp., 651 P.2d 802, 810-11 (Wyo. 1982) (quoting United States v. Western 
Pac. R. Co., 352 U.S. 59, 63-64, 77 S. Ct. 161, 165, 1 L. Ed. 2d 126 
(1956)):

"The doctrine of primary 
jurisdiction, like the rule requiring exhaustion of administrative remedies, is 
concerned with promoting proper relationships between the courts and 
administrative agencies charged with particular regulatory duties. `Exhaustion' 
applies where a claim is cognizable in the first instance by an administrative 
agency alone; judicial interference is withheld until the administrative process 
has run its course. `Primary jurisdiction,' on the other hand, applies where a 
claim is originally cognizable in the courts, and comes into play whenever 
enforcement of the claim requires the resolution of issues which, under a 
regulatory scheme, have been placed within the special competence of an 
administrative body; in such a case the judicial process is suspended pending 
referral of such issues to the administrative body for its views. 
[Citation.]"

A similar but 
shorter expression distinguishing the two doctrines is that:

"Exhaustion applies where 
an agency alone has exclusive jurisdiction over the case; primary jurisdiction 
where both a court and an agency have the legal capacity to deal with the 
matter. * * *"

See also Scott 
v. Fagan, 684 P.2d 805 (Wyo. 1984) (regarding 
determination of an employment relationship) and Kearney Lake, Land & 
Reservoir Co. v. Lake Desmet Reservoir Co., 487 P.2d 324 (Wyo. 1971).

[¶28]   It stands established, if anything 
can be certain, that the executive department's administrative agencies, 
including specifically the constitutionally defined State Board of Equalization, 
have an initial jurisdiction and that no exhaustion of administrative remedies 
has occurred in this case regarding the determination of the complex and 
fiscally significant valuation concepts for tax assessment. This court has, in a 
broad array of cases involving assessment and tax collection understanding, 
recognized a primary administrative agency function of the State Board of 
Equalization.3 

[¶29]   Furthermore, significant law exists 
establishing the rule, which we now find meritorious, that the district court's 
election to decline jurisdiction on the basis of nonexhaustion of administrative 
remedies is vested in the sound exercise of its discretion. 4 Kenneth Culp 
Davis, 
Administrative Law Treatise § 26:1 (2d ed. 1983). See the discussion of 
discretion in exhaustion cases in McKart v. United States, 395 U.S. 185, 89 S. Ct. 1657, 23 L. Ed. 2d 194 (1969) and Park County Resource Council, Inc. v. 
United States Dept. of Agriculture, 817 F.2d 609 (10th Cir. 1987). Compare, in 
primary jurisdiction review, Kearney Lake, Land & Reservoir Co., 487 P.2d  at 
328. The Administrative Law Treatise provides an interesting and thoughtfully 
relevant analysis:

     Exhaustion law is too 
complex for a meaningful simple statement of when exhaustion is required and 
when it is not, but clearly the courts generally do what they obviously should 
do - they weigh the reasons pulling in each direction and decide whether 
requiring exhaustion is desirable. When the agency is causing or threatening to 
cause irreparable injury through clearly illegal action, exhaustion is unlikely 
to be required, and when a disputed question seems to be within the agency's 
specialization and the agency can provide satisfactory relief, exhaustion is 
likely to be required. When a court deems exhaustion desirable, it may say that 
it lacks jurisdiction to interfere, but when the question is a close one, a 
court may acknowledge that the result depends more on judicial discretion than 
on law. The area of predictability is a large one, but the area of doubt - and 
discretion - is about equally large.

The main reason that 
judicial discretion rather than law is the basis for most litigated questions 
about exhaustion is that the factors pulling each way are usually plural, each 
is usually a variable so that the question is not its presence or absence but 
the degree of its strength or weakness, the combinations of degrees of factors 
pulling one way must be weighed against combinations pulling the other way, and 
the court is typically limited to deciding on the basis of preliminary 
impressions.

4 Davis, supra, at 
414.

[¶30]   For this case, we will apply Sims, 
521 P.2d 1347 and justify judicial involvement only by appellate review and not 
through original adjudication. Recognizing the importance of this administrative 
structure within the status of Wyoming tax law, we agree with the district 
court. We decline any present invitation to require the district court to 
conduct a broad analysis of valuation point issues prior to the first review by 
that constitutionally-established and statutorily-directed agency. The 
complexities of the Wyoming taxation system provide an 
adjudicatory challenge that will not be accepted for judicial resolution until 
administrative agency review and reconciliation on this broad issue can be 
completed.4 Sims, 521 P.2d 1347.

IV. STATUTES OF 
LIMITATION THAT APPLY TO UNPAID SEVERANCE AND AD VALOREM TAXES RESULTING FROM 
MINERAL PRODUCTION UNDER WYOMING CONSTITUTIONAL AND STATUTORY 
PROVISIONS

[¶31]   We address this topic because of 
its immediate and weighty significance to the mineral industry, to the state and 
county taxation authorities, and certainly in addition to the forthcoming 52nd 
Wyoming State Legislature, which will now convene in January 1993. It is in 
regard to our undertaking this subject's present consideration where we reach 
significant adjudicatory difference with the district court. With the existence 
of any statute of limitation and the resulting scope of application to be 
determined as a question of law, we will address this well-briefed subject for a 
present determination of the status of Wyoming law.

[¶32]   The decision as to which statute of 
limitation, if any, may be applicable to a particular fact situation - in this 
case involving the collection of delinquent taxes - is a determination of law. 
Hall v. Romero, 141 Ariz. 120, 685 P.2d 757 (1984); Pembee Mfg. Corp. v. Cape 
Fear Const. Co., Inc., 313 N.C. 488, 329 S.E.2d 350 (1985); Smart v. Texas 
American Bank/Galleria, 680 S.W.2d 896 (Tex. App. 1984); Kroeger v. Kroeger, 120 
Wis.2d 48, 353 N.W.2d 60 (1984). Only if contested facts exist, or the facts are 
in question in the evidentiary presentation, does a mixed question of fact and 
law then result. 54 C.J.S., Limitations of Actions, § 301 at 382 (1987); Reis v. 
Cox, 104 Idaho 434, 660 P.2d 46 (1982); see 
also Mills v. Garlow, 768 P.2d 554 (Wyo. 1989). Like the normal statutory 
interpretation questions, we are presented with a decision to be addressed as a 
matter of law. Shepperd v. Boettcher & Co., Inc., 756 P.2d 182 (Wyo. 1988).

[¶33]   Our research of this segment of 
Wyoming law is 
developed to follow the Taxpayer's contention by considering any limitation on 
delinquent tax collection. This approach directs search for any legislative 
decisions by enacted statutes or authorized agency rules which can provide a 
time limitation for the delinquent taxpayer to escape from unpaid severance or 
ad valorem taxes which have been unreported or unpaid for mineral production in 
prior tax periods.

[¶34]   We start with the analysis of the 
Taxpayer in its appellate brief:

     In its Complaint for 
declaratory relief, Appellant requested the District Court enter an Order 
declaring the following rules and regulations and statutory provisions 
restricted Appellees' taxation activities.

     a) Ch. XXI, Section 
14(c)(ii), Rules and Regulations of the Wyoming State Tax Commission (1986) 
provides: Taxpayer records should be kept for three calendar years unless 
otherwise provided by law. Its successor regulation (relating to production year 
1989 and subsequent) requires that all records shall be retained for a minimum 
of five years unless otherwise provided by law. Ch. XXI, Section 14(c)(ii), 
Rules and Regulations of the Wyoming State Tax Commission (February, 
1990).

     b) W.S. Section 
39-6-304(o), provides in part: 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. § 39-2-202 for a period of 
five (5) years and make them available to department examiners for audit 
purposes. (1988 Wyo. Sess. Laws, Ch. 90 
Section[s] 1, 3).

     c) W.S. Section 
39-2-403(c), provides in part: The county assessor may authorize changes in the 
assessment roll or tax list at any time to correct errors in the name of a 
person taxed or to enter omitted property and its assessed value. Property 
omitted from prior years tax lists discovered by the county assessor shall be 
added to the assessment roll and taxes computed and collected for the period the 
property was omitted not exceeding five (5) prior years or since the last change 
in ownership, whichever is less.

     d) W.S. Section 
1-3-105(a)(ii)(B) (1988) provides a general eight (8) year statute of 
limitations on an action arising upon a liability created by statute other than 
a forfeiture or penalty.

[¶35]   The counties agree with the 
Taxpayer in likewise asking for a decision by this court with, of course, the 
opposite result requested:

     Initially, the 
Counties agree with Appellant that the dismissal of its claim that there is a 
three, five or eight year statute of limitations limiting the Counties' ability 
to discovery and collect unpaid ad valorem taxes on mineral production was 
error. Whether any of the claimed statutes of limitations applies is a question 
of law which should have been decided by the District Court. The Counties 
assert, however, that this question must be answered in the negative for 
production in the years at issue in this case.

[¶36]   Stating the substantive 
disagreement, however, the counties first itemized the statutory limitation 
concepts outlined in the Taxpayer's appellate brief:

     Appellant claimed that 
there were four provisions of statute or rules which operated as statutes of 
limitations precluding both the State and the "County Contract Auditors" from 
seeking to collect unpaid mineral taxes for production years prior to 1990. 
First, the three-year record retention requirement imposed by Rules and 
Regulations of the Wyoming State Tax Commission, Ch. XXI, § 14(c)(ii), (1986) is 
asserted to be a statute of limitations prohibiting audit and collection of 
taxes beyond the record retention requirement. Second, Appellant claims that the 
five-year record retention requirement of the same rule, as amended in 1990, or 
its corresponding statutory provision, W.S. 39-6-304(o), prohibits the State and 
Counties from discovering and collecting unpaid taxes. Third, Appellant asserts 
that the provision regarding omitted property of W.S. 39-2-403(c) establishes a 
five-year statute of limitations operating against the Counties. Finally, 
Appellant asserts that the general eight-year statute of limitations contained 
in W.S. 1-3-105(a)(ii)(B) operates against both the State and the 
Counties.

[¶37]   For a response to the enumeration, 
the counties then state: "None of these provisions operate in the manner 
Appellant asserts."

[¶38]   First, in regard to the rules and 
regulations, the counties contend:

     However, merely 
because mineral producers are required to keep records available for State audit 
does not mean that the Counties cannot look back further than three or five 
years to determine whether production has been fully reported.

Next, the 
counties contend that the statutory limitation of Wyo. Stat. 39-6-304(o) (1990), 
which was the newly enacted statutory limitation on bookkeeping, similarly did 
not apply:

     On its face, this 
limitation concerns when State Department of Audit employees may audit the 
taxpayer's records. It says nothing about the power of the "County Contract 
Auditors" to compare the reports of the taxpayer submitted to State and Federal 
agencies for consistency in reporting production. Nor does this statute purport 
to be a statute of limitations on assessment or collection [of] unpaid ad 
valorem taxes on mineral production.

[¶39]   Attention was then directed to the 
omitted property limitation, Wyo. Stat. § 39-2-403(c) (1990), about which the 
counties conclude that the provision neither constituted a statutory limitation 
nor had applicability to the county operation since the assessment process was a 
state function. Finally, the eight year statute of limitation was rejected by 
argument of its inapplicability because of non-specificity to public 
instrumentalities by direct citation to this court's recent decision in Laramie 
County School Dist. No. One By and Through Brown v. Muir, 808 P.2d 797 
(Wyo. 
1991).

[¶40]   The State, in addressing the impact 
of the statute of limitation issue, initiated its perception by citation to 
Muir:

     Should this Court 
decide to address the substantive issue, it should uphold the State's and 
counties' position in this matter. Generally, statutes of limitations do not run 
against the state unless specifically provided by law.

Although 
asserting that no present need to address this subject might exist, the State 
then concluded: "In the alternative, this Court should remand this case with 
instructions to enter summary judgment in favor of the State defendants on the 
issue of there being no limitations on the Board's ability to review and remedy 
improper mineral tax assessments." 

[¶41]   Consequently, the scope of litigant 
disagreement moves from the State's posture that no limitation exists to that of 
the Taxpayer perceiving limitations alternatively provided by:

a. Three or five year 
record retention requirements developed by the rules and regulations of the tax 
commission;

b. Wyo. Stat. § 
39-6-304(o) provision for record retention;

c. Wyo. Stat. § 
39-2-403(c) five year limitation on county assessor's ability to correct errors 
in the property assessment role; or

d. Wyo. Stat. § 
1-3-105(a)(ii)(B) (1988) general eight year statute of limitation on an action 
arising upon a liability created by statute other than a forfeiture or a 
penalty.

[¶42]   As a matter of interest, this 
entire subject of a time limitation to collect unpaid mineral taxes or the 
specific application of any one of the described provisions listed above has 
never previously been considered by this court. This is an original review of 
Wyoming 
statutory and constitutional provisions regarding the limitation of time for 
government to collect delinquent and unpaid mineral taxes.

[¶43]   Our analysis is directed to look 
for some applicable delinquent tax collection time limitation. To save suspense, 
we find none under Wyoming law which restricts the power of the 
state and its taxing instrumentalities, the counties, from collecting due and 
unpaid mineral production taxes. It is concluded that the passage of time will 
not serve to absolve non-payment of Wyoming ad valorem and severance taxes which, 
although due for prior periods, went unreported and consequently unpaid. In 
discussion, each suggested limitation will, however, be sequentially 
considered.

[¶44]   Before addressing those four 
individual limitation contentions, it should be recognized that there are two 
questions for administrative agency decision making. The first addresses 
quantity, e.g., has only a portion of the total production been reported for 
either or both severance and ad valorem taxes. Comparison of tax reports to the 
State Oil and Gas Commission and federal agency required reporting tend to 
provide some rather specific equivalency comparisons. These quantity 
reconciliation approaches, which are not actually an audit, come directly into 
the subject of county contract services programs which provide the Taxpayer's 
challenge in the third principal aspect of this litigation. This is the 
quantities question.

[¶45]   In addition to the reconciliation 
process of quantity, the second quite obvious subject is more likely an audit 
activity and involves the determination of assessable value. A broad range of 
computable determinants may be applied for the value assessment upon which tax 
obligations are then mathematically determined for both ad valorem and severance 
taxes. This is the valuation question.

[¶46]   Actually, the direct issue 
presented by this appeal essentially involves valuation as the first issue and 
quantities as the subject of the third, which is a county contracting program. 
The second subject, statutes of limitation, obviously addressed both quantities 
and value, but with a different character, since quantity valuation may be much 
simpler than audit functions emplaced in any true sale price and cost 
computation which is intrinsic to value determination long recognized in our 
case law, e.g., Amax Coal Co., 819 P.2d 825; Appeal of Monolith Portland Midwest 
Co., Inc., 574 P.2d 757 (Wyo. 1978).

A. 
Adjudicatory Agency Rule Provision: Time Limitation for Record 
Retention.

[¶47]   Administrative rules put into 
effect by the taxation authority, the Department of Revenue, provide for a 
minimum time for the producer, e.g., Taxpayer - to retain business records 
relating to either quantity or value. This is Rules and Regulations of the 
Wyoming State Tax Commission ch. XXI, § 14(c)(ii) (1986) earlier quoted by the 
Taxpayer. It requires that all records shall be retained for a minimum of five 
years unless otherwise provided by law. This is the 1990 provision which extends 
the time from the earlier requirement of three years provided in the 1986 rules. 

[¶48]   The argument is made from the 
record retention provisions of the rule that the department had established a 
limitation period for pursuing uncollected taxes. We do not agree for several 
reasons. In first instance, no citation is provided. Nor do we find authority 
otherwise legislatively delegated by statute for any agency, and particularly 
the tax collecting agencies, to establish an administrative rule for a time 
limitation period developed by an administrative practice which would insulate 
or extinguish the taxpayer liability after passage of that stated time. Walgreen 
Co. v. State Bd. of Equalization, 62 Wyo. 288, 166 P.2d 960 (1946) is directly to 
the contrary.

[¶49]   It is obvious beyond question that 
a specific delegation of authority by statutory provision, if even then valid, 
would be required to permit the agency to promulgate a limitation of liability 
provision for taxation obligation. An administrative agency is limited in 
authority to powers legislatively delegated. Hupp v. Employment Sec. Com'n. of 
Wyoming, 715 P.2d 223 (Wyo. 1986); Continental 
Pipe Line Co. v. Belle Fourche Pipeline Co., 372 F. Supp. 1333 (D.Wyo. 1974). 
"Administrative agencies are creatures of statute and their power is dependent 
upon statutes, so that they must find within the statute warrant for the 
exercise of any authority which they claim." 1 Am.Jur.2d Administrative Law § 
70, at 866 (1962) (footnotes omitted). Neither the Wyoming Constitution nor the 
statutes authorize agency tax forgiveness determinable by age of delinquency and 
the passage of time without reporting or payment.5 An equivalent and well-reasoned 
view of the general status of American law on administrative agency litigation 
of authority is provided by Swift & Co. v. State Tax Com'n, 105 Ariz. 226, 
462 P.2d 775 (1969), overruled on other grounds sub nom. Pittsburgh Midway Coal 
Min. Co. v. Arizona Dept. of Revenue, 161 Ariz. 135, 776 P.2d 1061 (1989). See 
also Hernandez v. Frohmiller, 68 Ariz. 242, 204 P.2d 854 (1949). The 
nonacquiescence and limited authority concepts discussed in detail in Rocky 
Mountain Oil and Gas Ass'n, 749 P.2d 221 are completely compatible with this 
perspective and analysis. Cf.CochiseCounty v. Kirschner, 830 P.2d 470 (Ariz. App. 1992) (separate state entity perspective).

[¶50]   Any other conclusion would 
introduce additional problems. A portion of the severance tax is 
constitutionally directed to a permanent fund account to be saved in perpetuity 
for the citizens of the state. Wyo. Const. art. 15, § 19. What is inviolate 
from expenditure surely cannot be considered administratively available to be 
forgiven if undisclosed and unpaid for a limited period. Another constitutional 
problem would be presented by Wyo. Const. art. 15, § 3 which creates the ad 
valorem tax determinable in amount by production. Those taxes belong to the 
counties, cities, school districts and special taxation agencies. Clearly, the 
legislature has not statutorily delegated authority to the state executive 
department to forgive payment of taxation revenues due to these local units of 
government. The required defaulting taxpayer moratorium or the forgiveness 
authorization statute for rule adaptation by the tax collection agencies do not 
exist.

[¶51]   Consequently, we follow the 
arguments of the State and counties without defining our basis for decision 
based on constitutional law. Any agency rules which permit or require a time 
limit for retention of records and bookkeeping provisions cannot create a broad 
tax forgiveness time limitation. Furthermore, if the regulations were to be 
given this interpretation, even if specifically indicated to be the intent, we 
would be required to deny effectiveness. Actually, we do not find that specific 
intent to be discernible from the terms of regulations sufficient to create an 
agency intended purpose to create tax moratoriums.

B. Wyo. Stat. § 39-6-304(o) 
and (p): Time Limitations for Record Retention and Auditing by 
Statute.

[¶52]   Wyo. Stat. § 39-6-304(o) and (p) 
provide:

     (o) 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. 39-2-202 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 subsections (o) and (p) of this 
section.

     (p) In order to 
examine relevant books or records of a taxpayer subject to a tax imposed by this 
article or to secure any information related to enforcement of this article, 
authorized representatives of the department may at any time during normal 
business hours enter premises of a taxpayer liable for a tax imposed by this 
article or the premises of any third party having information regarding that 
taxpayer's liability. Prior to entering the premises of a taxpayer or third 
party, the department shall provide fourteen (14) days written notice to the 
taxpayer and third party. Such examinations shall be completed and the written 
results thereof provided to the taxpayer by the end of the third calendar year 
following the calendar year in which the audit was commenced.

Initially, it is 
apparent that these sections apply only to severance taxes and would not create 
any applicable limitation period to collect unpaid ad valorem taxes based either 
on nonreporting quantity or erroneous computation of value. The concepts 
presented by this argument are identical with the subject addressed in the prior 
section of this opinion; except here, rather than delegated authority, this 
argument considers statutorily created limitations imposed on the 
agency.

[¶53]   We apply the clear language of 
these statutes to only establish an audit period limitation subject to the gross 
negligence extension exception. We find Walgreen, 62 Wyo. 288, 166 P.2d 960 
again dispositive in lack of discernible legislative intent to go beyond the 
explicit statutory language to release the obligation to the public 
instrumentality as a debt due to the government or to provide a tax 
moratorium.6

[¶54]   It is recognized, as the State 
argues, that Wyo. Stat. § 39-6-304, as rewritten by 1988 Wyo. Sess. Laws ch. 90, § 
3, would not be applied to the tax years here in issue. The statutes, by virtue 
of the prospective application provided by that legislation, Wyo. Stat. §§ 
39-6-301 through 39-6-307 as they were in effect prior to January 1, 1989, apply 
only to production in the calendar year 1988. Clearly, a prospective application 
was intended for the new statute. No tax obligation insulation from liability is 
provided to this Taxpayer by Wyo. Stat. § 39-6-304(o) and (p).

C. Wyo. Stat. § 39-2-403(c); CountyAssessor Tax List Change 
Statute.

[¶55]   This section pertains to the ad 
valorem tax and cannot be considered to be a limitation on the collection of 
unreported taxes derived from severance statutes, Wyo. Stat. §§ 39-6-301 through 
39-6-309. With regard to the duties and responsibilities of the county assessor, 
Wyo. Stat. § 39-2-403(c) provides:

The county assessor may 
authorize changes in the assessment roll or tax list at any time to correct 
errors in the name of the person taxed or to enter omitted property and its 
assessed value. Property omitted from prior year tax lists discovered by the 
county assessor shall be added to the assessment roll and taxes computed and 
collected for the period the property was omitted not exceeding five (5) prior 
years or since the last change in ownership, whichever is less.

[¶56]   The counties argue with 
considerable persuasion that this statute, which can be traced back to 1977 
Wyo. Sess. 
Laws ch. 45, does not apply to mineral taxation which developed from state 
assessment. Additionally, they contend that tax levy and collection provisions 
by providing a five year retroactive limitation address the same property in its 
taxation within the five year period to only limit the number of years for which 
unpaid taxes can be charged against that item of property. The difference, of 
course, is that both the ad valorem and severance taxes are a one time only tax 
which are determinable and payable as a result of production and have no 
applicability to multi-year omission for the same property.

[¶57]   We concur in the contention made by 
the counties that no legislative intent existed to apply the five year 
retroactive preclusion to the one time taxing status of the mineral extractive 
assets of the state. We will require more specificity from the legislature 
before finding Wyo. Stat. § 39-2-403(c) was intended to create a tax forgiveness 
exemption for unpaid ad valorem mineral taxes due to local units of 
government.7

D. Wyo. Stat. § 
1-3-105(a)(ii)(B); General Statute of Limitation.

[¶58]   The Taxpayer would also have this 
court find that a time limitation for tax collection was provided by the general 
statute of limitation code through Wyo. Stat. § 1-3-105(a)(ii)(B), which 
provides:

     (a) Civil actions 
other than for the recovery of real property can only be brought within the 
following periods after the cause of action accrues:

* * * * * *

     (ii) Within eight (8) 
years, an action:

* * * * * *

     (B) Upon a liability 
created by statute other than a forfeiture or penalty[.]

This contention, 
which comes with the argument that some general statute of limitation can be 
applied, has been decisively resolved by the recent decision of this court in 
Muir, 808 P.2d 797. Certainly, if statutes of limitation do not apply to school 
construction workmanship, we will not extend the penalty and forfeiture 
limitation of the cited statute to mineral taxation. If the tax is uncollectible 
at the one time taxable, it will be lost from this state forever whether as a 
percentage fund accretion or current operational revenue for education, law 
enforcement and general government. Muir, 808 P.2d 797 is clearly 
determinative.8

[¶59]   We concur with the argument 
presented by the counties and the tax authority of the State that there is no 
present statute of limitation or applicable time limitation which limits the 
right of either the state of Wyoming or the separate counties to collect 
delinquent and unpaid severance and ad valorem mineral taxes due and payable 
under either the ad valorem county levy or mine production tax provided by the 
Wyoming Constitution and Chapters 2 and 6 of Title 39, Wyo. Stat. 
1977.

V. COUNTYCONTINGENT FEE "AUDITOR" 
CONTRACTS

[¶60]   There is a syllogism that defies 
realism that comes affixed to this subject. It provides a conclusion without the 
recitation of the initial premise as a question of why a taxpayer should object 
to a cross check of public records if accurate reporting and proper tax payments 
have occurred. Alternatively, the topic invites consideration about what the 
county might be doing to collect unpaid taxes if apparently the state agencies 
are not accomplishing the desired result.

[¶61]   In present time, and particularly 
since the reduction in expenditure for the mineral production auditing program, 
county governments have searched for ways to increase the accuracy of quantity 
reporting of mineral tax assessments payable as their revenues through the ad 
valorem tax.9 What the county governments in 
Wyoming 
achieved through this program of using experts to examine public records for 
quantity discrepancies was a means to be assured that the required revenue 
contribution from each barrel of oil, each MCF of gas and each ton of solid 
mineral was realized from the ad valorem mineral taxation system. What had been 
generally an honor system was superseded, or at least surveilled, by an 
effective supervision of quantity reporting for tax assessment and collection. 
State Auditor Griffith, if we judicially notice news accounts of the period, had 
effectively demonstrated that unreported and consequently uncollected mineral 
royalty revenues did exist in large dollar amounts.

[¶62]   Counties then came to employ 
assistants for tax collection from certain contract representatives; not to do 
audits, but rather to compare details written into the different governmentally 
required reports. The contract examiners were then compensated on a stated time 
fee basis and a contingency percentage based on success. This assistance 
was not based on invasion of the office of the producers as taxpayers. To the 
contrary, these "bounty hunters" just compared records in state offices, 
principally from the reports made to the Wyoming State Oil and Gas Commission 
and, to some degree, federal agencies. From a tax collection perspective,this 
was a search for hot oil and missing natural gas.10

[¶63]  The method of the program is described 
in the record by an affidavit of the director of the mineral tax division of the 
Department of Revenue:

     25. The "Contract 
Auditors" gather information from records on file with the Division and other 
agencies of State and Federal government. The "Contract Auditors" review 
information relative to reported sales of minerals filed with the Division and 
compare that information to public records of production and sales filed with 
other agencies, notably the Wyoming Oil and Gas Conservation Commission. If the 
reports demonstrate a discrepancy between reported information to the various 
governmental agencies, the "Contract Auditors" notify the Division, on behalf of 
the County which has employed them.

     26. The procedure for 
handling this information within the Mineral Tax Division is as 
follows:

     a) The information is 
first reviewed within the Mineral Tax Division in order to determine if [there 
are] legitimate questions regarding the validity of the reports made for 
taxation purposes. If the information does not raise such questions, no action 
is taken with respect to the reporting producer.

     b) If the information 
provided is deemed by the Mineral Tax Division to merit further inquiry, the 
taxpayer is notified in writing of the information provided to the Division by 
the "Contract Auditors." The taxpayer is asked to review the reported 
discrepancy based upon its own record review, and either file an amended tax 
report (Form ATD-4), or submit an explanation of the discrepancy to the Mineral 
Tax Division within a specified period of time, usually twenty (20) days, or 
such extended period as the taxpayer may reasonably request.

     c) If the taxpayer 
satisfactorily explains the discrepancy reported by the "Contract Auditors," the 
matter is at an end.

     d) If the taxpayer 
fails to adequately explain the discrepancy, or submits amended tax reports, the 
Division issues an assessment notice for additional severance taxes due. This 
notice also serves as a notice of additional value for ad valorem tax 
purposes.

     e) If the taxpayer 
disagrees with the notice of assessment, it may protest to the Department of 
Revenue within thirty (30) days.

     f) If protest is made, 
the Department may reconsider the assessment and grant an informal hearing, if 
requested by the taxpayer. After the reconsideration the Department issues its 
final determination. If no protest is filed by the taxpayer, the assessment 
notice becomes final after the lapse of thirty (30) days.

     g) The final 
determination by the Department is subject to appeal by the taxpayer to the 
State Board of Equalization.

     27. All information 
provided to the Mineral Tax Division by the "CountyAuditors," including any such information 
relative to the Union Pacific Resources Company, has been handled in the fashion 
described above. The "Contract Auditors" do not assess any increased valuation 
for any tax purpose. Every taxpayer has adequate opportunity to explain any 
discrepancy in reported production which is found by a "Contract Auditor," and 
to protest and appeal an assessment, if any, which may result from a discrepancy 
found by the "Contract Auditors."

The counties 
describe the activity from their perspective:

The service that these 
firms provide is not a tax audit as that term is commonly understood. They have 
no access to the internal records of the producers. * * * Rather, the firms make 
a comparison of the tax returns filed by the producers with public information 
filed with the State Oil and Gas Conservation Commission and that available from 
federal agencies. * * *

     When the firms 
discover a discrepancy between production or sales reported to the Department of 
Revenue, and that reported to other governmental agencies, they prepare a report 
of their findings, on behalf of the client county, to the Department of Revenue 
and Taxation, Mineral Tax Division. * * * Further, the firms request that the 
Mineral Tax Division investigate the discrepant reports. * * *

     The Mineral Tax 
Division reviews the reports, and if it finds that a discrepancy does exist, 
forwards the information to the producer with a request for explanation of the 
apparent discrepancy. If the producer satisfactorily explains the discrepancy, 
the matter is at an end. If, on the other hand, the producer cannot or refuses 
to explain the discrepancy, an additional assessment is made. The producer is 
then given opportunity for normal administrative review of the additional 
assessment. * * *

     The firms charge an 
hourly fee for their work, typically to a specified maximum, plus a bonus of 5% 
of any additional taxes actually collected by the Counties as a result of their 
work. * * * During the 39-month period from September 1988 to November 1991, one 
such firm's work has led to the collection of nearly $8 million in unpaid ad 
valorem taxes. * * * The record does not reflect how many millions in previously 
unpaid severance taxes the firms' work has generated.

     The firms do not 
assess the producers, but merely request that discrepancies between reports be 
explained by the producers to the Mineral Tax Division. The firms do not know 
which of the reviewed reports is accurate, if any of them are, since all are 
based upon producer provided information.[11]

 

[¶64]   As a result of these activities, 
the State, on March 13, 1991, sent a delinquency assessment notice addressed to 
Champlin Petroleum Corporation (a business entity of Taxpayer), which 
stated:

     The Wyoming Department 
of Revenue has reviewed oil and gas production and sales from wells operated by 
Champlin Petroleum Company in the Big Dry Creek, Bruff, Chapman Draw and Dutton 
Creek fields located in Carbon and Uinta Counties, Wyoming for production years 1979 through 
1988. Our letters dated October 12 and October 16, 1990 requested that you 
review your records and submit an explanation for the apparent discrepancies as 
identified in the aforementioned letters. Union Pacific's letter dated November 
9, 1990 requested 90 days to respond to the findings, which we granted. The 
extension deadline of February 9, 1991 has expired and to this date, we have yet 
to receive a response from Union Pacific. Therefore, this letter is an 
assessment notice, based on the best information available, for severance tax 
underpayments, including interest and penalty determinations, resulting from the 
above mentioned findings and also serves as notice of assessment of additional 
taxable value for ad valorem tax purposes.

[¶65]   Additional severance tax, penalty 
and interest per attached Schedule 1 is as follows:

Additional 
Severance Tax    $ 97,419 

Interest at 18% 
Per Annum

through 4-12-91 
                    
$234,924 

Penalty at 25% 
                                 
$ 40,239 

________ 

TOTAL DUE                          
$372,582 

========

The total 
increase in ad valorem taxable value is $2,007,075 and is detailed in Schedule 
2.

[¶66]   Following the departure of State 
Auditor Griffith from public service, a state government reorganization occurred 
involving the entirety of the Wyoming taxation assessment and collection 
system. With that reorganization, the Wyoming state taxation function of the 
Department of Revenue and Taxation was divided with the creation of the State 
Board of Equalization. That Board, consisting of three appointees by the 
governor, was separated out into a semi-judicial hearing and appeal agency. The 
administrative tax collection activities were placed in the Department of 
Revenue as a position headed by a gubernatorial cabinet appointee as director. 
Consequently, the administrative function previously exercised by the State 
Board of Equalization/Tax Commission was transferred to the new agency with a 
single top administrator.

[¶67]   At the same time, the mineral 
royalty audit function, which had been developed into high efficiency during the 
times of management by State Auditor Griffith, was transferred from that agency 
to the newly created audit division, again headed by a cabinet level appointee. 
The argument of counsel and the detailed record provided in this appeal lack 
complete meaning without understanding that, for reasons of choice by the 
Taxpayer, the Audit Division of state government was not introduced to be a 
player in this litigation, although the audit division is presently undertaking 
an audit of the same production which is the subject matter of the complaint of 
the Taxpayer regarding the contract auditor's reporting of discrepancies. Use or 
non-use of the county representative workup by the Audit Division is unclear, if 
existent, since the direction of activity goes from those companies as 
representatives of the county directly to the Department of Revenue. Obviously, 
any competent audit activity would evolve itself into concepts of value as well 
as the more easily determinable quantities question.

[¶68]   It is clearly demonstrated, 
however, that the third part of this litigation is directed by the Taxpayer to 
elimination of the fourth player - county government - from any delinquency tax 
research capability and particularly to the use of the "bounty hunters" who have 
incurred considerable success. There exists then, under current state taxation 
methodology, three state players and the counties: the state Department of 
Revenue with the collection and taxation supervision responsibilities; the State 
Board of Equalization with a semi-judicial appeal and supervisory 
responsibility; and the Mineral Audit Division of the Department of Audit with a 
delinquency audit responsibility; and finally, county governments which have a 
direct pecuniary interest in the collection of the ad valorem tax. Value is 
established by the Department of Revenue subject to appeal to the State Board of 
Equalization with the function of the counties regarding ad valorem tax only 
limited to a quantities validation program for collection. No particular level 
of cooperation between the state Audit Division and the county search efforts is 
demonstrable and the cooperation between the Department of Revenue and the Audit 
Division is not directly addressed.

[¶69]   The principal witness in 
deposition, Randall L. Fetterolf, had been employed in mineral audit by the 
State Auditor's office. After five years in that activity, 1981 to 1986, he left 
state government to organize Wyoming Royalties for the purpose of contracting to 
conduct mineral production and reporting reviews for both private land owners 
and public instrumentalities. That function, pursued in agreement with various 
county governments, was clearly defined. The company took oil and gas production 
tax reports filed with the Department of Revenue, previously the Department of 
Revenue and Taxation, and made quantity comparisons with other material which 
generally included reports filed with the Wyoming Oil and Gas Commission and 
such federal records as might be obtained. Royalty tax payments on school 
section lands where the state owned the minerals might also be available for 
comparison.

[¶70]   When apparent discrepancies were 
developed for the same well or field, favorable or unfavorable, those 
compilations were submitted to the Department of Revenue on behalf of the 
counties for consideration of the existence of the ad valorem tax delinquencies. 
The state agency, which is charged with consideration of the data, provided 
review to some degree or another and then had the option to continue some 
collection effort by making a request to the taxpayer to provide an explanation 
of any established or at least indicated discrepancies.

[¶71]   In no sense did the activity of the 
counties' contract representatives actually consist of an audit. This is 
particularly true because it was not developed from original records which would 
have been log reports/field run reports made by field pumpers or comparable data 
from tank battery gauges as the source of initial production. These records 
would then be compared with sales receipts or intake reports from pipelines as 
the document of original entry for resale. It was not an audit because the 
contractor had no access to those original records.

[¶72]   Into the esoteric field of mineral 
production reporting, this record also reveals existence of exchange agreements 
TIK (taken in kind), so that the producer for a particular field may exchange 
production for that received from a far away field, and consequently another 
entity may actually market the Wyoming production. These complex and diverse 
methods of accounting and sale are not involved in this litigation as audit 
details since the function provided here by the "bounty hunter" is to 
mathematically compare what the taxpayer has reported for ad valorem taxation 
with its identically required volume reports of the same production to other 
state and federal agencies. These contractor review companies similarly perform 
the same kinds of services for ranchers with large royalty acreage who might 
question the accuracy of production reports made for their oil and gas 
interests. 

[¶73]   How the state department 
necessarily utilized the county contractor compiled information in regard to the 
coordinate severance tax collection activities is not completely clarified in 
briefing or argument. The quoted assessment notice does reveal that the 
information was equally applied to both severance as well as ad valorem 
taxes.

[¶74]   The substance of this third segment 
of this Taxpayer's litigation addresses whether county government, in an effort 
to protect and augment its revenues, can employ contractors with expertise and 
knowledge in oil production accounting to make the quantity comparisons. 
Overtly, in briefing and trial preparation, as well as depositions, the heaviest 
attack was directed at the income generated for the contractor including the 
contingent fee which funds otherwise would have been retained by the county if 
the tax had been properly paid or if the state had first found these 
discrepancies by record cross-referencing or, more completely, by comprehensive 
audits.

[¶75]   Foundational and constitutional 
attacks on this characterized "bounty hunter" contingent fee contracting service 
are logically and thoughtfully presented by the Taxpayer and come in a broad 
public policy perspective of several aspects. Those include: (a) violation of 
the constitutional balance of power of the checks and balances system in 
general; (b) the contingent fee creates an improper financial stake in audit 
findings12 - as such, the "agreement" 
violates public policy because it undermines and threatens the Taxpayer's right 
to a fair and impartial tax assessment; and (c) lack of statutory authority for 
county government to undertake these activities, e.g., existence of preemption 
by state agencies.

[¶76]   All pathways regarding the validity 
of this kind of activity for tax record review services lead back to the 1935 
case of MacDougall v. Board of Land Com'rs of Wyoming, 48 Wyo. 493, 49 P.2d 663 
(1935). At that time, Wyoming state government and the legislature 
became concerned about the adequacy of royalty reporting on some state school 
sections which were very heavy oil producing properties. The contract for 
auditing companies included:

     "FIRST. The Parties of 
the Second Part hereby agree to proceed diligently to check operations now 
existing and heretofore used in determining the quantity and quality of oil, gas 
and/or gasoline produced from the said real properties and to audit such 
producing records as may be deemed advisable by the Parties of the Second Part, 
in order to determine as soon as possible whether or not the persons or 
companies that have produced or purchased oil, gas and/or gasoline from said 
above described real property have accounted for lessor's royalties for all of 
said production, and as to whether or not said lessees have damaged the Party of 
the First Part in carrying on their operations under the leases hereinbefore 
referred to, and to render to the Party of the First Part a detailed report as 
to such findings, and render their opinion as to whether a cause of action on 
the part of the Party of the First Part exists against such lessee or lessees, 
for damages by reasons of failure or neglect on the part of any lessee or 
lessees to properly carry out and perform the terms of its or their lease or 
leases covering such oil and gas properties.

     "SECOND. The Party of 
the First Part hereby agrees to pay a contingent fee to the Parties of the 
Second Part for their said services as follows:

`25% of the first 
$1,000,000.00 which may be recovered on account of any such claims, damages, 
demands or causes of action.' 

`16.66% of any and all 
recoveries had of any sums in excess of $1,000,000.00.'

     "The term recoveries 
includes all sums or things of value which may be received, had or recovered 
either as a result of settlement of claims, damages, demands or causes of action 
against any lessee or lessees or as a result of litigation against any lessee or 
lessees.

     "THIRD. The Party of 
the First Part shall and it hereby does give to the Parties of the Second Part 
such power of attorney or authority as they shall require in rendering their 
service as aforesaid, and in particular, said Party of the First Part shall and 
it hereby does give to the Parties of the Second Part full and complete 
authority and makes them its agents and does hereby constitute them its 
attorney-in-fact with authority to demand, inspect, take copies of and 
investigate all books, records and methods now or heretofore or hereafter used 
by said lessee, and to take samples."

MacDougall, 48 
Wyo. at 
498-99, 49 P.2d  at 664-65.

[¶77]   The Wyoming Supreme Court did not 
view the effort to collect these constitutionally dedicated trust fund revenues 
with favor. The court authenticated its concern by stating:

     The control of an 
investigation such as is contemplated in the contract in question, involving as 
it does the authority to demand and inspect books and records, and thus harass 
citizens or residents of this state, is of the same nature as the control of 
litigation and must be judged by the same rule. While the investigation itself, 
doubtless, is a ministerial act, the fact whether it shall be made or how long 
it shall continue involves discretion, which, as already stated, cannot be 
delegated, and the provision, accordingly, delegating at least part of that 
right to Hanna & Morton, is clearly void. Whether or not the whole contract 
is thereby invalidated is a more difficult question and need not be decided 
herein.

* * * In order that a 
more comprehensive view of the question in hand may be had, it may be well to 
discuss other reasonably well settled principles. There was no express 
constitutional or statutory authority for the state land board to enter into the 
contract in question. If such authority existed, it must be an implied one. The 
law is well settled that public officers have and can exercise only such powers 
as are conferred on them by law.

Id. at 504, 49 P.2d  at 
667.

[¶78]   As a consequence, this court found 
that duties of elected officials had been unconstitutionally delegated, that 
contracts justified other state officials to neglect their duties, and the 
contingency fee was illegal. In conclusion, it was stated:

The contract in the case 
at bar may be of great benefit to the state. But that alone cannot be the 
controlling fact herein. Other contracts, entered into in the future, might be 
the reverse. All the law can do is to operate by general rules, which, in the 
long run, will be best for the interests of the state, and no rule will subserve 
that purpose which discourages diligence and honesty in public officials. It may 
be argued that public officials are not required to do anything beyond making 
all reasonable efforts to perform their duty, and that after they have done so, 
occasions may still arise when an expert might be employed to the advantage of 
the state, and without in the least bringing about the evils mentioned. And 
that, doubtless, is true. And if occasion of that kind arises, and it is clear, 
they may, perhaps, as held in California, employ such expert, provided that 
they do not attempt to fix the compensation. In such case, when their acts must 
be approved by the Legislature, the evils above mentioned would at least be 
minimized, or entirely overcome.

Id. at 510-11, 49 P.2d  at 
669.

[¶79]   MacDougall unfortunately introduced 
into state revenue and income collection processes decades of benign neglect of 
collection activities by conceptualization that these services should be founded 
within good faith and trust. We do not choose to reconstruct that edifice of 
pervasive neglect. Accuracy in reporting and payment of both statutory and 
constitutionally directed revenues and resources is justified, accuracy can be 
required, and accuracy can be delineated in state revenue collection processes. 
Consequently, we completely concur with the decision stated by the district 
court in this action:

Plaintiff also contends 
the contingent fee contracts between the counties and the investigators are in 
violation of the public policy of the state. Declaration of public policy is a 
matter for the legislature not the courts. No matter how odious it may be to the 
undersigned and to the Plaintiff, contingent fee contracts for tax investigators 
are not clearly prohibited by the Wyoming Constitution or Statutes. Furthermore, 
there has not been a clear expression of policy against such contracts 
enunciated by the legislature. Finally, Plaintiff contends that exclusive power 
to audit rests with the Wyoming Department of Audit. While this may be true with 
respect to audits, there is no clear legislative prohibition against Wyoming counties hiring 
their own tax investigators. Obviously, these so-called county auditors cannot 
exercise the powers granted by the legislature to the Wyoming Department of 
Audit; but the Court has been unable to find, and the Plaintiff has not shown 
the Court, any law prohibiting county commissioners from hiring such 
mercenaries.

[¶80]   Clearly, the Taxpayer presents an 
issue here that was not considered in MacDougall by additionally questioning 
county government usage of these contract services. We will first look at 
the level of authority which would permit or deny county government access to 
the validation services and then look at the question of the method of 
compensation as a differentiated topic.13 County government has a clearly assigned 
responsibility in the intrinsic structure of Wyoming taxation to assess and collect ad 
valorem taxes. We would judicially notice that during the past decade, the state 
of Wyoming has spent tens of millions of dollars in assessment activities 
through contract services to upgrade, improve and equalize county assessment 
processes, and that the implementation of the equal and fair concept has not yet 
been fully achieved. State statutory justification is found in directions and 
mandates to the State Board of Equalization and in the appropriative process of 
the monies which has employed the contract assessing services. We find in the 
nature of Wyoming local government county power to do 
what the statute directs - assess and collect - and, consequently, the activity 
is not preempted or superseded by state functions.

[¶81]   The particular objection attacks 
the contingent fee compilation. Whatever philosophical or operational validity 
MacDougall may now have, it is clear that the contingent fee preclusion was 
distinguished and then extinguished in two more cases. Bourne v. Cole, 53 
Wyo. 31, 77 P.2d 617 (1938) and Gonzales v. 
Personal Collection Service, 494 P.2d 201 (Wyo. 1972). In Bourne, this court approved 
specialized legislation permitting the Attorney General to employ special 
assistants in a contingent fee compensatory fashion to seek out unpaid school 
and state royalties. This was the same approach previously rejected in 
MacDougall and now employed in Bourne with the differentiating factors of a 
specific statute and primary responsibility now vested in the Attorney General's 
office rather than the administrative agency. Statutory authority for full audit 
and litigation pursuit was given under the supervision of the Attorney General's 
office. This court recognized, with a true and certain logic, that the continued 
decrease of state revenues when collection was not otherwise enforced was not 
actual diminution:

The 25 per cent paid to 
Cole will diminish the fund at most theoretically. In actuality, a wholly new 
fund, to the extent of the remainder, may come into existence. Such a possible 
fund cannot be treated in the same manner as a fund the existence of which is 
known.

Bourne, 53 
Wyo. at 40, 77 P.2d  at 620. Essentially, this is the logic that what you are not receiving you 
cannot diminish until somebody expends the effort to collect.

[¶82]   This court has recognized a 
similarity to the settlement of compromise claims. State v. Young, 44 Wyo. 6, 7 P.2d 216 
(1932). Consequently, in the case, the contingent fee collection process was 
approved as it was again decisively authenticated in Gonzales, 494 P.2d 201, 
where a contingent fee collection agency was employed by the public hospital to 
recover unpaid medical charges. In Gonzales, the contingent fee was approved to 
become today a way of life in this field by following Bourne and distinguishing 
MacDougall. The court stated that:

[Bourne] further notes 
that if the usual or customary means or agencies have been found inadequate the 
legislature in that case has the power to employ special means or agencies for 
that purpose. This is certainly illustrative that there is no constitutional ban 
forbidding contingent fee arrangement contracts as such if the statute is 
sufficient. It also suggests to us that if the hospital does not have sufficient 
means for collection it may rely upon a contingent fee arrangement without 
constitutional violation.

Gonzales, 494 P.2d  at 204-05.

[¶83]   We find no limiting factor in 
statute or the constitution which precludes the activity of the county as the 
tax collection agency for ad valorem taxes from utilizing contract services 
employed in this case to provide a reasonable means to reach a designated public 
purpose. Contingent fee compensatory arrangements, if reasonable and realistic, 
are not, under present Wyoming case law, in violation of public 
policy. Gonzales, 494 P.2d 201; Bourne, 53 Wyo. 31, 77 P.2d 617.

VI. 
CONCLUSION

[¶84]   We find justification for the 
exercised discretion of the district court to yield on the point of valuation 
issue to an exhaustion of administrative remedies request by the state taxation 
agencies. The question was properly raised in this litigation for determination 
that no statute of limitation exists limiting collection of unpaid severance and 
ad valorem taxes due upon mineral production. Finally, this court agrees with 
the district court in reasoning that the contract services program of the county 
governments to search for unpaid mineral taxes is neither illegal nor subject to 
judicially inflicted injunctive discontinuance.

[¶85]   The district court is affirmed on 
the first issue presented and the case is remanded for entry of appropriate 
declaratory judgment orders in accord with this decision on the second and third 
issues.

THOMAS, Justice, concurring 
specially.

[¶86]   I am in total accord with the 
opinion of the court in this case, and I concur in it. While one of my reactions 
to the case may border upon the whimsical, I cannot avoid noting an irony I 
perceive in the contentions of the Union Pacific Resources Company. An earnest 
argument is made addressing the unseemliness or probable impropriety of 
expending public funds for reimbursement of the "bounty hunters" on a contingent 
fee basis. The irony I perceive is that this argument is made on behalf of those 
who have it within their control to prevent any such payments. All that is 
required to avoid any contingent fee payments is correct and consistent 
reporting of oil and gas production by those in the industry. If that goal is 
achieved, there will be no recoveries out of which to pay such contingent 
fees.

FOOTNOTES

1 Exhaustive debate at the 
time of statehood developed over valuation of minerals for ad valorem taxation. 
The present system of taxation at full value when produced became the method 
adopted. See Journals and Debates of the Constitutional Convention of Wyoming at 646, 681 and 
695 (1889).

2 Wyo. Const. art. 15, § 11 
states that Wyoming has a three tier assessment valuation tax system with 
mineral production assessed at 100% of value, industrial properties reduced to 
11.5% of value and all other properties, real or personal, assessed at 9.5% of 
value.

3 Exxon Corp. v. Wyoming 
State Bd. of Equalization, 783 P.2d 685 (Wyo. 1989), cert. denied 495 U.S. 910, 
110 S. Ct. 1937, 109 L. Ed. 2d 300 (1990); AT & T Communications of the 
Mountain States, Inc. v. State Bd. of Equalization, 768 P.2d 580 (Wyo. 1989); 
Pathfinder Mines Corp. v. State Bd. of Equalization, 766 P.2d 531 (Wyo. 1988); 
Rocky Mountain Oil and Gas Ass'n, 749 P.2d 221; Appeal of Paradise Valley 
Country Club, 748 P.2d 298 (Wyo. 1988); Teton Valley Ranch v. State Bd. of 
Equalization, 735 P.2d 107 (Wyo. 1987); M & B Drilling and Const. Co., Inc. 
v. State Bd. of Equalization, 706 P.2d 243 (Wyo. 1985); State Bd. of 
Equalization v. Tenneco Oil Co., 694 P.2d 97 (Wyo. 1985); Wyoming Bd. of 
Equalization v. State ex rel. Basin Elec. Power Co-op., 637 P.2d 248 (Wyo. 
1981); State Bd. of Equalization v. Cheyenne Newspapers, Inc., 611 P.2d 805 
(Wyo. 1980); Appeal of Monolith Portland Midwest Co., Inc., 574 P.2d 757 (Wyo. 
1978); Sims, 521 P.2d 1347; Weaver v. State Bd. of Equalization, 511 P.2d 97 
(Wyo. 1973); CF & I Steel Corp. v. State Bd. of Equalization, 492 P.2d 529 
(Wyo. 1972); State Bd. of Equalization v. Kansas-Nebraska Natural Gas Co., 457 P.2d 963 (Wyo. 1969), remand In re Use Tax Assessment No. 32950, 491 P.2d 1232 
(Wyo. 1971); Chicago, Burlington & Quincy R. Co. v. Bruch, 400 P.2d 494 
(Wyo. 1965); Scott Realty Co. v. State Bd. of Equalization, 395 P.2d 289 (Wyo. 
1964); Town of Pine Bluffs v. State Bd. of Equalization, 79 Wyo. 262, 333 P.2d 700 (1958); Walgreen Co. v. State Bd. of Equalization, 62 Wyo. 288, 166 P.2d 960 
(1946); Manning & Martin v. State Bd. of Equalization, 58 Wyo. 425, 133 P.2d 373 (1943); State Bd. of Equalization v. Argo Oil Corp., 54 Wyo. 512, 94 P.2d 158 (1939). See also State Bd. of Equalization v. Blind Bull Coal Co., 55 Wyo. 
438, 101 P.2d 70 (1940); State Bd. of Equalization of Wyoming v. Midwest Oil 
Co., 55 Wyo. 1, 94 P.2d 160 (1939); State Bd. of Equalization of Wyoming v. 
Mountain Producers Corp., 55 Wyo. 3, 94 P.2d 160 (1939); Midwest Hotel Co. v. 
State Bd. of Equalization, 39 Wyo. 461, 273 P. 696 (1929); Baker v. Paxton, 29 
Wyo. 500, 215 P. 257 (1923); Bunten v. Rock Springs Grazing Ass'n, 29 Wyo. 461, 
215 P. 244 (1923); and Ricketts v. Crewdson, 13 Wyo. 284, 79 P. 1042 
(1905).

4 We do not choose to 
define the availability of declaratory judgment in every case challenging 
assessments, but leave the exercised discretion review particular for this 
appeal to agree with the district court that we will not require it to accept 
agency bypass for this major decision which touches much of the essence of 
Wyoming 
taxation revenue resources.

5 Wyo. Const. art. 3, § 40 
provides:

Debts to state or 
municipal corporation cannot be released unless otherwise prescribed by 
legislature.

     No obligation or 
liability of any person, association or corporation held or owned by the state 
or any municipal corporation therein shall ever be exchanged, transferred, 
remitted, released, postponed or in any way diminished except as may be 
prescribed by the legislature. The liability or obligation shall not be 
extinguished except by payment into the proper treasury or as may otherwise be 
prescribed by the legislature in cases where the obligation or liability is not 
collectible.

See 
MacDougall v. Board of Land Com'rs of Wyoming, 
48 Wyo. 493, 49 P.2d 663 (1935); and cf. 
Gonzales v. Personal Collection Service, 494 P.2d 201 (Wyo. 1972).

6 We can consequently 
avoid constitutional questions otherwise presented by Wyo. Const. art. 3, § 40 
and art. 3, § 27 which, as limitations on special legislation, specifically 
include extending the time for the collection of tax or relinquishing or 
extinguishing, in whole or in part, the indebtedness, culpability or obligation 
of any corporation or person to the state or any municipal corporation therein. 
These special provisions are supplemented by the final sentence of the section 
which provides: "In all other cases where a general law can be made applicable 
no special law shall be enacted." Wyo. Const. art. 3, § 27. Notably, Wyo. Const. art. 3, § 40 
cannot be ignored either.

     Also implicated in 
consideration of any special entity taxpayer statute of limitation is Wyo. 
Const. art. 1, § 34: "Uniform operation of general law. All laws of a 
general nature shall have a uniform operation." Furthermore, in addition to the 
uniformity of taxation requirements provided in Wyo. Const. art. 15, any 
forgiveness by statute or limitation might be subject to Wyo. Const. art. 15, § 
14: "Surrender of taxing power prohibited. The power of taxation shall 
never be surrendered or suspended by any grant or contract to which the state or 
any county or other municipal corporation shall be a party."

7 The most extended debate 
of any subject during the Wyoming Constitutional Convention, subject perhaps 
only to the desired independence of the Wyoming Supreme Court, considered 
fairness, sufficiency and equivalency for taxation of mineral productions, then 
principally only coal. The ad valorem tax or full value tax on production was a 
compromise reached in close voting by the delegates. That compromise constituted 
what we now have - a full tax for the unproduced mineral estate computed and 
payable upon production as a one time only incident.

Taxation of mines and 
mining claims.

     All mines and mining 
claims from which gold, silver and other precious metals, soda, saline, coal, 
mineral oil or other valuable deposit, is or may be produced shall be taxed in 
addition to the surface improvements, and in lieu of taxes on the lands, on the 
gross product thereof, as may be prescribed by law; provided, that the product 
of all mines shall be taxed in proportion of the value thereof.

Wyo. Const. art. 15, § 
3.

8 Politicians and 
political philosophers have pondered the saga of Wyoming severance taxes in considerable 
detail. See, e.g., T.A. Larson, History of Wyoming, at 433-44, 457, 511-13, 514, 
527, 528 and 533 (1965). Although after many decades of effort, the first 
severance tax was passed in 1969, 1969 Wyo. Sess. Laws ch. 193. The real father 
of the modern severance taxation system for this state was Governor Stanley K. 
Hathaway, under whose leadership the state was led to the constitutional 
amendment that created the permanent trust fund. Wyo. Const. art. 15, § 19.

     Not so fully 
documented in research or comment is the historical status of the ad valorem 
mineral tax underpayment. The only hard evidence in historical perspective came 
during the tenure of James B. Griffith as State Auditor who, during his terms, 
1976 to 1987, embarked on an active program to collect unpaid state mineral 
royalties. As a result, tens of millions of dollars were collected. Those 
accomplishments also directly impacted accuracy evaluation of severance and ad 
valorem tax collections.

     From the time of 
MacDougall, 48 Wyo. 493, 49 P.2d 663 (or since statehood) until the audit 
activities of State Auditor Griffith, it can be and has been realistically 
estimated that the state missed in royalty and mineral tax collections perhaps 
at least a billion dollars, then involving in reality, real money. Hot oil 
sometimes escaping royalty obligation, but as often escaping tax assessment, was 
not an unnoticed oil patch societal "indignity." For reasons not clarified in 
the practical operation of government and its efficient collection of revenues, 
the 1992 legislature substantially reduced the staff originally developed by 
State Auditor Griffith by very heavy personnel reductions of experts in auditing 
the accuracy of mineral royalty collections. 1992 Wyo. Sess. Laws ch. 
93.

9 Since public school 
districts get the large portion of these taxes, their self interest should 
likewise be most explicitly manifested. Perhaps that lack of involvement is 
first occasioned by the primary responsibility of the county authorities and not 
a responsibility of the benefiting school district to collect taxes and, 
secondly, from the assumption that what is not collected locally will be 
replaced by state funding.

10 In briefing, the 
Taxpayer complains that one county contract auditor received compensation on an 
hourly rate of $266,015 and a contingent fee in addition of $387,461. The 
program must have been singularly successful in the perception of the counties 
or they would have discontinued the activity. The program must have certainly 
been effective in the collection or the Taxpayer would not feel sufficiently 
threatened to seek redress by an injunctive lawsuit. The counties state in 
briefing, and as is likewise defined in the record, that this contingent fee is 
based on a a 5% bonus for taxes collected and that one such firm in thirty-nine 
months led to the collection of nearly eight million dollars in ad valorem taxes 
(this would not include unpaid severance tax). Mathematically computed, if the 
Taxpayer accurately stated the contingent fee for the examiner to net $387,461 
in contingent fees, about $7.7 million in additional ad valorem taxes and 
perhaps 50% of that amount in severance taxes, for a total of approximately 
twelve million dollars, would have been realized as additional public government 
revenues.

11 As an illustration of 
the contract "auditor" data development for the Bruff Field 041-20213 
discrepancy:

Reported 
Wyoming                          
Reported for Property 

Year                
Oil & Gas Commission                                
Tax Form ATD-4       
Discrepancy

1979                           
25,961 MCF                                      
0                                  
25,961 

1980                           
877 bbl                                   
            
1,259                          
(382) 

1980                           
395,878 MCF                        
            
232,402          
          163,476

 1981                          
248,808 MCF                        
            
185,069                      
63,739

 1982                          
194,211 MCF                        
            
156,326                      
37,885 

1983                           
237 bbl                                   
            
916                             
(679) 

1983                           
156,966 MCF                       
            
131,392                      
25,574 

1984                           
134 bbl                                   
            
2,528                          
(2,394) 

1984                           
84,121 MCF                          
            
114,800          
      (30,679) 

1985                           
175,962 MCF                        
            
214,811          
      (38,849) 

1986                           
5,478 MCF                                        
69,353            
      
(14,573)

Note Amoco 
Production Reported:

TIK [Taken In Kind] Sales 
041-20213 13,817 MCF

1987                           
None                                                                                       

1988                           
91,180 MCF                                      
92,530                                    
(1,350)

Amoco TIK 15,985 
MCF

12 The Taxpayer defines the 
challenged contract service activities to be audits while the independent 
contractor service provider defines the activities to be a quantities 
comparison. Overtly, it is not an audit to be made from original taxpayer 
records, but is a mathematical analysis and compilation. As such, if a 
discrepancy is found, some report has to be in error. With a discrepancy in 
quantity reporting existing at one place or another, the function performed in 
the mathematical comparison of related reports does require expertise and 
knowledge of both oil field practices and accounting standards, as well as the 
ability to compile data through addition and subtraction.

13 Clearly, counties as 
well as the state for an undefined period of time have employed architects on a 
percentage fee basis.